Type: Law Bulletins
Date: 06/27/2014

Insurers Singing the Blues After District Court Denies Motion to Dismiss in Lawsuit Accusing Blue Cross/Blue Shield of Conspiring to Limit Competition

The multidistrict class action litigation challenging an alleged horizontal market allocation by Blue Cross/Blue Shield Association and nearly 40 Blue Cross/Blue Shield Plans around the country will proceed to discovery after a federal judge in Alabama recently denied the defendants’ motion to dismiss. In re Blue Cross Blue Shield Antitrust Litigation, 2014 WL 2767630 (N.D. Ala. June 18, 2014) (Case No. 2:13-CV-20000-RDP).  As with a number of recent major antitrust cases, this case will involve the application of long-standing antitrust principles to business practices that have been in place for decades. The results of this challenge to the structure of the Blues could have an enormous impact on competition in the health care industry.

The consolidated class actions, filed on behalf of a proposed class of subscribers, and a separate class of providers, allege that the defendants have conspired to horizontally allocate geographic markets through the use of “service areas,” where only one designated Blue Plan is authorized to sell health insurance within a particular state. The providers and the subscribers allege that the conspiracy prevented the Blue Plans from competing against each other using the Blue trade name, as well as non-Blue brands, and had the effect of increasing premiums to subscribers, while depressing reimbursement paid to the providers. The plaintiffs assert that the Blues have engaged in a horizontal allocation of markets that constitutes a per se violation of Section 1 of the Sherman Act.

The defendants moved to dismiss on numerous grounds. The only grounds addressed by the court’s Order were whether the plaintiffs had failed to adequately plead per se violations of Section 1, whether the Filed Rate Doctrine barred some of the subscribers’ claims, and whether the McCarron-Ferguson Act barred all of the plaintiffs’ claims.

The court concluded that it required a further evidentiary record before it could rule on the defendants' direct challenges to the plaintiffs’ antitrust allegations. The defendants argued that the alleged market allocation relates to a network of service areas that had existed for more than fifty (50) years and arising from common law trademark rights. The court questioned the validity of the contention that an otherwise valid trademark licensing system could protect the market allocation scheme alleged by the plaintiffs, and concluded that, at this stage of the proceedings, it could not accept the Blues’ defense of the arrangement.

The defendants also argued that the service agreements enabled the defendants to compete like a nationally integrated health insurer, and therefore should be evaluated under the rule of reason, and that prior Supreme Court cases that evaluated horizontal market allocations under the per se rule were no long valid, given that Court’s narrowing of the categories of restraints that remain subject to per se condemnation under Section One. The court acknowledged that the determination of whether the restraint was per se illegal or governed by the rule of reason was a legal one to be made by the court, but concluded that it was premature to determine whether the restraints should be analyzed under the per se rule, the rule of reason, or the “quick look” rule of reason, without a further understanding of the nature, purpose and effect of the restrictions.

The court also determined that it was premature for it to dismiss the Plaintiffs’ claims under the Filed Rate Doctrine. Under the Filed Rate Doctrine, claims for damages are barred if they are based upon rates that have been filed with federal regulatory agencies, or, at least in some circuits including the Eleventh, filed with State agencies. The court noted that the Filed Rate Doctrine does not bar claims for declaratory and injunctive relief and, that the plaintiffs were not directly attacking the filed rates, but rather the alleged market allocation among the Blues. In addition, the court concluded that consideration of the Filed Rate Doctrine might require an examination of the extent of administrative oversight exercised by the different states’ insurance regulators over the filed rates before it could determine if the Filed Rate Doctrine applied to the plaintiffs’ claims, which would require a factual record. Even if the Filed Rate Doctrine is determined to apply to some of the plaintiffs’ claims, it only would impact claims made by subscribers in states where rates are filed, and would not apply to any of the providers’ claims.

Finally, the court rejected the defendants’ argument that the use of service areas was not subject to antitrust attack under the McCarron-Ferguson Act, which provides that conduct that (1) constitutes the “business of insurance,” (2) is regulated by state law and (3) is not an “act of boycott, coercion or intimidation” is exempt from application of the federal antitrust laws. The court concluded that the market allocation activities alleged by the plaintiffs was the “business of insurance companies” and not the “business of insurance,” and therefore did not fall within the McCarran-Ferguson Act’s antitrust exemption.

The court will be issuing additional rulings on pending motions to dismiss based upon lack of personal jurisdiction and improper venue that were filed by some, but not all of the defendants. Regardless, this case will proceed in some fashion, and given the importance of the Blues in most health insurance markets, we will continue to report on significant developments in this matter.

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