Antitrust Law Daily $2.67 billion settlement reached in Blue Cross Blue Shield antitrust litigation
Monday, November 2, 2020

$2.67 billion settlement reached in Blue Cross Blue Shield antitrust litigation

By Peter Reap, J.D., LL.M.

The proposed agreement includes substantial injunctive relief to enhance competition in the health insurance market.

Health insurance Subscriber Class Representatives (Subscriber Plaintiffs) and defendant Blue Cross Blue Shield Association (BCBSA) and its licensee Blue Plans have filed a motion in the federal district court in Birmingham, Alabama, for preliminary approval of a settlement agreement the two sides have reached that calls for the defendants to pay $2.67 billion into a Settlement Fund and the agreement also includes substantial injunctive relief to enhance competition in the health insurance market. The multidistrict litigation that began over eight years ago was brought by the Subscriber Plaintiffs who claimed that BCBSA and its member plans violated Sections 1, 2, and 3 of the Sherman Act by entering into an unlawful agreement that restrained competition among and between them in the markets for health insurance and for the administration of commercial health benefit plans. The Subscriber Plaintiffs challenged a combination of rules regulating the Blue System, a nationwide network of Blue Plans that are used by more than 100 million individuals and groups to purchase health insurance. In addition to the monetary relief, the settlement calls for the elimination of any national revenue restrictions for Blue Plans’ unbranded business and the ability of certain qualified customers to seek bids from two Blue Plans (In re Blue Cross Blue Shield Antitrust Litigation, October 30, 2020, Proctor, R.).

Background. In 2012, nine antitrust actions concerning licensing agreements between and among the defendants were centralized for pre-trial proceedings by the Judicial Panel on Multidistrict Litigation in the federal district court in Birmingham. The claims alleged that the 38 Blue Plans are independent health insurance companies that would compete with one another, but for an agreement to the contrary. Working together with and through the BCBSA, the Blue Plans divided and allocated among themselves health insurance markets throughout the nation in violation of the Sherman Act and various related state laws, it was alleged. Specifically, the defendants were accused of: (1) allocating geographic territories; (2) limiting the member plans from competing against each other, even when they are not using a Blue name, by mandating a minimum percentage of business that each member plan must do under that name, both inside and outside each member plan’s territory; (3) restricting the right of any member plan to be sold to a company that is not a member of BCBSA; and (4) agreeing to other ancillary restraints on competition

In 2018, the court decided that the defendants’ aggregation of a market allocation scheme together with certain other output restrictions should be analyzed under the per se standard of review rather than rule-of-reason analysis. The U.S. Court of Appeals in Atlanta denied the petition for interlocutory review without elaboration.

Specifics of the settlement. The terms of the proposed settlement agreement, achieved after nearly five years of good faith, arm’s-length negotiations, stipulate that nothing contained therein shall be construed as an admission of liability or wrongdoing by any settling defendant. They provide for:

  • Payment by the defendants of $2.67 billion to the Settlement Fund, which will include distributions to the Damages Class and the Self-Funded Sub-Class, Notice and Administration costs, and any fee and expense award.
  • elimination of the Blues’ national revenue cap on competition when they are not using the Blue names and marks—that cap, which the Blues call the "National Best Efforts" provision, requires that two-thirds of each Member Plan’s national healthcare-related revenue come from Blue-branded products as opposed to non-Blue (i.e. "Green") business—and limits on a corresponding local revenue cap known as the "Local Best Efforts" provision;
  • the ability for certain Qualified National Accounts who could only seek one Blue bid, to now seek bids from two Blue Plans;
  • limits on BCBSA’s restraints on acquisitions;
  • guidelines to permit direct contracting between Non-Provider Vendors and Self-Funded Accounts; and
  • limits on use of Most Favored Nations Clauses and Differentials.

