(This story has been updated with corrections.)
In a case that could be duplicated in other states around the country, a judge for the U.S. District Court in Detroit has ruled that the government has credibly alleged that a dominant insurer's contracts guaranteeing it the lowest prices are illegally harming the insurer's competitors and raising healthcare costs.
In a written opinion on a motion to dismiss the lawsuit, U.S. District Judge Denise Page Hood concluded that the Justice Department and the state of Michigan had made plausible-enough allegations against Blue Cross and Blue Shield of Michigan that she decided not to throw out the case. The ruling means the case could go to trial, pending the outcome of an appeal.
The Justice Department and the state of Michigan sued Blue Cross and Blue Shield of Michigan
last year, alleging that the insurer's use of “most favored nation” clauses
in contracts were illegally restraining free competition and driving up overall prices for healthcare in the state. Since then, federal investigators have sent requests for information on such contract provisions to five other Blue Cross insurers.
Blue Cross argued that its conduct was protected because it is a “quasi-public” entity using contracts to get the best rates for its customers.
Blue Cross Blue Shield of Michigan insures more than 60% of Michigan's commercially insured population. About 70 of the state's 130 acute-care hospitals have “most favored nation” contracts that guarantee Blue Cross the lowest rates—contracts that are often signed when a hospital seeks a large rate increases.
In June, Hood said from the bench that she planned to deny Blue Cross' motion to dismiss the antitrust lawsuit—prompting the insurer to appeal the decision to the Sixth Circuit Court of Appeals in Cincinnati on Aug. 5, a week before Hood had even issued her written ruling on Aug. 12.
In that opinion, Hood rejected Blue Cross' argument that the insurer was protected by the doctrine of “state action”—a defense that says state-created entities can legally displace competition to carry out a state's goals. Hood wrote that nothing in state law allowed Blue Cross to “stifle competition” for health insurance, as the insurers' critics allege.