Maryland's attorney general today filed an antitrust suit against the Blue Cross and Blue Shield companies of Maryland and the District of Columbia, charging that a territorial marketing agreement between the firms has illegally restrained competition and increased health-insurance costs to more than 2 million Maryland residents.
The federal antitrust suit, which Attorney General Stephen H. Sachs said was the first of its kind in the nation, also is directed against the national Blue Cross and Blue Shield Association, a Chicago-based trade group that licenses the Blue Cross and Blue Shield trade names and allocates territories among its 95 member companies. Each of the member companies acts independently.
If ultimately successful, the Maryland suit could overturn the national association's longstanding practice of assigning exclusive territories to its members, potentially resulting in both intrastate and interstate competition among local Blue Cross-Blue Shield corporations.
At issue in the Maryland suit, said Sachs, is a 30-year-old agreement between the companies under which Blue Cross and Blue Shield of Maryland and their sister corporations in the District, known as Group Hospitalization Inc. and Medical Service of the District of Columbia Inc., allegedly conspired to create exclusive sales zones. The suit charges that under the agreement the D.C.-based companies have restricted sales to areas in Prince George's and Montgomery counties, leaving the remainder of the state to Blue Cross and Blue Shield of Maryland.
"It's not very different than a situation in which a Chevy dealer in Essex agrees with a Chevy dealer in Catonsville to not sell Chevys to customers who live in the other car dealer's territory," said Sachs. "It's anticompetitive conduct."
A spokesman for Group Hospitalization and Medical Service of the District of Columbia declined to comment on the suit. William Hesson, an attorney for Blue Cross of Maryland, said, "We think we have a very strong case. We will have to fight it out in court." Fred Gloth Jr., counsel to Blue Shield of Maryland, said Sachs is "completely out of order. We look forward to confronting him in court."
The general counsel for the national Blue Cross and Blue Shield Association, while declining to comment on the merits of the suit, defended the association's marketing arrangements. "We think it is in the public interest to have service areas," Marvin Reiter said.
The association has aggressively sought to enforce its licensing arrangements, recently suing in federal court in Alexandria to stop its Roanoke licensee, Blue Cross and Blue Shield of Southwestern Virginia, from soliciting health-insurance contracts in Northern Virginia. The Roanoke company has won at least two contracts outside its territory, including one with the Alexandria school district.
Sachs said his office would seek a preliminary injunction in federal court this week declaring the Maryland agreement illegal, an action he said is necessary to guarantee maximum competition when the state advertises at the end of this month for a new health-insurance contract for almost 80,000 employes. Maryland decided to seek new bids for the approximately $130 million contract when Blue Cross and Blue Shield of Maryland submitted the lone bid last spring.
Although Sachs is seeking damages in his suit on behalf of only the state -- which has paid $444 million to Blue Cross and Blue Shield during the past five years -- he said a successful verdict would lower health-insurance costs for all Maryland consumers.
The nonprofit Blue Cross and Blue Shield companies of Maryland and D.C. together provide health-care coverage to half of Maryland's 4.2 million residents, giving them what Sachs called a "massive domination" of the market. Blue Cross generally provides hospitalization coverage while Blue Shield covers subscribers' doctor bills.
The attorney general also dismissed as "nonsense" any suggestion he is suing Blue Cross and Blue Shield in order to boost his 1986 gubernatorial campaign.