Motion for preliminary approval. The Subscriber Plaintiffs assert that the settlement agreement is fair, reasonable, adequate, and likely to warrant final approval under both Eleventh Circuit’s long-standing class settlement fairness factors and Fed. R. Civ. P. 23(e)(2). The Memorandum of Law in support of preliminary approval argues that the class representatives and counsel have more than adequately represented the class; the settlement resulted from arms-length negotiations; the relief provided is far mor than adequate taking into consideration the costs, risks, and delay of litigation; the settlement treats class members equitably relative to one another; and all the remaining relevant factors are satisfied. The settlement agreement also requests preliminary approval of a proposed settlement Damages Class, including a Self-Funded Sub-Class, and Injunctive Relief Class. The proposed classes will satisfy Rules 23(a), 23(b)2, and (b)(3), according to the Subscriber Plaintiffs.

Defendants’ brief in support. In their brief in support of preliminary approval, the defendants contend that the settlement agreement offers reasonable terms that reduce the risks for all parties. The settlement gives subscribers significant monetary relief as well as injunctive relief that will benefit settlement class members nationwide. This relief would be difficult to achieve in the litigation, and litigation would involve immense cost and delay.

The settlement also preserves important and procompetitive elements of the Blue System, which benefits the Subscriber Plaintiffs as well as all of the defendants, they argue. The remaining structure of the Blue System enables it to continue to provide the broad nationwide coverage to subscribers throughout each state. The settlement also offers the defendants a comprehensive release from liability. Most importantly, resolving the Subscriber Track will allow the Blue Plans to focus on their core mission: providing the best, most affordable health care for their members, according to the defendants.

Notice, claims administrator. In a separate motion, the Subscriber Plaintiffs moved for an order directing notice of the proposed settlement agreement and appointing JND Legal Administration as the Claims Administrator.

This case is No. 2:13-cv-20000-RDP.

Attorneys: David Boies (Boies, Schiller & Flexner LLP), Michael D. Hausfeld (Hausfeld LLP), Charles J. Cooper (Cooper & Kirk, PLLC) and Chris T. Hellums (Pittman, Dutton & Hellums, PC) for Plaintiffs. David J. Zott (Kirkland & Ellis LLP), Craig A. Hoover (Hogan Lovells US LLP) and John D. Martin (Nelson Mullins Riley & Scarborough LLP) for Blue Cross Blue Shield Association. Pamela B. Slate (Hill Carter Franco Cole & Black, PC) for Blue Cross Blue Shield of Alabama. Brian K. Norman (Shamoun & Norman, LLP) and H. James Koch (Armbrecht Jackson LLP) for CareFirst, Inc., CareFirst of Maryland, Inc., Group Hospitalization and Medical Services, Inc. and CareFirst BlueChoice, Inc. Michael A. Naranjo (Foley & Lardner LLP) for USAble Mutual Insurance Co., d/b/a Arkansas Blue Cross and Blue Shield. Jonathan M. Redgrave (Redgrave, LLP) for California Physicians’ Service d/b/a Blue Shield of California. Todd Stenerson (Shearman & Sterling LLP) and Sarah L. Cylkowski (Bodman Plc) for Blue Cross and Blue Shield of Michigan. Christine Varney (Cravath Swaine & Moore LLP) and John D. Martin (Nelson Mullins Riley & Scarborough LLP) for Blue Cross and Blue Shield of Tennessee, Inc.; Blue Cross And Blue Shield of Florida, Inc.; Blue Cross and Blue Shield of Massachusetts, Inc.

Companies: Blue Cross Blue Shield Association; Blue Cross Blue Shield of Alabama; CareFirst, Inc.; CareFirst of Maryland, Inc.; Group Hospitalization and Medical Services, Inc.; CareFirst BlueChoice, Inc.; USAble Mutual Insurance Company, d/b/a Arkansas Blue Cross and Blue Shield; California Physicians’ Service d/b/a Blue Shield of California; Blue Cross and Blue Shield of Michigan; Blue Cross and Blue Shield of Tennessee, Inc.; Blue Cross and Blue Shield of Florida, Inc.; Blue Cross and Blue Shield of Massachusetts, Inc.

MainStory: TopStory Antitrust GCNNews AlabamaNews

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