Michigan Blue Cross Drops Acquisition Plan After U.S. Threatens Suit

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Blue Care Networks of Michigan and Sparrow Health System announced on March 8 that they were ending their agreement that would have enabled Blue Care Network to acquire the membership of Lansing, Michigan-based Physicians Health Plan of Mid-Michigan.

Blue Care Network is a nonprofit HMO owned by Blue Cross Blue Shield of Michigan. Physicians Health Plan of Mid-Michigan is a not-for-profit HMO owned by Sparrow, the largest hospital system in Lansing.

According to a joint statement, both organizations concluded that the transaction would not receive regulatory clearance without litigation.

The Department of Justice issued a statement on March 8, praising the decision. The Department had threatened to challenge the transaction on the ground that it would have given Blue Cross-Michigan control over nearly 90 percent of the commercial health insurance market in the Lansing area. Text of the Justice Department statement appears here on the Department of Justice Antitrust Division website.

“We welcome the decision by Blue Cross-Michigan and Physicians health Plan of Mid-Michigan to abandon their deal, which will preserve competition among health insurance companies in Lansing,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division. “The merger would have likely led to higher prices, lower levels of service, and decreased quality of health care for consumers.”

The Michigan Attorney General’s office worked with the Justice Department in investigating the competitive effects of the proposed merger.

In a March 8 statement, Michigan Attorney General Mike Cox called the collapse of the transition “great news for Michigan residents.” He went on to say that “[c]ompetition is the force that keeps prices down and quality up.”

Cox also questioned how the company could afford to buy other companies when it recently claimed to be struggling financially. He noted that Blue Cross Blue Shield of Michigan and its subsidiaries have spent over $350 million buying other companies since 2005, while claiming millions in losses and asking for massive rate increases.

The statement appears here on the Michigan Attorney General’s website.