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The Blue Cross/Blue Shield ConundrumSteven J. Greenfogel

When is an association of companies a single entity for the purpose of the antitrust laws and, if they are separate companies, can they limit how they compete against one another? That is the basic question that will be answered in the Blue Cross/Blue Shield Antitrust Litigation which has been centralized for pretrial purposes in the Northern District of Alabama, a case in which our Firm is playing a prominent role.

Simply put, the Blue Cross/Blue Shield Association consists of thirty-five separate companies that operate in the United States under the Blue Cross/Blue Shield (“BCBS”) trademark. The members of the Board of Directors of the Association are the Presidents/CEOs of the various entities that belong to the Association and they promulgate the rules under which each member of the Association operates.

At issue in the litigation are a number of different rules that the President/CEOs have agreed that each BCBS member entity must operate. Of particular import are the rules which prohibit any BCBS entity from competing outside of its assigned territory and the rules which limit the percentage of non-BCBS health care business that can be operated by a BCBS either within its specific territory or on a national basis. The plaintiffs (consisting of classes of subscribers and providers) assert that these restrictions are a per se (or automatic) violation of the Sherman Act in that they result in territorial allocations among the various BCBS entities. Plaintiffs argue that, if the Blues were allowed to compete against one another, it would drive down the cost of health care for subscribers and drive up the level of reimbursements for providers.

Countering these claims, the BCBS entities argue that it is totally appropriate for the Association to have such rules in place as a means to protect the trademark and to avoid confusion in the marketplace. If they were forced to compete against one another, the members say that they would be less likely to cooperate and would be unable to provide their subscribers a seamless service across the entire United States. They assert that the Court must analyze their conduct under a Rule of Reason standard which, unlike a per se restraint, allows defendants the opportunity to explain the rationale for the imposition of the restraints in question. The Court has yet to decide how it intends to allow the jury to analyze the evidence. Indeed, if the Court finds that the per se rule were to apply, BCBS has admitted that the restraints are in place and the case would end with a finding of an antitrust violation.

However, a Rule of Reason case would implicate extensive economic testimony regarding the need to protect the trademark, the avoidance of consumer confusion and the fact that there is extensive competition in the provision of health care services from several national health care companies who compete against BCBS in the marketplace. In sum, the BCBS argument is that, while they are in fact a grouping of separate corporations, operating under the umbrella of the Blue Cross/Blue Shield Association and its trademark allows them to be an effective competitor in the National marketplace.

In an interesting twist, the Court has decided that it will try plaintiffs’ allegations against Blue Cross/Blue Shield of Alabama alone as a test case. Obviously, the results of such a trial will have a significant impact on the rest of the BCBS entities. If plaintiffs prevail in this litigation, it will have a significant impact on how health care in the United States is provided, as well as the cost of those services. Perhaps the use of the antitrust laws will have a salutary effect on the exploding health care costs burdening all Americans.