Photo by Eli Meir Kaplan
A settlement was recently approved in the nearly decade-long antitrust case against Blue Cross Blue Shield over the rules governing their network of companies. At $2.7B, this is easily one of the largest antitrust settlements ever achieved without any government involvement.
Blue Cross Blue Shield is a huge network of health insurance companies, servicing nearly a third of Americans. The settlement – although being appealed by a small number of claimants – is designed to increase market competition, ultimately bringing better prices to companies and individuals.
Hamish Hume is one of the lead lawyers in the case and the one who originally looked at the structure of these networks and thought: Something isn’t right here.
“It was fairly well-known what the Blues did and how they were structured,” says Hume, noting that the federal government had opened antitrust inquires in the past but never decided to bring an action. “No one thought it was worth challenging.”
Enter: Hume. Tenacious and practical, he has a courteous countenance, typically eschewing the aggressive litigation style of some of his counterparts in favor of a steady, studious approach.
Hume is a first generation American, with parents from South Africa and Zimbabwe, where he lived between the ages of seven and 10. His mother's father was a lawyer in a small town in the eastern Cape.
We spoke to Hume on the eve of a jury trial in federal court in D.C. That case is over the rights of private shareholders of Fannie Mae and Freddie Mac, which have been under federal conservatorship since 2008. Under a re-negotiated deal several years later, the full net worth of the mortgage finance companies are being sent to the federal government – to the tune of over $380B – making it impossible for private shareholders to ever receive a dividend, no matter how profitable they are.
Lawdragon: Congratulations on the historic Blue Cross Blue Shield settlement. What impact might this have on the healthcare industry?
Hamish Hume: Thank you, although with the pending appeal, I’m not celebrating quite yet. But beyond the damages recovery, the structural relief can basically be broken down into three categories. All of which should lead to more competition amongst health insurance companies and thus lower prices for consumers.
The first is the elimination of something that the Blue Cross entities called the National Best Efforts Requirement in their trademark license, which effectively prohibited serious competition between the more than 30 independent insurance companies that license the Blue Cross or Blue Shield trademarks. In the Blue system, each independent company licenses the Blue trademark for an exclusive service area. That’s one thing. But then this so-called National Best Efforts provision severely capped the amount of money the companies could make even when they used a different, completely independent trademark, disincentivizing investment and competition outside of their exclusive territory. Now, they’re free to develop and use an independent trademark.
The settlement will bring competition and the promise of better health care to some 30 million employees.
The second impacts large companies and their employees. Almost all large companies self-insure for health insurance, but still buy services from health insurance companies through Administrative Services Only contracts, ASOs. Previously, only one Blue entity would be allowed to bid for an ASO contract for these large companies, with limited exceptions. Under the settlement, the largest of those companies now have a right to select at least one other bid. This will bring competition and the promise of better health care to some 30 million employees.
The third way the settlement will enhance competition is through its regulation of what are called most favored nation clauses. Previously, the Blue entities would have such a large share in a particular market, they could demand the best prices from large hospital systems. This made it very difficult for competing health insurance companies to enter the market. Now, the Blue entities are limited in this ability anywhere they have a market share over 40 percent.
LD: It’s incredible you brought this massive antitrust case, with such stunning results, without any government involvement. That’s so rare in antitrust. What were some of the hurdles there?
HH: It was challenging in several ways. We litigated for close to a decade, and still there was no government investigation, which indicates how uncertain the application of antitrust law to this kind of regime was. That uncertainty in the law was really the biggest challenge.
Then, if the government is involved in an antitrust case, the defendants are more likely to want a settlement. No company wants the government prosecuting it for a serious violation.
We also didn’t have access to the government’s significant resources. The private resources put into this case are staggering. The total out-of-pocket expenses for all the law firms involved was approximately $40M over eight or nine years. Not to mention approximately two hundred million dollars in lawyer time.
