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Blue Cross Blue Shield of Michigan Stifles Competition; Feds File Antitrust Suit

Posted Oct 21 2010 12:00am

The "retail prices" that hospitals charge for inpatient care are largely made-up numbers. They are set purposely high so that the discounted rates that are then negotiated with the health insurance companies are sufficient to cover costs and possibly earn a profit (see: Why the Prices Charged by Hospital for Inpatient Care Are Irrelevant ). These higher prices are only paid by the unfortunate minority who require care, lack health insurance, and have some assets. Some states like Oregon are launching web sites to provide some transparency regarding the substantial differences in the cost of an inpatient stay by hospital depending, in part, on the extent of competition in the local market (see: Comparing the Details of Hospital Charges in the State of Oregon ). Here's a quote from this latter note:

Insurance companies and employer groups negotiate steep discounts for patients admitted to the hospital and are covered by their insurance. Understanding that they will be reimbursed only a fraction of their posted charges, hospitals keep increasing them in order to cover their true costs, which are far less. Note the reference above to discounts to insurance companies [in Oregon} amounting to about 60 per cent.

To help correct this contrived, anti-competitive market, the federal government, joined by Michigan, have filed an antitrust suit against Blue Cross Blue Shield of Michigan to disrupt some of these cozy contractual arrangements (see: Mich., U.S. sue Blue Cross, charge anticompetitive pricing ). Here are some of the details about this case:

The Justice Department filed an antitrust suit...against Blue Cross Blue Shield of Michigan, accusing the giant health insurer of using its market clout to stifle competition and cause consumers covered by other health plans 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. 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 used of the discounts....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....[The Michigan Attorney General] 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% 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.

So not only did Blue Cross and Blue Shield of Michigan negotiate steep discounts with hospitals but the company also contractually prohibited these hospitals from offering similar discounts to competing insurance companies. The story gets even worse. The company actually offered to pay more to 23 larger hospitals in order to force other insurance companies to also pay more. There are obviously major problems in store for all of us with Big Medicine (Big Insurance + Big Pharma + Big Hospital Networks) and we need to address them as part of healthcare reform (see: Physician Private Practice Declines; the Last Barrier to Emergence of "Big Medicine" ). The part that I am not sure about is exactly who is going to protect us from Big Government.

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