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DOJ Sings The Blues Over Michigan Healthcare Prices

Posted  November 5, 2010

The U.S. Department of Justice and the Michigan Attorney General have filed a civil antitrust lawsuit in the Eastern District of Michigan against Blue Cross Blue Shield of Michigan, Michigan’s largest health insurance provider, alleging its agreements with hospitals cause Michigan consumers to pay higher prices for their healthcare and insurance.

In United States v. Blue Cross Blue Shield of Michigan, the DOJ and the Michigan AG allege that Blue Cross has eliminated competition from other health insurers and raised Michigan health insurance prices through the use of “most favored nation” (MFN) clauses in its contracts with hospitals.

The agencies complain of two types of MFNs.  First is the “MFN-plus,” which requires a hospital to charge other commercial insurers more for the hosptial’s services than it charges Blue Cross. These clauses appear in at least 22 Michigan hospitals’ contracts, including some of “the most important [hospitals] in their respective areas.”  Second is the “Equal-to MFN,” which requires a hospital to charge other insurers at least as much for services as it charges Blue Cross.  Equal-to MFNs generally appear in contracts with small, local hospitals that are the only hospitals in their communities.

MFNs or similar clauses allegedly appear in Blue Cross’ agreements with more than half of Michigan’s general acute care hospitals.  DOJ predicts that hospitals that are currently without MFNs likely will have them soon:  Those “hospitals’ contracts have not been renegotiated in recent years, but Blue Cross is likely to seek MFNs when [they are] up for renegotiation, especially if the hospital requests a price increase.”  (emphasis added)

Blue Cross allegedly established the MFNs to ameliorate the recent “erosion” of its “hospital discount advantage.”  The complaint explains that traditionally, Blue Cross enjoyed “substantially better discounts for hospital services than other commercial health insurers.”  Recently, however, this advantage has been narrowed due to competition from other insurers.  Rather than seek lower prices from the hospitals, Blue Cross instead secured the MFN clauses.  The “purpose and effect” of these clauses allegedly has been “to prevent potential competitors from obtaining hospital services at prices close to Blue Cross’ prices and thereby becoming more significant competitive constraints on Blue Cross.”

The complaint seeks  to strike the MFNs from Blue Cross’s current agreements and to enjoin Blue Cross from securing any new MFNs.

Tagged in: Antitrust Litigation,