On the heels of releasing the first of four reports on Pennsylvania’s four Blue Cross Blue Shield plans and possible anti-competitive practices, state regulators face a suit by Highmark for what it calls an “unlawful and unauthorized” examination.

Pittsburgh-based Highmark, the state’s largest health insurer, said in a statement it has filed a petition in Pennsylvania’s Commonwealth Court claiming the Pennsylvania Insurance Department (PID) has overreached its legal authority in its review of the state’s four Blue Cross and Blue Shield affiliates: Highmark, Independence Blue Cross, Capital Blue Cross and Blue Cross of Northeastern Pennsylvania.

Joel Ario

In July 2009, Pennsylvania Insurance Commissioner Joel Ario announced that his office would examine all four insurers to look at potential anti-competitive or unfair trade practices. The review followed a proposed merger by Highmark and Philadelphia-based IBC, withdrawn after more than a year of work by both companies.

At the time of the withdrawal, Ario said the canceled consolidation was good for consumers, but also highlighted a lack of competition, especially Blue-on-Blue competition, in the state’s health insurance marketplace.

As a possible stipulation to approving the merger, Ario said he would have required the new merged entity to divest one of the two Blues trademarks (Cross or Shield) and work with the Blue Cross and Blue Shield Association (BCBSA) to have the trademark awarded “to a qualified competitor.” The commissioner said neither company would entertain that condition.

In its petition, Highmark argues that the PID lacks the authority to review the issues under the examination – which it deemed “unlawful and unauthorized” – and said the insurer would suffer “irreparable harm” if the examination proceeds.

‘Limited authority’ on licensing

Of particular concern to the insurer is the PID’s intention to analyze BCBSA licensing agreements, which Highmark feels regulators have “very limited authority” to review in terms of competition. It also believes the PID has no authority over BCBSA licensing agreements or the exclusive service area rights in those agreements.

“Highmark is concerned about the substantial costs associated with the examiner and outside consultants,” according to a statement provided to IFAwebnews.com. “At a time when individuals and businesses are being challenged to meet expenses in a difficult economy, this examination would impose substantial costs on Highmark, and, therefore, on our customers.”

In a statement, Ario said the PID believes the exam “is within our purview, scope and authority – or we would not have undertaken it.

“We are deeply concerned that this lawsuit comes on the heels of our attempts to investigate some specific allegations of anti-competitive behavior – issues, having nothing to do with licensing – these have to do with their treatment of brokers and unfair pricing of insurance,” he said.

Central Pa. report forthcoming

Ario recently told IFAwebnews.com that his office is about to release a report on activity in the central portion of the state, where Capital Blue Cross and Highmark actually compete, a rarity in Pennsylvania. The central region report is to be followed by subsequent reports investigating Pittsburgh, Philadelphia and the northeast region of the state, Ario said.

“I think this will be the most in-depth look at our marketplace,” Ario told IFAwebnews.com.

Highmark noted its opposition to the investigations earlier this year, arguing that the exams exceed the PID’s legal authority, both in topic and the documents it seeks, according to the insurer’s spokesman, Michael Weinstein.

Weinstein added that the insurer provided “thousands” of pages of documentation during the proposed merger with IBC and in a statement, Highmark noted that the U.S. Department of Justice examined the competitive effect of the proposed merger as well.

“It’s apparent that the [PID} intends to challenge the licenses that Highmark holds to use the Blue Cross and Blue Shield brands and to deprive Highmark of the benefit of the brands, which Highmark has provided for more than 70 years,” the insurer said.

Highmark added that it lawfully owns licenses to use Blue Cross and Blue Shield marks, “including rights to use those marks in exclusive service areas as granted by the BCBSA.

“We believe the Insurance Department and Commissioner Ario have no jurisdiction or authority over the BCBSA licensing agreements,” the company said. “Highmark has a long history of working cooperatively with the Insurance Department in addressing the health care needs of Pennsylvanians. However, we have a serious disagreement on many of the issues surrounding its examination. Today’s lawsuit is a necessary next step in protecting our brand.”