DETROIT -- The Justice Department filed an antitrust suit Monday against Blue Cross Blue Shield of Michigan, accusing the giant health insurer of using its market clout to stifle competition and cause consumers to pay more for hospital care.
The lawsuit, filed in U.S. District Court in Detroit and joined by the state of Michigan, said Blue Cross contracts with at least 70 of the acute care hospitals in the state force them to raise prices and prevent other insurers from competing with them.
Antitrust officials say the provisions likely resulted in Michigan consumers paying higher prices.
The provisions being challenged are known as "most-favored nation" clauses or MFN clauses. In the health care realm, they generally refer to contractual clauses between health insurance plans and health care providers that -- according to the Justice Department -- "essentially guarantee that no other plan can obtain a better rate than the plan wielding the MFN."
Blue Cross defended its use of the discounts.
"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," said Andrew Hetzel, vice president of Blue Cross corporate communications.
"Through this lawsuit, the federal government seeks to deny millions of Michigan residents the lowest cost possible when they visit a hospital."
Hetzel said the discounts are a vital part of Blue Cross' mission to provide Michigan residents with statewide access to health care at a reasonable cost.
The Justice Department says the Blue Cross MFN clauses in contracts with hospitals have caused them to increase their prices to Blue Cross competitors, thereby protecting Blue Cross from competition.
"American consumers deserve affordable health care at competitive prices, and the Antitrust Division will vigorously pursue anticompetitive actions that stand in the way of achieving that goal," said Christine Varney, assistant attorney general in charge of the Department of Justice's Antitrust Division.
"The department's lawsuit alleges that the intent and effect of Blue Cross Blue Shield of Michigan's MFNs is to raise hospital costs for competing health plans and reduce competition for the sale of health insurance," Varney added. "As a result, consumers in Michigan are paying more for their health care services and health insurance."
Michigan Attorney General Mike Cox criticized Blue Cross' practices.
"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," Cox said. "These greedy deals are hardly what the Legislature had in mind when it created Blue Cross."
Cox said a joint investigation by the Justice Department and his office found that Blue Cross ramped up its practice of requiring MFN clauses three years ago when it threatened to cut payments to 45 small, rural hospitals by up to 16 percent if the hospitals refused.
He said the probe also found that Blue Cross obtained clauses with at least 23 larger hospitals by offering to increase the amount Blue Cross paid those facilities, provided all other insurers paid more. He said the practice put other insurers at a competitive disadvantage while raising prices for everyone.
Cox said the clauses forced other insurers to pay hospitals as much as 39 percent more than Blue Cross.
Blue Cross is the largest health insurance provider in Michigan, covering more than three million residents or 60 percent of the commercially insured population. It insures more than nine times as many residents in Michigan as its next-largest competitor, the Justice Department said.
The Justice Department wants U.S. District Judge Denise Page Hood to permanently enjoin Blue Cross from using MFNs with any hospitals in Michigan and to strike the clauses in existing contracts.