Carestream Health: The Medical Imaging Supplier That Agreed to End Exclusive Dealing Arrangements With Hospital Systems

Carestream Health Inc., a manufacturer and supplier of medical imaging film, chemistry, and diagnostic equipment to hospital radiology departments and imaging centers, agreed to cease enforcing exclusive dealing arrangements with hospital purchasing groups and individual health systems after federal antitrust regulators found that the contracts foreclosed competing suppliers from a substantial portion of available market purchasing volume, reducing competition in the supply of medical imaging consumables to healthcare facilities.DOCUMENTED

The exclusive dealing arrangements at issue took the form of long-term supply agreements — typically multi-year contracts administered through group purchasing organizations — that required participating hospitals to source medical imaging film and chemistry exclusively from Carestream as a condition of receiving contract pricing. Regulators found that the contracts' exclusivity provisions made it economically infeasible for competing suppliers to achieve the distribution scale they would need to compete effectively, because the contracts locked out a critical mass of available purchasing volume during periods long enough to prevent market entry by rivals with competing products.DOCUMENTED

How the Exclusive Dealing Worked

Group purchasing organizations negotiate supply contracts on behalf of member hospitals, aggregating purchasing volume to secure favorable pricing that individual hospitals could not obtain alone. When a GPO negotiates an exclusive supply agreement with a single supplier, it effectively commits the purchasing volume of all member hospitals that participate in that contract category to a single vendor for the duration of the contract term. For a medical imaging consumable used throughout a hospital's radiology and imaging operations, that commitment can cover a substantial and predictable annual spending volume.REVIEWED

Carestream's contracts, as analyzed in the regulatory findings, required hospitals that accepted the contract pricing to purchase their medical imaging film and chemistry requirements exclusively from Carestream for the contract period. Hospitals that attempted to bring in a competing supplier's products — even for evaluation or for use in specific imaging applications — risked losing the contracted pricing benefit on the full volume of their Carestream purchases, effectively making any competitive trial economically punitive.DOCUMENTED

The Competitive Foreclosure Effect

Antitrust law's concern with exclusive dealing is not that exclusivity is inherently illegal — exclusive contracts can in some circumstances be pro-competitive, for example when they ensure a supplier can recoup investment in a customer relationship — but that when a dominant supplier uses exclusivity to foreclose rivals from enough of the market to prevent them from competing effectively, the arrangement harms competition and ultimately harms the customers who would benefit from having meaningful supplier alternatives.REVIEWED

Competing imaging suppliers who participated in the investigation provided evidence that they had lost hospital purchasing opportunities specifically because the hospitals were bound by Carestream exclusive contracts through their GPO memberships, and that the sequential multi-year nature of those contracts meant that market windows in which hospitals could have switched to competing suppliers were effectively closed by the time a contract expired and opened again. The duration and coverage of the exclusivity, combined with Carestream's dominant market share, created what regulators characterized as a foreclosure effect sufficient to violate antitrust standards.DOCUMENTED

Hospitals that expressed interest in evaluating competing imaging consumables during the complaint period were told by GPO administrators that switching away from the contracted Carestream products would result in the loss of contract pricing across their entire imaging supplies spend.

The Resolution and Its Terms

The consent agreement requires Carestream to cease enforcing existing exclusive provisions in its GPO and direct hospital contracts and prohibits it from entering new contracts with exclusivity provisions for a defined period following the consent order's effective date. Carestream is also required to notify existing hospital customers and GPO partners of their right to consider competing suppliers without loss of current contract pricing, and to cooperate with any hospital system that wishes to conduct a formal competitive evaluation of imaging consumable suppliers.DOCUMENTED

Hospital supply chain administrators and procurement officers who have questions about whether a Carestream contract they are party to contains provisions affected by this resolution should contact their GPO's account management team or review their contract's terms directly for exclusive dealing or sole-source commitment language. The resolution creates an affirmative obligation on Carestream to remove those provisions, and affected hospitals are entitled to require compliance.REVIEWED

Healthcare Supply Chain Competition and Patient Cost

Anticompetitive behavior in healthcare supply markets has direct effects on patient costs, because the price hospitals pay for medical supplies and equipment is ultimately reflected in what they charge payers — including Medicare, Medicaid, and private insurers — for the services that use those supplies. When a dominant supplier forecloses competition in a supply category through exclusive dealing, it removes the pricing pressure that would otherwise come from rivals competing for hospital purchasing volume. Research on healthcare supply market concentration consistently finds that markets with fewer competing suppliers produce higher prices than markets where competition is robust. The Carestream resolution, by requiring the termination of exclusive dealing arrangements, is intended to restore competitive conditions in which hospital purchasing organizations can credibly solicit competing offers from multiple imaging suppliers — a condition that over time should produce lower prices, improved product quality, and greater responsiveness to hospital purchasing preferences than a sole-source supply arrangement allows. Healthcare supply chain administrators seeking to evaluate competitive alternatives to their current imaging consumable suppliers after this resolution are entitled to request competing offers without penalty under the terms of the consent order.

The FTC maintains a public record of antitrust consent orders and associated analysis that allows healthcare supply chain professionals and researchers to understand the competitive concerns that drove a particular enforcement action and what the consent order is designed to accomplish. Competing imaging suppliers who were foreclosed from hospital accounts during the period of Carestream's exclusive dealing arrangements may wish to re-engage with those hospital systems and GPOs now that the exclusivity provisions have been removed. Hospital supply chain administrators who want to run a competitive evaluation of imaging consumable suppliers should contact their GPO account representatives to confirm that the relevant exclusive arrangements have been removed and that they are free to solicit competing bids without penalty under their current contracts.

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