DETROIT (CN) - Blue Cross Blue Shield of Michigan abused its overwhelming market power to monopolize the market and fix prices, driving up the cost of health care while driving other insurers out of business, according to an antitrust class action in Federal Court. The complaint, filed by a consumer and a company that buys health insurance, parallels a complaint the United States filed in October.
Uncle Sam claimed that Blue Cross agreed to pay more for services - inflating healthcare costs for consumers while leveraging its market power to destroy competition.
Because of its market control, Blue Cross has been able to demand that hospitals and doctors charge other insurers as much as or up to 40 percent more than what Blue Cross pays for medical services, according to the complaint.
Blue Cross is the largest health insurer in Michigan, insuring "over 60 percent of Michigan's commercially insured residents ... more than nine times its closest competitor," the class claims. It sucked up more than $10 billion in revenue in 2009 alone, the complaint states.
The class claims that Blue Cross used its standing to insist on adding "most favored nation" (MFN) clauses to its agreements with healthcare providers, which require them to charge other insurers as much as or more than they charge Blue Cross. In exchange, Blue Cross agreed to pay higher rates.
"This results in rising health care costs for all patients, regardless of whether they are insured by BCBSM, one of its competitors, or are self-insured," even with plans administered by Blue Cross, the class claims.
"Instead of using its market position as Michigan's largest commercial health insurer to negotiate against a hospital's proposed price increases, BCBSM enables these price increases while further cementing its position as the dominant commercial health insurer through MFNs," according to the complaint.
Blue Cross has contracts with 22 Michigan hospitals that require them to charge competitors up to 40 percent more than they charge Blue Cross, under an "MFN-plus" clause, the class claims.
Blue Cross also has "entered into agreements containing MFNs with more than 40 small community hospitals, which typically are the only hospitals in their communities, requiring the hospitals to charge other commercial health insurers at least as much as they charge BCBSM," the class claims. "A community hospital that declines to enter into these agreements would be paid approximately 16% less by BCBSM than if it accepts the MFN."
Blue Cross has not used negotiations to cut its costs, but has sought to increase minimum prices to crush competition, the class claims.
"By denying BCBSM's competitors access to competitive hospital contracts, the MFNs have deterred or prevented competitive entry and expansion in health insurance markets in Michigan, and increased prices for hospital services paid by plaintiffs and members of the class," the complaint states.
Blue Cross goes so far as to audit the hospitals, causing certain providers to "contract with BCBSM's competitors at prices even higher than the MFN requires, to avoid any question of compliance" or risk being penalized, the class claims.
Named plaintiffs the Shane Bradley Group and Bradley Veneberg say they were forced to purchase healthcare services at artificially inflated prices.
Helen Stojic, director of corporate affairs for Blue Cross, told Crain's Detroit Business that Blue Cross "must negotiate deep hospital discounts to keep premiums as low as possible," and that "the lawsuit has no merit."
The class seeks an injunction, reformation of contracts and damages for violations of the Sherman Act. Its lead counsel is David Fink with the Miller Law Firm of Rochester, Mich.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.