State to probe Blue Cross, Blue Shield insurance

Health providers say lack of competition hinders reimbursement pacts, pay rates

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Highmark Inc. and the rest of Pennsylvania's Blue Cross-Blue Shield insurers will be investigated by the state Department of Insurance to determine if they are "engaged in anti-competitive or unfair trade practices in violation of the law."

Pittsburgh's Highmark, Philadelphia's Independence Blue Cross, Blue Cross of Northeastern Pennsylvania and Harrisburg's Capital BlueCross were notified of the inquiry earlier this week. The Insurance Department announced the inquiry yesterday.

"There's smoke out there," Insurance Commissioner Joel Ario said in a phone interview yesterday. "The question is whether there is fire."

He was referring to ongoing complaints that the Blues, by virtue of their market share, are able to run roughshod over the doctors and hospital groups, which have little leverage when negotiating multi-year reimbursement contracts and pay rates with the insurers.

The state Insurance Department heard those complaints repeatedly from opponents of a proposed merger between Highmark and Independence Blue Cross, a transaction that would have created one of the largest health insurers in the country.

The Insurance Department refused to endorse the merger without some concessions from the two Blues, and in January, Highmark and IBC withdrew their consolidation bid.

Yet the merger was twice cleared, at least from an antitrust standpoint, by the U.S. Department of Justice. And the state found no violations of the law, either, during two years of vetting the merger plan, which was proposed in 2007.

"There weren't any obvious legal issues that came to our attention," Mr. Ario said.

Highmark's chief spokesman said the inquiry was disappointing and ill-timed.

"At a time when momentum is building in Washington to reform the health care system, this examination diverts attention from important health policy issues," said Michael Weinstein, in a statement.

This week, Congress debated the finer points of a massive health care overhaul meant to expand insurance coverage and reduce long-term health costs.

In addition, Mr. Weinstein said, "This examination will also impose substantial costs on the Blue Cross and Blue Shield companies -- and therefore, on our customers -- at a time when individuals and businesses are being challenged to meet expenses in a difficult economy."

Highmark will cooperate with the investigation, the statement said, even though "we continue to believe that substantial competition exists in Pennsylvania's regional health insurance markets."

Capital BlueCross, which opposed the Highmark-IBC merger and is sometimes at odds with its brothers to the east and west, also issued a statement. The insurer said its service area, "which includes central Pennsylvania and the Lehigh Valley, is the most competitive health insurance market place in Pennsylvania, and we believe both our company and our customers are better for it."

The announcement of the inquiry comes about three months after West Penn Allegheny Health System filed a federal suit against Highmark and the University of Pittsburgh Medical Center, accusing both health systems of antitrust violations and collusion in an effort "to destroy West Penn Allegheny."

Both West Penn Allegheny and UPMC declined to comment on the insurance commissioner's announcement.

Mr. Ario said the investigation into the four Blues could bleed into an examination of the insurers' relationships to other health care providers, including Highmark's links to UPMC.

Questions asked of the Blues "could lead to questions of others as well," said Mr. Ario.

The last time the Insurance Department launched an inquiry of all four Blues was in 2004, when Insurance Commissioner M. Diane Koken investigated whether the $4 billion in combined surpluses held by the Blues carriers was excessive. She concluded it was not, just days after the Blues agreed to fund the Community Health Reinvestment program, providing health insurance coverage for adults and working poor.

This inquiry will be more wide-ranging, Mr. Ario said.

It will explore "whether the territorial restrictions in the Blues' licensing agreements are anti-competitive ... whether there are other agreements among the Blues that impede rather than promote competition ... whether the Blues use their market power to unfair and anti-competitive advantage in areas such as provider contracting ... and whether there are restrictions on data sharing and other market practices that impede the transparency necessary to a competitive marketplace."

Specifically, the state will be looking to see if any of the insurers have violated the Unfair Trade Practices act, a broad and versatile 40-year-old law.

Some of its provisions are quite specific, but it also includes a "catch-all" provision outlawing any "fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding."

If violations are found, the Insurance Department could negotiate changes in business practices that bring the insurers into compliance, or it could seek legislative remedies or financially punitive remedies.

The Insurance Department said the examinations will begin this month and should be completed by early 2010.

The law firm of Hangley Aronchick Segal & Pudlin will serve as chief examiner, and the department also plans to hire an expert economist to help with the review. Mark Aronchick, a partner in the Philadelphia firm, is a longtime friend of Gov. Ed Rendell, and attended the same college and pledged the same fraternity as the Pennsylvania governor.

Bill Toland can be reached at or 412-263-2625.


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