Day: October 18, 2010

WASHINGTON – The Justice Department alleged Monday in a lawsuit that Michigan Blue Cross Blue Shield is discouraging competition by engaging in practices that raise hospital prices, conduct an assistant attorney general vowed to challenge anywhere else it is found in the United States.

The suit targets “most favored nation” clauses between Michigan Blue Cross Blue Shield and health care providers which, according to the government, essentially guarantee that no competing health care plan can obtain a better rate.

Michigan Blue Cross Blue Shield has most-favored-nation clauses or similar language in contracts with at least 70 of 131 general acute care hospitals in the state, the government alleges.

The lawsuit said that Michigan Blue Cross Blue Shield intended to raise hospital costs for competing health care plans and reduce competition for the sale of health insurance.

“As a result, consumers in Michigan are paying more for their health care services and health insurance,” Assistant Attorney General Christine Varney, who runs the Justice Department’s antitrust division, told reporters.

In response, Michigan Blue Cross Blue Shield said the lawsuit is seeking to restrict the nonprofit company’s ability to provide the most deeply discounted rates from Michigan hospitals. The company said that negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michigan residents.

“Our hospital discounts are a vital part of our statutory mission to provide Michigan residents with statewide access to health care at a reasonable cost,” the company said.

In some instances, the lawsuit states, Blue Cross has negotiated most-favored-nation clauses in exchange for increases in the prices it pays for the hospital’s services. In those instances, says the suit, Blue Cross has bought protection from competition by causing hospitals to raise the minimum prices they can charge to Blue Cross competitors.

“Blue Cross has not sought or used MFN’s to lower its own cost of obtaining hospital services,” says the lawsuit.

The state of Michigan joined the Justice Department in the case filed in federal court in Detroit.

The lawsuit outlines two types of most-favored-nation clauses requiring a hospital to provide services to Blue Cross competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.

In alleging violations of the Sherman Act and the Michigan Antitrust Reform Act, the government said that under the “MFN-plus” clause, Blue Cross negotiated agreements requiring 22 hospitals to charge some or all other commercial insurers more than the hospital charges Blue Cross. Under the other clause, Blue Cross has agreements requiring more than 40 small, community hospitals to charge other commercial health insurers at least as much as they charge Blue Cross.

Varney declined to say whether the Justice Department has open inquiries in other states of most-favored-nation clauses, which are not illegal unless they stifle competition.

Editor’s Note: This is a significant event. Much like getting the blueprint of the Egnigma Machine in 1943.

Good news for Brownsville taxpayers! It appears that the local medical community has “gifted” $6.8 million to the Brownsville Independent School District through lower medical fees. Or did they?

In the October 17 issue of the Brownsville Herald, it was reported that MAA officials told the district’s insurance committee to expect a “savings of $6.8 million” this year over last year.  MAA acquired the BISD account last year. The prior third party administrator was HealthSmart.

Does this sound too good to be true? Why would medical care providers lower their fees and give up $6.8 million in a year’s time? Are area physicians driving volkswagons these days? Are hospital administrators moving to low rent apartments? Most people have come to understand that medical prices are constantly increasing, not decreasing.

Or, could it be that the conclusion is based on inaccuracies or flawed methodologies upon which the projection was performed? Or, is BISD simply have a good year? Or a combination of these possibilities?

One of the biggest flaws in a PPO network evaluation process is that many use an evaluation model that are based on historical data (usually 12-36 months). They use a retrospective review of network pricing, factoring in those savings levels onto future cost projections. A network evaluation based on retrospective information, with no adjustments made for significant contract or rate changes, becomes irrelevant and is not a valid indicator of what a group like the BISD will actually save by moving to another network. For example, when consumers prepare to buy a new television, do they make their buying decision by looking at the price for each television from 2 years ago? Of course not.

PPO contracts contain “escalator” clauses that give medical providers a “raise” every twelve months. So every month, some 1/12th of all providers get a pay raise, a never ending cycle.

Neither HealthSmart PPO or Texas True Choice have a predominant market share over the other in the lower Rio Grande Valley. Both of these “rental” networks have pretty much the same providers on their PPO listing. The overall aggregate pricing differential, in our opinion, is just about 1%.  We have developed credible data that we believe proves this.

In our opinion there is no compelling argument that would conclude that medical providers in our community would agree to significantly better pricing with one rental network over another.

Only the medical community knows the truth, and they are keeping quiet (for now).

We look forward to learning the truth. The Brownsville Independent School District VS HealthSmart lawsuit will shine a strong light on the mysterious world of PPO “discounts.”

Editor’s Note: “How do we know we are doing much better this year than last year?” asked Don Pedro. “What was this year is last year plus or minus this year’s change,” replied the expert. “If change is the only constant why do we need to measure it? You dont know if something is better if you didnt know how to measure what it was before” countered Don Pedro. And out he went.