Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Law firm subscriber alleges Blue Cross Blue Shield market allocation conspiracy, (Apr 15, 2016)

By Linda O’Brien, J.D., LL.M.

Blue Cross Blue Shield Association and its member plans 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 Burlington, Vermont (Barr, Sternberg, Moss, Lawrence, Silver & Munson, P.C. v. Blue Cross Blue Shield of Alabama, April 14, 2016).

The Blue Cross Blue Shield Association (BCBSA) is a trade association, owned and controlled by 36 independent, locally-operated commercial health plans that conduct business 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 Vermont (BCBS-VT) is a health insurance plan, operating under the Blue Cross and Blue Shield trademarks and trade names, and is the largest provider of health insurance in Vermont. Barr, Sternberg, Moss, Lawrence, Silver & Munson, P.C. is a law firm in southern Vermont which 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 PPFSC administers the rules and regulations that all BCBSA members must comply with, including licensing agreements, membership standards, and membership guidelines.

The independent Blue Cross and Blue Shield licensees, which include many of the largest health insurance companies in the U.S., are potential competitors that use their control of the BCBSA to coordinate their activities. The BCBSA is a vehicle used by the independent licensees to enter into agreements that allegedly restrain competition. Through the licensing agreements, membership standards, and membership guidelines, the independent licensees have divided the geographic market for health insurance into exclusive service areas allocated to those individual licensees, the lawsuit claims.

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 directly 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, the plaintiff maintains.

Each BCBSA member also 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 complaint alleges, 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—have reduced competition in regions across the United States and allowed BCBS plans to charge supra-competitive premiums. As a result of BCBS plans’ market allocation agreements, subscribers paid artificially inflated and supra-competitive health insurance premiums, the complaint states.

The plaintiff asserts claims for unjust enrichment and conspiracy in restraint of trade in violation of Sections 1 and 2 of the Sherman Act and the Vermont antitrust law. 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. 2:16-cv-00096-cr.

Attorneys: Jonathan R. Voergele and Adam R. Shaw (Boies, Schiller & Flexner) for Barr, Sternberg, Moss, Lawrence, Silver & Munson, P.C.

Companies: Blue Cross and Blue Shield Association; Blue Cross Blue Shield of Alabama

News: Antitrust AlabamaNews