Children's Hospital sues every Blue Cross Blue Shield in the country; alleges massive anti-trust violations it says have deprived it of billions of dollars

Boston Children's Hospital today sued 33 Blue Cross Blue Shield entities across the US, charging the geographically limited insurers have conspired to create a payment system that violates anti-trust laws and forces the hospital and doctors to accept lower payments than from other insurers.

If the suit, filed in US District Court in Boston, is successful, it could mean a complete shakeup of the 115-million-subscriber Blue Cross Blue Shield system, letting, in fact, forcing, individual Blues to compete against each other across state lines.

In its suit, Children's, which treats patients from across the country, accuses the Blues of effectively operating as such a large entity it has become a "monopsony" - a purchaser of services so large it can bend providers to its nefarious will:

At the same time that they have been reimbursing Boston Children's Hospital and its affiliates at low, anticompetitive rates, the Blues have enriched themselves, stockpiling billions of dollars in reserves and paying their senior executives exorbitant salaries, amounting to millions of dollars annually.

Through these anticompetitive acts, Defendants' conduct has caused Plaintiffs to be severely under-reimbursed for treating their patients by literally billions of dollars. Defendants' conduct has also increased costs for Plaintiffs' patients - the Blues' subscribers - all for Defendants' own financial gain.

The suit details the steps Children's says the supposedly independent Blue Cross Blue Shields have taken to essentially create a giant purchaser that can squeeze the hospital, starting with the way that Blue Cross Blue Shield Massachusetts, already the state's largest health insurer, doesn't have to worry about other Blues coming in and trying to strike a better deal with the hospital, because the Blues all have a non-compete clause with each other.

The hospital charges that all the Blues have "an express agreement not to compete for certain key national "and Blue Health Intelligence, "in which the Blues unlawfully have shared sensitive competitive data with each other to further cement their collective dominance and control over the United States healthcare sector."

Boston Children's Hospital attracts parents and their children from all across the United States and beyond. Almost half of Boston Children's Hospital revenue comes from the provision of health care and other services to children and their parents who live outside the Commonwealth of Massachusetts and/or are covered by Blues other than BCBS-MA. However, no matter where the patient resides or which Blue plan covers him or her, Boston Children's Hospital can submit its claims for reimbursement only to BCBS-MA, which sets the rates at which Boston Children's Hospital is paid. Boston Children's Hospital cannot as a practical matter negotiate higher rates with other Blues because, given Defendants' anticompetitive conduct, the other Blues have no economic incentive to negotiate outside their ESAs [exclusive service areas]. And BCBS-MA has enormous leverage and power over Boston Children's Hospital, since the territory allocation scheme has endowed BCBS-MA with enormous (albeit artificially created) market power in Massachusetts given its large share of patient subscribers. If Boston Children's Hospital were to refuse BCBS-MA's anticompetitive rates, the other Blues would refuse to do business with them. As a result of Defendants' unlawful market allocation scheme and other anticompetitive conduct, Boston Children's Hospital is routinely reimbursed at rates that are at least 15-20 percent or more below the rates of other national insurers like United, Cigna and Aetna.

Even the BlueCard, which promises national coverage to subscribers, is part of the plan, the hospital says, because Blue Cross has such market dominance, the hospital has no choice but to accept out-of-state patients at lower rates than paid by smaller insurers, the suit charges.

The Blue entities other than the Host Entity [in this case, BCBS Massachusetts] have no economic incentive to negotiate deals with providers like Boston Children's Hospital, because those entities secure better economic terms by free-riding off BCBS-MA's artificial, unlawfully obtained monopsony power in Massachusetts. In this way, the Blue Card system reinforces the underlying Market Allocation Scheme by thwarting any incentive to compete on price between and among the Blues, and fixes prices by limiting Plaintiffs' reimbursement to BCBS-MA's rates, no matter where the patient and his/her service plan is located.

And yet, despite acting as one giant entity when it comes to setting rates, the Blues use the supposedly independent nature of each geographic insurer to screw Children's on reimbursement, the hospital charges.

The Defendants also create pretextual excuses to delay or reject payment. For example, out-of-state Home Plans sometimes provide pre-authorization for a certain type of procedure, say a kidney repair, but when the doctor opens the patient up, it turns out there is a related issue in the patient's stomach. The doctor will conduct both procedures (kidney and stomach), and the Home Plan will deny the claim because pre-authorization was only granted for the kidney procedure. The Home Plan then instructs Plaintiffs that they can only respond to the denial after forty-five days, introducing significant delay and financial issues. In a competitive market, the Defendants would have to compete more vigorously on quality and such issues would either be eliminated or materially decrease.

At times, Home Plans take different positions on coverage of particular procedures than the Host Plan like BCBS-MA does. So, for example, a Host Plan Blue may approve of certain health care services for its own subscribers, but the Home Plan Blue may deem the same services "experimental" or "not medically necessary" such as whether a specific x-ray procedure must be used instead of an MRI, or the length of time a patient may stay in one type of facility before being transitioned to another type of facility. For the Blues, the ambiguities and inconsistencies inherent in the BlueCard Program are oftentimes a benefit, because they provide a way for Home Plan Blues to deny or further under-reimburse health care providers like Boston Children's Hospital for otherwise legitimate claims, and to do so in a manner where they cannot be held accountable by the health care providers because they have no direct contractual relationship with them.

The hospital is seeking, to start, a declaration that the Blues are violating both federal and Massachusetts anti-trust laws.

But it also wants the court to order them to stop blocking each other from competing on each other's turf, including "entering into or continuing agreements that unlawfully restrict geographic competition, reduce output, fix prices, or otherwise harm competition for the purchase of health care and other services, goods and facilities," let the hospital and its providers negotiate individual contracts with any and all Blue Cross Blue Shields across the country and let the hospital drop out of any Blue Card program whose terms it doesn't like.

The hospital also wants appointment of a special master to oversee the Blues and make sure they don't try to get their monopsony back together.