Children's Minnesota settles with Minnesota attorney general over marketing allegations

Children's Minnesota, which runs the state's largest pediatric hospital, has named an antitrust compliance officer under an agreement with the state attorney general following alleged violations of state and federal antitrust laws.

Children's denied any wrongdoing as part of the legal agreement, which was struck in November with former Attorney General Lori Swanson.

Swanson alleged that Children's agreed to not market in 2016 a tele-health service in certain ZIP codes near an unnamed health care system due to concerns the marketing might threaten a proposed business relationship between the health care groups, according to a court filing called an Assurance of Discontinuance.

"Children's denies the allegation that it entered into any illegal agreement or otherwise violated state or federal antitrust laws," said Maria Christu, the chief legal officer at Children's Minnesota, in a statement. "Children's entered into the Assurance solely for the purpose of settlement to avoid further expense related to the investigation."

Children's said the agreement is not prompting any change in operations because its marketing department does not engage in illegal activity. Children's said its deputy general counsel has been appointed to serve as antitrust compliance officer, a job that involves providing education for staff and a board committee.

An Assurance of Discontinuance is a tool the attorney general sometimes uses to settle a case before filing a lawsuit, said John Stiles, spokesman for current Attorney General Keith Ellison, via e-mail. It's used "on a regular basis," Stiles wrote.

"[Children's] marketing managers and officers shall not attempt to enter into, enter into, maintain or enforce any agreement with any other provider that prohibits or limits marketing or otherwise allocates marketing in or to any geographic market or territory … unless legitimately related to the joint provision of services," states the court filing, which was the subject of a judge's order on Dec. 14 in Ramsey County District Court. "This Assurance and all the requirements contained herein shall expire three years after entry of an order by the court."

Children's Minnesota includes hospitals in Minneapolis and St. Paul, an outpatient facility in Minnetonka and 10 clinics in the Twin Cities metro area.

The nonprofit reported 5,190 employees in its 2017 annual report.

In 2015, Children's entered into an agreement with a company called MDLive Inc., so patients could use a website for virtual appointments with a doctor, according to the court filing. Under the terms of the agreement with MDLive, Children's retained the right to sublicense any part of Minnesota and western Wisconsin to any other party, including adult health systems, the court filing said.

In 2015 and 2016, Children's engaged in discussions with health systems about their possible interest in a sublicense agreement, the court filing states, adding that such agreements could significantly reduce Children's financial exposure. Children's undertook very little actual marketing of the service, the filing states, but initiated a 90-day digital "pre-marketing" campaign in March 2016.

"Prior to the launch of this digital pre-marketing campaign, a [Children's] executive and managers discussed internally the potential adverse implications the campaign could have on the decisionmaking processes of other health systems that were engaged in discussions regarding sublicensing," the court filing states.

"E-mail exchanges indicate that an executive at [Children's] then spoke with an executive at the competing health system about the upcoming digital pre-marketing campaign," the court filing states. "Following that conversation, and in light of [Children's] overwhelming desire to sublicense the MDLive territory to one or more health systems in the state of Minnesota [Children's] decided not to conduct its digital pre-marketing campaign in ZIP codes that represented the primary service area of the competing health system."

The service called Children's Virtual Clinic operated for about 18 months, Children's said in its statement. A small number of patients used the service, the hospital said, and management in January 2017 decided to not renew the agreement with MDLive.

A spokesman for Florida-based MDLive said the company was not a party to or aware of the alleged anticompetitive behavior. The company is privately held with investors including the large health insurers Cigna and Health Care Service Corp., which were part of a $50 million strategic financing in 2018.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck