District Court Dismisses Follow-On Suit Challenging Blue Cross's "MFN-Plus' Contracts Under Both Per Se and Rule of Reason Standards

by Sheppard Mullin Richter & Hampton LLP

[author: Helen C. Eckert]

The District Court for the Eastern District of Michigan recently dismissed antitrust claims brought by the City of Pontiac against Blue Cross Blue Shield of Michigan's practice of requiring hospitals to enter into "MFN-Plus" contracts, which was alleged to have significantly raised prices to Blue Cross's competitors. City of Pontiac v. Blue Cross Blue Shield of Michigan, 2:11-cv-10276, Mem. Opinion and Order Regarding Blue Cross Blue Shield of Michigan's Motion to Dismiss (E.D. Mich. Mar. 30, 2012) ("Order"). The City's complaint was a follow-on to an antitrust suit filed by the U.S. Department of Justice and the Michigan Attorney General in the same Court, alleging Sherman Act violations of the same nature as set forth in the City's complaint. Despite the fact, however, that the DOJ's allegations were deemed to state viable antitrust claims, the same Court dismissed the City's complaint under both per se and rule of reason analyses.

Blue Cross is the largest commercial health insurance provider in Michigan, covering more than 60% of the commercially-insured population, and insures more than nine times as many Michigan residents as its next largest commercial health insurance competitor. Blue Cross has sought to include most-favored-nations clauses in many of its contracts with hospitals. The MFN-Plus clauses require the hospitals to charge some or all other commercial insurers more than the hospitals charge Blue Cross, typically by a much higher margin, ranging from 23% to 39%.

Moreover, Blue Cross has sought and obtained MFN-Plus in many hospital contracts in exchange for increases in the prices Blue Cross pays for that hospital's services. In these instances, the City of Pontiac alleged, Blue Cross purchased protection from competition by other insurers by causing hospitals to raise the minimum prices charged to those competitors, but in doing so has also increased Blue Cross's own costs. The City alleged that these MFNs have caused many hospitals to: "(1) raise prices to Blue Cross's competitors and all non-Blue Cross purchasers and insured by substantial amounts; or (2) demand prices that are too high to allow competitors to compete, effectively excluding them from the market." (Order, at 3).

In opposing Blue Cross's motion to dismiss, the City principally argued that its antitrust claims were properly evaluated under the per se violation standard. The Court, however, disagreed, holding that all vertical price restraints between entities at different levels of the market structure are to be judged under the rule of reason standard. (Id. at 13). As Blue Cross and the hospitals were at different level of the market structure – i.e., Blue Cross as the purchaser of hospital services – the per se rule did not apply.

Thus, in order to survive a motion to dismiss, the City had to satisfy the rule of reason standard, which required sufficient allegations that the MFN-Plus contracts produced adverse anticompetitive effects within relevant product and geographic markets. The Court found that the City's complaint, as well as its arguments in opposition to Blue Cross's motion to dismiss, gave sparse treatment to the rule of reason standard, instead focusing almost exclusively on the per se standard. (Id. at 14). While the Court held that the relevant product market was sufficiently pled at the pleading stage (noting that courts hesitate to dismiss claims for failure to plead such fact-driven inquiries), it was not so forgiving of the City's lack of factual allegations that the MFN-Plus contracts harmed competition.

While the Court, as well as Blue Cross, acknowledged allegations that one competitor had been deterred from entering the market, "[o]ne single competitor is not an antitrust concern." In the absence of any additional allegations, the Court held that such bare factual allegations failed to state a plausible claim under the rule of reason standard. Notably, in the DOJ suit, both parties agreed from the outset that the rule of reason standard applied to Blue Cross's MFN clauses. United States of America v. Blue Cross Blue Shield of Michigan, 2:10-cv-14155-DPH, Mem. Opinion and Order Denying Motion to Dismiss (E.D. Mich. Aug. 12, 2011).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.