Mueller v. Wellmark, Inc., Iowa Supreme Court No. 13-1872 (filed February 27, 2015)

Physicians long have been in tough negotiation positions with large, often dominant commercial health insurers. In its 13th edition report, “Competition in Health Insurance – A Comprehensive Study of U.S. Markets,” the AMA found, based on 2012 data, that 72% of the nation’s metropolitan commercial health insurance markets are highly concentrated as measured against federal antitrust guidelines. Concentration raises a red flag on the ability of a market to compete.  In 41% of those metropolitan markets, a single commercial health insurer had at least a 50% market share. Seventeen states, including Iowa, had a single health insurer with a statewide commercial market share of 50% or more. Such marketplace dynamics sometimes lead the nation’s physicians to conclude they have little choice but to accept what commercial insurers offer to them.

Federal and state antitrust laws are designed to protect consumers from certain harmful behaviors of market players. A decision entered by the Iowa Supreme Court at the end of February of this year examined whether Wellmark BlueCard® and Wellmark third party administrator agreements amounted to per se price fixing prohibited by the Iowa Competition Law. In this case, the Court was not called upon to discuss Wellmark’s dominance in Iowa’s commercial health insurance market; per se price fixing, if established, violates the antitrust laws regardless of market power. Nonetheless, the Court’s discussion in this case is instructive for physicians and other providers who contract with dominant commercial health insurers like Wellmark.

In Mueller v. Wellmark, plaintiff chiropractors challenged Wellmark Blue Cross and Blue Shield of Iowa (Wellmark) and its HMO, Wellmark Health Plan of Iowa (WHPI), of conspiring to set prices paid to its contracted providers of health care services with out-of-state Blue Cross Blue Shield Association (BCBSA) affiliates through the BlueCard® program and with in-state self-funded employers administered by Wellmark and utilizing Wellmark’s provider networks. BCBSA affiliates, through the BlueCard® program, pay Iowa claims at Wellmark rates even if the affiliate’s reimbursement rates for the same services when provided to the affiliate’s insureds are higher or lower. In the same vein, self-funded employers who enter into an administrative contract with Wellmark that includes use of Wellmark’s provider network to reimburse providers consistent with Wellmark’s fee schedule.

The plaintiffs alleged that these Wellmark agreements amounted to per se price fixing in violation of Iowa’s Competition Law, Iowa Code chapter 553. A per se price fixing agreement is considered so pernicious and predictable in its anticompetitive effect that no marketplace justification can support the pricing arrangement. If a plaintiff successfully establishes per se price fixing, the antitrust laws are violated and damages are due.

The district court, in its examination of this issue, concluded that the facts surrounding these agreements did not support a finding of per se antitrust price fixing. The Iowa Supreme Court agreed. In making its findings and arriving at its conclusions, the Court addressed “monopsony” arguments important to commercial health insurance reimbursement arrangements with contracted providers.

Pricing challenges under the antitrust laws most commonly address the ability of market players to increase prices charged to consumers in the sale of their product; this scenario raises antitrust “monopoly” concerns.  On the other hand, pricing challenges by providers who contract with commercial health insurers relate to the ability of insurers to lower prices for services purchased from providers; this scenario raises antitrust “monopsony” concerns, an arena infrequently addressed by the regulators and the courts.

The Iowa Supreme Court acknowledged that monopsony-like arrangements to lower reimbursement rates to medical providers can pose competitive threats – i.e., resultant “suboptimal output, reduced quality, allocative inefficiencies, and (given the reductions in output) higher prices for consumers in the long run.” Nonetheless, the Court rested its decision in this case on other grounds. Wellmark’s agreements, the Court said, were not per se price fixing as much as they were joint ventures.

The Court explained that self-funded employers have not agreed with Wellmark to fix prices, rather they have purchased a package of claims-administration services which include Wellmark’s negotiated pricing structure. The resultant marketplace impact of these agreements for consumers is self-funded insurance options through employers who, themselves, lack the resources needed to establish a comprehensive provider fee schedule. Similarly, the BlueCard® program allows Wellmark to offer a 50-state product that meets the needs of its insureds without having to maintain a provider network and rate structure in each of these states where it has relatively few claims; BlueCard® agreements are not meant to fix prices, rather they seek to achieve economies of scale to the benefit of consumers.

The per se price fixing issue before the Court was a narrow one. As such, the Court’s conclusion also is narrow. Importantly, the Court went on to explain that an examination of the antitrust implications of these agreements – which, the Court said, are widespread in the health insurance marketplace – calls for a “rule of reason” analysis to assure consideration of both their procompetitive and their anticompetitive effects. The issue before the Court did not allow a rule-of-reason examination nor had facts been presented to support a rule-of-reason analysis.

The underlying impact of these challenged agreements for Iowa providers is a greater number of players in the commercial health insurance market place utilizing a market-dominant commercial insurer’s provider fee schedule, for ill or for good. According to the AMA’s report cited above, Wellmark controls 50% of the Iowa statewide commercial health insurance market, placing our state’s commercial health insurance marketplace as the 17th most concentrated among the 50 statewide and DC markets. In the Iowa PPO market alone, Wellmark has a 79% share. While the Court in this case was not faced with a rule-of-reason issue, the Court noted in closing: “We are not today foreclosing a rule of reason claim against Wellmark if it were shown that the anticompetitive consequences of its practices exceeded their procompetitive benefits.”

The plaintiffs’ per se price fixing claims against Wellmark were not successful here. The Court’s reasoning in rejecting the per se approach was well supported in law and fact. A beneficial outcome of the decision, however, is the Court’s recognition of antitrust monopsony theories and likely elements of a viable monopsony challenge by providers of medical services against market dominant commercial insurers.

Mounting such a challenge requires credible marketplace facts and, ultimately, compelling evidence of negative marketplace impacts upon consumers. Defining geographic and product markets demands expertise, time, and great expense. In the end, practices that may be anticompetitive and harmful to providers may, nonetheless, be procompetitive and beneficial to consumers, the ultimate beneficiaries of the antitrust laws. Antitrust challenges by providers of medical services present no easy task, indeed.