Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Blue Cross Blue Shield of Michigan’s ‘most favored nation’ agreements challenged by rival, (Oct 3, 2014)

By Linda O’Brien, J.D., LL.M.

Blue Cross Blue Shield of Michigan engaged in anticompetitive conduct to maintained a monopoly by entering into exclusionary contracts with hospitals under which hospitals were required to increase the rates they charged to the insurance provider’s competitors, according to a complaint filed in the federal district court of Detroit (Health Alliance Plan of Michigan v. Blue Cross Blue Shield of Michigan Mutual Insurance Co., October 1, 2014).

Blue Cross is the largest provider of commercial health insurance and the largest non-governmental purchaser of health care services, including hospital services, in Michigan. Health Alliance Plan of Michigan (HAP), the plaintiff, provides health insurance services, primarily through its health maintenance organization. HAP Preferred, Incorporated is a preferred provider network that leases its network of contracted hospitals and physicians to third-party administrators. Alliance Health and Life Insurance Company is a health insurer which contracts with hospitals and other health care providers to provide health care to its insureds.

The complaint states that, from 2000 to 2013, Blue Cross included most favored pricing (most favored nation or MFN) plus clauses in many of its contracts with hospitals. The MFN plus clauses required a hospital to provide services to Blue Cross competitors at either (1) higher prices than Blue Cross paid or (2) at prices no less than Blue Cross paid. The clauses guaranteed that Blue Cross competitors could not purchasing hospital services except at prices that were substantially greater than the prices that Blue Cross paid. Since hospital costs are the single greatest expense for health insurers, the use of the MFN clauses impeded the ability of insurers such as HAP to compete effectively with Blue Cross on price.

In 2013, the State of Michigan prohibited the use of most favored nation clauses as possible violations of the state insurance code. A U.S. Department of Justice action challenging the practice was then dropped. Nevertheless, Blue Cross’ use of the MFN plus clauses cause damage to HAP, other insurers, and consumers, and harmed competition, according to the plaintiff.

Blue Cross possesses monopoly power in the sale of commercial health insurance and monopsony power in the purchase of hospital services sold to commercial insurers in the relevant geographic market. According to American Medical Association analysis, Blue Cross has a 69 percent share of Michigan’s overall commercial health insurance market. The inference of Blue Cross’ monopoly power arising from its market share is corroborated by its ability to exercise its monopoly power by raising prices and excluding competitors through the use of exclusionary MFN plus clauses, the complaint alleged.

According to the complaint, there are substantial barriers to entry into the health insurance market as such entry would require the assembly of an extensive network of local hospitals and physicians in order to provide convenient care to potential subscribers from their preferred, local providers. Entry would also require the establishment of a known brand and reputation for reliable service which often takes years to achieve. Additionally, an entrant would need to contract with such providers at rates that are competitive with the established, dominant competitor.

The plaintiffs assert claims for monopolization, tortious interference with prospective advantage, and unlawful agreement in violation of Section 1 of the Sherman Act and the Michigan Antitrust Reform Act. The action seeks treble and exemplary damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:14-cv-13788-LPZ-MJH.

Attorneys: David A. Ettinger (Honigman Miller Schwartz & Cohn LLP) for Health Alliance Plan of Michigan, HAP Preferred, Inc., and Alliance Health and Life Insurance Co.

Companies: Health Alliance Plan of Michigan; HAP Preferred, Inc.; Alliance Health and Life Insurance Co.; Blue Cross Blue Shield of Michigan Mutual Insurance Co.

News: Antitrust MichiganNews