Blue Cross Blue Shield of Michigan seeks dismissal of federal antitrust lawsuit

Blue Cross Blue Shield of Michigan today filed a motion in U.S. District Court in Detroit seeking dismissal of the antitrust lawsuit brought by the U.S. Department of Justice and the Michigan Attorney General in October.  The company made two primary arguments:

• For nearly 70 years, entities like BCBSM that are enabled by state law and strongly and comprehensively regulated by state government have been protected against federal antitrust lawsuits by U.S. Supreme Court precedent.
• The government failed to meet the standard for filing an antitrust lawsuit – alleging specific facts that demonstrate economic harm caused by anticompetitive behaviors in specific geographic markets or within specific products.  No such facts were cited in the government's pleading.

The government's lawsuit seeks to eliminate provisions in contracts between BCBSM and some Michigan hospitals that guarantee the lowest prices for more than 4 million BCBSM members.  These provisions are known as "most favored nation" clauses, and are commonly used in a number of industries.  These types of provisions have never been invalidated by antitrust litigation.

"The government's lawsuit is deficient and should be dismissed as a matter of law," said Jeffrey Rumley, BCBSM vice president and chief legal counsel.  "It fails to recognize that the Michigan Blue Cross plan was enabled by state law and recognized by our Legislature as a primary vehicle to achieve critical public policy goals of the state – namely statewide access to health care at reasonable cost for all of Michigan's citizens.  U.S. Supreme Court precedent has long protected such state-related entities from federal antitrust claims, and that should continue to be the case here.

"Beyond that, the complaint fails to meet fundamental requirements for a case such as this to survive. The government has failed to allege any specific facts that support their conclusion that anticompetitive effects of most favored nation clauses outweigh the benefits to payers and consumers. They rely upon conclusory allegations because they have no facts. Competition worked as it should here."

BCBSM is uniquely and comprehensively regulated by state government under Michigan Public Act 350 of 1980 – BCBSM's enabling legislation.  Among PA 350's many requirements of BCBSM:

• BCBSM alone is mandated to fulfill PA 350's public policy objective to promote "reasonable access to, and reasonable cost and quality of, health care services for all the residents" of Michigan.  To fulfill its statutory requirement, BCBSM places a priority on contracting with all Michigan hospitals, and in contracting the best possible pricing with those hospitals using all the tools at its disposal, including but not limited to the use of "most favored nation" clauses in contracts.
• BCBSM alone is mandated by PA 350 to guarantee access to coverage for all applicants, regardless of medical history.  Because only BCBSM is required to guarantee access to coverage every day of the year, and guarantee the renewability of its policies, the company serves as the state's de-facto "insurer of last resort," which helps fulfill the public policy intent of Public Act 350.
• BCBSM's 35-member board of directors is specifically constituted under PA 350 – including four directors who are appointees of Michigan's Governor.  This gives the government a direct voice in managing the company.
• PA 350 gives the Michigan Insurance Commissioner, an appointee of the Governor, authority to oversee BCBSM's rate setting process, which is unique among insurers doing business in Michigan.  It enables the Insurance Commissioner to review and approve rates before they go into effect, essentially granting the Commissioner the ability to set BCBSM rates.  It also gives the Commissioner broad oversight powers, including the ability to review BCBSM's contracts with health care providers.  Oversight powers also are granted to the Michigan Attorney General, who can bring challenges to BCBSM rate increases that trigger public hearings and an administrative process of rate review.  These powers of the Attorney General are unique to regulating BCBSM.

"We conduct our business under a comprehensive regulatory system enabled by a 30-year-old Michigan statute that was written solely to govern Blue Cross Blue Shield of Michigan," Rumley said.  "Blue Cross Blue Shield of Michigan has unique responsibilities under state law.  These responsibilities are established to fulfill specific state policy objectives of access to health care and controlling its cost."

Those objectives are being met in Michigan.  According to a White House report, issued in September 2009, Michigan led all states from 1999-2009 in managing the growth of health care costs.  BCBSM's negotiated savings among all contracted health care providers in 2009 totaled $13 billion.  This lowers the cost of health care services and insurance for more than 40 percent of the state's population.  BCBSM also provides $16 million a year to support the state's S-Chip program, MIChild.  BCBSM's support enables statewide access to acute care hospitals at a cost of just $10 per family, per month.

"This litigation makes no sense.  The U.S. government is attacking the very model for a post-reform health insurance company," Rumley said.  "Guarantee coverage to all, provide universal access to hospitals, comply with strong regulations, manage down the cost of health care and maintain very little profit margin – these are all goals laid out for health insurance companies under health care reform.  This is our business model.  We employ these values every day here at Blue Cross Blue Shield of Michigan."