Insurer’s Agreements with Providers Are Not Per Se Antitrust Violations

The Iowa Supreme Court refused to categorize a health insurer’s agreements with providers in Iowa and its participation in the national Blue Cross and Blue Shield (BCBS) network as per se violations of the antitrust laws.  In its decision in Mueller v. Wellmark, Inc. issued on February 27, 2015, the court declared that such arrangements “are not subject to the per se rule” and upheld the lower court’s grant of summary judgment.

Approximately seven years ago, a group of Iowa chiropractors sued Wellmark, the largest health insurer in Iowa, challenging its reimbursement rates and practices for chiropractic services.  Wellmark, an Iowa-based company that belongs to the national BCBS network, contracts with health care providers in Iowa to provide services at set reimbursement rates.  By agreement, Wellmark makes those rates available both to self-insured Iowa plans that Wellmark administers and to out-of-state BCBS affiliates when those entities provide coverage for services provided in Iowa.

After a round of litigation through the Iowa courts, the plaintiff chiropractors maintained one antitrust claim:  they alleged that Wellmark combined or conspired with self-insured plans and out-of-state BCBS entities to price fix by establishing a maximum price for services of Iowa chiropractors in violation of the Iowa Competition Act’s corollary to Section 1 of the Federal Sherman Antitrust Act.

The plaintiffs stipulated that their claim was asserted on a per se theory, rather than a rule of reason theory.  A per se theory generally provides an easier path to victory for a plaintiff because it is analogous to strict liability.  The plaintiff need not demonstrate anticompetitive harm by a defendant if the court agrees that the defendant’s actions are per se anticompetitive.  The court in effect declares that the defendant’s actions have no redeeming value and thus cannot be justified by any business or competitive justifications.  A rule of reason case, on the other hand, requires the plaintiff to prove anticompetitive market effects that trump any procompetitive justifications, a standard that can be difficult and expensive to reach.

The key to a per se theory, however, is to convince the court that the conduct falls into the unique category of agreements that can have no procompetitive value whatsoever.  And in this case, the Iowa chiropractors failed to reach that bar.

The Iowa Supreme Court held that Wellmark’s arrangements are not “naked price-fixing arrangements but are more akin to joint ventures.”  First, the court reasoned that self-insureds are buying claims-administration services from Wellmark rather than choosing to refrain from competing on price with Wellmark.  In the absence of such a service, each self-insured plan would need to enter into contracts with hundreds of individual providers.  The court found this alternative impractically time-consuming and cost-prohibitive.  After comparing the case to the lawful right of copyright holders to join together to issue a blanket license for their works, the court decided that group agreement—like a blanket license—is necessary to render the market more efficient and to reduce costs.

Similarly, the out-of-state BCBS plans cannot be expected to negotiate with individual Iowa providers.  Wellmark’s agreements thus enable Wellmark and other BCBS entities to offer national coverage that may not otherwise exist.

Second, the court determined that Wellmark’s arrangements did not truly represent a horizontal agreement between competitors.  The plaintiffs could give no examples of head-to-head competition between Wellmark and self-insured plans in Iowa or out-of-state BCBS entities.

The court noted that its decision did not foreclose a rule of reason challenge against Wellmark.  But the court could not declare Wellmark’s arrangements illegal without weighing the anticompetitive effects with the procompetitive justifications, a balance that cannot be considered under a per se theory.

Speak Your Mind