Suit Blues hospital contract chased Priority Health out of UP

October 24, 2010
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Blue Cross Blue Shield of Michigan struck a deal with Marquette General Hospital that prevented Grand Rapids-based Priority Health from entering the Upper Peninsula health insurance market, alleges the antitrust lawsuit filed last week by the Department of Justice and Attorney General Mike Cox.

That example was among a litany cited in the 37-page lawsuit targeting BCBSM’s use of “most favored nation” clauses in provider contracts with at least 70 of the state’s 131 acute care hospitals. BCBSM is Michigan’s largest health coverage provider with about 60 percent of the commercial insurance market.

The clauses drove up hospital costs and premium prices and hampered competition in the state’s health insurance market, the DOJ and attorney general contend.

“This is a nonprofit organization for the benefit of the community. So how does this benefit the overall community?” asked Ron Palmer, president and CEO of Grand Valley Health Plan, a small HMO based in Kent County. “It really just shifts the costs onto other people.”

BCBSM Vice President for Corporate Communications Andrew Hetzel said the Michigan nonprofit intends to “vigorously” defend itself against the lawsuit. He said the provisions save money for its 4 million members by keeping hospital costs down.

“These clauses are one tool that we use, but not the only tool we use, in negotiations with hospitals over reimbursement,” Hetzel said. “They are effective and the amount of savings that we are able to generate for our 4 million members in our state is significant based on our negotiated discounts not only with hospitals, but with physicians and with pharmacies, totaling upwards of $13 billion in 2009.”

In the lawsuit, the government claims that in exchange for paying higher rates, BCBSM used two types of clauses: “MFN-plus” for 22 larger hospitals and “equal-to MFN” for more than 40 community hospitals.

In the MFN-plus contracts, BCBSM requires hospitals to charge other commercial payers as much as 40 percent more than the Blues.

At Metro Health Hospital, the only Kent County hospital cited in the suit, an MFN clause “requires the differential between Blue Cross and other payers to increase over time, to 5 percent for HMOs and 10 percent for PPOs,” the lawsuit stated.

Metro Health declined to comment on the lawsuit. “However, we would assure the community that we are committed to the idea that competition in the marketplace is good,” spokeswoman Ellen Bristol said.

The nine Ascension Health hospitals in Michigan, including Borgess Health in Kalamazoo, traded higher Blue Cross payments for a promise to charge competitors 10 percent more than BCBSM rates, the suit alleges.

In January 2008, Priority Health added Beaumont Hospitals in suburban Detroit to its provider network, at the time touted as a coup in the health plan’s strategy of expanding across the state. According to the lawsuit, Beaumont’s MFN provision with Blue Cross “requires the hospital to charge Blue Cross’ significant competitors at least 25 percent more than they charge Blue Cross.”

In the equal-to MFN provisions, smaller hospitals agreed to charge other insurers, at a minimum, the same amount as they charged Blue Cross or face a 16 percent penalty on Blue Cross payments. Some of those hospitals are designed as critical access, which receive special payment treatment from the federal government to preserve their ability to serve smaller communities.

“Blue Cross’ MFNs have caused many hospitals to 1) raise prices to Blue Cross’ competitors by substantial amounts, or, 2) demand prices that are too high to allow competitor to compete, effectively excluding them from the market,” the lawsuit states.

That’s what happened when Priority Health ventured into the Upper Peninsula market, where BCBSM holds 65 percent of commercially insured lives in 11 central and western counties, according to the federal complaint.

The 315-bed Marquette General Hospital, the U.P.’s only tertiary care hospital, has a 2008 BCBSM contract that contains an MFN-plus provision that boosts competitors’ charges by 23 percent higher than Blues rates, the lawsuit stated.

“Marquette General told Priority it would not offer Priority rates less than those required by Blue Cross’ MFN-plus,” the lawsuit contends. “Marquette General accordingly gave Priority a revised offer with significantly higher rates to comply with Blue Cross’ MFN-plus.”

Priority Health decided it couldn’t compete based on the higher Marquette General rates and declined to enter the U.P. market, the lawsuit states.

Priority Health, which is owned primarily by Grand Rapids’ largest hospital system, Spectrum Health, and Marquette General both declined to comment.

“I don’t have a problem with anyone trying to get the best discounts they can. That’s the nature of the business,” said Rick Murdock, executive director of the Michigan Association of Health Plans. “But when you limit the ability of competitors to compete, that’s crossing over the line. We’ll wait to see how the process works through.”

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