Judge clears way for Michigan Blues antitrust trial

A federal judge's ruling is allowing a lawsuit against Blue Cross Blue Shield of Michigan to continue. The case involves the plan's use of "most-favored nation" contracts, which, in general, require contracted entities to give their lowest rate to a certain insurer.

The Michigan Blues asked that the case be dismissed because as a state-declared "insurer of last resort," it was a quasi-governmental agency overseen by regulators and could not be taken to task in court over its use of most-favored nation contracts. But an Aug. 12 order by U.S. District Court Judge Denise Page Hood in Detroit rejected that argument, clearing the way for a trial.

The U.S. Dept. of Justice and Michigan attorney general filed the lawsuit in the U.S. District court for Eastern Michigan in October 2010, alleging that the company was violating antitrust laws by using most-favored-nation clauses in its contracts with hospitals.

Blue Cross Blue Shield does not deny using most-favored-nation clauses but has argued that they are a legal and desirable way of getting the lowest possible prices for members.

Other insurers around the country, including Blues plans in South Carolina, Kansas and North Carolina, also received inquiries from the Dept. of Justice as part of the investigation into most-favored-nation clauses. Those investigations are ongoing.

Typical most-favored-nation contract clauses -- sometimes used in insurers' contracts with physicians -- require one party to guarantee it won't give a better deal to a competitor. When they are between insurers and hospitals or doctors, the insurer requires that it receive the lowest rate so that if a deal is signed with another plan for a lower rate, the most-favored plan's rate adjusts down.

The majority of most-favored clauses require a rate equal to the lowest one a hospital or doctor charges. But the government alleged that the Michigan Blues' contracts went beyond that, requiring hospitals to charge competing health plans a certain percentage more than it charged Blue Cross Blue Shield. Those contracts were referred to as MFN-Plus arrangements. The company also allegedly threatened to drop rates by 16% if the hospitals did not agree to an MFN-Plus contract.

If those allegations are true, the Michigan Blues' contracts were unusually aggressive, said David Garcia, a Los Angeles-based antitrust attorney and partner at the firm Sheppard Mullin. He is not involved in the case.

According to the judge's order, Blue Cross Blue Shield of Michigan used most-favored-nation clauses in its contracts with at least 70 of the state's 131 hospitals and used the MFN-Plus contracts in 22 of those cases.

The insurer argued in its motion to dismiss the case that it held special legal immunity because it was created by an act of the Legislature and is heavily regulated by the state as insurer of last resort in Michigan. The judge rejected that argument, saying that state legislation does not call for the plan to use most-favored nation clauses to prevent competition.

The ruling only allows the case to continue.

"There has been no ruling by the judge as to the merits of the case or that BCBSM contracts cause harm," company spokeswoman Helen Stojic said.

The Michigan Blues filed a notice of appeal to the 6th U.S. Circuit Court of Appeals, located in Cincinnati, on Aug. 5 following Hood's ruling from the bench June 7 -- well before her written order was published.

Pending a decision by the appeals court whether to hear the case, the trial is scheduled to begin in the U.S. District Court for Eastern Michigan in April 2013.