Michigan Attorney General Mike Cox and the U.S. Department of Justice (DOJ) have filed suit in federal court against Blue Cross Blue Shield of Michigan.
The suit seeks to stop the company from its use of allegedly anti-competitive "Most-Favored-Nation" (MFN) clauses in reimbursement contracts with approximately half of Michigan's hospitals. The lawsuit claims MFN status gives Blue Cross an unlawful advantage over other insurers by requiring hospitals to charge the other insurers more
than they charge Blue Cross. That, according to Michigan and DOJ, drives up prices for consumers and damages competition in the healthcare market place-all to benefit Blue Cross' market share.
"It is deeply disturbing that Blue Cross, a non-profit created to help Michigan citizens, would strong-arm hospitals at the expense of hard-working families," said Cox. "These greedy deals are hardly what the legislature had in mind when it created Blue Cross. We need more competition to keep prices down, but with the support of our tax dollars, Blue Cross is doing everything it can to kill its competition."
Pressure and pledges
A joint investigation by the DOJ and Cox's office revealed that Blue Cross ramped up its practice of requiring MFN clauses in 2007, threatening to slash payments to 45 small, rural hospitals by up to 16 percent if the hospitals refused. The probe also revealed that Blue Cross secured MFN clauses with at least 23 larger hospitals by offering to increase the amount Blue Cross paid hospitals, as long as all other insurers paid more, putting other insurers at a competitive disadvantage while raising prices for everyone.
For these larger hospitals, the MFN that Blue Cross secured was an even costlier type of MFN called an "MFN-plus." These clauses require hospitals to give Blue Cross better prices than other insurers, while adding on a specific percentage increase -- in some instances resulting in other insurers paying as much as 39 percent more than Blue Cross.
Competition stifled
In all cases it is alleged that Blue Cross stifles competition to protect its market share, leading to higher costs and keeping new insurers from entering markets. For example, MFN status at Marquette Hospital requires other insurers to pay the hospital at least 23 percent more than Blue Cross. Other insurers at Beaumont Hospitals are required to pay 27 percent more. And Blue Cross competitors at Covenant Medical Center are required to pay at least 39 percent more.
The joint lawsuit challenges Blue Cross' "anticompetitive practices" under both state and federal antitrust law. It seeks an injunction to end all variations of MFN clauses by alleging violations of Section 1 of the federal Sherman Act and Section 2 of the Michigan Antitrust Reform Act, both of which prohibit contracts that unreasonably restrain trade or commerce.
Ohio precedent
In 1999, the U.S. Department of Justice successfully challenged Blue Cross Blue Shield of Ohio's use of MFN clauses under Section 1 of the Sherman Act in the case U.S. v Medical Mutual of Ohio (formerly Blue Cross Blue Shield of Ohio).
