DiCesare v. Charlotte-Mecklenburg Hosp. Auth.

• Citation: 852 S.E.2d 146,376 N.C. 63
• Decision Date: 18 December 2020
• Docket Number: No. 156A17-2,156A17-2
• Parties: Christopher DICESARE, James Little, and Diana Stone, individually and on behalf of all others similarly situated v. The CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY, d/b/a Carolinas Healthcare System
• Court: North Carolina Supreme Court

376 N.C. 63

852 S.E.2d 146

Christopher DICESARE, James Little, and Diana Stone, individually and on behalf of all others similarly situated

v.The CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY, d/b/a Carolinas Healthcare System

No. 156A17-2

Supreme Court of North Carolina.

Filed December 18, 2020

Elliott Morgan Parsonage, PLLC, by R. Michael Elliott; Lieff Cabraser Heimann & Bernstein, LLP, by Daniel Seitz, Adam Gitlin, and Brendan P. Glackin ; Pearson Simon & Warshaw, LLP, by Alexander L. Simon and Benjamin E. Shiftan, for plaintiff-appellant Christopher DiCesare, et al.

Womble Bond Dickinson (US) LLP, by Russ Ferguson, Charlotte, James Cooney, III, Charlotte, Sarah Motley Stone, Charlotte, Debbie W. Harden, Charlotte, Matthew Tilley, Charlotte, Mark J. Horoschak, Charlotte, Bryan Hayles, and Michael P. Fischer, Charlotte; Boies Schiller & Flexner, LLP, by Hampton Y. Dellinger, Richard A. Feinstein, and Nicholas Widnell, for defendant-appellee The Charlotte-Mecklenburg Hospital Authority d/b/a Carolinas Healthcare System.

Attorney General Joshua H. Stein, by Deputy Solicitor General James W. Doggett, Special Deputy Attorneys General K.D. Sturgis Daniel P. Mosteller, and Assistant Attorney General Daniel T. Wilkes, for amicus State of North Carolina.

N.C. Department of State Treasurer, by Sam M. Hayes and Kendall M. Bourdon, for amicus N.C. State Health Plan.

ERVIN, Justice.

This case involves a dispute between plaintiffs, a group of current and former North Carolina residents who are covered under commercial health insurance obtained through an employer with fifty-one or more employees, and the Charlotte-Mecklenburg Hospital Authority, a non-profit corporation providing healthcare services with a principal place of business in Charlotte, in which plaintiffs seek reimbursement for healthcare costs based upon claims for restraint of trade and monopolization pursuant to Chapter 75 of the North Carolina General Statutes and Article I, Section 34 of the North Carolina Constitution. As will be discussed in greater detail below, this case requires us to determine whether the trial court correctly decided issues arising from the Hospital Authority's motion for judgment on the pleadings relating to the claims asserted in plaintiffs’ third amended complaint. After careful consideration of the parties’ challenges to the trial court's order in light of the allegations contained in the third amended complaint, we conclude that the challenged trial court order should be affirmed, in part, and reversed, in part.

I. Factual Background

A. Substantive Facts

The Hospital Authority was established in 1943 pursuant to the North Carolina Hospital Authorities Act,¹ N.C.G.S. §§ 131E-15 et seq. , and is jointly chartered by Mecklenburg County and the City of Charlotte. The Act states that "[t]he General Assembly finds and declares that in order to protect the public health, safety, and welfare, including that of low income persons, it is necessary that counties and cities be authorized to provide adequate hospital, medical, and health care and that the provision of such care is a public purpose." N.C.G.S. § 131E-1(b) (2019). The Act is intended "to provide an alternate method for counties and cities to provide hospital, medical, and health care," id. , and defines a hospital authority as "a public body and a body corporate and politic organized under the provisions of [the Act]." N.C.G.S. § 131E-16(14). The Hospital Authority is governed by a Board of Commissioners, whose members are appointed by the mayor or chairman of the county commission. N.C.G.S. § 131E-17(b).

The Hospital Authority provides, among other things, a suite of general acute care inpatient hospital services, including a broad range of medical and surgical diagnostic and treatment services, to individuals insured under group, fully-insured, and self-funded healthcare plans. The Hospital Authority has a large general acute-care hospital located in downtown Charlotte and nine other general acute-care hospitals in the Charlotte area. There are at least two other inpatient hospitals or multi-hospital systems operating within the Charlotte area: Novant, which operates five inpatient hospitals in the Charlotte area, and CaroMont Regional Medical Center.

