25 October 2010

Justice Department files Suit against Blue Cross Blue Shield of Michigan

The Wall Street Journal

The U.S. Justice Department filed an antitrust lawsuit Monday against Blue Cross Blue Shield of Michigan, alleging that provisions of the insurer's agreements with hospitals are anticompetitive.

The department challenged the insurer's use of provisions known as "most favored nation clauses," which the department said guaranteed that no other insurance plans could obtain a better rate for hospital services than Blue Cross.

The clauses raise hospital prices, discourage discounting and prevent other insurers from entering the marketplace, the department alleged.

It said that some Blue Cross clauses required Michigan hospitals to charge the insurer's competitors 30% to 40% more for services. The department also alleged that Blue Cross effectively bought protection from competition by agreeing to pay higher prices to certain hospitals in order to obtain the clauses.

The department said the insurer used its market dominance to impose these clauses on half the hospitals in the state.

U.S. Assistant Attorney General Christine Varney, the department's antitrust chief, said the government's challenge to the Blue Cross clauses was significant beyond the Michigan health-care market.

"This cannot be allowed in Michigan, and let me be clear: We will challenge similar anticompetitive behavior anywhere else in the United States," Varney said during a briefing with reporters.

The civil lawsuit, filed in a Michigan federal court, seeks to prohibit Blue Cross from using or enforcing the most-favored-nation clauses. The suit does not seek monetary fines.

Blue Cross Blue Shield of Michigan said the lawsuit was without merit.

"Negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michiganders," Andrew Hetzel, the company's vice president for corporate communications, said in a statement. "Through this lawsuit, the federal government seeks to deny millions of Michigan residents the lowest cost possible when they visit the hospital."

Jeffrey Brennan, an antitrust lawyer with Dechert LLP, said the Justice Department has been concerned with most-favored-nation clauses between insurers and health care providers since at least the 1990s.

Brennan said the department's enforcement activity in this area can't always be measured by the prevalence of litigation because there have been times when insurers have dropped the clauses when facing a non-public investigation by the department.

The clauses, Brennan said, can be pro-competitive in certain circumstances and spur lower prices, which is why courts have not ruled them automatically illegal.

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