On the line for Mich. Blues
Decision on ‘most favored nation’ clauses could affect federal litigation
What Michigan Insurance Commissioner Kevin Clinton has to say about certain Blue Cross and Blue Shield of Michigan provider agreements could end up influencing the outcome of federal antitrust litigation and related civil suits against the insurer.
Clinton this month ordered that all “most favored nation” clauses in an insurer’s provider agreements with hospitals be prohibited after Feb. 1, unless he reviews them and grants prior approval.
The order applies to all insurers, but is only known, so far, to affect Blue Cross.
At issue are most-favored-nation and nation-plus agreements, two sets of billing arrangements Blue Cross allegedly began making with Michigan hospitals in 2007. Those are the basis of a 2010 joint civil action against the Blues by the U.S. Justice Department and Michigan attorney general’s office (Oct. 25, 2010, p. 6).
The more conventional most-favorednation agreements allegedly required only that Blue Cross get a billing rate at least equal to any other insurer. The “plus” agreements allegedly caused hospitals to charge the competitors more.
Blue Cross has argued unsuccessfully in past efforts to dismiss the Justice lawsuit that it is immune from antitrust liability because its actions are related to various state-mandated duties under Public Act 350 of 1980, which establishes the powers and duties of not-for-profit plan providers as well as defining state oversight.
Clinton, in the recent order, found the most-favored-nation agreements may violate that same law, along with two others, at least without prior review and approval.
Blue Cross covered more than 4.3 million people in 2010, mostly in Michigan, according to data furnished to Crain’s; Justice in its lawsuit that same year alleged that Blues policies cover 60% of the state’s commercially insured population. The second-largest carrier was Grand Rapids-based Priority Health, with approximately 610,000 insured in 2010.
If Clinton rejects the Blues’ agreements, or the ban on them is still in effect once the Justice Department case goes to trial in August, local attorneys said it could strengthen the antitrust case and some related civil lawsuits by customers and competitors against the Blues over the charging agreements.
But if Clinton decides instead the agreements are legal, the Blues could use that to again press its immunity claim in court.
“If the state heavily regulates a business and specifically passed on regulating this, that can be a defense. So if these were reviewed and blessed, it could have a significant impact,”
“It has been our position all along that this is a matter of state regulation, not federal.” —Jeffrey Rumley, Blue Cross and Blue Shield of Michigan
said Keefe Brooks, founder and managing partner of the law firm Brooks Wilkins Sharkey & Turco in Birmingham, Mich., and attorney for two hospitals that were previously dismissed from the antitrust case.
Gregory Curtner, an antitrust attorney and coordinating partner for the Ann Arbor office of Schiff Hardin, said immunity would be much easier for Blue Cross to argue in court if the state had been involved in crafting mostfavored-nation agreements, rather than only becoming aware of them afterward as Clinton’s order suggests.
“I think (Justice) will take the position that unless you’re ordered by the state into it, and supervised directly by the state in that activity, the position that the state has some authority over you isn’t enough to excuse you,” Curtner said. “And that (state sanc- tion) didn’t happen here.”
Curtner said a finding that the agreements were in violation of state law can bolster the government’s claims against Blue Cross, and could lead to other customers and competitors joining the related prospective class action against Blue Cross in federal court.
“If you just built a better mousetrap, and obtained a monopoly by drawing customers away from your competitors, that’s a lawful monopoly. But if you obtained a monopoly by improper means, it’s much more likely the jury will find it violates (federal) law,” Curtner said. “It certainly gives the plaintiffs a leg up in front of the jury, if it turns out the agreements are illegal just by themselves.”
Blue Cross Vice President and General Counsel Jeffrey Rumley said Blue Cross is still studying Clinton’s ruling to gauge how it impacts the antitrust case. Gina Talamona, deputy director of public affairs for the Justice Department’s antitrust division, said that agency is also reviewing the order but declined to comment on it.
Rumley also said the insurer plans to submit its most-favored-nation clauses for Clinton’s review, but is awaiting guidance from the state on how to proceed with that. “This is a positive development. It has been our position all along that this is a matter of state regulation, not federal,” he said.
Todd Stenerson, partner at Hunton & Williams in Washington, D.C., and co-counsel for Blue Cross, said the insurer continues to maintain in court that the agreements “are part of Blue Cross’ efforts to keep down healthcare costs, to provide improved quality and ... benefit the citizens of Michigan” as Public Act 350 requires.
Rick Murdock, executive director of the Michigan Association of Health Plans, said many of its members believe the agreements violate federal law and the courts should review them further.
Clinton’s decision “is an order issued by our current commissioner; other commissioners might take a different position, and clarity going forward is vital,” he said in an email. “It is also important for the federal courts to determine what damages should be awarded to the companies who have been harmed by the Blues’ antitrust activities.”