October 18, 2010 / 4:58 PM / 9 years ago

UPDATE 2-U.S. Justice Dept sues Michigan Blue Cross

* Michigan Blue Cross accused of antitrust violations

* Justice Dept not seeking financial penalties

* Blue Cross says will “vigorously defend” against lawsuit (Adds comment from Michigan AG’s office)

By Diane Bartz

WASHINGTON, Oct 18 (Reuters) - 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.

In papers filed in U.S. District Court for the Eastern District of Michigan, the Justice Department and Michigan’s attorney general’s office asked the court to stop Blue Cross Blue Shield of Michigan, which is a nonprofit, from including “most favored discount” or similar clauses in contracts with hospitals.

There are two types of clauses criticized by the antitrust division. One requires the hospitals to charge other commercial insurers more than Blue Cross is charged, while another type bars the hospitals from giving Blue Cross’ rivals a deeper discount than Blue Cross receives, according to court papers.

If the lawsuit is successful, it could lead to pricier health care for Michigan residents, said Andrew Hetzel, a spokesman for the company.

“This lawsuit is without merit, and we will vigorously defend our ability to negotiate the deepest possible discounts for our members and customers with Michigan hospitals,” Hetzel said in an emailed statement.

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.

The at least 70 hospitals involved operate more than 40 percent of Michigan’s acute care hospital beds, according to court papers.

Christine Varney, who heads the antitrust division at the Justice Department, said the clauses caused “substantial harm to the marketplace.”

But she was not seeking monetary penalties. “We’re seeking injunctive relief,” she said.

“We will continue to monitor this important industry,” she said. “If we uncover other health insurers with market power that use anticompetitive MFNs (clauses) to thwart competition, we will challenge them.” (Reporting by Diane Bartz; Editing by Tim Dobbyn)

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