The District Court for the Eastern District of Michigan recently
dismissed antitrust claims brought by the City of Pontiac against
Blue Cross Blue Shield of Michigan's practice of requiring
hospitals to enter into "MFN-Plus" contracts, which was
alleged to have significantly raised prices to Blue Cross's
competitors. City of Pontiac v. Blue Cross Blue Shield of
Michigan, 2:11-cv-10276, Mem. Opinion and Order Regarding Blue
Cross Blue Shield of Michigan's Motion to Dismiss (E.D. Mich.
Mar. 30, 2012) ("Order"). The City's complaint was a
follow-on to an antitrust suit filed by the U.S. Department of
Justice and the Michigan Attorney General in the same Court,
alleging Sherman Act violations of the same nature as set forth in
the City's complaint. Despite the fact, however, that the
DOJ's allegations were deemed to state viable antitrust claims,
the same Court dismissed the City's complaint under both
per se and rule of reason analyses.
Blue Cross is the largest commercial health insurance provider
in Michigan, covering more than 60% of the commercially-insured
population, and insures more than nine times as many Michigan
residents as its next largest commercial health insurance
competitor. Blue Cross has sought to include most-favored-nations
clauses in many of its contracts with hospitals. The MFN-Plus
clauses require the hospitals to charge some or all other
commercial insurers more than the hospitals charge Blue Cross,
typically by a much higher margin, ranging from 23% to 39%.
Moreover, Blue Cross has sought and obtained MFN-Plus in many
hospital contracts in exchange for increases in the prices Blue
Cross pays for that hospital's services. In these instances,
the City of Pontiac alleged, Blue Cross purchased protection from
competition by other insurers by causing hospitals to raise the
minimum prices charged to those competitors, but in doing so has
also increased Blue Cross's own costs. The City alleged that
these MFNs have caused many hospitals to: "(1) raise prices to
Blue Cross's competitors and all non-Blue Cross purchasers and
insured by substantial amounts; or (2) demand prices that are too
high to allow competitors to compete, effectively excluding them
from the market." (Order, at 3).
In opposing Blue Cross's motion to dismiss, the City
principally argued that its antitrust claims were properly
evaluated under the per se violation standard. The Court,
however, disagreed, holding that all vertical price restraints
between entities at different levels of the market structure are to
be judged under the rule of reason standard. (Id. at 13).
As Blue Cross and the hospitals were at different level of the
market structure – i.e., Blue Cross as the
purchaser of hospital services – the per se rule
did not apply.
Thus, in order to survive a motion to dismiss, the City had to
satisfy the rule of reason standard, which required sufficient
allegations that the MFN-Plus contracts produced adverse
anticompetitive effects within relevant product and geographic
markets. The Court found that the City's complaint, as well as
its arguments in opposition to Blue Cross's motion to dismiss,
gave sparse treatment to the rule of reason standard, instead
focusing almost exclusively on the per se standard.
(Id. at 14). While the Court held that the relevant
product market was sufficiently pled at the pleading stage (noting
that courts hesitate to dismiss claims for failure to plead such
fact-driven inquiries), it was not so forgiving of the City's
lack of factual allegations that the MFN-Plus contracts harmed
competition.
While the Court, as well as Blue Cross, acknowledged allegations
that one competitor had been deterred from entering the market,
"[o]ne single competitor is not an antitrust concern." In
the absence of any additional allegations, the Court held that such
bare factual allegations failed to state a plausible claim under
the rule of reason standard. Notably, in the DOJ suit, both parties
agreed from the outset that the rule of reason standard applied to
Blue Cross's MFN clauses. United States of America v. Blue
Cross Blue Shield of Michigan, 2:10-cv-14155-DPH, Mem. Opinion
and Order Denying Motion to Dismiss (E.D. Mich. Aug. 12, 2011).
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