DOJ sues Michigan Blue Cross Blue Shield over pricing deals

Download PDF Copy

Oct 20 2010

The U.S. Justice Department is suing Blue Cross Blue Shield of Michigan and alleging that it violated antitrust laws by forcing hospitals to charge higher prices to rival insurers.

"The civil case appears to have broad implications because many local insurance markets, like those in Michigan, are highly concentrated, and Blue Cross and Blue Shield plans often have the largest shares of those markets," The New York Times reports. "In the Michigan case, the Obama administration said that Blue Cross and Blue Shield had contracts with many hospitals that stifled competition, resulting in higher health insurance premiums for consumers and employers. The State of Michigan was also a plaintiff in the lawsuit, filed in the Federal District Court in Detroit," which "took direct aim at contract clauses stipulating that no insurance companies could obtain better rates from the providers than Blue Cross. Some of these contract provisions, known as 'most favored nation' clauses, require hospitals to charge other insurers a specified percentage more than they charge Blue Cross — in some cases, 30 to 40 percent more, the lawsuit said" (Pear, 10/18).

Detroit Free Press: "Blue Cross Blue Shield of Michigan was so eager to crush the competition that it sometimes paid even more than it proposed if a hospital agreed to charge other insurance companies much higher prices, state and federal attorneys charged Monday in a lawsuit filed in Detroit's federal court. Millions of Michigan consumers have paid higher health insurance premiums over the last three years because Blue Cross Blue Shield of Michigan forced at least 70 hospitals statewide to charge its competitors more, according to" the lawsuit (Anstett, 10/19).

The Wall Street Journal: "The civil antitrust suit could be the first of many, the Justice Department hinted, as it seeks to foster greater competition in the health-insurance market. The action comes as the Obama administration faces pressure to demonstrate that it can help tackle rising health-care costs. 'This cannot be allowed in Michigan, and let me be clear: we will challenge similar anticompetitive behavior anywhere else' in the U.S., said Christine Varney, the assistant attorney general in charge of the Justice Department's antitrust division" (Catan and Johnson, 10/19).

The Washington Post: "The nonprofit Blue Cross plan in Michigan covers more than nine times as many Michigan residents as its next-largest commercial competitor and more than 60 percent of the state's commercially insured population, the government said. In light of the company's market share, Michigan hospitals could be hard pressed to operate without access to Blue Cross customers." Most favored nation clauses "are not inherently illegal, but the government says Blue Cross's use of them went too far.… The Justice Department settled a spate of similar cases in the 1990s. Department officials would not say whether the government is pursuing similar cases against other insurers" (Hilzenrath, 10/18).

USA Today: "Blue Cross spokesman Andrew Hetzel said the lawsuit lacked merit. 'These kinds of low cost guarantees are widely used in a variety of contracts in a number of industries,' Hetzel said. He warned the Justice Department's suit could boost health costs by restricting the company's ability to negotiate 'deeply discounted' prices for its members. … Blue Cross Blue Shield of Michigan, a non-profit created under state law to provide affordable insurance, had $10 billion in revenues last year. … The Massachusetts Attorney General's Office and the Justice Department have been investigating possible anticompetitive behavior in that state as well. In April, The Boston Globe reported that the Justice Department sent a letter demanding contracting documents to Partners Healthcare System — a large hospital and doctor network — Blue Cross Blue Shield of Massachusetts and two other insurers" (Young, 10/19).

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.