United States and State of Texas v. United Regional Health Care System; Proposed Final Judgment and Competitive Impact Statement, 13209-13226 [2011-5529]

Agencies

• Department of Justice

[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13209-13226]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5529]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States and State of Texas v. United Regional Health Care 
System; Proposed Final Judgment and Competitive Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec.  16(b)-(h), that a proposed Final 
Judgment, Stipulation and Competitive Impact Statement have been filed 
with the United States District Court for the Northern District of 
Texas, Wichita Falls Division, in United States of America and State of 
Texas v. United Regional Health Care System, Civil Action No. 7:11-cv-
00030-O. On February 25, 2011, the United States filed a Complaint 
alleging that United Regional Health Care System has entered, 
maintained, and enforced exclusionary contracts with commercial 
insurers that effectively prevent those insurers from contracting with 
United Regional's competitors in violation of Section 2 of the Sherman 
Act, 15 U.S.C. 2. The proposed Final Judgment, filed at the same time 
as the Complaint, prohibits United Regional from using agreements with 
commercial health insurers that improperly inhibit insurers from 
contracting with United Regional's competitors.
    Copies of the Complaint, proposed Final Judgment, and Competitive 
Impact Statement are available for inspection at the Department of 
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth 
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at https://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court 
for the Northern District of Texas, Wichita Falls Division. Copies of 
these materials may be obtained from the Antitrust Division upon 
request and payment of the copying fee set by Department of Justice 
regulations.
    Public comment is invited within 60 days of the date of this 
notice. Such comments, and responses thereto, will be published in the 
Federal Register and filed with the Court. Comments should be directed 
to Joshua H. Soven, Chief, Litigation I Section, Antitrust Division, 
U.S. Department of Justice, 450 Fifth Street, NW., Suite 4100, 
Washington, DC 20530 (telephone: 202-307-0827).

Patricia A. Brink,
Director of Civil Enforcement.

In the United States District Court for the Northern District of Texas, 
Wichita Falls Division

    United States of America and State of Texas, Plaintiffs, v. United 
Regional Health Care System, Defendant.
    Case No.: 7:11-cv-00030.
    Judge: Reed C. O'Connor.
    Filed: Feb. 25, 2011.
    Description: Antitrust.

Complaint

    The United States of America, acting under the direction of the 
Attorney General of the United States, and the State of Texas, by and 
through the Texas Attorney General, bring this civil antitrust action 
to enjoin defendant United Regional Health Care System (``United 
Regional'') from entering into, maintaining, or enforcing contracts 
with commercial health insurers that effectively prevent those insurers 
from contracting with United Regional's competitors, in violation of 
Section 2 of the Sherman Act, 15 U.S.C. 2, and to remedy the effects of 
its unlawful conduct. Plaintiffs allege as follows:

I. Nature of the Action

    1. United Regional has monopoly power in two relevant product 
markets in Wichita Falls, Texas and the surrounding area: (1) The sale 
of general acute-care inpatient hospital services (``inpatient hospital 
services'') to commercial health insurers, and (2) the sale of 
outpatient surgical services to commercial health insurers. United 
Regional has an approximately 90% share of the market for inpatient 
hospital services sold to commercial insurers and a greater than 65% 
share of the market for outpatient surgical services sold to commercial 
insurers. All health insurance companies in the relevant geographic 
market consider United Regional a ``must-have'' hospital for health 
plans because it is by far the largest hospital in the region and the 
only local provider of certain essential services.
    2. United Regional has maintained its monopoly power in the 
relevant markets by entering into contracts with commercial health 
insurers that exclude United Regional's competitors in the Wichita 
Falls area from the insurers' health-care provider networks 
(``exclusionary contracts''). These exclusionary contracts effectively 
prevent insurers from contracting with hospitals and other health-care 
facilities

[[Page 13210]]

that compete with United Regional by requiring the insurers to pay a 
substantial pricing penalty if they also contract with United 
Regional's competitors. Most commercial health insurers must pay United 
Regional 13% to 27% more for its services if they do not use United 
Regional exclusively. The effects of this pricing penalty are to make 
the cost of including a competing hospital or other health-care 
facility in an insurer's network prohibitively expensive and not 
commercially viable, and to exclude equally-efficient rivals.
    3. United Regional's exclusionary contracts have reduced 
competition and enabled United Regional to maintain its monopoly power 
in the provision of inpatient hospital services and outpatient surgical 
services. They have done so by (1) Delaying and preventing the 
expansion and entry of United Regional's competitors, likely leading to 
higher health-care costs and higher health insurance premiums; (2) 
limiting price competition for price-sensitive patients, likely leading 
to higher health-care costs for those patients; and (3) reducing 
quality competition between United Regional and its competitors. In 
this case, there is no valid procompetitive business justification for 
United Regional's exclusionary contracts.
    4. United Regional's exclusionary contracts unlawfully maintain 
United Regional's monopoly power in the relevant markets in violation 
of Section 2 of the Sherman Act, 15 U.S.C. 2.

II. Defendant, Jurisdiction, Venue, and Interstate Commerce

    5. United Regional is a nonprofit corporation organized and 
existing under the laws of the State of Texas, with its principal place 
of business in Wichita Falls, Texas.
    6. Plaintiff United States brings this action pursuant to Section 4 
of the Sherman Act, 15 U.S.C. 4, and plaintiff State of Texas brings 
this action pursuant to Section 16 of the Clayton Act, 15 U.S.C. 26, to 
prevent and restrain United Regional's violations of Section 2 of the 
Sherman Act, 15 U.S.C. 2.
    7. This Court has subject matter jurisdiction over this action 
under Section 4 of the Sherman Act, 15 U.S.C. 4; Section 16 of the 
Clayton Act, 15 U.S.C. 26; and 28 U.S.C. 1331, 1337(a), and 1345.
    8. United Regional maintains its principal place of business and 
transacts business in this District. United Regional entered into the 
agreements at issue in this District, and committed the acts complained 
of in this District. United Regional's conduct has had anticompetitive 
effects and will continue to have anticompetitive effects in this 
District. Consequently, this Court has personal jurisdiction over the 
defendant, and venue is proper in this District under Section 12 of the 
Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 1391.
    9. United Regional is engaged in, and its activities substantially 
affect, interstate trade and commerce. It contracts with providers of 
commercial health insurance located outside of Texas to be included in 
their provider networks. These providers of commercial health insurance 
make substantial payments to United Regional in interstate commerce.

