John Sellek of the Michigan Attorney General's Office described what Blue Cross Blue Shield's actions in negotiating with hospitals as "atrocious".
"Blue Cross is using every advantage it has in the marketplace provided to them by the taxpayer to force out any compettion at any hospital," said Sellek. "What that's going to mean is market dominance for them and higher prices for everyone else."
The lawsuit filed against Blue Cross Monday follows a joint investigation with the Dept. of Justice and the Michigan Attorney General's Office.
Blue Cross is accused of using it's position as Michigan's largest health insurance provider to force hospitals to raise rates on the competition. In smaller hospitals, Blue Cross is accused of threatening to lower reimbursement rates 16% if they didn't comply. Sellek says larger hospitals received a sweeter deal.
"The shocking thing to us was Blue Cross was actually increasing the amount of money they gave to hospitals almost like a payoff to say 'Hey, you have to charge other insurers 10, 20 or 40 percent more' for things like x-rays." said Sellek.
"They're filing suit over us providing low costs through our healthcare agreements," said Andrew Hetzel, VP of Corporate Communications for Blue Cross Blue Shield of Michigan.
Blue Cross says the allegations against them are unfounded and that they save their subscribers billions of dollars.
"The argument that we're providing higher costs for other people really doesn't make sense," said Hetzel. "We represent more than 4 million of our customers and subscribers when we negotiate, we don't negotiate on behalf of other health plans and their members."
According to the lawsuit, Sparrow Hospital was one of 68 hospitals who had this type of arrangement with Blue Cross. However Sparrow is not accused of doing anything wrong and is not a party in this lawsuit.
"Sparrow has not seen nor can we comment on the particulars of this lawsuit," said Rose Tantraphol in a statement e-mailed to WILX. "What we can say is that Sparrow has a similar contractual arrangement with Blue Cross Blue Shield of Michigan as most other larger Michigan hospitals. As is common practice throughout the nation, contracted rates are determined, in part, based on volume."