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Antitrust Ruling Deals Blow to Blue Cross and Blue Shield Insurers

A federal court struck a blow to Blue Cross and Blue Shield insurers in high-stakes litigation focused on how they work together, finding that some of their practices could represent an automatic violation of federal antitrust law.

U.S. District Judge R. David Proctor in Birmingham, Ala., in a late Thursday ruling, said challengers to the Blue insurers' practices had presented evidence that the Blues have adopted competitive restrictions "which, considered together, constitute a per se violation of the Sherman Act," the central federal law that bars unlawful restraints of trade.

The ruling sets important legal rules for a future trial. The judge rejected some of the Blue insurers' central arguments, and his finding of a potential "per se,' or inherent, violation could make it harder for them to defend some of their longstanding practices.

The case has a long way to go. The judge left open at least one potential defense for the insurers' actions, and the lawsuits against the Blue insurers haven't yet been certified to proceed as class actions, an issue that could take several more months to resolve.

Still, "both substantively and tactically, it's a very big deal," Tim Greaney, a professor at the University of California Hastings College of the Law, said of the ruling. "It's a pretty serious blow to the Blues."

In a statement, Scott Nehs, the general counsel for the Blue Cross Blue Shield Association, said it would appeal and was "confident that we will prevail." He said the group was "disappointed by the court's ruling with respect to certain aspects of the BCBS System," but he called it "one step in a lengthy process."

The litigation could ultimately have far-reaching effects. The Blue Cross and Blue Shield insurers have been at the heart of the U.S. health-care system for decades. They collectively cover roughly one in three Americans, and they are often the biggest players in states' individual and small-business insurance markets.

The Blue Cross Blue Shield Association licenses the Blue brands to the 36 insurers thatuse them. Companies typically hold exclusive rights to the Blue Cross and Blue Shield names within a certain territory. Most of the Blue insurers are nonprofits, often focused on just one state, but the largest, Anthem Inc., offers Blue-branded plans in 14 states.

The Alabama litigation includes two major consolidated antitrust lawsuits, one brought by health-care providers and the other by certain Blue insurer customers. The suits allege that the insurers are illegally conspiring to divvy up markets and avoid competing against one another, driving up customers' prices and pushing down the amounts paid to doctors and other health-care providers.

The suits name all of the Blue Cross and Blue Shield companies as defendants as well as the Blue Cross Blue Shield Association.

The judge, in his discussion of possible antitrust violations, cited a combination of certain of Blue insurer practices, including dividing up markets and certain limits on the insurers' non-Blue business.

The Blue association has said its licensing deals simply codify longstanding trademark rights and don't violate the law. The association also says its arrangements increase competition by helping the Blue companies ally together to go up against national insurers.

Lawyer David Boies, who is representing customer plaintiffs in the case, said the decision "is a critical step toward ultimately resolving this case and increasing competition in the health-insurance market."

Joe Whatley, a lead attorney for health-care providers who sued the Blues, called the ruling a "huge victory."

If the Blue insurers lose the case, it could force changes to their business practices and expose them to considerable civil liability and financial damages.

"This is a fairly definitive ruling on the most important question of this case," said Barak D. Richman, a professor at Duke University School of Law. The finding, if it stands, could "give license to some attorneys general to seek changes in the way the Blues are doing their business," he said.

However, the new ruling also held some positive aspects for the insurers. The judge ruled that another aspect of the Blue companies' cooperation, a program that involves working together to offer national insurance plans, wasn't an automatic antitrust violation. He also said it wasn't yet clear whether the Blue insurers effectively operate as a single entity, which could shield their actions against the antitrust allegations.


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