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Justice Department Sues Michigan Blue Cross

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By Laura Strachan, Esq. on October 19, 2010 12:51 PM

A lawsuit was filed in the Eastern District of Michigan over accusations that Michigan Blue Cross violated some important antitrust laws. The Justice Department sued Michigan Blue Cross on charges that the healthcare provider was illegally negotiating contracts with Michigan hospitals with the stipulation that Blue Cross' rivals could not have the same or better rates.

Reuters reports that the lawsuit has some problems with Blue Cross' "most favored nation" clauses present in many of the company's contracts. The complaint alleges that the presence of such clauses have forced hospitals to increase their prices, while at the same time insulated Blue Cross Blue Shield from competition. The most favored nation clauses was in at least 70 of Michigan's 131 general acute case hospitals.

Antitrust is essentially a body of state and federal laws designed to promote competition and protect commerce from unfair restraints, monopolies, and price-fixing. If these violations are found, a company can face both civil and criminal penalties. Blue Cross Blue Shield is the largest provider of health insurance in the state of Michigan.

Reuters quotes Michigan Attorney General Spokesman, John Sellek, on the antitrust violations:

"The investigation showed that Blue Cross increased its payouts to many hospitals to guarantee they would in turn charge other insurers up to 40 percent more, pricing them out of the market and raising prices on all Michigan consumers."

Rather than seeking financial penalties against the healthcare provider, the Justice Department is asking for injunctive relief, and hoping the suit will bring some price stability and competition back to the Michigan healthcare marketplace. For their part, Blue Cross plans to defend against the accusations. Reuters quotes Blue Cross spokesman Andrew Hetzel's emailed statement: "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."

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