Article by Robert E. Bloch , Jonathan L. Lewis and Scott Perlman

Originally published March 10, 2010

Keywords: Antitrust, health insurance mergers, Blue Cross, Blue Care, US Department of Justice, Lansing

During the 2008 presidential campaign, then-candidate Barack Obama singled out health insurance mergers as an area his administration would target for increased antitrust enforcement. In a major step toward implementing this policy, the Antitrust Division of the US Department of Justice (DOJ) announced on March 8, 2010 that parties to a proposed health insurance merger had decided to abandon the transaction in the face of a DOJ challenge.

Blue Care Networks of Michigan, a subsidiary of Blue Cross Blue Shield of Michigan (Blue Cross-Michigan), abandoned its plans to acquire Physicians Health Plan of Mid-Michigan (PHP) in response to announcements that both the DOJ and the Michigan Attorney General's office planned to file a joint antitrust lawsuit to block the merger. The DOJ worked closely with the Michigan Attorney General's office in its investigation of the proposed Blue Cross-Michigan-PHP merger.

The DOJ's opposition was based on concerns about the effects of the merger both with respect to the sale of commercial health insurance and the transaction's impact on reimbursement received by area physicians. The DOJ claimed that Blue Cross-Michigan had an almost 70 percent market share in Lansing, Michigan, and PHP was its largest competitor with approximately a 20 percent market share. The DOJ said that had the acquisition gone forward, Blue Cross-Michigan would have gained control of nearly 90 percent of the commercial health insurance market in the Lansing area, which the DOJ felt would have resulted in higher prices, fewer choices, and a reduction in the quality of commercial health insurance plans purchased by Lansing area residents and their employers. The DOJ also claimed that the acquisition would have given Blue Cross-Michigan the ability to exercise "monopsony power" as a buyer of physician services with the ability to control physician reimbursement rates in a manner that could harm the quality of health care delivered to consumers.

The DOJ's challenge to this transaction is evidence of its commitment to scrutinize health insurance mergers closely and to challenge transactions that it believes may result in anticompetitive effects both in the relevant health insurance markets and the markets for physician services. Parties to future health insurance mergers should expect similar scrutiny to be applied to their transactions.

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