Why the $2.8B Blue Cross antitrust case won't die

Blue Cross and Blue Shield companies had good reason to believe they had moved on from a sweeping antitrust case that dogged them for more than a dozen years. 

Just five months ago, the Blue Cross Blue Shield Association and 33 Blues plans agreed to pay providers and other plaintiffs $2.8 billion and change their business practices to settle a lawsuit that originated in 2012. They made a similar deal with health plan sponsors in 2020. But a growing number of providers reckon they can get a better deal by opting out of the class-action settlement, which keeps the pressure on Blue Cross and Blue Shield carriers.

Related: Dozens of health systems reject $2.8B BCBSA antitrust deal

Last week, Danville, Pennsylvania-based Geisinger, Columbia, Cincinnati-based Bon Secours Mercy Health, Chicago-based CommonSpirit Health and more than 100 other health systems, along with physician groups and staffing firms such as TeamHealth, lined up to sue the insurers and the Blue Cross Blue Shield Association in new suits that signal dissatisfaction with the deal struck last year.

In the case that led to the settlements and the new complaints, providers and other plaintiffs allege the association and its licensees collude to keep provider reimbursements down and to restrain competition in the health insurance market, inflating costs for patients and employers.

The new lawsuits are before the U.S. District Court for the Northern District of California, the U.S. District Court for the Northern District of Illinois and the U.S. District Court for the Eastern District of Pennsylvania.

The Blue Cross Blue Shield Association declined to comment.

How did we get here?

The Blue Cross and Blue Shield system dates to 1929, when hospitals and physician groups established insurance plans. Blue Cross plans covered hospital care and Blue Shield plans covered physician services until the two combined under the Blue Cross Blue Shield Association in 1982.

Today, the association holds the rights to each brand name and licenses the them to 33 health insurance companies. More than 100 million people, or nearly one in three U.S. residents, are Blue Cross and Blue Shield members. Blue Cross insurers are the largest carriers in commercial markets, according to the American Medical Association.

These insurers originally were all nonprofits and sold policies in single states, which remains the case for most Blues carriers although companies such as for-profit Elevance Health and nonprofit Health Care Service Corp. offer Blues plans in multiple states through subsidiaries.

Their market dominance and unique structure have attracted increasing scrutiny.

“For a long time, the Blues have been pretty good business partners with providers. There was always an underlying business relationship and providers didn't really want to rock the boat too much. We're seeing that kind of dissolve,” said Doug Wolfe, co-founder and managing partner at the law firm Wolfe Pincavage, which represents nonprofit hospitals in payment disputes against insurers.

The first large sign the dynamic was changing appeared in 2003, when Dr. Kenneth Thomas, an obstetric surgeon in Connecticut, and Dr. Michael Kutell, a hematologist in Florida, sued the then-40 Blue Cross and Blue Shield companies and the association. The doctors alleged insurers violated the Racketeer Influenced and Corrupt Organizations Act of 1970 by systematically denying, delaying and suppressing physician reimbursements.

The Blue Cross defendants settled four years later, agreeing to pay healthcare workers more than $131.2 million and committing to a set of business practice changes, such as reducing prior authorization requirements.

The current case

Allegations of cartel-like behavior reemerged in 2012 when Jerry Conway, a chiropractor in Alabama, sued. Conway alleged the Blue Cross Blue Shield Association rule that affiliates cannot sell insurance in each other’s service areas violated the Sherman Antitrust Act of 1890. Nineteen lawsuits from providers and employers were consolidated into a single case with one track for health plan sponsors and another for providers.

Blue Cross and Blue Shield settled the case with health plan sponsors in 2020 and agreed to pay $2.7 billion to policyholders and employers. As part of the deal, the association lifted a rule that limited how much revenue insurers could generate from non-Blues branded businesses and allowed companies to compete against one another for large employers located in multiple states.

The trouble, according to the plaintiffs in the new lawsuits, is that the Blues failed to meaningfully change their practices since that 2020 settlement with plan sponsors.

Their skepticism may send Blue Cross and Blue Shield companies back to the drawing board. If more providers reject the 2024 deal than insurers anticipated, Blues companies may want to restructure the deal, Wolfe said.

“If too many hospitals opt out, then the defendants are not getting any relief, right? They’re just going to get sued over and over and over again,” Wolfe said.

There have been some shake-ups in the Blue Cross and Blue Shield system since the U.S. District Court for the Northern District of Alabama approved the providers settlement in December. Several carriers, such as Blue Shield of California, restructured and established separate holding companies to build up their non-Blues business, and others, such as Blue Cross Blue Shield of Michigan, have acquired Blue Cross and Blue Shield plans in other states.

But a lack of competition has persisted since the Blue Cross and Blue Shield defendants came to terms with plan sponsors five years ago: More than 95% of markets lack competition, according to the AMA findings.

That not only puts providers at a disadvantage against dominant insurers in their markets, it hampers the ability of Blue Cross and Blue Shield insurers to grow, said Katherine Hempstead, a senior policy officer at the Robert Wood Johnson Foundation, a philanthropy that funds healthcare research.

“A lot of these single-state Blues don't really have anything going on for themselves outside of their state,” Hempstead said.