Justice Department Requires Health Insurance Divestiture in Montana

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The Department of Justice Antitrust Division announced on November 8 that it will require New West Health Services Inc. to sell the majority of its commercial health-insurance business to a third-party buyer and to provide additional relief in order to alleviate agency concerns that a proposed six-year exclusive agreement between five of New West’s six hospital owners and Blue Cross and Blue Shield of Montana, Inc. (Blue Cross) would substantially reduce health-insurance competition in the state.

Elimination of Competitor

According to the government's complaint, filed in the federal district court in Billings, Montana at the same time as the proposed settlement, the original planned transaction would have effectively eliminated New West—the third-largest health insurer in Montana—as a competitor in that market, resulting in higher prices and lower quality services.

New West is one of only two significant competitors to Blue Cross in the sale of commercial health insurance in the Billings, Bozeman, Helena, and Missoula areas of the state, the Antitrust Division stated.

The complaint alleged that the proposed transaction likely would have caused New West to exit the markets for commercial health insurance because, once the five hospital owners stopped purchasing health insurance from New West, they likely would have significantly reduced their support for New West and its efforts to win commercial health-insurance customers.

These anticompetitive effects would have been exacerbated by a provision in the parties’ agreement that requires Blue Cross to give the hospital owners two seats on Blue Cross’ board of directors if the hospitals do not compete with Blue Cross in the sale of commercial health insurance, the agency contended.

Proposed Acquirer

Under the proposed settlement, New West must promptly divest its remaining commercial health-insurance business to an acquirer with the "intent and capability to be an effective competitor." The Justice Department has tentatively approved PacificSource Health Plans, a non-profit health insurer based in Springfield, Ore., as the acquirer, and the hospital owners must first attempt to sell the assets to PacificSource before selling to another purchaser.

The proposed settlement further prevents the agreement from harming competition by providing the approved new entrant with the necessary assets to compete in the commercial health-insurance markets in Montana, and it also contains provisions to prevent Blue Cross from interfering with the acquirer’s ability to compete effectively.

The hospital owners would be required to enter three-year contracts with the acquirer to provide health-care services on terms that are substantially similar to their existing contractual terms with New West. At the acquirer’s option, New West and the five hospital owners must also use their best efforts to assign the health-care provider contracts not under their control to the acquirer or to lease New West’s provider network to the acquirer for up to three years.

These requirements were important, in the government's view, because to compete effectively, health insurers need a network of health-care providers at competitive rates.

Notification of Exclusive Contracts

Finally, Blue Cross would have to notify the department and the state of Montana before it used exclusive contracts with health-insurance brokers, or exclusive or most-favored-nation provisions in its agreements with health-care providers.

“This settlement ensures that Montana residents will continue to benefit from competitive choices for commercial health insurance,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division. “We are committed to preserving competition in the health-insurance industry because competition spurs insurers to lower prices, enhance services and increase quality.”

If approved by the court, the proposed settlement would resolve the lawsuit and the Justice Department’s competitive concerns.

The Justice Department worked closely with the Montana Attorney General’s office in its investigation of the agreement between Blue Cross and New West’s owners. “This is another example of close cooperation between the department’s Antitrust Division and state antitrust officials resulting in an outcome that protects competition and benefits consumers,” Acting Assistant Attorney General Pozen added.

The text of the proposed final judgment in United States v. Blue Cross Blue Shield of Montana, Inc., Case 1:11-cv-00123-RFC, will appear at CCH Trade Regulation Reports ¶51,000.

A press release, the complaint, and the proposed final judgment in the case appear on the website of the U.S. Department of Justice Antitrust Division.