In 2013, the Hospital Authority began including restrictions in its contracts with the four insurers which provide coverage to more than eighty-five percent of the commercially-insured residents of the Charlotte area, with the effect of these restrictions being to prohibit the insurers from "steering" their insureds to lower cost providers of medical care services and to forbid the insurers from allowing the Hospital Authority's competitors to place similar restrictions in their contracts with the insurers.

B. Procedural History

On 9 September 2016, plaintiff Christopher DiCesare filed a complaint "individually and on behalf of a class of similarly situated individuals"² in Superior Court, Mecklenburg County, which he amended on three occasions for the primary purpose of adding additional parties plaintiff.³ In their third amended complaint, plaintiffs asserted claims against the Hospital Authority for: (1) restraint of trade pursuant to N.C.G.S. § 75-1 (2019) (providing that "[e]very contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal") and N.C.G.S. § 75-2 (providing that "[a]ny act, contract, combination in the form of trust, or conspiracy in restraint of trade or commerce which violates the principles of the common law is hereby declared to be in violation of [N.C.G.S. §] 75-1") and (2) monopolization in violation of N.C. Const. art. I, § 34 (providing that "monopolies are contrary to the genius of a free state and shall not be allowed"), N.C.G.S. § 75-1.1 (providing that "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful"), N.C.G.S. § 75-2, and N.C.G.S. § 75-2.1 (providing that "[i]t is unlawful for any person to monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize, any part of trade or commerce in the State of North Carolina"). In support of these claims, plaintiffs alleged that the Hospital Authority is "the dominant hospital system in the Charlotte area, with approximately a fifty percent share of the relevant market"; that the Hospital Authority had "leveraged its market power to ... increase [its] billing rates"; and that its two largest competitors in the area—Novant and CaroMont Regional Medical Center—had "less than half" and "less than one tenth" of the Hospital Authority's annual revenue, respectively. According to plaintiffs, the Hospital Authority's market power allowed it "to profitably charge prices to insurers that are higher than competitive levels across a range of services, and to impose on insurers restrictions that reduce competition"; "to negotiate high prices (in the form of high ‘reimbursement rates’) for treating insured patients"; and to "demand[ ] reimbursement rates that are up to 150 percent more than other hospitals in the Charlotte area for providing the same services." Plaintiffs further alleged that "[the Hospital Authority] encourages insurers to steer patients toward itself by offering health insurers modest concessions on its market-power driven, premium prices" while "forbid[ding] insurers from allowing [the Hospital Authority's] competitors to do the same." In plaintiffs’ view, the Hospital Authority's alleged conduct "prevent[s] [the Hospital Authority's] competitors from attracting more patients through lower prices," providing its competitors with a "less[ened] incentive to remain lower priced and to continue to become more efficient" and "reduc[ing]" the amount of competition faced by the Hospital Authority.

In light of these allegations, plaintiffs claimed that the steering restrictions contained in the Hospital Authority's contracts with insurers resulted in an unlawful restraint of trade and monopolization on the grounds that "these steering restrictions have had, and will likely continue to have, ... substantial anticompetitive effects in the relevant product and geographic market," including: (1) "protecting [the Hospital Authority's] market power and enabling [the Hospital Authority] to charge supracompetitive prices that increase payments for deductibles, copayments and insurance premiums"; (2) "substantially lessening competition among providers of acute inpatient hospital services"; (3) "restricting the introduction of innovative insurance products that are designed to achieve lower prices and improved quality for acute inpatient hospital services"; (4) "reducing consumers’ incentives to seek acute inpatient hospital services from more cost-effective providers"; and (5) "depriving insurers and their enrollees of the benefits of a competitive market for their purchase of acute inpatient hospital services." In addition, plaintiffs claimed that "[e]ntry or expansion by other hospitals in the Charlotte area has not counteracted the actual and likely competitive harms resulting from" the steering restrictions; that any future "entry or expansion is unlikely to be rapid enough and sufficient in scope and scale to counteract these harms to competition"; and that "[the Hospital Authority] did not devise its strategy of using steering restrictions for any procompetitive purpose," "[n]or do the steering restrictions have any procompetitive effects," so that "[a]ny arguable benefits of [the Hospital Authority's] steering restrictions are outweighed by their actual and likely anticompetitive effects."

On 14 August 2018, the Hospital Authority filed an answer to plaintiffs’ third amended complaint in which it denied the material allegations set forth in plaintiffs’ third amended complaint and asserted various affirmative...