III. Relevant Markets

A. Relevant Product Markets

(1) The Sale of Inpatient Hospital Services to Commercial Health 
Insurers
    10. The sale of inpatient hospital services to commercial health 
insurers is a relevant product market.
    11. Inpatient hospital services are a broad group of medical and 
surgical diagnostic and treatment services that include an overnight 
stay in the hospital by the patient. Inpatient hospital services 
exclude (1) Services at hospitals that serve solely children, military 
personnel or veterans; (2) services at outpatient facilities that 
provide same-day service only; and (3) psychiatric, substance abuse, 
and rehabilitation services. Although individual inpatient hospital 
services are not substitutes for each other (e.g., obstetrics and 
cardiac services are not substitutes for each other), the various 
individual inpatient hospital services can be aggregated for analytic 
convenience.
    12. The market for the sale of inpatient hospital services to 
commercial health insurers excludes outpatient services because health 
plans and patients would not substitute outpatient services for 
inpatient services in response to a sustained price increase. There are 
no other reasonably interchangeable services for inpatient hospital 
services.
    13. Commercial health insurers include managed-care organizations 
(such as Blue Cross Blue Shield, Aetna, United Healthcare, CIGNA, 
Accountable, or other HMOs or PPOs), rental networks (such as Beech 
Street, Texas True Choice, Multiplan, and PHCS), and self-funded plans. 
Rental networks serve as a secondary network used by health insurance 
companies looking for network coverage or discounts outside of their 
own networks or by self-insured employers; they are used by small and 
mid-sized health insurance companies to offer clients national 
coverage. Self-funded plans may access provider networks through 
managed-care organizations or rental networks. Although not all of 
these are risk-bearing entities, they can be referred to collectively 
as ``commercial health insurers.'' Commercial health insurers do not 
include government payers (Medicare, Medicaid, and TRICARE).
    14. The market for the sale of inpatient hospital services to 
commercial health insurers excludes sales of such services to 
government payers. The primary government payers are the federal 
government's Medicare program (coverage for the elderly and disabled), 
the joint federal and state Medicaid programs (coverage for low-income 
persons), and the federal government's TRICARE program (coverage for 
military personnel and families). The federal government sets the rates 
and schedules at which the government pays health-care providers for 
services provided to individuals covered by Medicare, Medicaid, and 
TRICARE. These rates are not subject to negotiation.
    15. In contrast, commercial health insurers negotiate rates with 
health-care providers and sell health insurance policies to 
organizations and individuals, who pay premiums for the policies. 
Generally, the rates that commercial health insurers pay health-care 
providers are substantially higher than those paid by government payers 
(Medicare, Medicaid, and TRICARE).
    16. There are no reasonable substitutes or alternatives to 
inpatient hospital services sold to commercial health insurers. A 
health-care provider's negotiations with commercial health insurers are 
separate from the process used to determine the rates paid by 
government payers, and health-care providers could, therefore, target a 
price increase just to commercial health insurers. Commercial health 
insurers cannot shift to government rates in response to an increase in 
rates for inpatient hospital services sold to commercial health 
insurers, and patients who are ineligible for Medicare, Medicaid, or 
TRICARE cannot substitute those programs for commercial health 
insurance in response to a price increase for commercial health 
insurance. Consequently, a hypothetical monopolist provider of 
inpatient hospital services sold to commercial health insurers could 
profitably maintain supracompetitive prices for those services over a 
sustained period of time.

[[Page 13211]]

(2) The Sale of Outpatient Surgical Services to Commercial Health 
Insurers
    17. The sale of outpatient surgical services to commercial health 
insurers is a relevant product market.
    18. Outpatient surgical services are a broad group of surgical 
diagnostic and surgical treatment services that do not require an 
overnight stay in a hospital. Outpatient surgical services are 
typically performed in a hospital or other specialized facility, such 
as a free-standing ambulatory surgery center that is licensed to 
perform outpatient surgery. Outpatient surgical services are distinct 
from procedures routinely performed in a doctor's office. Outpatient 
surgical services exclude services at hospitals or other facilities 
that serve solely children, military personnel, or veterans. Although 
individual outpatient surgical services are not substitutes for each 
other (e.g., orthopedic and gastroenterological surgical services are 
not substitutes for one another), the various individual outpatient 
surgical services can be aggregated for analytic convenience.
    19. The market for the sale of outpatient surgical services to 
commercial health insurers excludes inpatient hospital services; 
because health plans and patients would not substitute inpatient care 
for outpatient surgical services in response to a sustained price 
increase. There are no other reasonably interchangeable services for 
outpatient surgical services.
    20. There are no reasonable substitutes or alternatives to 
outpatient surgical services sold to commercial health insurers. A 
health-care provider's negotiations with commercial health insurers are 
separate from the process used to determine the rates paid by 
government payers, and health-care providers could, therefore, target a 
price increase just to commercial health insurers. Commercial health 
insurers cannot shift to government rates in response to an increase in 
rates for outpatient surgical services sold to commercial health 
insurers, and patients who are ineligible for Medicare, Medicaid, or 
TRICARE cannot substitute those programs for commercial health 
insurance in response to a price increase for commercial health 
insurance. Consequently, a hypothetical monopolist provider of 
outpatient surgical services sold to commercial health insurers could 
profitably maintain supracompetitive prices for those services over a 
sustained period of time.

B. Relevant Geographic Market

    21. The relevant geographic market for each of the relevant product 
markets alleged above is no larger than the Wichita Falls Metropolitan 
Statistical Area (``MSA''). The Wichita Falls MSA is comprised of 
Archer, Clay, and Wichita counties. MSAs are geographic areas defined 
by the U.S. Office of Management and Budget for use in Federal 
statistical activities.
    22. Wichita Falls is the largest city in the Wichita Falls MSA. 
According to the 2008 estimates of the Census Bureau, the Wichita Falls 
MSA has a population of about 150,000. About 100,000 of these people 
reside in the city of Wichita Falls, which is located in Wichita County 
near the border of the three counties that compose the Wichita Falls 
MSA. Wichita Falls is in north central Texas, about a two-hour drive 
from the nearest metropolitan areas: Dallas-Fort Worth, Texas, and 
Oklahoma City, Oklahoma.
    23. Commercial health insurers contract to purchase inpatient 
hospital services and outpatient surgical services in the geographic 
area in which their health plan beneficiaries are likely to seek 
medical care. Health plan beneficiaries typically seek medical care 
close to their homes or workplaces. Very few plan beneficiaries who 
live in the Wichita Falls MSA travel outside its borders to seek 
inpatient hospital services or outpatient surgical services. For 
example, in 2008, only about 10% of inpatient discharges of residents 
of the Wichita Falls MSA were from hospitals not located in the Wichita 
Falls MSA. Commercial health insurers that sell policies to 
beneficiaries in the Wichita Falls MSA cannot reasonably purchase 
inpatient hospital services or outpatient surgical services outside the 
Wichita Falls MSA as an alternative to serve those beneficiaries. 
Consequently, hospitals and health-care facilities outside the Wichita 
Falls MSA do not compete with health-care providers located in the 
Wichita Falls MSA for the sale of the relevant products in a manner 
that would constrain the pricing or other behavior of Wichita Falls 
health-care providers.
    24. Competition for the sale of inpatient hospital services to 
commercial health insurers from providers located outside the Wichita 
Falls MSA would not be sufficient to prevent a hypothetical monopolist 
provider of inpatient hospital services to commercial health insurers 
located in the Wichita Falls MSA from profitably maintaining 
supracompetitive prices for those services over a sustained period of 
time.
    25. Competition for the sale of outpatient surgical services to 
commercial health insurers from providers located outside the Wichita 
Falls MSA would not be sufficient to prevent a hypothetical monopolist 
provider of outpatient surgical services to commercial health insurers 
located in the Wichita Falls MSA from profitably maintaining 
supracompetitive prices for those services over a sustained period of 
time.

