On October 18, 2010, the Department of Justice (DOJ), along with the State of Michigan, filed suit under Section 1 of the Sherman Act and Section 2 of the Michigan Antitrust Reform Act to prohibit defendant Blue Cross Blue Shield of Michigan from including or enforcing “most favored nation” clauses (MFNs) in its contracts with Michigan hospitals. See http://www.justice.gov/opa/pr/2010/October/10-at-1160.html.

Under Section 1 of the Sherman Act, contracts that unreasonably restrain competition and affect interstate commerce are illegal. In its recent suit, the DOJ alleges that Blue Cross’ use of MFNs violates the Sherman Act because those contract provisions unreasonably restrain trade. The lawsuit differentiates between two forms of MFN clauses in use in Michigan. “MFN-plus” clauses require hospitals to charge Blue Cross competitors more than they charge Blue Cross (up to 40%). “Equal-to MFNs” require hospitals to charge other commercial insurance companies no less than what Blue Cross is charged. According to the Complaint, Blue Cross is the largest provider of commercial health insurance in Michigan. DOJ alleges that Blue Cross policies cover more than 60% of the insured population and that Blue Cross purchases hospital services from all 131 of the general acute care hospitals in the State of Michigan.

According to DOJ, very few hospitals have been able to refuse Blue Cross’ demand for an MFN, and, as a result, Blue Cross has agreements containing MFNs, or their equivalent, with 70 of Michigan’s 131 hospitals. MFN clauses raise concerns because they may prevent potential competitors from obtaining hospital services at competitive prices; they may also hamper the ability of hospitals freely to negotiate with other insurers and prevent hospitals from offering any discounts or other, innovative cost-saving strategies to Blue Cross competitors.

More specifically, DOJ alleges that Blue Cross’ MFNs are anti-competitive because they: (1) reduce the ability of other health insurers to compete with Blue Cross (or altogether exclude competitors in certain markets); and (2) raise prices paid by Blue Cross competitors and by self-insured employers. DOJ further alleges that, as a result of Blue Cross’ anti-competitive conduct, employers and individual purchasers pay more for health insurance in Michigan.

In the press release accompanying DOJ’s antitrust action, Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division stated: “American consumers deserve affordable healthcare at competitive prices, and the Antitrust Division will vigorously pursue anticompetitive actions that stand in the way of achieving that goal.”

For additional information, please find attached a link to our most recent client alert dated October 21, 2010, titled: “DOJ Brings Antitrust Suit Against Blue Cross Blue Shield of Michigan.”