Blues 'Brothers' in the Crosshairs: Pa, regulators look into possible anti-competitive practices among Blue Cross health carriers engaged in legal slugfest.

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The cannon shots have been going back and forth and now they have gotten the attention of regulators.

A long-standing disagreement over the competitiveness of health insurance and healthcare practices in Pennsylvania has prompted an investigation by the Pennsylvania Department of Insurance into the business practices of "The Blues," four health insurance companies that are estimated to hold a 60 percent share of the commonwealth's market.

On July 17, Pennsylvania's Insurance Commissioner Joel Ario announced that he was launching an investigation of Philadelphia-based Independence Blue Cross, Pittsburgh-based Highmark Blue Shield, Harrisburg-based Capital BlueCross and Wilkes-Barre-based Blue Cross of Northeastern Pennsylvania.

"The purpose of these four examinations is to determine whether there are any anti-competitive practices that violate current law and, if so, to take steps under the law to remedy the effects on competition," Ario said.

In their responses to Ario's investigation, the Blues have suggested that the investigation is biased and is timed strangely, given the fact that healthcare reform is being addressed at the federal level. "The timing of this examination does not make sense," said Liz Williams, a spokeswoman for Independence Blue Cross based in Philadelphia.

"Congress is shaping healthcare reform legislation right now that is likely to change, if not completely transform, the country's health care industry and how we do business in Pennsylvania," Williams continued in a printed statement.

"The scope of the examination is also troublesome," Williams said. "A thorough analysis of competition by the Department would include all health insurers in Pennsylvania."

A spokesman for Highmark concurred.

"At a time when momentum is building in Washington to reform the healthcare system, this examination diverts attention from important health policy issues such as how to reduce unsustainable increases in medical costs, improve the quality of care and expand access to coverage for more Americans," said Michael Weinstein, a spokesman for Highmark.

Perhaps, but plenty has been afoot in Pennsylvania's health insurance landscape to give insurance regulators something to think about.

A lawsuit was filed in April in U.S. District Court in Pittsburgh alleging that Highmark colluded with the University of Pittsburgh Medical Center in an effort to drive West Penn Allegheny Health System, a UPMC competitor, out of business.

The lawsuit, filed by the Philadelphia and Pittsburgh offices of Pepper Hamilton LLC, alleges that the Oakland-based UPMC has raided the professional staff of West Penn Allegheny, offering inflated salaries to doctors in a talent raid meant to cripple the Bloomfield-based hospital.

UPMC and Highmark conspired to shut national health insurance providers United, Aetna, Coventry and Cigna out of the Pittsburgh market, the suit also alleges.

"UPMC has agreed neither to contract on reasonable terms with any competing health insurer nor to sell its health insurance affiliate to any competing insurer, thus relegating companies such as United and Aetna to marginal participation (at best) in the Pittsburgh market," the filing states.

Published estimates place Highmark's market share in the six-county Pittsburgh market in the 60 percent to 70 percent range. The West Penn Allegheny lawsuit contends that the best that Cigna, Aetna and the others have been able to do has been something under 10 percent.

West Penn Allegheny, which filed a complaint with the U.S. Department of Justice about UPMC three years ago, a complaint still under investigation, also alleges that Highmark is reimbursing UPMC at a much higher rate than it is West Penn, resulting in staggering profits for UPMC.

"For example, in fiscal year 2006, UPMC's profits were $512 million while West Allegheny's net income was $21 million. While UPMC is five times the size of West Penn, its profits were 25 times those of West Penn Allegheny's," the Pepper Hamilton attorneys argue.

Other monopolistic concerns were raised over the past couple of years when Highmark and Independence Blue attempted a merger. Had they been successful they would have created one of the largest health insurance companies in the country. The combined company would have had revenue in the $22 billion range, according to estimates.

Ario signalled that he would block the merger on the grounds that it would have created an uncompetitive market, which caused the two parties to drop merger plans last January.

The size of the examination coupled with the scope of the West Penn Allegheny lawsuit promises to produce a jackpot for the state's attorneys and will bring into the fray a who's who of the state's connected and powerful

The Pennsylvania Department of Insurance has retained the Philadelphia-based law firm of Hangley, Aronchick, Segal and Pudlin to serve as examiner. Mark Aronchick, a partner in that firm, is a long-time friend of Pennsylvania Governor Ed Rendell.

To fend off the West Penn Allegheny lawsuit, Highmark has hired the deeply connected Pittsburgh-based law firm of Reed Smith. Dan Booker, the Reed Smith partner who is listed as the lead attorney for Highmark in legal filings, is a board member of the Allegheny Conference on Community Development, a prominent Pittsburgh-area community development group and sits on numerous additional corporate and foundation boards.

Pennsylvania insurance regulators said they planned to complete their investigation sometime early next year.