Texas health system settles allegations that it blocked insurers from contracting with competitors

February 5, 2009

Memorial Hermann Healthcare System has settled allegations it engaged in practices that discouraged health insurers from entering into contracts with certain competing hospitals in violation of state antitrust laws, Texas Attorney General Greg Abbott announced January 26.

This material originally appeared in the January 30, 2009, issue of Health Lawyers Weekly, a publication of the American Health Lawyers Association (www.healthlawyers.org).

Memorial Hermann Healthcare System has settled allegations it engaged in practices that discouraged health insurers from entering into contracts with certain competing hospitals in violation of state antitrust laws, Texas Attorney General (AG) Greg Abbott announced January 26. 

The AG’s complaint, filed in Texas state court, alleged that beginning in 2005 Memorial Hermann unreasonably restrained competition among acute care inpatient hospitals by trying to prevent competing physician-owned hospitals from being added to area managed care networks. 

Memorial Hermann is the largest hospital system in the Houston area with about 20% of the market share. 

According to the complaint, one Memorial Hermann competitor, Houston Town and Country Hospital (Town and Country), was unable to obtain an in-network contract with any major health insurer in the Houston market except CIGNA.  

After learning of Town and Country’s agreement with CIGNA, Memorial Hermann indicated it intended to terminate its contract with the insurer. The health system later renegotiated its contract with CIGNA and obtained substantial rate concessions “far in excess of any reasonably foreseeable economic impact on Memorial Hermann from CIGNA’s inclusion of Town and Country within its network,” the complaint alleged.  

The same scenario played out with Aetna, resulting in Memorial Hermann imposing a 25% rate increase on the insurer, according to the complaint. 

Town and Country Hospital eventually closed, the complaint said.  

Pursuant to a final court order, Memorial Hermann is permanently enjoined for five years from engaging in any practices with any health plan to boycott or refuse to deal with competitor hospitals.  

The health system also agreed to pay the AG $700,000 in partial reimbursement of the reasonable and necessary costs and fees associated with the investigation of its business practices.

Memorial Hermann did not admit any liability or wrongdoing in agreeing to the settlement and final court order. Rather, it decided to resolve the antitrust allegations “[t]o avoid the time, uncertainty and expense of protracted litigation.”  

“Today’s injunction will preserve health competition and will help ensure that Houston-area patients have more hospital choices. Open competition on the free market amongst providers will help improve care, lower prices, and foster greater choices for patients,” Abbott said.

Read the complaint and final court order.