IV. Hospitals and Outpatient Surgical Facilities in the Wichita Falls 
MSA

A. Acute-Care Hospitals

    26. There are two general acute-care hospitals in Wichita Falls--
United Regional and Kell West Regional Hospital (``Kell West''). Two 
additional hospitals, Electra Memorial Hospital (``Electra Memorial'') 
and Clay County Memorial Hospital (``Clay Memorial''), are outside 
Wichita Falls, but within the Wichita Falls MSA.
(1) United Regional
    27. United Regional is a 369-bed general acute-care hospital that 
offers a wide range of inpatient and outpatient services. United 
Regional has 14 operating rooms, a laboratory, a 24-hour emergency 
department, and a Level III trauma center, among other facilities. It 
offers comprehensive cardiac care and has a childbirth center. United 
Regional is a private nonprofit hospital, not a public hospital. Its 
net patient revenues for 2009 were approximately $265 million.
    28. Commercial health insurers that offer health insurance within 
the Wichita Falls MSA consider United Regional a ``must have'' hospital 
because it is by far the largest hospital in the region and the only 
provider of some essential services, such as cardiac surgery, 
obstetrics, and high-level trauma care.
    29. United Regional was formed in October 1997 by the merger of 
what were then the only two general acute-care hospitals in Wichita 
Falls--Wichita General Hospital (``Wichita General'') and Bethania 
Regional Health Care Center (``Bethania''). To complete the 1997 
merger, Wichita General and Bethania sought and obtained an antitrust 
exemption from the Texas Legislature. The Legislature enacted Tex. 
Health & Safety Code Ann. Sec.  265.037(d), which provides that a 
county-city hospital board ``existing in a county with a population of 
more than 100,000 and a municipality with a population of more than 
75,000 * * * may purchase, construct, receive, lease, or otherwise 
acquire hospital facilities,

[[Page 13212]]

including the sublease of one or more hospital facilities, regardless 
of whether the action might be considered anticompetitive under the 
antitrust laws of the United States or this state.'' In an attempt to 
qualify for the antitrust exemption enacted by the legislature, Wichita 
General and Bethania Regional entered into a leasing arrangement that 
involved the Wichita County-City of Wichita Falls, Texas Hospital Board 
(``County-City Board'').
(2) Kell West
    30. Kell West Regional is a 41-bed general acute-care hospital that 
opened in January 1999, partially as a competitive response to the 
merger that created United Regional. Kell West provides a wide range of 
inpatient and outpatient surgical and medical treatments. Kell West has 
eleven operating rooms, a laboratory, four intensive care beds, and a 
24-hour emergency department. Kell West currently does not provide 
several services that United Regional provides, including, in 
particular, cardiac surgery and obstetrics. However, United Regional 
considers Kell West to be a significant competitor.
(3) Other Inpatient Facilities
    31. Electra Memorial is a 22-bed hospital located in Electra, 
Texas, more than 30 miles west of Wichita Falls. Electra Memorial 
offers a much narrower range of inpatient hospital services and 
outpatient surgical services than either United Regional or Kell West. 
United Regional does not consider Electra Memorial to be a significant 
competitor, but instead as a source of referrals.
    32. Clay Memorial is a 25-bed hospital located in Henrietta, Texas, 
more than 15 miles east of Wichita Falls. Clay Memorial offers a much 
narrower range of inpatient hospital services and outpatient surgical 
services than either United Regional or Kell West. United Regional does 
not consider Clay Memorial to be a significant competitor, but instead 
as a source of referrals.

B. Outpatient Surgical Facilities

    33. United Regional, Kell West, Electra Memorial, and Clay Memorial 
all provide outpatient surgical services, although those provided by 
Electra Memorial and Clay Memorial are more limited than those provided 
by United Regional and Kell West. Maplewood Ambulatory Surgery Center 
(``Maplewood'') provides outpatient surgical services focusing solely 
on surgical procedures for pain remediation. Texoma Outpatient Surgery 
Center only performs eye surgeries. The North Texas Surgi-Center 
provided some outpatient surgical services in Wichita Falls from 1985 
to 2008. It was excluded from some commercial health insurers' networks 
by United Regional's exclusionary contracts. The Surgi-Center closed in 
December 2008.
    34. There are no other providers of outpatient surgical services in 
the Wichita Falls MSA.

C. Potential Expansion by Competitors

    35. Both Kell West and Maplewood have significant excess capacity. 
Kell West has the capacity to more than double the number of total 
patients it serves without any additional physical expansion. In 
addition, Kell West was intended by its owners to become a full-service 
hospital. To this end, Kell West has devoted most of its surplus funds 
to expansion projects. In 2002, Kell West nearly tripled in size, 
expanding from 15 to 41 beds. In 2005, it added two emergency exam 
rooms; in 2007, a four-bed intensive care unit; in 2008, an on-site 
laundry facility; and in 2009, four additional operating rooms.
    36. Kell West's owners originally intended to expand Kell West into 
a 70-bed hospital with an intensive care unit, OB suite, and cardiology 
department. Today, Kell West has 41 beds. As alleged below, likely 
because of United Regional's exclusionary contracts, it has not been 
able to expand into several service lines that it has considered 
opening, including obstetrics, pediatrics, oncology, industrial 
medicine, and neurology. Doctors in the Wichita Falls community have 
expressed interest in treating additional patients at Kell West if it 
could expand into new services.
    37. Maplewood currently operates its outpatient surgery center only 
three days per week and could easily add at least one day more per week 
to its schedule to accommodate additional patients.

V. United Regional's Monopoly Power

A. United Regional has monopoly power in the two relevant product 
markets in the Wichita Falls MSA: (1) The sale of inpatient hospital 
services to commercial health insurers and (2) the sale of outpatient 
surgical services to commercial health insurers. Since the 1997 merger 
between Wichita General and Bethania, United Regional has dominated 
both product markets in the Wichita Falls MSA, and its prices have 
climbed. It is currently one of the most expensive hospitals in Texas.

