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March 25, 2013

Justice Department Moves to Dismiss Antitrust Action Against Blue Cross Blue Shield of Michigan, Following State Ban on Most Favored Nation Clauses

By Tobias J. Gillett, J.D., LLM.

The U.S. Department of Justice and the Michigan Attorney General filed a motion today in the federal district court in Detroit to dismiss without prejudice their antitrust lawsuit against Blue Cross Blue Shield of Michigan (BCBSM), Michigan's largest health insurer, following the Michigan legislature's March 18, 2013 enactment of laws banning the use of most favored nation clauses (MFNs) by health insurers, health maintenance organizations, and nonprofit health care corporations in their contracts with providers (United States v. Blue Cross Blue Shield of Michigan, Civil Action No. 2:10-cv-14155-DPH-MKM).

The Justice Department's lawsuit, originally filed October 18, 2010, had challenged BCBSM's use of MFNs in its agreements with health insurers. Under those agreements, conforming hospitals must charge other commercial insurers either at least as much as they charge BCBSM, or more than they charge BCBSM, usually by a set percentage. These agreements would essentially prevent any other health insurance plan from obtaining a better rate than BCBSM. BCBSM would allegedly agree to pay hospitals higher prices in order to obtain MFN clauses in its agreements.

The Justice Department alleged that the MFN contracts with Michigan hospitals decreased competition among health plans in Michigan and discouraged other health plans from entering the market or expanding their presence in it. The lack of competition allegedly increased the prices that Michigan employers, employees, and residents paid to health plans and hospitals.

The new Michigan legislation will bar health insurers, health maintenance organizations, and nonprofit health care corporations from including MFN clauses in their contracts with health care providers beginning January 1, 2014. The legislation follows Michigan Office of Financial and Insurance Regulation Bulletin 2013-04-INS, issued February 8, 2013, which rendered "void and unenforceable" all MFNs in use as of February 1, 2013, and prohibited any future attempt to use or enforce an MFN clause without the Commissioner's prior review and approval.

The Justice Department and the Michigan Attorney General agreed that the new legislation and the Commissioner's order made their antitrust litigation unnecessary, and therefore filed the present stipulated motion to dismiss. BCBSM has joined in the motion.

"The Department of Justice's antitrust lawsuit alleged that Blue Cross Blue Shield of Michigan's MFN clauses likely raised health care costs, harmed consumers and prevented other health plans from entering local markets," said Bill Baer, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "The law just enacted by Michigan addresses the department's concerns by eliminating MFNs and ensuring that Michigan consumers will benefit from enhanced health insurance competition."

In a press release announcing its motion to dismiss, the Justice Department noted that it continues to investigate the use of MFN clauses in health insurance contracts in other areas.

In addition to the Justice Department's lawsuit, various Michigan employers, individuals, and trust funds have filed a putative class action lawsuit against BCBSM seeking recovery of alleged overcharges resulting from BCBSM's MFN agreements with Michigan health care providers (Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, 2012-2 Trade Cases ¶78,156). The City of Pontiac, Michigan has also brought a proposed class action lawsuit (City of Pontiac v. Blue Cross Blue Shield of Michigan, 2012-1 Trade Cases ¶77,869), and BCBSM's competitor Aetna, Inc. has brought suit alleging that BCBSM's agreements harmed competition and its business (Aetna, Inc. v. Blue Cross Blue Shield of Michigan, 2012-1 Trade Cases ¶77,937).

Blue Cross Blue Shield of Michigan Reaction. BCBSM has released a statement acknowledging the motion to dismiss the lawsuit, and indicating its intent to move forward with "a new approach to health care value."

"Our consistent position has been that Michigan regulators exercise sufficient control over the use of MFN provisions between health insurers and hospitals," said Jeffrey Rumley, BCBSM vice president and general counsel. "The recent signing of legislation by our Governor which prospectively prohibits all carriers from using MFNs, as well as a prior order of the Insurance Commissioner prohibiting any insurer's use of MFNs absent prior approval, confirms this authority and renders moot any further need for the Justice Department and the State to pursue the case. Blue Cross is pleased that the Justice Department and the State join with us today in bringing this matter to a close."

Companies: Blue Cross Blue Shield of Michigan

MainStory: TopStory Antitrust AntitrustDivisionNews MichiganNews

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