A federal judge dismissed the heart of a surgical center’s antitrust suit against Blue Cross & Blue Shield of Illinois and a downstate hospital network in a case that challenges a common insurance payment practice.
Blue Cross, the largest health insurance carrier in Illinois, and Southern Illinois Healthcare, which operates three hospitals including Memorial Hospital in Carbondale, illegally suppressed competition for outpatient surgeries, according to the lawsuit filed by the outpatient surgical center, Marion HealthCare LLC.
Southern Illinois Healthcare dominates health care in its area, with 77 percent of the market share for inpatient hospital services sold to commercial insurers and about 85 percent of the market for outpatient services sold to commercial insurers, according to Marion HealthCare’s complaint, filed in U.S. District Court in East St. Louis. Blue Cross is the “dominant health insurer” in the area, the complaint also says.
Southern Illinois is part of the Blue Cross network, an arrangement crucial for physicians and providers because insurers typically charge their members lower rates when they use in-network providers, Marion HealthCare notes.
Marion HealthCare, with $6 million in annual revenue, says it tried three times to join Blue Cross’ network but was denied because the insurer’s agreement with Southern Illinois prohibits Blue Cross from giving network status to competitors.
Blue Cross granted exclusive status to Southern Illinois on outpatient surgeries in exchange for discounts the insurer wanted on inpatient services, the surgical center contended.
As a result, Marion HealthCare has been foreclosed from the market for insurance-covered surgeries and consumers have been forced to pay higher out-of-pocket fees, the surgical center alleges.
Such exclusive agreements between Blue Cross and large providers are common and can in some circumstances hurt consumers, experts say.
“An argument can be made that if you have an exclusive arrangement with a provider, and the dominant player has a significant market share, then it can have the potential to raise prices,” said Fredric Entin, a Chicago-based health care lawyer at Polsinelli P.C.
Permission to Refile
But Judge David Herndon ruled Aug. 26 that Marion HealthCare’s allegations don’t amount to violations of federal antitrust law. He dismissed the case but gave the surgical center permission to file an amended complaint covering four of the original 11 counts.
A key to the case’s survival may be Judge Herndon’s ruling on the relevant market.
Marion alleged it had been cut out of the market for commercially insured outpatient surgeries, but the judge ruled that was too narrow a definition.
The market also includes procedures covered by government programs, such as Medicaid and Medicare, even though they have lower reimbursement rates than insurance companies, his opinion says.
By excluding those government programs, Marion HealthCare was artificially enhancing its measure of Blue Cross’ market share, Judge Herndon reasoned.
Relying primarily on low government reimbursement rates would harm the business, said Dr. Tom Pliura, a managing member of the Marion HealthCare, based in Marion, about 17 miles east of Carbondale.
“We’re a for-profit entity and we can’t substitute Medicaid patients and keep the doors open,” said Dr. Pliura, who is also an attorney and represents Marion HealthCare in the antitrust case.
The practice is preparing an amended complaint, he said.
In a statement, a spokeswoman for Southern Illinois noted that several counts in the lawsuit were permanently dismissed. She declined to comment further.
A spokesman for Blue Cross declined to comment.
The ruling was first reported by BNA Bloomberg, an information provider on legal and regulatory matters.