B. Inpatient Hospital Services

    38. United Regional is by far the largest provider of inpatient 
hospital services in the Wichita Falls MSA. United Regional's share of 
inpatient hospital services sold to commercial health insurers is 
approximately 90% (based on admissions) in the Wichita Falls MSA.
    39. An analysis prepared for United Regional by a major insurer 
concluded that the payments from commercial health insurers for 
inpatient hospital services in Wichita Falls are at least 50% higher 
than the average amounts paid in seven other comparable cities in 
Texas. Another commercial health insurer estimated that it pays United 
Regional almost 70% more than what it pays hospitals in the Dallas-Fort 
Worth area for inpatient hospital services. This insurer's analysis 
found that the ``inpatient allowed per day adjusted for case mix'' (a 
measure that adjusts for differences in the type and severity of 
services performed) was $4,143 on average in Wichita Falls, compared to 
$3,254 in Dallas-Fort Worth. The analysis also found that hospital 
prices in Wichita Falls are, on average, significantly higher for 
inpatient services than prices in five other comparable MSAs in Texas. 
United Regional is also significantly more expensive than Kell West, 
its primary competitor in Wichita Falls. For services that are offered 
by both hospitals, United Regional's average per-day rate for inpatient 
services sold to commercial health insurers is about 70% higher than 
Kell West's.

C. Outpatient Surgical Services

    40. United Regional is also by far the largest provider of 
outpatient surgical services in the Wichita Falls MSA. United 
Regional's share of outpatient surgical services sold to commercial 
health insurers is more than 65% (based on visits) in the Wichita Falls 
MSA.
    41. United Regional's prices for outpatient surgical services are 
also among the highest in Texas. One

[[Page 13213]]

commercial health insurer calculated that United Regional's prices for 
all outpatient services were in the top 10% of the 279 Texas hospitals 
that submitted outpatient claims to that insurer. Of the 100 Texas 
hospitals submitting the largest number of outpatient claims to that 
insurer in 2007, the insurer found that United Regional was the fourth 
most expensive outpatient provider in the state. Another analysis by a 
commercial health insurer shows that hospital prices in Wichita Falls 
are, on average, significantly higher for outpatient services than 
prices in five other comparable MSAs in Texas. Maplewood, a nearby 
competitor, charges much lower prices for outpatient surgical services 
than United Regional charges for the same services. Prices at the North 
Texas Surgi-Center, an ambulatory surgery center in Wichita Falls that 
performed a wide range of outpatient surgical services but closed in 
December 2008, were also significantly lower than prices charged by 
United Regional for identical procedures.
    42. In the Wichita Falls MSA, significant barriers to the entry of 
new hospital and outpatient facilities as well as barriers to the 
expansion of existing facilities help preserve United Regional's 
monopoly power. For hospitals, barriers to entry include the expense 
and difficulty of building a hospital, recruiting and hiring qualified 
staff and physicians, building a reputation in the community, and 
gaining accreditation from relevant accrediting organizations. For 
outpatient facilities, the same barriers exist, but to a lesser extent. 
For both hospital and outpatient facilities, the barriers to entry are 
substantial when combined with the additional entry barriers imposed by 
United Regional's exclusionary contracts.

VI. United Regional Has Willfully Maintained Its Monopoly Power Through 
the Use of Anticompetitive Exclusionary Contracts

A. The Exclusionary Contracts and Their Terms

    43. All of United Regional's exclusionary contracts share the same 
anticompetitive feature: a pricing penalty ranging from 13% to 27% if 
an insurer contracts with Kell West or other competing facilities. 
Specifically, the contracts provide for a higher discount off billed 
charges (e.g., 25%) if United Regional is the only local hospital or 
outpatient surgical provider in the insurer's network. The contracts 
provide for a much smaller discount (e.g., 5% off billed charges) if 
the commercial health insurer adds another competing local health-care 
facility, such as Kell West or Maplewood. A penalty that reduces an 
insurer's discount from 25% to 5% (for adding a rival facility) 
increases the insurer's price from 75% to 95% of billed charges--a 27% 
increase over the discounted price.
    44. The 13% to 27% pricing penalty applies if an insurer contracts 
with competing facilities within a specific geographic area delineated 
by each contract. Though the scope of the geographic limitation differs 
between contracts, every exclusionary contract designates an area that 
is no larger than Wichita County, and prevents commercial health 
insurers from contracting with competing facilities within that area. 
For example, one contract prevents the commercial health insurer from 
contracting with competing facilities within ten miles of the City of 
Wichita Falls. Two contracts describe the geographic limitation as 
within 15 miles of the City of Wichita Falls. One contract designates 
certain zip codes located within Wichita County, and three contracts 
designate Wichita County in its entirety. In every case, Kell West, 
Maplewood, and the now-closed Surgi-Center fall within the geographic 
zone of exclusion defined by the contracts.
    45. United Regional adopted the exclusionary contracts in direct 
response to the competitive threat presented by Kell West, the North 
Texas Surgi-Center, and other local outpatient surgical facilities to 
United Regional's monopoly position in the Wichita Falls MSA. United 
Regional began considering the possibility of moving to exclusionary 
contracts at around the time Kell West began operations. Shortly 
thereafter, United Regional began entering contracts with commercial 
health insurers that effectively prevented them from contracting with 
Kell West and other local health-care facilities for both inpatient and 
outpatient services.
    46. By 1999, within three months after Kell West opened for 
business, United Regional had obtained exclusionary contracts from five 
commercial health insurers. United Regional has continued to enter into 
exclusionary contracts with insurers up to the present day. As of 2010, 
United Regional had entered into exclusionary contracts with a total of 
eight commercial health insurers. In each instance, it was United 
Regional that required the exclusionary provisions in the contract--not 
the insurer.
    47. One of the earlier contracts provides as follows:

    Exclusive Agreement. The rates set forth in Exhibit A [80% of 
billed charges] are contingent upon [INSURER] not entering into 
another agreement with an acute care facility, hospital or 
ambulatory surgery center, directly or indirectly, for the provision 
of inpatient services and/or outpatient services in Wichita Falls, 
Texas or within ten miles of Wichita Falls, Texas. If [INSURER] 
enters into another agreement with an acute care facility, hospital, 
or ambulatory surgery Center for the provision of inpatient services 
and/or outpatient services in Wichita Falls, Texas or within a ten 
mile radius of Wichita Falls, Texas, Clients shall immediately and 
automatically begin reimbursing Hospital, for Covered Services 
rendered by Hospital to Participants, one hundred percent (100%) of 
Hospital's billed charges . * * *

