Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Employer subscriber alleges market allocation conspiracy among Blue Cross Blue Shield plans, (Feb 23, 2016)

By Linda O’Brien, J.D., LL.M.

Blue Cross Blue Shield Association and its member or affiliated companies engaged in anticompetitive conduct by conspiring to monopolize and allocate the markets for the sale of commercial health insurance by implementing restrictive license agreements, membership standards, and membership guidelines, according to a complaint filed in the federal district court in Birmingham, Alabama (Pettus Plumbing & Piping, Inc. v. Blue Cross Blue Shield of Alabama, February 22, 2016).

The Blue Cross Blue Shield Association (BCBSA) is a trade association owned and controlled by 36 independent locally operated commercial health plans that operate under the Blue Cross and Blue Shield trademarks and trade names. BCBSA operates as a licensor for the member plans. Blue Cross Blue Shield of Alabama (BCBS-AL) is a health insurance plan operating under the Blue Cross and Blue Shield trademarks and trade names and is the largest provider of commercial health insurance in Alabama. Pettus Plumbing & Piping, Inc. has approximately 185 employees and purchased Blue Cross Blue Shield health insurance.

The complaint alleges that the individual Blue Cross Blue Shield health plans are members of, and govern, BCBSA and also control BCBSA’s Plan Performance and Financial Standards Committee (PPFSC). The Committee administers the rules and regulations that all BCBSA members must comply with, including licensing agreements, membership standards, and membership guidelines. BCBC-AL and the other independent Blue Cross and Blue Shield licensees are potential competitors that use their control of BCBSA to coordinate their activities.

The independent Blue Cross and Blue Shield licensees include many of the largest health insurance companies in the United States. The BCBSA is a vehicle used by the independent licensees to enter into agreements that restrain competition, the plaintiff charged. Through the licensing agreements, membership standards, and membership guidelines, the independent licensees have divided the nation into exclusive service areas allocated to those individual licensees, the complaint alleges.

According to the complaint, the licensing agreements establish two key restrictions on non-Blue Cross Blue Shield competition. First, each BCBS licensee agrees that at least 80 percent of the annual revenue generated within its designated service area is derived from services offered under the BCBS trade names. Second, licensees agree that at least two-thirds of the annual revenue generated within or outside of its designated service area is derived from services offered under the BCBS trade names. These restrictions allegedly limit the ability of each BCBS plan to generate revenue from non-BCBS branded business and discourages each plan from developing non-BCBS branded business.

Additionally, each BCBSA member has agreed that each individual plan will exercise the exclusive right to use the BCBS brand within a designated geographic area, derive no revenue from services offered under the BCBS brand outside of that area, and derive at most one-third of its revenue from outside the exclusive area, using services offered under a non-BCBS brand. These restrictions on the ability of the individual health plans to generate revenue outside their service area constitute agreements between competitors to divide and allocate geographic markets, the complaint alleges.

Further, the lawsuit claims, the membership guidelines prohibit the acquisition of a BCBS plan by a non-BCBS plan without approval of BCBSA. The license agreements and guidelines also restricts the voting power of non-BCBS investors in BCBS plans in order to reduce the ability of non-member insurance companies to expand their business and compete against individual BCBS plans. These restrictions force competitors to build their own networks and prohibit them from acquiring new networks by purchasing existing BCBS plans.

The rules and regulations of BCBSA—including the licensing agreements, membership standards, and membership guidelines—constitute horizontal agreements between competitors that allocate the geographic market for health insurance. If BCBSA members were allowed to compete with each other, the result would be lower costs and lower premiums paid by their subscribers, the complaint states.

The plaintiff asserts claims for conspiracy in restraint of trade and conspiracy to monopolize in violation of Sections 1 and 2 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:16-cv-00297-RDP.

Attorneys: Robert G. Methvin, Jr., Phillip W. McCallum, and James M. Terrell (McCallum, Methvin & Terrell, P.C.) and Jeffrey L. Bowling (Bedford, Rogers & Bowling, P.C.) for Pettus Plumbing & Piping, Inc.

Companies: Pettus Plumbing & Piping, Inc.; Blue Cross Blue Shield of Alabama

News: Antitrust AlabamaNews