DOJ, State files anti-trust suit against Blue Cross

WASHINGTON (AP) — The Justice Department alleged Monday in a lawsuit that Michigan Blue Cross Blue Shield is discouraging competition by engaging in practices that raise hospital prices, conduct an assistant attorney general vowed to challenge anywhere else it is found in the United States.

The suit targets "most favored nation" clauses between Michigan Blue Cross Blue Shield and health care providers which, according to the government, essentially guarantee that no competing health care plan can obtain a better rate.

Michigan Blue Cross Blue Shield has most-favored-nation clauses or similar language in contracts with at least 70 of 131 general acute care hospitals in the state, the government alleges.

The lawsuit said that Michigan Blue Cross Blue Shield intended to raise hospital costs for competing health care plans and reduce competition for the sale of health insurance.

"As a result, consumers in Michigan are paying more for their health care services and health insurance," Assistant Attorney General Christine Varney, who runs the Justice Department’s antitrust division, told reporters.

In some instances, the lawsuit states, Blue Cross has raised the prices it pays for hospital services in exchange for obtaining most-favored-nation clauses that raise the minimum prices hospitals can charge to Blue Cross competitors.

The state of Michigan joined the Justice Department in the case filed in federal court in Detroit.

In response, Michigan Blue Cross Blue Shield said the lawsuit is seeking to restrict the nonprofit company’s ability to provide the most deeply discounted rates from Michigan hospitals. The company said that negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michigan residents.

"Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost," the company said.

The lawsuit outlines two types of most-favored-nation clauses requiring a hospital to provide services to Blue Cross competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.

In alleging violations of the Sherman Act and the Michigan Antitrust Reform Act, the government said that under the "MFN-plus" clause, Blue Cross negotiated agreements requiring 22 hospitals to charge some or all other commercial insurers more than the hospital charges Blue Cross. Under the other clause, Blue Cross has agreements requiring more than 40 small, community hospitals to charge other commercial health insurers at least as much as they charge Blue Cross.

Varney declined to say whether the Justice Department has open inquiries in other states of most-favored-nation clauses, which are not illegal unless they stifle competition.

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Largest verdict of 2009 settles for $500M, leads to new business deal

On the eve of the second of three major trials, one of the largest business lawsuits in Michigan history has settled for $500 million.

Livonia-based Valassis Communications, Inc. reached an agreement to settle its outstanding lawsuits against News America Marketing (NAM), a division of Rupert Murdoch’s News Corp.

U.S. District Court, Eastern District of Michigan Judge Arthur Tarnow OK’d the agreement, which would have prevented a Feb. 2 trial in asserting violations of the Sherman Act. If Valassis had prevailed in this suit — as it did in a $300 million July 23, 2009, trial asserting unfair competition and tortious interference — the damages would have been trebled.

Besides paying Valassis $500 million, NAM also will enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits, and Valassis also will drop a pending state court case in California.

“It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury,” said News Corp. Deputy Chairman, President and Chief Operating Officer Chase Carey in a statement. “That … led us to believe it was in the best interests of the Company and its stockholders to agree to a settlement.”

Valassis asserted that, over a six-year period, NAM tried to monopolize the free-standing coupon insert (FSI) market. Valassis contended that, by 2006, NAM had more than 60 percent of the FSI market, and did so by illegally bundling deals on its FSIs with its other consumer marketing division, in-store and point-of-purchase media.

Valassis was represented by Gregory L. Curtner and A. Michael Palizzi of Miller, Canfield, Paddock and Stone, P.L.C., and David Mendelson of Birmingham-based Law Offices of David Mendelson.

The $300 million verdict was the highest 2009 verdict reported in Michigan Lawyers Weekly. By comparison, the top verdict in 2008 was $9.1 million — a difference of 97 percent.