Bcbs plans are granted the right to use the bcbs brands in exclusive service areas

Antitrust litigation has been ongoing for several years in the U.S. District Court for the Northern District of Alabama against one of the biggest business associations in America, the Blue Cross Blue Shield Association (“BCBSA”) and its members.  We previously wrote about this litigation here and here.  BCBSA is comprised of independent health insurers that license the “Blue Cross” and “Blue Shield” trademarks from BCBSA.  As a condition of their licenses, BCBSA members grant each member exclusive geographic territories where each is allowed to use the Blue trademarks; some BCBSA members also happen to enjoy very high market shares in a number of their respective jurisdictions.  There are also licensing rules that limit how much revenue each member can derive from lines of business that do not use the Blue trademarks.  One of these rules was the “National Best Efforts Rule.”  This rule required that two-thirds of each member’s national revenue be derived from Blue-branded plans.  In other words, while each member could theoretically compete in others’ territories using brands that did not include the “Blue Cross” and “Blue Shield” trademarks, there was a cap on how much business a member could generate this way.  These restrictions allegedly reduced competition between BCBSA members.

As middlemen to the provision of healthcare services, health insurers contract with entities providing health care services (e.g., hospitals, clinics, physicians) (“providers”) and entities using healthcare services (e.g., employers, individuals) (“subscribers”).  Both providers and subscribers filed suits alleging they are harmed by the agreements among BCBSA members.  These plaintiffs argue that, in the absence of the license conditions, providers would have made more money through higher reimbursements and subscribers would have saved more money by being able to shop around for coverage.  While suits by these two groups of plaintiffs were coordinated for several years, they have now turned down very different paths.

Subscribers Settle

On November 30, 2020, the court entered preliminary approval of a settlement agreement—the culmination of five years of settlement negotiations—between the subscriber plaintiffs and the defendants.  The case settled at a crucial procedural juncture.  The court had already ruled that the complained-of restrictions would be evaluated pursuant to the per se standard, meaning that no “procompetitive” rationales could be used to justify them.  The parties had recently finished briefing motions for class certification of a nationwide injunctive relief class and an Alabama damages class.  Rather than risk the judge’s ruling on class certification, the parties settled.

The settlement consists of a payment of $2.67 billion and injunctive relief (to be monitored for five years by a monitoring committee).  The injunctive relief included the elimination of the National Best Efforts rule, theoretically opening the door for members to more robustly compete with one another.  One of the subscriber plaintiffs’ experts estimated that 97% of the plaintiffs’ damages were derived from the National Best Efforts rule, supporting plaintiffs’ theory that injunctive relief should enhance competition significantly.

Providers Press Ahead

The provider plaintiffs’ case, however, has not settled.  Instead, the parties are pressing ahead on class certification. 

Based on the testimony of their expert witnesses, they contend that a class of Alabama acute care hospitals can be certified pursuant to Federal Rule of Civil Procedure 23(b)(3).  They argue common questions of law and fact predominate with regard to their claims that BCBSA’s restraints have resulted in lower reimbursement rates than hospitals would have otherwise received, and this impact can be shown on a classwide (as compared to an individualized) basis.  According to plaintiffs, this is because every hospital would have secured higher reimbursement rates from insurers, on average, if the BCBSA’s restrictive rules were not in place.  They argue the class has suffered aggregate damages of over $4.3 billion.

Defendants oppose plaintiffs’ class certification motion.  Their primary argument is that determination of damages for each hospital needs to be made on an individualized basis.  Plaintiffs’ expert witnesses are able to calculate classwide damages only because they make erroneous assumptions about what the Alabama healthcare market would look like absent the BCBSA restrictions, Defendants claim.  Defendants argue that competing BCBSA plans from other jurisdictions would not have simply entered the Alabama market and indiscriminately offered contracts to all hospitals; instead, these insurers would have selectively built their networks.  In addition, the amount a new insurer would be willing to reimburse each hospital would vary based on whether the hospital was a “must-have” provider (meaning an insurer would be at a competitive disadvantage if the provider were out-of-network), a sole community provider, a hospital system, or had some other status or role.  They also argue that BCBS Alabama could have reacted to market entry by narrowing its network, causing a reduction in reimbursement for certain providers. 

The class certification motion is now fully briefed.  Billions of dollars and further changes to the BCBSA system remain at stake.  We will continue to monitor this litigation and provide updates on further developments.

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