DOJ Sues Charleston Hospital Systems over Market Allocation Agreement | Practical Law

DOJ Sues Charleston Hospital Systems over Market Allocation Agreement | Practical Law

The Antitrust Division of the Department of Justice (DOJ) sued the Charleston Area Medical Center (CAMC) and St. Mary's Medical Center over the hospitals' alleged unlawful agreement to allocate marketing territories. The DOJ alleged that the agreement deprived consumers of information on the competing healthcare services.

DOJ Sues Charleston Hospital Systems over Market Allocation Agreement

Practical Law Legal Update w-001-9066 (Approx. 3 pages)

DOJ Sues Charleston Hospital Systems over Market Allocation Agreement

by Practical Law Antitrust
Published on 19 Apr 2016 • USA (National/Federal)
The Antitrust Division of the Department of Justice (DOJ) sued the Charleston Area Medical Center (CAMC) and St. Mary's Medical Center over the hospitals' alleged unlawful agreement to allocate marketing territories. The DOJ alleged that the agreement deprived consumers of information on the competing healthcare services.
On April 16, the Department of Justice (DOJ) filed suit against the Charleston Area Medical Center (CAMC) and St. Mary's Medical Center alleging that, since at least 2012, the hospitals maintained an unlawful agreement to allocate marketing territories for their healthcare services in violation of Section 1 of the Sherman Act. In its complaint, the DOJ alleged that the agreement prohibited:
  • CAMC from advertising healthcare services on billboards or in print in Cabell County, West Virginia.
  • St. Mary's from advertising healthcare services on billboards or in print in Kanawha County, West Virginia.
The DOJ stated that the agreement harmed patients and physicians by depriving:
  • Patients of access to information about competing healthcare services.
  • Physicians of the opportunity to advertise to potential patients.
The DOJ noted that the agreement served no apparent procompetitive purpose.
Along with its complaint, the DOJ submitted a proposed final judgment under which CAMC and St. Mary's are prohibited from:
  • Entering any agreement to prohibit or limit marketing, or allocate services, customers, or territories, unless necessary for a procompetitive purpose.
  • Communicating with the other party about marketing efforts, except regarding:
    • joint marketing;
    • merger and acquisition due diligence; or
    • marketing statements that are believed to be false or misleading.
Each defendant is also required to:
  • Appoint an antitrust compliance officer to:
    • oversee the requirements of the final judgment;
    • educate all officers, directors, and marketing managers, among others, on the final judgment requirements; and
    • encourage employees to report antitrust violations to the compliance officer.
  • Take action to terminate or modify any action that may be in violation of the final judgment, and report any violation to the DOJ with 30 days of the violation becoming known.
The DOJ reserved the right to inspect, with reasonable notice, each defendant's compliance with the final judgment, including:
  • Access to books, ledgers, accounts, or other documents in defendants' possession or control.
  • The opportunity to interview defendants' officers, directors, employees, or agents.
The DOJ filed a similar civil complaint in 2015 alleging that four hospital systems in Michigan entered into a market allocation scheme in which they agreed not to market in each other's territories. Three of the defendants settled with the DOJ and a fourth continues to defend against the charges.
St. Mary's is also involved in antitrust litigation with the FTC related to a potential merger. The litigation is currently on hold due to West Virginia recently passing a state law immunizing hospital mergers from antitrust scrutiny.
For more information on Section 1 violations in healthcare, see Practice Note, Healthcare Competition: Providers and Insurers.