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Archives of Business Research – Vol. 12, No. 4
Publication Date: April 25, 2024
DOI:10.14738/abr.124.16773.
Costello, M. M. (2024). Provider Exclusions in US Private Health Insurance Contracts. Archives of Business Research, 12(4). 14-17.
Services for Science and Education – United Kingdom
Provider Exclusions in US Private Health Insurance Contracts
Michael M. Costello
Department of Health Administration & Human Resources,
University of Scranton, PA, United States
ABSTRACT
Two national newspaper articles published in the Fall of 2018 addressed the issue
of private health insurance provider contracts that act to exclude specific health
systems from health plan networks. Inevitably, the question arises: Are such
agreements illegal restraints of trade actionable under federal and state antitrust
laws? A long-standing tenet of antitrust law is that it exists to protect competition
not competitors. Excluding providers may be a legitimate outgrowth of the
contracting process and therefore legal. However, an examination of the
contracting process may reveal anticompetitive intent to restrain trade. The
specific facts surrounding provider exclusion must be analyzed carefully in an effort
to determine if there is illegal restraint of trade.
Keywords: Health insurance, Insurance contracts, Antitrust
INTRODUCTION
Certain health systems and hospitals believe •that their continued viability depends on access
to private health insurer patients. As insurer network participants, these systems and hospitals
hope that if they are offered as choices within the insurer network, they will capture a share of
the insured patients needing their services.
These hopes are often dashed when insurers refuse to consider them as network participants.
The health insurers may refuse to negotiate provider agreements, thereby denying system and
provider access to their patients. Such refusals often frustrate the hospitals and the systems
who question the fairness of being denied an opportunity to contract.
Concerns about provider exclusion often result from the health insurer-health care provider
market dynamic.
According to wall street Journal citing research data from University of California, Berkley,
about 77% of American citizens live in "highly concentrated" hospital markets, meaning that
there are a limited number of health systems and hospitals with which health insurers can
negotiate to provide care to the insurer's beneficiaries, thereby exhibiting provider market
power. [1]
An example of provider restriction by a health insurance company in the New York
metropolitan area is contained in the same Wall Street Journal article cited above. The
Northwell Health system had discussed with Cigna Corp. the creation of a new health plan 'that
would offer low-cost coverage by excluding some other health care providers." However, a
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Costello, M. M. (2024). Provider Exclusions in US Private Health Insurance Contracts. Archives of Business Research, 12(4). 14-17.
URL: http://doi.org/10.14738/abr.124.16773
previously executed separate contract between New York-Presbyterian and Cigna prohibited
the insurance company from offering any plan that did not include that health care system. The
Northwell proposal could not move forward. Partly as a result of that failed effort, Senator
Chuck Grassley, chairman of the U. S. Senate Judiciary Committee, asked the Federal Trade
Commission to investigate whether insurer-hospital system contracts were limiting
competition and leading to higher health care costs.[2]
The refusals to contract can reasonably lead the hospitals and health systems to ask: If a
hospital or health care system is denied the opportunity to negotiate a provider agreement with
a health insurer in the same geographic market, does the system or hospital have a potential
anti-trust claim against the health insurance company? While the McCarran Ferguson Act of
1945 granted certain anti-trust exemptions to the insurance industry, those exemptions are not
a complete bar to anti-trust litigation. [3]
DISCUSSION
The legal right of parties to negotiate and enter into binding agreements has long been
recognized in U. S. law. The U. S. Supreme Court famously recognized the right to contract as a
liberty protected by the Due Process Clause of the Fourteenth Amendment to the U. S.
Constitution (Lochner v. New York). [4]
Giannaccari and Van den Bergh (2017) write:
Freedom of contract is a fundamental principle of legal orders worldwide. Firms,
even those enjoying significant market power, are generally free to negotiate and
conclude contracts with the parties with whom they want to deal. [5]
A somewhat similar observation was made by McCarthy and Thomas (2002) who write that
managed care contracting may be "just the product of the normal give and take of commercial
negotiations between parties of varying levels of bargaining strength. [6]
A health insurance plan may have several legitimate reasons as to why it chooses not to
consider contracting with a specific hospital or health system.
1. The hospital or health system may operate a competing insurance plan. Giancarri and
Vanden Bergh write that "U. S. courts have displayed a marked reluctance to impose on
economic actors’ obligations to deal with their rivals.[7] If a given health care system
has its own health insurance plan, or owns a significant interest in a competing insurer,
that system might reasonably conclude that other plans would not contract with it
unless those other plans saw a competing business reason for doing so. This can be
viewed as evidence of reasonable business competition between two firms. Contractual
Exclusivity. A health insurance company may already be under contract to a competing
health system that negotiated and obtained an exclusive contract covering a specific
geographic market. If that health system made a proposal to the health insurance
company that the insurer believed guaranteed attractive pricing and sufficient provider
capacity for the company's insureds, that insurance company may have had sufficient
reason to grant exclusivity.
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Archives of Business Research (ABR) Vol. 12, Issue 4, April-2024
Services for Science and Education – United Kingdom
2. Quality and Reputation. An insurer may have developed internal criteria based upon
reported quality of care measurers. and hospital regulation and recognition. Since those
measures are objectively verifiable through third party sources, the insurance company
may have compiled a list of the facilities with whom the company would contract.
3. Insured's Request. If the insurance company provides employee health insurance to one
or more large employers, those companies may request that the insurance company
contract only with specific providers in order to satisfy covered employees. If the
employer believes it is in their best interest to enter into such a contract, this would most
likely be viewed as a reasonable business decision.
However, although the health insurer's right to contract would provide a strong defense to an
anti-trust claim, there are at least two somewhat narrow exceptions on which a potentially
successful anti-trust claim might be sustained. The first would involve an insurance company
possessing monopsony power in a health insurance market. In such a situation, the insurance
plan under challenge might be "the only game in town." Under these circumstances the plan's
refusal to contract with a specific health system might be viewed as detrimental to consumer
welfare and individual economic freedom for insureds.
Van den Bergh writes:
Most antitrust commentators advance economic objectives as the goals
competition policy should aim at. In their analysis, they mention different concepts
of efficiency (and) total welfare and consumer welfare. Other and-trust scholars
stress the protection of the competitive process and individual economic freedom,
rather than (total or consumer) economic welfare as the main (economic) goal of
anti-trust. Finally, some commentators argue that competition law should also aim
at non-economic objectives and create scope for considering other goals of public
interest. [8]
A second argument for anti-frost relief might be based on an improper interference in the
competitive process. Hovenkamp (2005) identified several examples of monopolistic practices
identified from case law including:
"Unilateral refusals to deal, including 'essential facility' violations" [9]
Tim Wu (2018) is somewhat critical of the consumer welfare argument, but writes:
Courts should assess whether the targeted conduct is that which "promotes
competition or whether it is such as may suppress or even destroy competition" the
standard prescribed by Brandeis in his Chicago Board of Trade opinion issued in
1918. [10]
The most egregious form of anti-competitive behavior would be a boycott in which the
insurance company conspired with a competitor health system to exclude the system in
question. If proven, such behavior might constitute a per se anti-trust violation meaning that
the health insurer would not be able to argue a reason for the exclusion. If the excluded system