United States v. Blue Cross Blue Shield of Michigan

Facts

Blue Cross Blue Shield of Michigan (Blue Cross) (Defendant) is a state nonprofit health care corporation, which is subject to federal taxation but is exempt from state and local taxation under state law. Directly and through its subsidiaries, Blue Cross (Defendant) provides commercial and other health insurance products, including preferred provider organization (PPO) health insurance products and health maintenance organization (HMO) health insurance products. Defendant is the largest provider in the state of commercial health insurance, covering three million residents, which is more than 60 percent of the commercially insured population and is equal to nine times as many residents as its next largest commercial health insurance competitor. Defendant is also the largest nongovernmental purchaser of health care services, including hospital services. Defendant purchases hospital services from all 131 general acute-care hospitals in the state. Defendant sought to include most favored nation clauses (MFNs) in many of its contracts with hospitals. Blue Cross had agreements containing MFNs or similar clauses with at least 70 of the state's 131 general acute-care hospitals. Those 70 hospitals operate more than 40 percent of the acute-care hospital beds. Defendant usually entered into types of MFNs, which required a hospital to provide hospital services to Defendant's competitors either at a higher price than Defendant pays or at prices no less than Defendant pays. The first type was known as "MFN-plus." Defendant's existing MFNs included agreements with 22 hospitals that require the hospital to charge some or all other commercial insurers more than the hospital charges Defendant, usually by a specified percentage differential. Those hospitals included major hospitals and hospital systems, and all of the major hospitals in some communities. Defendant's MFN-plus clauses required that some hospitals charge competitors as much as 40 percent more than they charged Blue Cross (Defendant). Under these agreements, Defendant agreed to pay more to community hospitals, raising Defendant's own costs and its customers' costs, in exchange for the Equal-to MFN. A community hospital that declined to enter into these agreements would be paid about 16 percent less by Defendant than if it accepts the MFN clause. Defendant entered into Equal-to MFNs with some larger hospitals also. The United States of America and the State of Michigan (collectively, the Government) (Plaintiff) filed the instant action against Defendant alleging that the company's use of MFN clauses in its agreements with various hospitals violated the federal and state antimonopoly laws, specifically found in s 1 of the Sherman Act and the State's Antitrust Reform Act. The Plaintiff alleged that each of the provider agreements between Defendant and state hospitals containing an MFN provision is a contract, combination and conspiracy within the meaning of s 1 of the Sherman Act, and that the Blue Cross agreements with hospitals acted as an unreasonable restraint in trade and commerce in violation of s 2 of the State Antitrust Reform Act. After denial of its preliminary motions to dismiss, Defendant appealed.