Wednesday, December 22, 2010

Blue Cross Blue Shield of Michigan Seeks Dismissal of Government Antitrust Suit

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

Blue Cross Blue Shield of Michigan has asked the federal district court in Detroit to dismiss an antitrust suit brought by the U.S. Department of Justice and the State of Michigan, challenging provisions in the company's contracts with Michigan hospitals.

Blue Cross has raised four separate and independent grounds for dismissal of the government's attack on the health insurance provider's use of “most favored nation” (MFN) clauses.

The government alleges that Blue Cross raised hospital prices to competing health care plans and inflated the costs of health care services and insurance through the use of MFN clauses in its agreements with hospitals.

Some of the MFN clauses require hospitals to provide services to Blue Cross’s competitors at no less than Blue Cross pays. Other MFN clauses give Blue Cross an even better rate than the rate available to other plans.

Immunity, Abstention

In a December 17 motion to dismiss and brief, Blue Cross argues immunity under the state action doctrine of Parker v. Brown, 317 U.S. 341, 1940-1943 Trade Cases ¶56,250. According to the dismissal motion, state action immunity is appropriate because the State of Michigan created Blue Cross pursuant to a comprehensive health care regulatory structure under Michigan Public Act 350 of 1980.

The company contends that, as a quasi-public, state-created health care corporation, it only needs to show that the challenged conduct reasonably flowed from Michigan's policy to displace competition. The company asserts that, although it did not need to show that the conduct was actively supervised, the conduct was in fact actively supervised.

Blue Cross also makes the argument that, independent of the state action doctrine, the principles of abstention, set forth in Burford v. Sun Oil. Co., 319 U.S. 315 (1943), require the court to refrain from hearing the case because of its disruptive effect on state policy.

Sufficiency of Allegations

The complaint fails to allege viable legal claims under the U.S. Supreme Court's decisions in Bell Atlantic Corp. v. Twombly, 2007-1 Trade Cases ¶75,709, and Ashcroft v. Iqbal, 2009-2 Trade Cases ¶76,785, Blue Cross also argues. The insurer questions the alleged relevant markets and contends that the government failed to plausibly allege facts supporting a viable theory of legal harm.

“The government has failed to allege any specific facts that support their conclusion that anticompetitive effects of most favored nation clauses outweigh the benefits to payers and consumers,” said Jeffrey Rumley, Blue Cross vice president and chief legal counsel in a December 17 statement. “They rely upon conclusory allegations because they have no facts. Competition worked as it should here.”

Lastly, Blue Cross seeks dismissal of the Michigan antitrust law claims on the ground that the state laws specifically exempt the challenged conduct from their reach.

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