(Story updated with additional background at 4:05 ET.)
Lawyers for the Justice Department and the state of Michigan have decided to drop their long-running antitrust lawsuit against Blue Cross and Blue Shield of Michigan over controversial “most-favored nation” contracts that were recently outlawed in the state.
Federal and state officials had accused the state's dominant insurer of using its market clout to force hospitals to sign the special pricing guarantees that effectively prevent other insurers from entering the state or competing for business.
The Michigan Blues' most-favored nation pricing deals guaranteed that it would receive the lowest contracted rate on any service, in some cases requiring hospitals to increase rates charged to other insurers. But the practice was outlawed by a state statute that goes into effect on Jan. 1, which made the lawsuit obsolete, the department said in an e-mailed announcement.
The Blues plan, which jointly filed the motion to dismiss with state and federal authorities (PDF)
on Monday, praised the decision to drop the case.
“Our consistent position has been that Michigan regulators exercise sufficient control over the use of MFN provisions between health insurers and hospitals,” Jeffrey Rumley, Michigan Blues vice president and general counsel, said in an e-mail. “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.”
The lawsuit has already been going on for 2½ years. It was scheduled for trial this October in District Court in Detroit after the 6th U.S. Circuit of Appeals in Cincinnati that the Michigan Blues could not use “state-action” immunity to shield it from antitrust lawsuits, even though the insurer was a legislatively created entity.
On Feb. 1, an order from the Michigan insurance commissioner's office went into effect banning hospitals or insurers from enforcing most-favored nation pricing agreements in insurance contracts unless they were approved by the state. And on Jan. 1, 2014, a new state law goes into effect barring contracts from containing MFN clauses.
“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,” Bill Baer, Assistant Attorney General in the Justice Department's antitrust division, said in an email. “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.”
The not-for-profit insurer had denied those allegations and said the contracts merely allowed its members to get the best possible rates, which fulfilled the company's state-mandated mission.
The controversy remains active in states across the country. The Justice Department said insurers in North Carolina recently stopped using most-favored nation clauses after the antitrust division worked toward “increased awareness” of potential legal issues with the practice there.