BIRMINGHAM, Ala. – On Thursday, April 5, 2018, U.S. District Judge Proctor provided significant legal guidance in the antitrust case against Blue Cross and Blue Shield entities across the country. The Court affirmatively decided that the Blues’ exclusive service areas, paired with other competitive restrictions, are “per se” violations of antitrust law.
The basic premise of Section 1 of the Sherman Act is that an agreement between two or more persons to unreasonably restrain trade is illegal. The key points being, first, that there must be an agreement and, second, that the restraint is unreasonable. Putting the first consideration aside for now, the unreasonableness of a restraint can be a significant issue in an antitrust case. Parties weigh the positive and negative economic implications of the competitive conduct in the relevant product and geographic markets. If the net competitive effect is negative, then the conduct is deemed “unreasonable.”
Over time, the Courts have established a “per se” rule. They have so much experience analyzing certain categories of conduct that they inherently know the net competitive effect is negative. With limited exceptions, the Court will skip the detailed analysis (also known as the “rule of reason”) and declare the conduct per se illegal if it falls within one of these categories. The relevant category of per se illegal conduct in the case of the Blues’ service areas is geographic market dividing, which almost always alters output and prices from their competitive levels by giving unfair bargaining power in a given geography.
The instrumentality the Blues use to implement the market-dividing scheme is the Blue Cross and Blue Shield Association, which owns trademark rights to the Blues Marks (the well-known Cross and Shield). The Association divides geographic markets by licensing out the trademark rights to Blues entities in exchange for an agreement to only sell commercial health insurance and/or commercial healthcare financing in a contracted for service area. These service areas are generally only given to a single Blues entity. This arrangement gives the Blue an unfair competitive advantage in contracting with subscribers and providers. Not only are they restricted to their service area, the relevant Blues licensee must derive the majority of its revenue under the Blues brand, which directly limits output both in the service area and nationally.
Speculatively, this arrangement would not be inherently illegal if the Association was not controlled by the CEOs and other employees of the licensee Blues. Contrast this situation with an organization that licenses trademark rights with competitive restrictions but is an independent economic actor with independent decision makers (e.g. a franchisor).
This was a major decision for the Court. However, it did leave open windows for the Blues. Recall that under Section 1 of the Sherman Act there must be an agreement between two or more persons. There are certain situations in antitrust law that allow distinct legal entities to be considered a single entity and incapable of violating Section 1. It takes two to make an agreement. The Court said that whether the Blues can be considered a single entity is a question to be answered at a later date.
Other competitive conduct analyzed in the opinion, including the Blues’ BlueCard program, was not deemed per se illegal and will require a detailed analysis of the net competitive effects.
This order from the Court is one step in the pre-trial process. The Blues will almost certainly appeal the decision to reverse it. As the case continues to proceed, the attorneys at Shelby Roden will provide significant updates.
Brief History of In Re: Blue Cross Blue Shield Antitrust Litigation (MDL No.: 2406)
In 2012, a series of antitrust lawsuits filed in multiple states against the Blue Cross and Blue Shield entities were consolidated into one proceeding, MDL 2406, before Judge Proctor in the Northern District Court in Birmingham, AL. The lawsuit was split into two tracks: Providers and Subscribers.
The main contention in these lawsuits center around Blue Cross systematically dividing their coverage markets so that generally only one Blue Cross entity can operate in one geographic area. These actions limit competition and allow the Blues to have monopoly-like power in their designated area. Since the 2012 consolidation, the lawsuits have been in pre-trial proceedings. The case has the potential to be the biggest antitrust case in U.S. history.