Going their own way: Numerous hospitals opt out of Blues settlement

Several large health systems and dozens of other hospitals and healthcare providers are pursuing antitrust litigation against Blue Cross Blue Shield (BCBS) after opting out of a record-setting settlement.

Lawsuits are known to have been filed against the insurer in California, Illinois and Pennsylvania federal court since March 4, the deadline for hospitals to opt out of the $2.8 billion settlement, which culminated litigation that stretched back to 2012 and is said to be the largest healthcare settlement ever for a U.S. antitrust case brought by a private party.

In the Northern District of California federal court, Bon Secours Mercy Health is the first named plaintiff in a case that also includes entities such as Providence and the health systems based at the universities of Michigan and North Carolina.

In the Northern District of Illinois, CommonSpirit Health and various of its subsidiaries have filed suit.

And in the Eastern District of Pennsylvania, dozens of in-state providers signed on to a lawsuit that includes Geisinger, MedStar Health, WellSpan Health, the University of Pennsylvania and Temple University.

Each group of plaintiffs has requested a jury trial.

Status of the BCBS settlement

A clause allows BCBS to terminate the settlement if opt-outs exceed a certain number. But the lead attorneys for the plaintiffs in the class action, Edith Kallas and Joe Whatley of the law firm Whatley Kallas, said the terms are unchanged. They did not have a final tally March 7 of hospitals that opted out, saying notifications need to be postmarked by March 4 and thus are still trickling in, with a review process to follow.

More individual lawsuits can be expected. Noting that it is not admitting fault as part of the settlement, BCBS has indicated it will defend against any related litigation.

A benefit for settlement participants is that the more providers that opt out, the more money is left for those that remain. The $2.8 billion fund is set to be reduced by at least $800 million as allocated for attorney fees and expenses and administrative expenses.

Of the net amount, 92% is apportioned for hospitals and facilities and 8% for medical providers. Allocations will be based primarily on a provider’s Blues plan billings during the 16-year period, modified by a coefficient based on how the Blues’ conduct impacted each provider’s market.

“We worked hard to educate providers about the merits of the settlement, including presentations to more than 2,000 hospitals,” Kallas and Whatley wrote in an email. “In the end, providers made the decisions that they thought were best for them. We remain convinced that the best path for all members of the Provider Settlement Class was to participate in the Settlement, including the valuable injunctive relief, rather than engage in further costly and time-consuming litigation against the Blues.”

What drove the opt-outs

Incentives to opt out included the potential for a much larger payout, given that the net settlement amount theoretically would be divided among almost all hospitals that served Blues members nationwide during a 16-year period. In their individual litigation, hospitals have a chance to reap treble damages, as dictated by antitrust law.

There also was concern that the settlement participants were giving up significant leeway to bring future lawsuits against the Blues, even if the basis of the future litigation is not directly related to the settled issues. Kallas and Whatley previously told HFMA such concerns were unwarranted.

Their firm previously issued a news release estimating the value of the injunctive relief for settlement participants at more than $17 billion, including average cost savings of $7.55 per BlueCard claim. BCBS agreed to implement changes to provider-facing processes in areas such as authorization, claims adjudication and contracting.

One question that arose was whether, practically speaking, the Blues can exclude opt-out providers from the injunctive relief. In previous comments to HFMA, Kallas and Whatley said such steps may include password protection for cloud-based transformation requirements. In settlement discussions, the Blues have said the relief can be targeted.

Hospitals in the individual cases are citing the need for that relief as evidence of BCBS’s malfeasance: “Although Defendants disclaimed liability for antitrust violations, Defendants’ agreement to such structural changes to their agreements illustrates the prior competitive harm of Defendants’ agreements and conduct.”

The plaintiffs appear to be seeking less-sweeping injunctive relief than was made available in the settlement, requesting permanent monitoring and reporting requirements as necessary to prevent future harm or loss.

Arguments against BCBS

Legal claims made in the new lawsuits largely mirror those in the class action, with plaintiffs asserting BCBS engaged in anticompetitive activity by dividing geographic markets among the Blues plans. In turn, that conduct artificially lowered reimbursement rates.

“Plaintiffs have suffered antitrust injury and damages in an amount to be proven at trial,” the Pennsylvania lawsuit states. “These damages consist of having been paid artificially deflated, unreasonable, and/or non-competitive and lower prices for healthcare services to Plaintiff providers than they would have but for the Defendants’ unlawful, anticompetitive agreements. These damages have accrued anew each time Plaintiffs have been paid such prices and have been denied the benefits of competition for their healthcare services.”

Hospital price transparency files illustrate the payment rate discrepancy between the Blues and other insurers, the plaintiffs suggest: “The local Blue generally pays significantly less than the other commercial payers.”

BCBS previously adhered to a business practice known internally as the “National Best Efforts Rule,” which required member health plans to derive at least two-thirds of national revenue from Blue brands, thereby stifling the option for a Blues plan to use a different brand to compete in another BCBS plan’s territory. A 2020 settlement in separate but related litigation, which resulted in a $2.67 billion fund for Blues plan subscribers, required the company to phase out the practice.

“Dropping the [National Best Efforts] Rule, however, has had no impact on the market for the purchase of healthcare provider goods or services,” the Pennsylvania lawsuit states. “Since 2021, Plaintiffs have not observed any incremental, much less significant, market entry by Blues outside their respective Exclusive Service Areas.”

Negotiating at a disadvantage

The lawsuits say providers’ contracting leverage is stymied by the Blues’ enhanced market power.

“The terms of the provider agreements — including the offered payments for medical services — are often given on a ‘take it or leave it’ basis,” the Pennsylvania lawsuit states. “As a general matter, even when negotiation of payment terms exists, it occurs within a narrow range dictated by the local Blue.”

“Because of the Blues’ unlawfully obtained market power, the Blues have repeatedly sought to impose contractual language in their provider agreements that enables them to reduce reimbursements, even including scenarios that penalize healthcare providers [for] reducing their own costs for healthcare goods, services and facilities,” according to the California lawsuit. “In this way, regardless of the nominal reimbursement rates included in Plaintiffs’ contracts, the Blues have the ability to reduce the actual reimbursement amounts they provide to Plaintiffs.”

The suit includes allegations of specific instances in which providers experienced misconduct. For example, one Blues plan allegedly told several plaintiff hospitals that “it would simply leave hospitals out of network unless [the plan’s] ‘take it or leave it’ offer was accepted.” Meanwhile, plaintiff organizations in other markets have been forced to accept “artificially low reimbursement rates” and have been unable to negotiate on a facility-by-facility basis.

Next steps

Key upcoming dates for settlement participants include April 23, when papers in support of final approval must be filed by any party that wishes to do so; and July 29, the deadline for filing a monetary claim and the scheduled date for the court to give its final approval of the settlement.