US Justice Department, Michigan AG Charge Blue Cross With Price-Fixing

From the Detroit Free Press:

Millions of Michigan consumers have paid higher health insurance premiums over the last three years because Blue Cross Blue Shield of Michigan forced at least 70 hospitals statewide to charge its competitors more, according to a lawsuit filed Monday by the U.S. Justice Department and Michigan Attorney General Mike Cox.

The antitrust lawsuit alleges that Blue Cross -- the state's largest insurer -- used its muscle and size to negotiate deep discounts for itself.

The hospitals include Beaumont Hospitals, St. John Providence Health System and Botsford Hospital. The lawsuit alleges that the practice drove up prices for competitors such as Health Alliance Plan, one of the state's biggest health maintenance organizations, and at-large private insurers such as Aetna and Humana.

In some cases, Blue Cross paid hospitals more than what was proposed to close the deal, the Justice Department alleges. If it prevails, other insurers and their customers might get better deals on hospital prices.

In a statement, Blue Cross spokesman Andrew Hetzel said the insurer's negotiated discounts keep costs reasonable for its members. He said the lawsuit was "without merit."

The Justice Department has won five similar cases since 1994 in Ohio, Rhode Island, Oregon, Washington, D.C., and Arizona.

Suit against Blue Cross could have significant repercussions

Blue Cross Blue Shield of Michigan was so eager to crush the competition that it sometimes paid even more than it proposed if a hospital agreed to charge other insurance companies much higher prices, state and federal attorneys charged Monday in a lawsuit filed in Detroit's federal court.

Beaumont Hospitals, a three-hospital system based in Royal Oak, for example, charged Blue Cross competitors at least 25% more than it charged the Blues. The same happened at all of the Detroit-area hospitals in the St. John Providence Health System and more than 65 others around the state.

Michigan insurance industry leaders say the lawsuit could have a major impact on hospital service pricing.

The lawsuit "clearly identifies an issue that appears to have been impeding other carriers to compete," said Rick Murdock, executive director of the Michigan Association of Health Plans, which represents several dozen health plans in the state. "The association always has stood for creating affordable health care policies and a level playing field."

The U.S. Justice Department and Michigan Attorney General Mike Cox allege Blue Cross has been wielding its influence with more than half of the state's hospitals since 2007, when it started offering most-favored nation clauses, which gives preferential treatment to certain hospitals. They are seeking an injunction.

a link to the Michigan Attorney General's charges in PDF format. More in the Wall Street Journal.