By an order dated March 30, 2012, the United States District Court for the Eastern District of Michigan dismissed an antitrust claim brought by the City of Pontiac against Blue Cross Blue Shield (BCBS), the largest private health insurance provider in Michigan. In the case of City of Pontiac v. Blue Cross Blue Shield of Michigan, the City alleged that BCBS’ practice of requiring hospitals to charge higher fees to competitor insurance carriers is anti-competitive and results in higher prices for other insurers, thereby threatening their ability to remain viable. BCBS essentially trades higher payments for services to the hospitals in consideration of their agreement to this provision. This practice, which is known as “most favored nation plus” status, was asserted to be a “violation per se” of antitrust laws, resulting in higher prices for competitors.
To make a determination of whether an arrangement is a “per se” violation, one must first evaluate whether the collaborative arrangement involves agreements–such as jointly agreeing on prices–that are inherently anticompetitive. If so, the arrangement must demonstrate the following to avoid being determined per se unlawful:
1. the arrangement has the potential to yield significant benefits or efficiencies for consumers; and
2. the arrangement’s anticompetitive agreements and practices are subordinate to and reasonably necessary to achieve these potential benefits and/or efficiencies.
The court dismissed the City’s complaint because it determined that the arrangement was not horizontal in nature (i.e., among the hospital providers themselves who are direct competitors), but rather, was one of a vertical nature (i.e., between the provider and an entity at a different level within the same market; meaning, BCBS as a purchaser of hospital services). Horizontal arrangements are initially evaluated by the “per se” rule. An arrangement that is not “per se” unlawful is instead subject to the “rule of reason” analysis.
The “rule of reason” analysis primarily involves an assessment of whether a collaborative arrangement is likely to have anticompetitive effects–for example, result in prices above competitive levels–and if so, whether these potential effects are outweighed by any procompetitive efficiencies which would justify the collaborative arrangement or agreement. When assessing potential anticompetitive effects, one consideration is whether providers and health plans are capable of raising, and likely to raise, prices in their market above competitive levels. Another consideration is whether a collaborative arrangement is likely to prevent or impede the operation of other health plans or providers.
In order to survive the motion to dismiss, the City had to allege sufficient facts to justify proceeding on a “rule of reason” claim (because the arrangment was vertical instead of horizontal), but it failed to state factual bases for such allegations since it focused on the “per se” allegations. The complaint was, in short, determined to be inadequate.
The U.S. Department of Justice (DOJ) and the Michigan Attorney General also previously filed an antitrust action on the same matter (United States of America v. Blue Cross Blue Shield of Michigan), which is still proceeding. The parties to the DOJ case initially acknowledged that the “rule of reason” analysis applies.
For more information, please contact Carey F. Kalmowitz, Esq. or Ron Lebow, Esq. at (212) 734-0128 or (248) 996-8510 or by visiting the HLP website.