Jefferson, Penn, and Temple join antitrust lawsuits against IBX and other Blue Cross insurers

Mar. 18—Philadelphia's major not-for-profit health systems joined antitrust lawsuits against IBX, Horizon, and other Blue Cross Blue Shield health insurers across the nation this month, alleging that the insurers' system of allocating exclusive territories reduces competition and forces hospitals to accept lower payments.

Temple University Health System, University of Pennsylvania Health System, and Children's Hospital of Philadelphia are among eight nonprofit health systems with Philadelphia-area operations that are suing in Philadelphia federal court. Thomas Jefferson University and Main Line Health joined a federal lawsuit in California.

The March 4 lawsuits, which include dozens of other health systems nationwide, were filed against the Blue Cross Blue Shield Association and member companies with insurance business across the country. Hospital systems claim they have been underpaid by billions dollars since 2008.

The filing of the lawsuits was tied to the deadline for opting out of a landmark $2.8 billion national antitrust settlement in an Alabama case against the Blue Cross Blue Shield network that insures one in three Americans. Health systems opted out to try to win greater compensation than they would have in that settlement.

South Jersey and Delaware heath systems did not share their plans.

Blue Cross Blue Shield insurers have been pillars of the health insurance industry for more than 80 years. The first Blue Cross plans provided coverage for hospital care. Blue Shield plans followed to cover physician services. The organizations merged in 1982 and their networks now have 15 of the 25 largest U.S. health insurers, according to the complaint filed in Philadelphia.

A separate, $2.7 billion settlement in 2021, also in Alabama, came at the Blues from another side of the health-care equation. Employers sued the insurers, saying the Blue Cross Blue Shield system forced them to pay too much for health care. Both settlements trace back to lawsuits filed in 2012.

Market allocation

The lawsuits say the Blue Cross companies violated antitrust rules with their system for licensing "exclusive service areas." Independence Blue Cross, for example, is the only member of the national association with a license to sell Blue Cross insurance to employers in Bucks, Chester, Delaware, Montgomery, and Philadelphia counties.

Blue Shield is a separate license. Pittsburgh-based Highmark (formerly Blue Cross of Western Pennsylvania) acquired Pennsylvania Blue Shield in 1996. It could have competed with IBX in the Philadelphia area, but chose not to for years.

Highmark didn't start competing locally until 2023, selling plans that took effect at the beginning of last year.

Historically, the Blues' market allocation system has restricted the number of companies allowed to compete in Southeastern Pennsylvania and enabled IBX to gain more clout in the marketplace, according to the complaints. It has used its size to negotiate lower payments to health-care providers than would have been possible with more competition, the complaints say.

IBX referred questions about the lawsuits to the Blue Cross Blue Shield Association. A spokesperson said the association does not comment on active litigation.

Local clout with national implications

The market clout enabled by exclusive service areas is also linked to price fixing, the health systems claim in their lawsuits.

Under a national agreement known as the Blue Card program, all Blue Cross Blue Shield companies —whether they are in Florida, Texas, or Oregon — get to pay Philadelphia doctors and hospital the price negotiated by IBX for their members who live in the Philadelphia area.

If a Philadelphia resident works for a company in Dallas, for example, the person's health insurance could be through Blue Cross Blue Shield of Texas, which would get to pay the price that IBX negotiated locally. That amounts to "fixing prices between the local Blue and the out-of-state Blue," the Philadelphia lawsuit says.

Because Blues often have dominant market share in their home markets, "health-care providers face the choice between accepting their local Blue's contract terms or accepting a net loss of critically important commercially insured patients and cash flow that could end their ability to operate."

Main Line Health has faced such a "take or leave it" choice, according to the system's complaint, which was filed by Pittsburgh-based K&L Gates LLP.

Other Philadelphia-area health systems participating in the Philadelphia lawsuit are Tower Health, Doylestown Health, Grand View Health, and Redeemer Health. That lawsuit, filed by Philadelphia-based Duane Morris LLP, also includes other big Pennsylvania systems. They are Geisinger Health, Penn State Health, WellSpan Health, and St. Luke's University Health Network.

Elsewhere in the region, Virtua Health declined to comment. Cooper University Health Care and Inspira Health Network did not respond to requests for comment. ChristianaCare, Delaware's largest health system, declined to comment. Nemours did not respond to an email.

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