    48. A more recent agreement between United Regional and another 
insurer describes a similar arrangement:

    At this time, [INSURER] elects the Tier 1 Option (defined 
below). Hospital shall be compensated at seventy-five percent (75%) 
of billed charges for covered services. However, upon the Effective 
Date and during the term of this Agreement, if [INSURER] elects to 
enter into a new contract with another general acute care facility, 
ambulatory surgery center or radiology center in [a] 15 mile radius 
of United Regional Health Care System (``Hospital'') located at 1600 
11th St., Wichita Falls, Texas, [INSURER] shall notify Hospital 
thirty (30) days in advance of the effective date of such new 
contract. On the effective date of such contract, the Tier 1 Option 
Hospital Reimbursement Schedule shall be void and the reimbursement 
rates will revert to 95% of billed charges for all inpatient and 
outpatient services at United Regional Health Care System, its 
affiliates, and joint ventures [] where United Regional has a 
majority ownership interest.
    1. Tier One Option: Hospital is the sole in-network facility 
(including only general acute care facilities, ambulatory surgery 
centers or radiology center[s]) within a 15 mile radius of Hospital 
located at 1600 11th St., Wichita Falls, Texas and Hospital shall be 
compensated at seventy-five percent (75%) of billed charges for 
covered services. Payor will deduct any applicable Copayments, 
Deductibles, or Coinsurance from payment due to Hospital.
    2. Tier 2 Option: Hospital is not the sole in-network facility 
for general acute care, ambulatory surgery center or radiology 
center within a 15 mile radius of Hospital located at 1600 11th St., 
Wichita Falls, Texas and Hospital shall be compensated at ninety-
five percent (95%) of billed charges for covered services. Payor 
will deduct any applicable Copayment, Deductibles, or Coinsurance 
from payment due to Hospital.

    49. United Regional has broadened the scope of the exclusionary 
provisions over time. All eight of the exclusionary contracts 
effectively prevent the commercial health insurer from contracting with 
hospital competitors (for inpatient or outpatient services) within a 
certain geographic proximity to United Regional. Seven of the eight

[[Page 13214]]

exclusionary contracts also effectively prevent the commercial health 
insurer from contracting with outpatient surgery centers. United 
Regional added provisions excluding additional outpatient facilities 
such as radiology centers to five of the more recent contracts.
    50. Although the earlier contracts (signed before 2001) describe 
the pricing in these agreements in terms of ``exclusivity'' or an 
``exclusive agreement,'' more recent contracts use the phrase ``tiered 
compensation schedule.'' Regardless of the label, the contracts share 
the same anticompetitive feature; they impose a significant pricing 
penalty if an insurer does not enter into an exclusive arrangement with 
United Regional.
    51. Every commercial health insurer that has entered into one of 
United Regional's exclusionary contracts would prefer an open network 
in which its customers have a choice of hospitals and outpatient 
surgical facilities. Most, if not all, of these insurers have sought to 
add Kell West or another outpatient provider to their networks. In 
every case, United Regional has threatened the insurer with prices so 
high that the insurer would not be able to compete with other health 
insurers offering insurance in the Wichita Falls area. As a result, 
notwithstanding their preferences, each health insurer contracted 
exclusively with United Regional because the insurer could not offer a 
commercially viable product if it paid the higher prices that United 
Regional would charge if the insurer chose to include in its network 
one or more of United Regional's competitors. One national commercial 
health insurer, for example, agreed to enter into an exclusionary 
contract in 2010 because it determined that it could not otherwise 
offer a commercially viable product in the Wichita Falls MSA.
    52. United Regional has entered into exclusionary contracts with 
most commercial health insurers currently providing health insurance to 
residents of the Wichita Falls area. For more than twelve years, the 
only major insurer without an exclusionary contract has been Blue Cross 
Blue Shield of Texas (``Blue Cross''), the largest commercial health 
insurer in Wichita Falls and in Texas. For two rental networks, which 
combined account for less than 5% of the commercially insured lives in 
Wichita Falls, United Regional offered only the higher nonexclusive 
rates without an exclusive provision. In late 2010, after plaintiffs 
began their investigation, one other rental network switched from an 
exclusive agreement with United Regional to a non-exclusive 
arrangement.
    53. All exclusionary contracts entered into between 1998 and 2010 
are still in force and are essentially ``evergreen'' contracts, 
automatically renewed yearly unless terminated by one of the parties.

B. United Regional's Exclusionary Contracts Foreclosed Its Rivals From 
the Most Profitable Health-Insurance Contracts

    54. United Regional has effectively foreclosed its rivals from many 
of the most profitable health-insurance contracts in Wichita Falls--
contracts that are crucial for its rivals to effectively compete.
    55. Inclusion in health insurer networks is critical because 
patients generally seek health-care services from ``in-network'' 
providers and thereby incur substantially lower out-of-pocket costs 
than if the patients use out-of-network providers. Patients do so 
because, typically, a health insurer charges a member substantially 
lower co-payments or other charges when the member uses an in-network 
provider.
    56. By effectively denying its competitors critical in-network 
status, United Regional likely substantially reduces the number of 
patients who would otherwise use Kell West and other United Regional 
competitors. More importantly, United Regional's contracts effectively 
deny access to a substantial percentage of the most profitable 
patients--those with commercial health insurance.
    57. It is substantially more profitable for hospitals to serve 
patients with commercial health insurance than Medicare, Medicaid, or 
TRICARE patients, because government plans pay significantly less than 
commercial health insurers. This is true in the Wichita Falls MSA. All 
commercial health plans in the Wichita Falls MSA pay United Regional at 
least double the Medicare payment rate, and all but one insurer (Blue 
Cross) pay United Regional more than triple the Medicare payment rate.
    58. Consequently, patients covered by government plans are not 
adequate substitutes for commercially insured patients. In fact, United 
Regional, like many other hospitals, depends on payments from 
commercial health insurers to compensate for the comparatively low 
payments it receives from government payers. The low payment rates from 
government payers provide little or no contribution margin to offset 
United Regional's overhead expenses.
    59. By 2010, the insurers that had exclusionary contracts with 
United Regional accounted for approximately 35% to 40% of all payments 
that United Regional received from commercial health insurers.
    60. Most of the remaining commercial payments are attributable to a 
single commercial health insurer--Blue Cross--which has a 55% to 65% 
share of the commercially insured lives in the Wichita Falls MSA. In 
the relevant market, serving Blue Cross patients is far less profitable 
than serving patients covered by other commercial health insurers. 
Because of its size, Blue Cross negotiates the deepest discounts; thus, 
it pays United Regional and other providers in the relevant market 
substantially less than other commercial health insurers.
    61. Because the insurers that have exclusionary contracts with 
United Regional pay the highest rates, these insurers account for a 
substantial share of the profits that would otherwise be available to 
competing health-care providers. In particular, these insurers account 
for approximately 30% to 35% of the profits that United Regional earns 
from all payers--including government payers such as Medicare, 
Medicaid, and TRICARE--even though they account for only about 8% of 
United Regional's total patient volume.
    62. If the commercial health insurers that have exclusionary 
contracts with United Regional added Kell West and other health-care 
providers to their networks, these providers would earn substantially 
higher profits than they do now. For example, if only 10% of these 
insurers' patients switched from United Regional to Kell West, and 
these insurers paid Kell West 30% less than they currently pay United 
Regional, Kell West's profits would still likely increase by more than 
40%.

