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Antitrust Division Challenges Montana Plan's Deal with Hospitals

Client Alert | 2 min read | 11.18.11

The U.S. Department of Justice ("DOJ") and the State of Montana have sought to enjoin an agreement between Blue Cross Blue Shield of Montana, Inc. ("BCBSM") and five of the six Montana hospitals (the "hospital defendants") that own New West Health Services, Inc. ("New West") on the grounds that the agreement was anticompetitive and a violation of Section 1 of the Sherman Act and Section 7 of the Clayton Act.  The key components of the agreement provided as follows:

  • For the coming six years, the hospital defendants would cease purchasing health coverage from New West and would instead purchase coverage from BCBSM;
  • The hospital defendants would gain two seats on the board of BCBSM; and
  • BCBSM would pay the hospital defendants $26.3M.

The sixth hospital-co-owner of New West was not party to the agreement; it already purchased health coverage for its employees from BCBSM, rather than providing them coverage through New West.

DOJ argued in its complaint that because the agreement would create the perception that New West would fold, New West would in fact fold ("The Agreement effectively eliminates New West as a viable competitor in the sale of commercial health insurance.").  Although the complaint does not expressly characterize the agreement as an incipient "3-2 merger" of health insurers, its analysis and conclusions effectively treat the agreement in that way.  Most notably, the complaint points out that consolidating the market shares of BCBSM and  New West would shift HHI levels in three of those four relevant metropolitan statistical areas ("MSAs") from non-concentrated (below 1500) to highly concentrated (above 2500), and that HHI in the fourth MSA, Billings, would shift from 640 to 2,290, just below the highly concentrated threshold.

The proposed final judgment seeks to remedy the allegedly anticompetitive effects of the defendants' acquisition agreement, chiefly, by seeking to replace BCBSM with another purchaser.  It requires New West and the hospital defendants to offer to sell New West's assets to PacifiSource – unless PacifiSource refuses, in which case the sellers have one month to find another buyer before the assets will be taken into receivership by a trustee charged by the order to sell them.  The proposed final judgment includes two further key requirements for the defendants.  It compels the hospital defendants to contract with the non-BCBSM acquirer for three years on substantially the same terms as are currently provided under their existing contracts with New West.  And it prohibits BCBSM for six years from conditioning its contracts with providers on pricing or participation with other payors.

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