U.S. Sues Blue Cross Over Pricing By Robert Pear October 19, 2010 New York Times

The Justice Department sued Blue Cross Blue Shield of Michgan on Monday, asserting that the company, the state's dominate health insurer, had violated antitrust lawsand secured a huge competitive advantage by forcing hospitals to charge higher prices to Blue Cross's rivals.


The civil case appears to have broad implications because many local insurance markets, like those in Michigan, are highly concentrated, and Blue Cross and Blue Shield plans often have the largest shares of those markets.


In the Michigan case, the Obama administration said that Blue Cross Blue Shield had contracts with many hospitals that stifled competition, resulting in higher health insurance premiums for consumers and employers.


The state of Michigan was also plaintiff in the lawsuit filed in the Federal District Court in Detroit.


Blue Cross and Blue Shield, like most insurers, contracts with hospitals, doctors, labs and other providers for services. The lawsuit took direct aim at clauses stipulating that no insurance companies could obtain better rates from the providers than Blue Cross. Some of these contract provisions, known as "most favored nation" clauses, require hospitals to charge other insurers a specified percentage more than they charge Blue Cross - in some cases, 30 to 40 percent more, the lawsuit said.

Christine A. Varney, the assistant attorney general in charge of the antitrust division of the Justice Department, said these requirements were "pernicious."

"Our lawsuit alleges that the intent and effect of Blue Cross Blue Shield of Michigan's contracts is to raise hospital costs for competing health plans and reduce competition for the sale of health insurance," Ms. Varney said. "As a result, consumers in Michigan are paying more for their health care services and health insurances."

The Contract terms, she said, discouraged discounts and prevented other insurers from entering the market.

The lawsuit also asserts that blue Cross, in effect, bought protection from competition- by agreeing to pay higher prices to certain hospitals to induce them to agree to the "most favored nation" clauses.

Blue Cross Blue Shield of Michigan said the lawsuit had no merit. It said the contract clauses attacked by the Justice Department were a tool to secure the lowest possible hospital costs, and the deepest possible discounts, for more than four million people it served.

"It does not make good business sense for Blue Cross Blue Shield of Michigan to reimburse a provider at a higher rate than we can otherwise negotiate," said R. Andrew Hetzel, a spokesman for the company. "These kinds of low-cost guarentees are widely used in a variety of contracts in a number of industries."