On the line for Mich. Blues

De­ci­sion on ‘most fa­vored na­tion’ clauses could af­fect fed­eral lit­i­ga­tion

Modern Healthcare - - THE WEEK IN HEALTHCARE - Chad Hal­com

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.”

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