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From Antitrust Law Daily, April 06, 2018

Per se rule to be applied in Blue Cross Blue Shield MDL

By Jeffrey May, J.D.

In multidistrict litigation against the Blue Cross Blue Shield Association and its licensee Blue Plans for allocating geographic markets for the sale of commercial health insurance and/or commercial healthcare financing services, the federal district court in Birmingham, Alabama, decided that the defendants’ aggregation of a market allocation scheme together with certain other output restrictions should be analyzed under the per se standard of review rather than rule-of-reason analysis. However, not all of the claims would be subject to per se scrutiny. Price fixing and boycott claims based on the defendants’ BlueCard program, which requires plans to make their local provider discounts available to all Blue Members, even if they lived in another plan’s service area, were to be analyzed under the rule of reason. While the court was able to reach a conclusion on the appropriate standard of review for the Sherman Act, Section 1 conduct, it denied the parties’ respective motions for summary judgment on a single entity defense (In Re: Blue Cross Blue Shield Antitrust Litigation, April 5, 2018, Proctor, R.).

Single entity defense. More than 30 "Blue Plans"—independent health insurance companies that are Blue Cross Blue Shield licensees—have been accused by subscribers and medical providers of, among other things, conspiring among themselves and the Blue Cross Blue Shield Association to geographically divide and allocate the health insurance markets throughout the nation. The defendants had argued that they operated as a single entity with respect to the governance of the Blue Cross and Blue Shield trademarks (the "Blue Marks").

After providing a detailed history and evolution of the Blue Cross and Blue Shield Organization, the court decided it could not determine whether the defendants were a "single entity" incapable of conspiring for purposes of Section 1 of the Sherman Act. Noting that the Blue Marks played a central role in the business strategy employed by the defendants in the case, the court recognized that, when the defendants merged the Blue Cross and Blue Shield Associations, they formed a single entity to license the Blue Marks. However, this undisputed fact was not dispositive. The court explained that competitors cannot get around the antitrust laws by making an otherwise horizontal agreement vertical. Further, it was genuinely disputed whether the defendants were acting as a single entity with respect to enforcing trademarks. Thus, the parties’ respective motions for summary judgment on the single entity defense were denied.

Standard of review. The Blues’ agreement as a whole was considered to determine the appropriate standard of review. The court did not hold that the allocation of exclusive service areas (ESAs) alone qualified as a per se Sherman Act violation. Rather, it pointed to other conduct that restrained the plans’ ability to compete, such as the National Best Efforts rule, which limited a plan's ability to generate health revenue from services offered under any unbranded or non-Blue brand. The court concluded that the National Best Efforts rule constituted a per se violation of the Sherman Act, particularly when layered on top of other restrictions the defendants had allegedly placed on competition.

The court explained that two Supreme Court precedents—U.S. v. Sealy, Inc., 388 U.S. 350 (1967) and U.S. v. Topco Associates, Inc., 405 U.S. 596 (1972)—were central authorities to consider in determining the appropriate standard of review for the alleged anticompetitive conduct by the Blue Plans and the association. The defendants failed to convince the court to depart from these decisions. The defendants had contended that Sealy and Topco presented examples of market allocation that could not be compared to the trademark licenses issued by the association.

In addition, the court considered and rejected the five arguments raised by the defendants in support of their position that the geographic market distributions should be analyzed under the rule of reason: (1) the association’s rules, including the ESAs, have plausible procompetitive benefits because they have facilitated the creation of new and unique products; (2) the ESAs were procompetitive because they "incentivize[d] Plans to focus on local needs of their members and providers"; (3) courts lacked experience with the types of service areas at issue in this case because the service areas "arose organically" from the predecessors to the current Plans use of common law trademarks; (4) Topco and Sealy were distinguishable from the service areas at issue in this case; and (5) the challenged restraints were not purely horizontal because some restraints are historically the product of vertical arrangements between insurance plans and the American Hospital Association or American Medical Association.

Rule-of-reason analysis was the better standard for evaluating price fixing and boycott claims against the defendants’ BlueCard program, the court decided. Noting that not all agreements between competitors that affect prices may be deemed price fixing, the court explained that this was not a classic price fixing scheme in which the competitors preset prices for purchasing goods between themselves that would be subject to per se scrutiny. The court also pointed to the plausible procompetitive benefits of the BlueCard program.

Reaction from counsel for health insurance subscriber class. "Our case alleges that, for decades, the Blue Cross Blue Shield system has operated as an illegal association of competitors trying to suppress competition in order to inflate their own profits at the expense of their customers," Hausfeld Chairman and Co-Lead Counsel Michael D. Hausfeld said in a statement announcing the decision. Hausfeld represents a class of subscribers of health insurance alleging that these rules have artificially inflated premiums and decreased consumer choice in the market for health insurance. "We look forward to taking our case to trial and achieving a nationwide injunction to stop these practices once and for all," he added.

The case is Master File No. 2:13-CV-20000-RDP.

Attorneys: Davis Cooper (Cooper & Kirk PLLC), Greg Wright (Wright Schimmel, LLC), and Michael D. Hausfeld (Hausfeld LLP) for Plaintiffs. Robert S. W. Given (Burr & Forman LLP) and Luther M. Dorr, Jr. (Maynard, Cooper & Gale, P.C.) for Blue Cross and Blue Shield of Alabama. Gwendolyn C. Payton (Kilpatrick Townsend & Stockton LLP) for Premera Blue Cross. Kathleen Taylor Sooy (Crowell and Moring LLP) Blue Cross Blue Shield of Arizona. Claudine Columbres (White & Case LLP) for Anthem, Inc. Stephen A. Walsh (Adams and Reese LLP) for Excellus Health Plan, Inc.

Companies: Blue Cross Blue Shield Assn.

MainStory: TopStory Antitrust AlabamaNews

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