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Depositions Suggest Blue Cross/Blue Shield Rate Variations Were Kept from Lawmakers, Public

By Bill Britt
Alabama Political Reporter

MONTGOMERY—Newly released depositions in a class-action antitrust lawsuit against Blue Cross/Blue Shield (BCBS) give rise to charges of inflated rates and a nationally coordinated plan to control insurance markets, according to federal court filings.

A written statement received by The Alabama Political Reporter claims, “Blue Cross and Blue Shield are defendants in a series of federal class actions alleging that the Blues are engaging in a nationwide conspiracy to suppress competition in violation of federal antitrust law, including unlawfully conspiring to divide up their respective markets and agreeing to suppress competition among themselves within those markets artificially.”

The depositions also show that the Alabama Department of Insurance Leadership (ALDOI) did not inform lawmakers or the public about rate variations charged by BCBS of Alabama. Not only did ALDOI not disclose the differences in rates, the department also didn’t mount an official investigation into BCBS’s activities in the State.

Attorneys claim these latest revelations are part of a larger pattern of an “ongoing conspiracy between and among the Individual Blue Plans and BCBSA to allocate markets in violation of the prohibitions of the Sherman Act.”

Depositions given by BCBS Chief Actuary Noel Carden, as well as Steven Ostlund of the Alabama Department of Insurance, were unsealed on Oct. 18 by order of Birmingham-based Federal District Judge R. David Procter, who is hearing the nationwide class-action suit.

In his order, Judge Proctor wrote in favor of the public’s right to know, as well as those who might be affected by the claim, which BCBS’s motion sought to keep secret.

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“The public and the parties whose damage claims may be affected by Defendants’ Motion, should be allowed access to the evidence,” Judge Proctor ruled. “The question before the court is whether there is sufficient cause for these depositions to remain under seal. After careful review, the court concludes there is not.”

Michael Hausfeld of Hausfeld Global Litigation Solutionsco-lead counsel in this case, stated:  “In one of the largest antitrust and health care cases pending in the United States, Judge Proctor ruled last week that testimony regarding whether impermissible rates for health insurance charged to citizens of Alabama should be on the public record.” (Hausfeld’s career includes some of the largest and most successful class actions in the fields of human rights, discrimination and antitrust law).

According to this case, Blue Cross/Blue Shield of Alabama dominates the State’s private insurance market, giving it monopoly-like control over insurance rates.

Depositions given by Carden and Ostlund seem to support the claim that over a period of nearly ten years, BCBSAL deviated from its rate filings with the ALDOI, based upon criteria that it didn’t disclos to the regulators.

BCBS Chief Actuary Carden Transcript 161-87:

Q: Okay. But in terms of the submission you make that has an actuarial memo, an actuarial certification and a description of the rate buildup and all of the rating factors, in terms of those submissions, is it accurate to say that not one of them disclosed either the cap or the hold?

A: In terms of the rate filings…

Q: Yes.

A: Yeah, we did not include that in the rate filings.

Q:  Right. And when you included in your actuarial certification that, the fact or the assertion that the rate filing set forth the comprehensive basis for the rates that you were seeking, did you ever disclose the rate cap or hold?

Carden’s attorney: Object to the form.

Judge: You can answer.

A: In the filings that we submitted, no, we did not talk about the rate, the cap or the hold block … the cap or the hold process.

In Carden’s Transcript, at 199, 213-14, he admits rate BCBS’s filings omitted factors whose inclusion would have made them “[m]ore complete and more accurate.”

As for the ALDOI, in his deposition, Ostlund testified that he only recently learned of BCBSAL’s program to vary from filed rates.

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Ostlund Transcript, at 137-38. Under oath he describes a meeting with Carden and an attorney in which he learns of the rate variations for the first time.

Ostlund Transcript 137:

Q: Yes. Did you ever become aware from any source that Blue Cross of Alabama was charging rates to its small group customers that were different from the filed and approved rates?

A: Blue Cross/Blue Shield approached the department a couple of weeks ago indicating that they had discovered a deviation from the rates that they had filed.

Ostlund Transcript 147:

Q: Right. But as early as March 2012, you had put Mr. Carden on notice that violation of the Trade Practices Act was a violation of state law, correct?

A: Correct.

Q: Okay. Did you ask or were you told the dollar figures of the rates charged by Blue Cross of Alabama that were different from the filed rates?

A: They indicated that … current information indicated that they had undercharged thirty-five million to some carriers…to some employers and overcharged five million to others.

In other testimony, Ostlund describes a plan whereby BCBSAL would refund those who were overcharged. He also says the ALDOI had not informed anyone in the legislature about the issues with BCBSAL and  no official statement had been prepared to inform the media or the public concerning the rate variations.

“Clearly what the court determined and what we thought the agency ‘the Blues’ were not acting with the transparency they claim,” Hausfeld said in a phone interview with APR.

Ostlund’s transcripts at 138 show neither he nor the Department ever formally initiated an investigation even though an email from him to the Alabama Commissioner of Insurance  indicated that BCBS could be in of violation of the Trade Practices Act.

Q: (BY MR. SMITH:) Not as if you’re a judge. Based on your opinion as a regulator, it would appear to violate the statute that you quoted in your email, wouldn’t it?

A: Yes, we would investigate it on that basis.

Q: Have you started an investigation on that basis?

A: We have asked them to provide the information to us.

Q: What is the deadline for that?

A: We did not…we had a prenotice they indicated that they were looking to provide information to us and they would make a proposal to us when it became available.

Ostlund’s Transcript says at 146 that false and misleading statements as part of its rate-filings is a “big deal.”

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David Boies, co-lead counsel in the case said, “Blue Cross is claiming that because it allegedly files formulas relating to its premiums with the Department of Insurance, it therefore cannot be sued for damages no matter how illegal its anticompetitive activity.  But at the same time it wants to prevent all of its subscribers from knowing what the Insurance Department’s witness and its own witness had to say about whether and how those rate formulas are reviewed and approved, and how the process works.  The Judge correctly ruled that kind of secrecy is not permitted.”

This is the first of in a series of reports by APR into the lawsuit against BCBS.

Click here to read Steven Ostlund’s deposition

Click here to read Noel Carden’s deposition

Click here to read Judge Proctor’s order


Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.

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