Originally published in Antitrust News & Notes February 2012
On December 6, 2011, Aetna, Inc. (Aetna) filed a complaint against Blue Cross Blue Shield of Michigan (Blue Cross), claiming that its use of most favored nation (MFN) clauses in contracts with hospitals across the state violates Section 1 of the Sherman Act and Section 2 of the Michigan Antitrust Reform Act.1 Aetna alleges that the MFN clauses raise the cost of health insurance in Michigan by causing health insurance providers to pay elevated rates for hospital services. The complaint follows the district court's decision to deny Blue Cross' motion to dismiss a separate complaint filed in October 2010 by the Antitrust Division of the Department of Justice (DOJ) and the State of Michigan involving the same alleged antitrust violations.
According to its complaint, Aetna attempted to expand its network in Michigan by acquiring a Michigan-based health insurance provider in 2005. Aetna achieved initial success, with revenues in Michigan increasing from $12.9 million in 2005 to $110.8 million in 2007.2 The complaint alleges that, in an effort to defend its position as the dominant health insurance provider in Michigan, Blue Cross "used its incumbent power to impose exclusionary contracts on hospitals" to thwart Aetna's growth.3 As a result, Aetna contends that its membership declined from 33,900 customers in 2007 to 14,900 in 2010.
Aetna alleges that the MFN clauses violate Section 1 of the Sherman Act by restraining competition in the market for the sale of insurance and administrative services in Michigan. By requiring the contracting hospital to charge Blue Cross' competitors more or no less than the amount Blue Cross pays for the same hospital services, the complaint argues that the clauses were designed to increase competing health insurance providers' costs, sometimes by more than 25 percent. Unlike traditional MFN clauses, which guarantee low costs for the contracting party, Aetna claims Blue Cross' MFN clauses are anticompetitive by design because Blue Cross agrees to increase the amount it pays to the contracting hospitals in order to guarantee even higher costs for competitors. Aetna asserts that the hospitals have no choice but to agree to the MFN clauses because Blue Cross serves at least 60 percent of the commercial health plan population in Michigan.4
Blue Cross has filed a motion to dismiss the complaint claiming that Aetna failed to allege specific anticompetitive effects in the relevant market caused by the MFN clauses. Although the complaint contains allegations that the MFNs hurt Aetna's membership, Blue Cross' motion argues that Aetna failed to show injury to the overall market, not just a private competitor. Blue Cross alleges that use of the MFN clauses is strategic, competitive behavior, not anticompetitive acts. Blue Cross also claims that Aetna failed to establish a causal relationship between its decline in membership and the MFN clauses.
If successful, Aetna seeks treble damages and an injunction to prevent Blue Cross from using MFN clauses in hospital contracts. The hearing on Blue Cross' motion to dismiss is set for April 18, 2012.
Footnotes
1 Complaint, Aetna, Inc. v. Blue Cross Blue Shield of Michigan¸ No. 2:11-cv-15346 (E.D. Mich. Dec. 6, 2011).
2 Aetna states its revenues for fully insured large accounts ("Select Accounts") and "small group" membership separately in the Complaint. See id. at 14.
3 Id. at 14.
4 Id. at 21. Antitrust News & Notes
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