C. United Regional's Exclusionary Contracts Likely Have Caused 
Substantial Anticompetitive Effects

    63. United Regional's exclusionary contracts have reduced 
competition and enabled United Regional to maintain its monopoly power 
in the provision of inpatient hospital services and outpatient surgical 
services. By effectively preventing most commercial health insurers 
from including in their networks other inpatient and outpatient 
facilities, such as Kell West, the North Texas Surgi-Center, Maplewood, 
and others, United Regional has (1) delayed and prevented the expansion 
and entry of United Regional's competitors, likely leading to higher 
health-care costs and higher health insurance premiums; (2) limited 
price competition for price-sensitive patients, likely leading to 
higher health-care costs for those

[[Page 13215]]

patients; and (3) reduced quality competition between United Regional 
and its competitors.
(1) The Exclusionary Contracts Likely Delayed and Prevented Expansion 
and Entry
    64. The exclusionary contracts have likely delayed and prevented 
competitors from expanding in or entering the relevant markets, leading 
to higher health-care costs and higher health-insurance premiums. As 
alleged above, United Regional's exclusionary contracts effectively 
prevent virtually all commercial health insurers from contracting with 
many of United Regional's competitors, including Kell West. If United 
Regional had not imposed its exclusionary contracts, these insurers 
likely would have contracted with Kell West, Maplewood, and other 
competitors in the Wichita Falls MSA (and with providers that otherwise 
might have entered the market), giving the competitors in-network 
access to the patients covered by commercial health insurers--the 
patients that are the most profitable to health-care providers.
    65. Furthermore, physicians treating patients covered by commercial 
health insurers that have been effectively prevented from contracting 
with United Regional's competitors would likely have referred more 
patients to these competitors, and more patients would likely have 
chosen to use them. In addition to referrals of patients insured by 
commercial health insurers with exclusionary contracts, such referrals 
would have likely included additional referrals of Blue Cross patients 
and patients covered by Medicare, Medicaid, and TRICARE. Many doctors 
engage in ``block-booking,'' finding it most efficient to perform all 
of a given day's surgeries and other procedures at the same facility. 
This, in turn, would have given United Regional's competitors higher 
patient volumes and utilization, increased revenues, and substantially 
higher profits.
    66. The higher volumes and profits obtained from serving additional 
patients insured by commercial health insurers--the patients that are 
the most profitable to health-care providers--as well as additional 
Blue Cross patients and additional Medicare, Medicaid or TRICARE 
patients, likely would have allowed Kell West and other competitors to 
expand. This expansion would enable the competitors to compete more 
effectively with United Regional, likely resulting in more competition 
and lower health-care costs.
    67. Kell West likely would have expanded sooner into certain 
services, and would also likely have added more beds and additional 
services, such as additional intensive care capabilities, cardiology 
services, and obstetric services. Kell West has considered expansion 
into these additional services on numerous occasions, but has been 
limited in its ability to expand due to its lack of in-network access 
to commercially insured patients. Kell West also would likely fill its 
significant excess capacity for the services it already provides if it 
had access to the commercial health insurers that currently have 
exclusionary contracts with United Regional.
    68. If Maplewood had similar in-network access to those commercial 
health insurers, it would likely add one or more days to its schedule 
in order to serve additional patients. Maplewood currently operates 
only three days a week.
    69. The lack of in-network access to commercially insured patients 
also likely has delayed and prevented Kell West from expanding by 
attracting an outside investor or buyer. For example, with in-network 
access to commercial health insurance contracts, Kell West would be 
more attractive to a larger hospital system, which would invest in the 
expansion of Kell West's services. As a physician-owned hospital, Kell 
West became subject in March 2010 to certain restrictions on expansion 
imposed by federal health-care reform legislation, see 42 U.S.C. 
1395nn(i)(1)(B), that would not apply if Kell West were acquired by a 
non-physician investor. The existence of the exclusionary contracts 
makes such an acquisition less likely.
    70. United Regional's exclusionary contracts also inhibit new 
providers from entering the market. Potential entrants are dissuaded 
from entering the market because they cannot obtain contracts with many 
of the commercial health insurers who have customers in that market. At 
least one potential entrant that is considering entering the outpatient 
surgical services market believes that it will not be able to do so 
without contracts with virtually all area commercial health insurers. 
United Regional's exclusionary contracts currently prevent such access.
    71. By limiting the expansion or entry of competitors, United 
Regional's exclusionary contracts have helped it to maintain its 
monopoly and likely increased the cost of providing medical care to 
residents in the Wichita Falls area. Because the exclusionary contracts 
likely limited competitors' expansion and entry, and thereby reduced 
insurers' bargaining leverage with United Regional, the contracts 
likely have enabled United Regional to continue to demand higher prices 
from commercial health insurers free from competitive discipline.
    72. The costs of medical care are typically 80% or more of an 
insurer's costs, and hospital costs are a substantial portion of 
medical care costs. The price of hospital services at individual 
hospitals directly affects health insurance premiums for the customers 
that use those hospitals. Accordingly, insurers' hospital costs are an 
important element of insurers' ability to offer competitive prices.
    73. The higher payment rates demanded by United Regional from 
commercial health insurers are borne in part by Wichita Falls employers 
and residents in the form of higher insurance premiums. Insurance 
premiums in Wichita Falls are among the highest in Texas. Blue Cross's 
premiums in Wichita Falls exceed its premiums anywhere else in the 
state, including Dallas, and its employee premium rate in Wichita Falls 
is significantly higher than in Amarillo and Odessa, two cities similar 
in size to Wichita Falls.
(2) The Exclusionary Contracts Likely Have Limited Price Competition 
for Price-Sensitive Patients
    74. United Regional's contracts have also likely reduced 
competition for price-sensitive patients in the relevant markets. 
Certain patients select a hospital based on price because the prices 
charged can affect the patient's out-of-pocket costs. For example, in 
2008, United Regional lowered its list price for gynecological 
surgeries because it was concerned that too many price-sensitive 
patients were choosing Kell West or the North Texas Surgi-Center for 
these surgeries to avoid United Regional's high prices. Exclusionary 
contracts that effectively prevent insurers from including providers 
such as Kell West in commercial health insurers' networks make it less 
likely that a commercially insured patient would switch to Kell West in 
response to a price increase by United Regional, and hence reduce this 
constraint on United Regional's prices. Consequently, the exclusionary 
contracts likely enable United Regional to charge higher prices for 
many services.
(3) The Exclusionary Contracts Likely Have Reduced Quality Competition 
Between United Regional and Its Competitors
    75. Patients and physicians often choose among hospitals and other 
health-care providers based on the

[[Page 13216]]

provider's quality and reputation, including quality of care (reflected 
in past performance on clinical measures such as mortality rates) and 
quality of service (reflected in non-clinical characteristics that may 
appeal to patients, including amenities such as physical surroundings, 
staff hospitality, and other services). Because there is a financial 
penalty for using out-of-network providers, patients with health 
insurance provided by insurers with exclusionary contracts are less 
likely to choose out-of-network providers, even if the patient believes 
the out-of-network provider offers superior quality to United Regional.
    76. If United Regional's competitors became in-network providers 
for more commercially insured patients, each of those competitors would 
have the incentive to make additional improvements in quality to 
attract those patients to its facility. United Regional, in turn, would 
also have the incentive to improve its quality in order to keep 
patients from choosing Kell West or another competitor. Therefore, 
without the exclusionary contracts, United Regional and its competitors 
would have increased incentives to make additional quality 
improvements, and the overall level of quality of health care in the 
Wichita Falls area likely would be higher. Moreover, such quality 
improvements would benefit all patients, not just those with commercial 
health insurance.

