UPDATE: Blue Cross Blue Shield issued a statement below on the law suit filed by the Department of Justice and Michigan Attorney General Mike Cox.
Attorney General Mike Cox announced on Monday that his office and the U.S. Department of Justice have filed suit in federal court to stop Blue Cross Blue Shield of Michigan from its using what it calls anti-competitive Most-Favored-Nation clauses in reimbursement contracts with approximately half of Michigans hospitals.
The lawsuit alleges that MFN clauses gives Blue Cross an unlawful advantage over other insurers by requiring hospitals to charge the other insurers more than they charge Blue Cross, driving up prices for consumers and damaging competition in the health care market place -- all to benefit Blue Cross market share.
"It is deeply disturbing that Blue Cross, a nonprofit created to help Michigan citizens, would strong-arm hospitals at the expense of hard-working families, said Cox. These greedy deals are hardly what the legislature had in mind when it created Blue Cross. We need more competition to keep prices down, but with the support of our tax dollars, Blue Cross is doing everything it can to kill its competition.
He said a joint investigation by the U.S. Department of Justice and Coxs office revealed that Blue Cross ramped up its practice of requiring MFN clauses in 2007, threatening to slash payments to 45 small, rural hospitals by up to 16 percent if the hospitals refused.
Cox said the investigation also revealed that Blue Cross secured MFN clauses with at least 23 larger hospitals by offering to increase the amount Blue Cross paid hospitals, as long as all other insurers paid more, putting other insurers at a competitive disadvantage while raising prices for everyone.
For these larger hospitals, the clauses that Blue Cross secured were an even costlier type of MFN called an MFN-plus. Cox said these clauses require hospitals to give Blue Cross better prices than other insurers, while adding on a specific percentage increase -- in some instances resulting in other insurers paying as much as 39 percent more than Blue Cross.
In all cases, the Cox and DOJ suit alleges Blue Cross stifles competition to protect its market share, leading to higher costs and keeping new insurers from entering markets. One example cited in the suit is MFN clauses at Marquette Hospital require other insurers to pay the hospital at least 23 percent more than Blue Cross. Other insurers at Beaumont Hospitals are required to pay 27 percent more. And Blue Cross competitors at Covenant Medical Center are required to pay at least 39 percent more.
The joint lawsuit filed today challenges Blue Cross practices under both state and federal antitrust law. The suit seeks an injunction to end all variations of MFN clauses by alleging violations of Section 1 of the federal Sherman Act and Section 2 of the Michigan Antitrust Reform Act, both of which prohibit contracts that unreasonably restrain trade or commerce.
In 1999, the U.S. Department of Justice successfully challenged Blue Cross Blue Shield of Ohios use of MFN clauses under Section 1 of the Sherman Act in the case U.S. v Medical Mutual of Ohio (formerly Blue Cross Blue Shield of Ohio).
Cox said both hospitals in Saginaw, Covenant and St. Mary's, have MFN-plus contracts with Blue Cross. At Covenant, the Blue Cross contract requires the hospital to charge most of Blue Cross's competitors at least 39 percent more than the hospital charges Blue Cross. In Flint, Blue Cross has an MFN-Plus contract with the Genesys Regional Medical Center that increases prices for competitors at both East and West Campuses.
Hospitals have cooperated with the investigation. The 23 hospitals across Michigan with MFN-plus provisions are:
-Alpena Regional Medical Center (Alpena)
-Genesys Regional Medical Center (Flint)
-St. Mary's of Michigan Medical Center (Saginaw)
-St. Joseph Health System (Tawas City)
-Borgess Medical Center (Kalamazoo)
-St. John Providence Health System (Detroit) (6 hospitals)
-St. John Hospital (Detroit)
-Southfield Providence Hospital (Southfield)
-Providence Park Hospital Novi (Novi)
-St. John Hospital North Shore Campus (Harrison Township)
-St. John Macomb Oakland Hospital (Warren and Madison Heights)
-St. John River District Hospital East China (East China Township)
-Botsford Hospital (Farmington Hills)
-Covenant Medical Center (Saginaw)
-Dickinson County Memorial Hospital (Iron Mountain)
-Gratiot Community Hospital (Alma)
-Marquette General Hospital (Marquette)
-Metro Health Hospital (Grand Rapids)
-Mid-Michigan Medical Center in Midland (Midland)
-Munson Medical Center in Traverse City
-Sparrow Hospital (Lansing)
-William Beaumont Hospital Royal Oak
-William Beaumont Hospital Troy
-William Beaumont Hospital Grosse Pointe
In addition, 45 of Michigans Peer Group 5 rural hospitals each have MFN provisions as part of their Participating Hospital Agreements with Blue Cross. Peer Group 5 hospitals have less than 100 beds and provide access to care in areas where no other care is available. Many of these hospitals are classified by Medicare as Critical Access Hospitals.
