The Justice Department filed a civil antitrust suit against Blue Cross Blue Shield of Michigan this morning, alleging that the insurance company included provisions in its contracts with hospitals that were designed to drive up the cost of health care for Michigan residents.
The challenged provisions are known as “most favored nation” (MFN) clauses, which essentially guarantee that no other plan may obtain a better rate than the plan offering the MFN.
The Justice Department’s complaint, filed in the U.S. District Court for the Eastern District of Michigan, seeks an injunction that prohibits Blue Cross from including MFNs in their contracts with hospitals. The complaint, which was joined by the state of Michigan, also seeks to void any existing MFN clauses in contracts between Blue Cross and hospitals in that state.
In a press conference this morning, Christine Varney, assistant attorney general of the Justice Department’s Antitrust Division, said that Blue Cross “used its dominance to impose anticompetitive MFNs in contracts with approximately half of the general acute care hospitals” in Michigan.
The DOJ complaint says that at least 70 of Michigan’s 131 general acute care hospitals had MFN clauses in their contracts with Blue Cross Blue Shield. Among the hospitals cited in the complaint as having agreed to include MFNs in their contracts are Sparrow Hospital, Lansing, Mich.’s largest hospital; Ascension Health, Michigan’s largest hospital system; and three large hospitals in Detroit.
The MFNs in the Detroit-area hospitals require them to charge Blue Cross competitors at least 25% more than they charge Blue Cross, the complaint alleges.
Varney said that while MFNs are not illegal per se, companies with a significant market share can use them to raise the costs of rival companies. In some circumstances, the complaint alleges, Blue Cross agreed to pay higher prices to hospitals in exchange for a promise from the hospitals to charge the insurance company’s competitors even higher prices.
“These kinds of anticompetitive MFNs affect healthcare delivery and costs in a very fundamental way,” Varney said. “Any time a dominant provider uses anticompetitive agreements, the market suffers. This cannot be allowed in Michigan. And, let me be clear, we will challenge similar anticompetitive behavior anywhere else in the United States.”
Varney said that so far, the DOJ is not pursuing legal actions against the hospitals who agreed to include MFN clauses in their contracts. She would not comment, however, on whether the use of MFNs had led to similar allegedly anticompetitive practices in other states. “We can neither confirm nor deny the existence of Justice Department investigations elsewhere,” she said.
Varney also declined to comment on how much the allegedly improper MFNs might have cost Michigan residents in higher health care payments.
The team of DOJ lawyers handling the case is being led by Josh Soven, chief of the litigation I section of the Antitrust Division.
In a statement this morning, Sen. Patrick Leahy (D-Vt.) applauded the Justice Department’s suit against Blue Cross. Leahy said, “Given that much of the health insurance industry activity is shielded from the antitrust laws by an antiquated exemption, it is perhaps not surprising that insurers are also engaging in anticompetitive conduct that falls outside the exemption.”
In a statement, Andrew Hetzel, vice president for corporate communications at Blue Cross Blue Shield of Michigan, said, “This lawsuit is without merit, and we will vigorously defend our ability to negotiate the deepest possible discounts for our members and customers with Michigan hospitals. Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost. At a time when insurance premiums are increasing because of medical costs, it hurts consumers to remove tools that insurers use to negotiate the lowest possible cost for medical care in the hospital.”
Blue Cross is being represented by Hunton & Williams.