Legal experts and health insurance market observers tell The AIS Report they view the proposed class-action antitrust lawsuit filed earlier this year against Blue Cross and Blue Shield of North Carolina and the Blue Cross and Blue Shield Association as a potential game-changer. The suit, they say, has merit and the legal team behind it has framed the allegations in such a way that it could eventually win a judgment and bring competition to Blues markets in a way not possible today.

“This is a big deal, a serious challenge to Blue Cross’s exclusive territory provision that started way back in the 1930s, and a challenge to MFNs [most favored nation arrangements] as well,” says Roger Feldman, Ph.D., a professor of health insurance at the University of Minnesota who served as a senior staff member on President Reagan’s Council of Economic Advisors.

MFNs refer to preferential pricing programs between two parties. In the case of the lawsuit in North Carolina, the plaintiffs allege that Blue Cross and Blue Shield of North Carolina required providers to give it the best pricing for health care services in the market.

“If a health care provider does not agree to the MFN, that provider will not remain in or become a part of [the North Carolina Blues plan] network, which is generally an unacceptable result because [the North Carolina Blues plan] controls the vast majority of subscribers in North Carolina,” the suit alleges.

The MFNs, the suit adds, restrict competition by preventing competitors from negotiating for lower costs, “thus raising the prices other health insurers must pay to providers.”

Lawyers also note that the presence of high-profile attorney David Boies’s law firm (Boies Schiller & Flexner LLP) in the North Carolina proceeding has added to the notoriety of that particular suit. Boies represented Vice President Al Gore in the U.S. Supreme Court case that decided the 2000 presidential election, was an aggressive questioner of Bill Gates when working for the government in the antitrust legal action against Microsoft Corp. in the 1990s and a lead plaintiff’s attorney for a series of suits against major insurers (Aetna Inc., Cigna Corp., Foundation Health Systems Inc., Pacificare Health Systems Inc., Prudential HealthCare and UnitedHealthcare Inc.) in 2000.

“This is a very, very credible lawsuit and a very, very intelligent complaint,” Duke University Law Professor Barak Richman, Ph.D., stressed. “I would say this could open up competition amongst the Blues in territories they are now unable to compete.”

Cerven v. Blue Cross and Blue Shield of North Carolina and Blue Cross and Blue Shield Association claims the practice that bars 37 Blues affiliates from competing against each other permits local plans to accumulate market dominance in their home territories. That power, according to the allegations, allows the Blues to demand discount deals with hospitals that inflate medical costs under the MFN deals.

The Cerven in the lawsuit name refers to three plaintiffs (Kelli R. Cerven, Keith O. Cerven and Teresa M. Cerven) who are Blues enrollees living in Mooresville, N.C. The two other plaintiffs are two North Carolina businesses: CFW Vending LLC and SHGI Corporation. The firms offer their employees health insurance from Blue Cross and Blue Shield of North Carolina.

There are two proposed classes included in the class-action suit. First are the millions of people across the country currently insured by a health insurance plan party to a license agreement with Blue Cross and Blue Shield Association, and secondly are the individual or small group full-service commercial health insurance holders in North Carolina who have paid premiums to the North Carolina Blue, the lawsuit states.

The suit seeks a number of changes to the way the Blues are licensed by their national association. For the North Carolina class, the plaintiffs want damages at a level three times the amount by which premiums charged by Blue Cross and Blue Shield of North Carolina were “artificially inflated” above their competitive levels during the class period.

“Copycat” suits have appeared in other states like Alabama and Tennessee, and the North Carolina Blues plan was already the subject of a Department of Justice (DOJ) investigation into pricing power, as were Blues plans in other states. Further, the Justice Department and Michigan attorney general in 2010 filed a lawsuit challenging MFN contracts used by Blue Cross and Blue Shield of Michigan (The AIS Report 11/10, p. 5). Repeated attempts to have that suit thrown out have been denied (The AIS Report 9/11, p. 5).

Antitrust Concerns Are Nothing New

For its part, the North Carolina Blues plan and the Blues association asked a federal judge to toss out the lawsuit.

“We believe this complaint has no merit and have filed a motion to dismiss all of the allegations against us,” Kelly Miller, spokesperson for the association, told The AIS Report.

“We will continue to vigorously defend the Blue Cross Blue Shield model, which provides a distinct advantage for our members and customers: affordable access to a broad network of doctors and hospitals serviced by a local company with deep knowledge of, and commitment to, the local community,” she added.

In the court documents asking the court to reject the suit, the North Carolina Blues plan denies the MFN allegations, noting buyers across a wide range of industries make pricing deals to get the lowest prices possible. It also noted that North Carolina’s insurance commissioner approves premiums.

Legal experts say the actions at the center of the North Carolina suit, and others, are nothing new. “The Blue Cross [association] has had a series of antitrust problems over the years because of the way it is structured,” says University of Virginia Law Professor Thomas Nachbar. Although the association has been able to fend off complaints, it may have to defend its relationship with providers again in the suits in North Carolina and elsewhere, he adds.

Richman adds, “The conduct that they are saying is going on is conduct that has been going on for a long, long time.”

One reason why North Carolina was an attractive target lies in the market dominance the Blues plan holds across the state, Feldman said. The North Carolina Department of Insurance says 73% of North Carolina residents who subscribe to health insurance are North Carolina Blues customers.

“Blue Cross of North Carolina has one of the most dominant positions as it does in any state,” Feldman said. The lawsuit is “absolutely” credible, he added, and may be part of a change of attitude toward Blues plans over recent years.

“A number of Blue Cross plans have converted from nonprofit to for-profit status,” Feldman said. “[People may be saying] now that you shed the sheep’s clothing, you are nothing but a wolf,” he added.

Traditionally, Feldman said, Blues plans have fought off antitrust suits by declaring that exclusive territorial rights are needed to protect their trademark and maintain public trust with the plans and their insurance offerings. “That is a questionable argument, assuming consumers will get confused and consumers aren’t smart enough,” he said.

William Isaacson, partner with the Boies Schiller & Flexner law firm in Washington, D.C., pointed to the “horizontal” agreements not to compete in the licensing arrangements between the national association and its member plans as violations of the Sherman Act.

“What we’re focused on is the territorial restraint on competition amongst the Blue plans….What you’re seeing has been going on for decades,” Isaacson told The AIS Report.

Alan Sager, Ph.D., professor of health policy and management at the Boston University School of Public Health, says a recent upswing in federal government attention to the health insurance industry is likely behind the fresh round of Blues suits.

“We are seeing an upsurge in FTC [Federal Trade Commissions]/DOJ interest and they are addressing anti-competitive actions in health care. There is something of a recognition that you need competition for competition to happen,” Sager said.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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