Peer Group 5 Hospitals with MFN provisions include:
-Allegan General Hospital (Allegan)
-Aspirus Keweenaw Hospital (Laurium)
-Aspirus Ontonagon Hospital (Ontonagon)
-Baraga County Memorial Hospital (LAnse)
-Bell Memorial Hospital (Ishpeming)
-Borgess/Pipp Health Center (Plainwell)
-Borgess-Lee Memorial Hospital (Dowagiac)
-Bronson LakeView Hospital (Paw Paw)
-Bronson Vicksburg Hospital (Vicksburg)
-Caro Community Hospital (Caro)
-Charlevoix Area Hospital (Charlevoix)
-Clinton Memorial Hospital (St. Johns)
-Community Hospital Watervliet (Watervliet)
-Deckerville Community Hospital (Deckerville)
-Eaton Rapids Medical Center (Eaton Rapids)
-Grand View Hospital (Ironwood)
-Harbor Beach Community Hospital Inc (Harbor Beach)
-Hayes Green Beach Memorial Hospital (Charlotte)
-Helen Newberry Joy Hospital (Newberry)
-Herrick Medical Center (Tecumseh)
-Hills & Dales General Hospital (Cass City)
-Huron Medical Center (Bad Axe)
-Kalkaska Memorial Health Center (Kalkaska)
-Mackinac Straits Hospital and Health Center (St. Ignace)
-Marlette Regional Hospital (Marlette)
-McKenzie Memorial Hospital (Sandusky)
-Mercy Health Partners Lakeshore Campus (Shelby)
-MidMichigan Medical Center-Clare (Clare)
-MidMichigan Medical Center-Gladwin (Gladwin)
-Munising Memorial Hospital (Munising)
-Northstar Health System (Iron River)
-Otsego Memorial Hospital (Gaylord)
-Paul Oliver Memorial Hospital (Frankfort)
-Portage Health Hospital (Hancock)
-Scheurer Hospital (Pigeon)
-Schoolcraft Memorial Hospital (Manistique)
-Sheridan Community Hospital (Sheridan)
-South Haven Community Hospital (South Haven)
-Sparrow Ionia Hospital (Ionia)
-Spectrum Health Kelsey Hospital (Lakeview)
-Spectrum Health Reed City Campus (Reed City)
-St. Mary's of Michigan Standish Hospital (Standish)
-Three Rivers Health (Three Rivers)
-VA Medical Center - Iron Mountain (Iron Mountain)
-West Shore Medical Center (Manistee)
The case, United States of America, State of Michigan v Blue Cross Blue Shield of Michigan, was filed Monday in the United States District Court for the Eastern District of Michigan.
The court will determine a pretrial schedule for the case against Blue Cross Blue Shield of Michigan once the insurer files its response to the lawsuit.
Blue Cross Blue Shield issued this statement in response to the DOJ and Cox law suit:
Blue Cross Blue Shield of Michigan today responded to a lawsuit by the U.S. Department of Justice (DOJ) Antitrust Division that seeks to restrict BCBSMs ability to provide the most deeply discounted rates from Michigan hospitals.
Negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michiganders, said Andrew Hetzel, BCBSM vice president for corporate communications. Through this lawsuit, the federal government seeks to deny millions of Michigan residents the lowest cost possible when they visit the hospital.
This lawsuit is without merit, and we will vigorously defend our ability to negotiate the deepest possible discounts for our members and customers with Michigan hospitals, Hetzel said. Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost. At a time when insurance premiums are increasing because of medical costs, it hurts consumers to remove tools that insurers use to negotiate the lowest possible cost for medical care in the hospital.
Because BCBSM is the only nonprofit healthcare corporation that is regulated by Michigan Public Act 350, it is the only Michigan insurer that is required to meet the cost, quality, and access goals required by statute. BCBSMs efforts to secure the lowest rates in hospital agreements are designed to benefit the people of Michigan consistent with BCBSMs statutory obligations. In fact, about 3 million more Michigan residents enjoy health care savings from Blue Cross Blue Shield of Michigan than any other insurer.
"It does not make good business sense for Blue Cross Blue Shield of Michigan to reimburse a provider at a higher rate than we can otherwise negotiate," said Hetzel. "These kinds of low cost guarantees are widely used in a variety of contracts in a number of industries. In fact, the federal government routinely requires its own vendors to abide by these same low cost requirements."
"For more than 70 years, we have committed ourselves to building a healthier Michigan. As the insurer of last resort, were the only insurer in Michigan that accepts everyone year-round who applies for coverage. We have a unique statutory mission to provide access to health care at a reasonable cost," said Hetzel. "We are committed to fulfill that mission every day."
Blue Cross Blue Shield of Michigan is a nonprofit corporation and an independent licensee of the Blue Cross and Blue Shield Association.