The U.S. Justice Department is investigating Blue Cross and Blue Shield of Ohio's practice of requiring hospitals to guarantee the insurer their lowest prices, say sources who've met with Justice Department officials.
Last week, four insurance companies in northeastern Ohio told Crain's Cleveland Business, a sister publication of MODERN HEALTHCARE, that they either had met with or were scheduled to meet with Justice Department officials. Three of the insurers said the department wanted to discuss what effect the use of a so-called "most-favored-nation" clause by Blue Cross had on them as competitors.
Under the most-favored-nation clause, Blue Cross must receive a hospital's lowest price for services if Blue Cross is the largest commercial insurer of the hospital's patients, said Steve Adams, a spokesman for Blue Cross. If a hospital wants to give a discount to another party, Blue Cross must be guaranteed the same price break, Mr. Adams said.
Blue Cross had no comment on the Justice Department's inquiries.
Gina Talamona, a spokeswoman for the Justice Department's antitrust division, said the department is engaged in ongoing investigations into the use of the most-favored-nation clause. She wouldn't comment on what department officials were doing in Cleveland.
In the past, Blue Cross competitors have complained that the most-favored-nation clause made it tough for them to secure competitive prices with hospitals.
Thomas J. Schaefer, executive director of the Prudential Health Care Plan of Northern Ohio, said he and other Prudential executives met with three Justice Department lawyers on Nov. 2.
Based on the discussion and information requested by the Justice Department, Mr. Schaefer said it was "clear the nature of the investigation revolves around the most-favored-nation policy of Blue Cross and Blue Shield" and how it affects hospital rate-setting in northern Ohio. Mr. Schaefer declined to elaborate on the questions asked by the officials or the information they requested.
However, Mr. Schaefer did read a letter issued by the Justice Department to Prudential Oct. 28. In that letter, the department said it was examining practices that may have "the purpose or effect of lessening competition in the delivery of hospital or medical services or lessening of competition or monopolization of the healthcare insurance market."
Mr. Schaefer said the Justice Department has requested a second meeting.
Jerome H. Gotthainer, president and chief executive officer of QualChoice, an insurance company owned by University Hospitals Health System, Cleveland, said the insurer received a "civil investigative demand" Nov. 2 from the Justice Department to request a meeting "regarding an investigation of Blue Cross" and antitrust impact of the most-favored-nation clause.
QualChoice is scheduled to meet with Justice Department officials within the next two weeks, Mr. Gotthainer said. "I think it's based on an investigation to determine what are the antitrust implications of the most-favored-nation clause," he said. "In order to do that, they're trying to find out (its) effect on competitors."
Terry Brooks, a spokeswoman for Kaiser Permanente, said executives met last week with Justice Department officials, who were seeking information on how the HMO operates.
An official of a fourth insurance company also told Crain's Cleveland Business that company executives had met recently with Justice Department officials. The official, who asked not to be identified, declined to comment on the specifics of the meeting.
The Justice Department's apparent interest in this issue is the latest public scrutiny encountered by the Blues. Last week, the U.S. Labor Department asked a federal judge to force the Blues to provide additional records for the department's investigation on how the insurer handles hospital discounts.
The focal point of the Labor Department investigation is the company's practice of basing consumer copayments on the full price of hospital bills rather than the discounted price Blue Cross negotiates.