D. United Regional's Exclusionary Contracts Have the Potential To 
Exclude Equally-Efficient Competitors

    77. United Regional's exclusionary contracts have likely excluded 
equally-efficient competitors. When the entire ``discount'' that a 
commercial health insurer receives in exchange for agreeing to 
exclusivity is allocated to the patient volume that United Regional 
would likely lose to a competitor in the absence of the exclusionary 
contracts (the ``contestable patient volume''), it is clear that United 
Regional is selling services to commercial health insurers for the 
contestable volume at a price below its own marginal costs. A competing 
hospital, therefore, would need to offer a price below United 
Regional's marginal cost to induce a commercial health insurer to turn 
down exclusivity.
    78. Put differently, because the contestable patient volume is 
likely a small portion of a commercial health insurer's total volume at 
United Regional and because the pricing penalty in United Regional's 
contracts is so large, a commercial health insurer would not find it 
commercially reasonable to enter into a contract with a competing 
hospital in the Wichita Falls area, unless that hospital were to offer 
a price below United Regional's marginal cost. As a result, United 
Regional's exclusionary contracts likely exclude equally-efficient 
competitors.

E. The Exclusionary Contracts Lack a Valid Procompetitive Business 
Justification

    79. In this case, there is no valid procompetitive business 
justification for United Regional's exclusionary contracts. United 
Regional did not use the contracts to achieve any economies of scale or 
other efficiencies as a result of any additional patient volume that it 
obtained from the contracts. Moreover, as alleged above, United 
Regional's contracts set prices for the contestable patient volume at a 
level below its own incremental costs, which (1) illustrates that the 
contracts are not simply lower prices in exchange for volume, and (2) 
cannot be justified by economies of scale in any event.

VII. Violations Alleged

Monopolization in Violation of Sherman Act Sec.  2

    80. Plaintiffs repeat and reallege the allegations of paragraphs 1 
through 80 above with the same force and effect as though said 
paragraphs were set forth here in full.
    81. United Regional possesses monopoly power in the relevant 
product markets in the Wichita Falls MSA.
    82. United Regional has willfully maintained and abused its 
monopoly power in the relevant markets through its exclusionary 
contracts with commercial health insurers.
    83. Each exclusionary contract between United Regional and a 
commercial health insurer constitutes an act by which United Regional 
willfully exploits and maintains its monopoly power in the relevant 
product markets in the Wichita Falls MSA.
    84. In this case, there is no valid procompetitive business 
justification for United Regional's use of the exclusionary contracts 
described above.
    85. United Regional's exclusionary contracts violate Section 2 of 
the Sherman Act, 15 U.S.C. 2.

VIII. Request For Relief

    Wherefore, Plaintiffs request:
    (a) That the Court adjudge and decree that United Regional acted 
unlawfully to maintain a monopoly in violation of Section 2 of the 
Sherman Act, 15 U.S.C. 2;
    (b) That the Court permanently enjoin United Regional, its 
officers, directors, agents, employees, and successors, and all other 
persons acting or claiming to act on its behalf, directly or 
indirectly, from seeking, negotiating for, agreeing to, continuing, 
maintaining, renewing, using, or enforcing, or attempting to enforce 
exclusionary contracts with health insurance companies and others;
    (c) That the Court reform existing contracts to remove the 
exclusionary provisions; and
    (d) That Plaintiffs be awarded the costs of this action and such 
other relief as may be appropriate and as the Court may deem just and 
proper.

    Dated: February 25, 2011.

 Respectfully submitted,

FOR PLAINTIFF UNITED STATES OF AMERICA
Christine A. Varney,
Assistant Attorney General for Antitrust.

Joseph F. Wayland,
Deputy Assistant Attorney General.

Patricia A. Brink,
Director of Civil Enforcement.

Joshua H. Soven,
Chief Litigation I Section.

Peter J. Mucchetti,
Assistant Chief Litigation I Section.

Scott I. Fitzgerald (WA Bar 39716)

Andrea V. Arias,
Amy R. Fitzpatrick,
Adam Gitlin,
Steven B. Kramer,
Richard Liebeskind,
Richard D. Mosier,
Mark Tobey,
Kevin Yeh,

Attorneys for the United States, United States Department of 
Justice, Antitrust Division, Litigation I Section, 450 Fifth Street, 
NW., Suite 4100, Washington, DC 20530.

Telephone: (202) 353-3863.
Facsimile: (202) 307-5802.

FOR PLAINTIFF STATE OF TEXAS
Greg Abbott,
Attorney General of Texas.

Daniel T. Hodge,
First Assistant Attorney General.

Bill Cobb,
Deputy Attorney General for Civil Litigation.

John T. Prud'homme, Jr.,

Chief, Antitrust Division, Office of the Attorney General, 300 W. 
15th St., 7th floor, Austin, TX 78701.

Telephone: (512) 936-1697.
Facsimile: (512) 320-0975.

In the United States District Court for the Northern District of Texas, 
Wichita Falls Division

    United States of America and State of Texas, Plaintiffs, v. United 
Regional Health Care System, Defendant.
    Case No.: 7:11-cv-00030.
    Judge: Reed C. O'Connor.
    Filed: Feb. 25, 2011.
    Description: Antitrust.

[[Page 13217]]

Competitive Impact Statement

    Plaintiff United States of America (``United States''), pursuant to 
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or 
``Tunney Act''), 15 U.S.C. Sec.  16(b)-(h), files this Competitive 
Impact Statement relating to the proposed Final Judgment submitted for 
entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

    On February 25, 2011, the United States and the State of Texas 
filed a civil antitrust lawsuit against Defendant United Regional 
Health Care System (``United Regional'') challenging United Regional's 
contracts with commercial health insurers that effectively prevent 
insurers from contracting with United Regional's competitors 
(``exclusionary contracts''). The Complaint alleges that United 
Regional has unlawfully used these contracts to maintain its monopoly 
for hospital services, in violation of Section 2 of the Sherman Act, 15 
U.S.C. 2.
    With the Complaint, the United States and the State of Texas filed 
a proposed Final Judgment that enjoins United Regional from using 
exclusionary contracts. The United States, the State of Texas, and 
United Regional have stipulated that the proposed Final Judgment may be 
entered after compliance with the APPA, unless the United States 
withdraws its consent. Entry of the proposed Final Judgment would 
terminate this action, except that the Court would retain jurisdiction 
to construe, modify, or enforce the provisions of the proposed Final 
Judgment and to punish violations thereof.

