Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Health insurer allegedly conspired to allocate markets and fix premiums in Indiana, (Dec 11, 2014)

By Linda O’Brien, J.D., LL.M.

A large health insurance company engaged in a conspiracy with other health benefits providers to allocate markets through the use of license agreements and membership standards, resulting in increased health care costs in Indiana, according to a complaint filed in the federal district court of Indianapolis (Ray v. WellPoint, Inc., December 10, 2014).

WellPoint is the largest health insurance company operating in Indiana and has a 61 percent market share in the health benefits market in the state. Blue Cross Blue Shield Association (BCBSA) is owned and controlled by 38 independent health insurance plans, including WellPoint, that license the Blue Cross Blue Shield trademarks and trade names. The 38 licensees also control BCBSA’s Plan Performance and Financial Standards Committee (PPFSC) and the BCBSA rules and regulations, including the license agreements. Ryan Ray and Trent Kelso maintained individual health insurance policies covering themselves and their families with WellPoint.

The complaint alleges that, under the BCBSA license agreements, each independent licensee agrees not to compete outside of a designated “service area.” Through the BCBSA Guidelines and Membership Standards, each licensee agrees that at least 80 percent of its annual revenue be generated from services offered under the BCBSA trademarks and trade names. This provision allegedly limits the ability of each plan to generate revenue from non-Blue Cross Blue Shield brands and to develop such brands that would compete with Blue Cross Blue Shield (BCBS) branded business. Additionally, each licensee agrees that at least two-thirds of its annual revenue or national enrollment be generated from services offered under the BCBS trademarks and trade names. This limitation provides a licensee with minimal incentive to compete outside of its designated service area, the plaintiffs charged.

The 38 independent health plans that license Blue Cross Blue Shield trademarks and trade names could compete with one another. The restrictions in the license agreements and guidelines and membership standards constitute agreements between competitors to divide and allocate geographic markets. WellPoint, the largest Blue Cross Blue Shield licensee in Indiana, stated in its Form 10-K filed with the Securities and Exchange Commission in February 2011, that the plan had no right to market products and services using BCBS names and marks outside the states it was licensed to sell BCBS products, the complaint states.

In addition to the territorial restrictions, the rules and regulations created by BCBSA licensees include provisions that restrict the ability of non-members of BCBSA to acquire control over any member plans. The acquisition restrictions reduce competition since they substantially reduce the ability of non-member insurance companies to expand their business and require them to build their own networks in order to expand into a new geographic area. There are numerous BCBS plans that would compete in Indiana but for the illegal territorial restrictions, according to the complaint.

The complaint alleges that numerous BCBS plans had adopted “most favored nation” (MFN) clauses in their reimbursement agreements. The MFNs require a service provider to charge a BCBS entity either more than, or no less than, what the provider charges the BCBS entity for the same services. The use of MFNs was alleged to unreasonably reduces competition by (1) establishing that the dominant market provider will be charged the lowest prices and (2) eliminating an incentive for the dominant market provider to reduce overhead costs.

WellPoint’s illegal conspiracy has perpetuated its monopoly power and has resulted in inflated premiums charged to Indiana WellPoint enrollees, the complaint charges. The inflated premiums would be not possible if the market for health insurance in Indiana were truly competitive.

The plaintiffs assert claims for unjust enrichment and violations of Section 1 of the Sherman Act. The action seeks declaratory relief, damages, restitution, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-02026-WTL-TAB.

Attorneys: Jonathan C. Little and David E. Miller (Saeed & Little, LLP) for Ryan Ray and Trent Kelso.

Companies: WellPoint, Inc.

News: Antitrust IndianaNews