• DOJ vs. Michigan Blue Cross

    Diane Bartz of Reuters writes,

    The U.S. Justice Department filed a lawsuit against Blue Cross Blue Shield of Michigan on Monday, accusing it of violating antitrust law by negotiating contracts with hospitals that bar the hospitals from giving Blue Cross’ rivals a better deal. […]

    Michigan’s attorney general’s office took issue with the idea that the company’s goal was to save consumers money.

    “On the contrary, the investigation showed that Blue Cross increased its payouts to many hospitals to guarantee they would in turn charge all other insurers up to 40 percent more, pricing them out of the market and raising prices on all Michigan consumers,” said John Sellek, a spokesman for the office.

    This is a real life example of something I’ve discussed. Raising rivals’ costs is one way to maintain or increase market share. As I wrote,

    There are a variety of ways to raise rivals’ costs, including engaging in exclusive contracts with the lowest cost (or only) suppliers, supporting regulatory standards with which the predatory firm is already efficient, engaging in an ad or R&D war (if the predatory firm can do so at lower costs than its rivals due, say, to economies of scale), among others.

    More here and here.

    • NYT this AM says Michigan BC/BS has 9x as many live covered as competitors or 60% of market. Suppose the DOJ prevails:

      Given the Blues “owned the market” and were trying to game the system with LOWER predatory pricing, does the market now correct and prices go up globally? Do consumers lose, meaning the 2/3 that were getting a better deal now pay more?

      I understand the long-term strategy is drive competition out and then raise prices, but in short term, especially with fractious ACA implementation, do consumers misinterpret appropriate market correction?


      • @Brad F – Your questions are precisely why I’d love to have an expert on health antitrust contributing on this blog. As I’ve written before (and link to in my recent Hospital antitrust considerations post you commented on earlier), the courts and I are confused by how to handle harm to various parties. As I understand it, antitrust statute includes provisions aimed to enhance competition, with the presumption, I suppose, that that is what is best for all entities–rival firms, upstream producers, downstream consumers. I think it is possible that there are trade-offs, particularly long- vs short-term in applying the law.

        I don’t expect that’s an adequate explanation. I really struggle with this and am far from expert, as I’ve said.

      • @Brad F – Also, harm/benefit is broader than just price. In the (narrow) realm of economics, welfare is related to price x quantity. In a court of law, other factors may be considered like quality and access.

        I suffer from being too quick to focus only on price. In health care, how much does price really matter? It may not even be the second or third most important factor to consumers, even those paying their own way. (In this paragraph I’m just musing. This is not evidence-based.)