The other big hurdle was the filed-rate doctrine. The government has all sorts of fines and penalties it can impose if it wins, whereas we must prove damages. Defendants would argue the filed-rate doctrine says that if a regulator has approved the rate an insurance company is going to charge, no court should second guess that and impose a different rate.
There is precedent for this thinking, but we argued it has been applied too broadly, including in industries where the regulator barely scrutinizes the rates and doesn’t even look at antitrust violations. There are different regimes in many states, and health insurance companies, including the Blues, would often get automatic approval for their rates.
An antitrust litigator has a challenge to then say – those rates are too high, and if there had been competition, they would've been lower. We had multiple rounds of briefing and hearings to deal with the filed-rate doctrine. We found some ways around parts of it, to at least give us a viable damage claim. It got very complex. It was part of what we settled in the end.
LD: What do you anticipate happening with the appeal?
HH: We’re disappointed with the appeal. The overwhelming majority of claimants want this settlement to happen. There are total claims of 8.2 million, businesses and individuals, and just three objector groups have filed appeals so far.
The question I used to ask myself is, is my job making me good at something I want to be good at?
We’re not concerned about their appeals being successful because the settlement was more than reasonable. The judge was exceptionally thorough in going through everything. We think his decision will be affirmed, but it will cause some delay, both with the distribution of the funds to class members and the implementation of at least some of the injunctive relief, which delays the benefits of competition. We are looking at ways to help expedite it.
LD: You worked with some Hausfeld attorneys on this case. How was that?
HH: They were great. Truly exceptionally good at what they do. They're incredibly experienced in class action litigation. We worked very collaboratively and cooperatively, almost like one firm. I was very impressed with their tenacity and persistence, throughout discovery and then managing the case for a very long time. Megan Jones and Swathi Bojedla were both incredible, running the case day-to-day, staying on top of dozens of lawyers and firms and the defendants, who put up all sorts of roadblocks.
Michael Hausfeld is a legendary guy who's had enormous success. For somebody so successful, he's wonderfully understated and mild mannered. It was a privilege getting to know him and working closely with him. He's got a backbone of steel, but he's got the velvet glove on top of the iron fist. He's very understated, very pleasant to be around, and very savvy.
Hausfeld was with us on this case from the very beginning, as was Cy Smith of Zuckerman Spaeder, also amazingly talented and great to work with. They all saw the potential here, in a case that wasn’t that obvious.
LD: What other cases are currently on your desk?
HH: Front and center for me right now is another class action on behalf of all the shareholders in Fannie Mae and Freddie Mac. They have been in government conservatorships since September 6, 2008. But they’ve now effectively been nationalized, and that’s what the lawsuit is over. The conservator is the Federal Housing Finance Administration, which made a deal with the Treasury to provide financing.
In the original deal, the Treasury became a shareholder and got senior preferred stock with a 10 percent dividend. But in 2012, when the housing market was recovering and Fannie and Freddie were turning a profit again, the FHFA and the Treasury changed the deal, so that Treasury gets 100 percent of the net worth of Fannie and Freddie every quarter. So the government has received over $384B, an amount that goes up each quarter, after investing less than half that amount. Meanwhile, private preferred shareholders invested over $33B and received only $5B in dividends, and now have no chance to receive more. Moreover, roughly $20B of that investment was made during the crisis years of 2007 and 2008 at the behest of regulators who wanted Fannie and Freddie to raise more money. The government has made a massive profit, and the private shareholders have suffered a huge loss.
I’m also focused on an appeal from a case we won last year, challenging a gambling compact between the Seminole Tribe in Florida and Governor DeSantis. They made a deal, approved by the Department of the Interior under the Indian Gaming Regulatory Act (IGRA), allowing online sports gambling throughout Florida. With an app on your phone, you could place a sports bet with the Seminole tribe from anywhere in Florida. The theory is, that bet takes place on the tribe’s land because that’s where the server is.
