Reliance on Third-Party “Pricing” Facilitators Under Increasing Antitrust Scrutiny

In the past year, healthcare systems and providers across the country have filed a series of antitrust lawsuits against MultiPlan Inc. and major US health insurers, alleging a hub-and-spoke conspiracy to fix and reduce reimbursement rates paid to providers for out-of-network healthcare services. There have been cases filed in both state and federal courts on behalf of individual plaintiffs and putative classes. Several federal class actions, filed in at least three separate jurisdictions, were consolidated in the Northern District of Illinois on Aug. 1 and will proceed in front of Judge Matthew Kennelly for pretrial proceedings. Meanwhile, a California court handed MultiPlan a victory in one of the earliest-filed cases in August. But that decision by no means signals that the tide of antitrust litigation in the industry is ebbing.

While the named defendants vary, each of the lawsuits alleges the same fundamental conduct: that by agreeing to collectively use MultiPlan’s repricing software, the insurer defendants entered into a conspiracy with each other and MultiPlan to fix the reimbursement rates paid to providers for out-of-network healthcare claims. The plaintiffs’ theory is that in a competitive market, insurers compete with one another for out-of-network providers in order to retain subscribers and therefore pay competitive reimbursement rates; but instead of independently setting their out-of-network reimbursement rates, most of the country’s insurers—including all of the top 15 largest—outsource this rate-setting to MultiPlan. Plaintiffs in the various cases allege that the insurers agree to provide MultiPlan proprietary, competitively sensitive data, and MultiPlan uses a proprietary algorithm to recommend reimbursement rates. According to the plaintiffs, MultiPlan’s recommended rates are manipulated and artificially low, but providers are forced to accept the rates because they have no alternative. As a result, the plaintiffs allege that healthcare providers have received artificially low rates for out-of-network services for years to the tune of billions of dollars in damages. MultiPlan has denied allegations of collusion and emphasized that insurers are free to either accept or reject its rate recommendations, while insurers have argued that MultiPlan’s tool helps them combat overbilling practices by providers.

In one of the earliest suits against MultiPlan—filed by VHS Liquidating Trust, a bankruptcy liquidator for Verity Health Systems of California, in San Francisco Superior Court—the court recently dismissed the claims against MultiPlan without leave to amend, finding that VHS failed to allege facts sufficient to state a claim for relief. The court held that out-of-network reimbursement rates are not a “price” that can be fixed or tampered with in violation of California’s antitrust laws, reasoning that “[r]eimbursement for [out-of-network] services are part and parcel of a health insurance policy rather than a stand-alone product or service.” The court further held that VHS’s claims alleging an unlawful exchange of competitive sensitive business information and a violation of California’s Unfair Competition Law could not survive because they were derivative of its price-fixing claims. This was an important win for MultiPlan and its customers that it can cite in other pending cases. But it is far from certain that other courts will agree with the reasoning that reimbursement rates are not subject to collusion. In the meantime, at least two new cases have been filed against MultiPlan and several large insurers in the Southern District of New York and Northern District of California, respectively, since the San Francisco court issued its decision.

The deluge of complaints and a high-profile New York Times investigation into MultiPlan has led to calls for a federal investigation, including from Sen. Amy Klobuchar, who sent a letter to the heads of the DOJ Antitrust Division (DOJ) and the Federal Trade Commission (FTC) in April, expressing concern that “algorithmic tools are processing data gathered across numerous competitors to subvert competition among insurance companies” and “pushing additional costs on to employees and patients.” The DOJ and FTC have not commented, but both agencies have been vocal about the implementation of algorithmic pricing tools in other industries, including the rental housing and hotel markets. The agencies have filed statements of interest in similar lawsuits in those industries, endorsing the plaintiffs’ claims that the use of algorithmic tools to recommend rental or hotel room rates constitutes a violation of the antitrust laws. And the DOJ and FTC, along with the European Commission and UK’s Competition & Markets Authority, recently issued a Joint Statement on Competition in Generative AI Foundation Models and AI Products, which highlights the agencies’ collective view that “algorithms can allow competitors to share competitively sensitive information, fix prices, or collude on other terms or business strategies in violation of our competition laws.”

The focus on MultiPlan’s algorithmic tools underscores the growing consensus among regulators and lawmakers that algorithms can enable price-fixing schemes that are difficult to detect, ultimately driving up costs for consumers. The DOJ recently argued in one of its statements of interest that “[a]lgorithms are the new frontier.” These suits also come as the DOJ and FTC step up their antitrust enforcement in the healthcare industry more broadly. The DOJ announced in late May that it was forming the Health Care Monopolies and Collusion (HCMC) Task Force to pursue investigations into “widespread competition concerns shared by patients, healthcare professionals, businesses and entrepreneurs,” including “payer-provider consolidation, serial acquisitions, labor and quality of care, medical billing, health care IT services, access to and misuse of health care data, and more.” And the task force’s creation came on the heels of an announcement that the DOJ, FTC, and US Department of Health and Human Services are collaborating on a joint inquiry into private equity ownership in the healthcare field.

Given this heightened scrutiny in the healthcare space, industry participants of all sizes and in all segments need to be aware of and take steps to mitigate the increasing risk of antitrust investigations, enforcement actions, and lawsuits—particularly as it relates to emerging technologies such as AI-based or algorithmic tools. Companies should invest in a robust antitrust compliance and training program and seek guidance from experienced antitrust counsel to prepare and implement appropriate policies and handle any reports of potential anticompetitive conduct. Please contact a member of Goodwin’s Antitrust & Competition team with any questions.

 

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