II. Description of the Events Giving Rise to the Alleged Violation

A. The Defendant and the Challenged Conduct

    This case is about competition for the sale of hospital services in 
Wichita Falls, Texas, and its surrounding areas. The Defendant, United 
Regional, is a general acute-care hospital located in Wichita Falls. 
With 369 beds, United Regional is by far the largest hospital in the 
region and the only provider of some essential services, such as 
cardiac surgery, obstetrics, and high-level trauma care.
    United Regional was formed in October 1997 by the merger of Wichita 
General Hospital and Bethania Regional Health Care Center. At the time 
of that merger, there were no other general acute-care hospitals in 
Wichita Falls and only one small outpatient surgery center. Soon after 
the merger, however, a group of doctors began planning for a competing 
hospital called Kell West Regional Hospital (``Kell West''). Kell West 
opened in January 1999 and is now a 41-bed general acute-care hospital, 
located about six miles from United Regional. Kell West provides a wide 
range of inpatient and outpatient procedures, but does not provide some 
key services offered by United Regional such as cardiac surgery and 
obstetrics.
    Beginning in 1998, United Regional responded to the competitive 
threat posed by Kell West and other outpatient-surgery facilities by 
systematically entering into exclusionary contracts with commercial 
health insurers. The precise terms of these contracts vary, but all 
share the same anticompetitive feature: a significant pricing penalty 
if an insurer contracts with competing facilities within a region that 
is no larger than Wichita County.\1\ In general, the contracts offer a 
substantially larger discount off billed charges (e.g., 25%) if United 
Regional is the only local hospital or outpatient surgical provider in 
the insurer's network; and the contracts provide for a much smaller 
discount (e.g., 5% off billed charges) if the insurer contracts with 
one of United Regional's rivals.\2\
---------------------------------------------------------------------------

    \1\ One contract excludes facilities within ten miles of the 
City of Wichita Falls; two contracts exclude facilities within 
fifteen miles of the City of Wichita Falls; one contract excludes 
facilities within certain zip codes in Wichita County; and three 
contracts exclude facilities located anywhere in Wichita County. 
Some contracts also exempt specific facilities that would otherwise 
be covered by the exclusionary provisions; for example, some 
contracts allow insurers to contract with Electra Memorial Hospital, 
a small hospital located more than 30 miles from Wichita Falls (but 
within Wichita County) that would have otherwise been excluded.
    \2\ Hospitals and insurers often negotiate contracts in which 
the price that the insurer pays is expressed as a discount off the 
hospital's list prices (also called ``chargemaster'' or ``billed 
charges''). Thus, a penalty that reduces an insurer's discount from 
25% to 5% (for adding a rival facility) increases the insurer's 
price from 75% to 95% of billed charges--a 27% increase.
---------------------------------------------------------------------------

    Within three months after Kell West opened in January 1999, United 
Regional had entered into exclusionary contracts with five commercial 
health insurers, and by 2010, it had exclusionary contracts with eight 
insurers. In each instance, it was United Regional that required the 
exclusionary provisions in the contract--not the insurer. The only 
major insurer that did not sign an exclusionary contract with United 
Regional was Blue Cross Blue Shield of Texas (``Blue Cross''), by far 
the largest insurer in Wichita Falls and in Texas.
    The Complaint alleges that because United Regional is a ``must 
have'' hospital for any insurer that wants to sell health insurance in 
the Wichita Falls area, and because the penalty for contracting with 
United Regional's rivals was so significant, most insurers entered into 
exclusionary contracts with United Regional. Consequently, United 
Regional's rivals could not obtain contracts with most insurers, except 
Blue Cross, which substantially hindered their ability to compete and 
helped United Regional maintain its monopoly in the relevant markets, 
to the detriment of consumers.
    The Complaint alleges that by effectively preventing most 
commercial health insurers from including in their networks other 
inpatient and outpatient facilities, United Regional has (1) Delayed 
and prevented the expansion and entry of United Regional's competitors, 
likely leading to higher health-care costs and higher health insurance 
premiums; (2) limited price competition for price-sensitive patients, 
likely leading to higher health-care costs for those patients; and (3) 
reduced quality competition between United Regional and its 
competitors.

B. The Relevant Markets

    The Complaint alleges two distinct relevant product markets: (1) 
the market for general acute-care inpatient hospital services 
(``inpatient hospital services'') sold to commercial health insurers, 
and (2) the market for outpatient surgical services sold to commercial 
health insurers. In each case, the relevant geographic market is no 
larger than the Wichita Falls Metropolitan Statistical Area (``MSA'').
1. The Sale of Inpatient Hospital Services to Commercial Health 
Insurers
    The sale of inpatient hospital services to commercial health 
insurers is a relevant product market. Inpatient hospital services are 
a broad group of medical and surgical diagnostic and treatment services 
that include an overnight stay in the hospital by the patient. For 
purposes of the Complaint, inpatient hospital services exclude (1) 
Services at hospitals that serve solely children, military personnel or 
veterans; (2) services at outpatient facilities that provide same-day 
service only; and (3) psychiatric, substance abuse, and rehabilitation 
services. There are no reasonable substitutes for inpatient hospital 
services.
    As alleged in the Complaint, the term ``commercial health 
insurers'' refers to private third-party payers that provide access to 
health-care providers, such as managed-care organizations, rental 
networks, and self-funded plans. The term does not include sales to 
public

[[Page 13218]]

third-party payers--Medicare, Medicaid, and TRICARE.
    There is a key difference between the government plans and 
commercial health insurers. The government unilaterally sets the rates 
that it pays for Medicare, Medicaid, and TRICARE beneficiaries--rates 
that are non-negotiable. In contrast, commercial health insurers 
negotiate their rates with individual health-care providers. Therefore, 
health-care providers can target a price increase to commercial health 
insurers, and these insurers cannot avoid the price increase by 
shifting to government rates. Furthermore, patients who are ineligible 
for Medicare, Medicaid, or TRICARE cannot substitute into those 
programs in response to a price increase for commercial health 
insurance. Thus, a hypothetical monopolist provider of inpatient 
hospital services sold to commercial health insurers could profitably 
maintain supracompetitive prices for those services over a sustained 
period of time.
2. The Sale of Outpatient Surgical Services to Commercial Health 
Insurers
    The sale of outpatient surgical services to commercial health 
insurers is also a relevant product market. This market is distinct 
from the market for inpatient hospital services because, as alleged in 
the Complaint, inpatient hospital services are not reasonable 
substitutes for outpati