Litigating an antitrust case without government involvement is challenging in several ways. The uncertainty in the law was the biggest.
We represent parimutuel gaming entities in Florida who say that’s not legal because a bet takes place both where it is placed and where it’s received, and under IGRA the Department of the Interior can only approve gambling that takes place on tribal lands. The district court agreed and invalidated the deal, and it’s now on appeal in the D.C. circuit.
I’m handling another appeal for a company that specializes in creating offset transactions for large defense contractor deals with foreign countries. In our case, South Korea bought several billion dollars’ worth of F35 jets from Lockheed Martin through a U.S. government program. The offset was a military satellite provided directly from Lockheed to South Korea. Our client devised the offset transaction and the financing mechanism. At the last minute, Lockheed, South Korea and Airbus cut our client out of the deal. We brought a lawsuit for tortious interference with our contracts, and invoked the Foreign Sovereign Immunities Act. The district court dismissed the case, holding we did not meet the FSIA commercial activity exceptions. I just argued the appeal in the Fourth Circuit. I think we should win.
One thing all those cases have in common – the Fannie/Freddie case, the gambling case, and the South Korean case – is they involve not just me but my partner Sam Kaplan, who’s brilliant and without whom I could not be doing any of this, or at least not nearly as well.
I also have several cases for United Healthcare, including several large antitrust cases where they are a plaintiff, and some defensive cases against healthcare providers that have been purchased by private equity funds who then jack up prices.
LD: You’re busy! What do you like about practicing at Boies Schiller?
HH: The diversity of experience and the freedom to do so many different things. I represent a wide variety of clients, both plaintiff and defense, sometimes individuals or small business, sometimes millions of individuals in class actions, sometimes the largest companies and banks in the country. And it’s a wide variety of litigation, all sorts of industries and types of problems. I’m legally omnivorous – interested in everything from tax law to constitutional law to antitrust and many things in between, and BSF gives me the variety that I love.
LD: What first brought you to the law?
HH: I took myself too seriously out of college. I either wanted to be a political philosopher or an investment banker on Wall Street. Law is somewhere in the midpoint. My parents came to the country with no money, and it was important to me to achieve certain financial goals, while also doing something interesting that spoke to me.
LD: How else has your family background influenced you as a lawyer?
HH: In subtle ways. My father was an anti-apartheid activist as a student in Cape Town, so I grew up idolizing him and thinking of myself as a liberal. Then for various reasons, I became more conservative – I was a partner at one of the most Republican firms in the country, Cooper & Kirk, a small firm where I worked with Ted Cruz and Tom Cotton. Now I’m moving more to the center. The politics of it all is complex. But I love the law for how it can cut across politics. I asked Chuck Cooper to join us in our Blue Cross case, and he and David Boies – who opposed each other in the highly charged Proposition 8 same-sex marriage case – have become fast friends. They still differ dramatically in their politics, but they share certain values of integrity and respect for the law. That inspires me. The rule of law is fundamentally about treating people equally, and addressing each particular case based on neutral principles and rules applied to the facts, not based on some sweeping ideology or the hot emotions of the moment.
My grandfather, who was no radical or activist, was mostly taciturn and cerebral, told me and my brother during a visit to his small town in South Africa in the 1980s, that “In this country, the law treats people differently based on what race they are, and that’s very bad.” It was an understatement, but he felt it important to say to us, to make sure we knew he felt that way, even though he was part of that system. We are all part of a system, and we all have a duty to reform and improve, even if we sometimes disagree about what that means.
LD: What advice do you have for young lawyers?
HH: I used to ask myself, is my job making me good at something I want to be good at? Don't get trapped into short-term thinking. Think about whether people 10 years senior to you are doing things you'd like to be doing.
Any profession will have things you don't love doing. But there are other things, like learning how to think through a complex problem and make it simple, or how to take a morass of facts and tell a clear narrative. How to be persuasive. How to discipline your emotions. As David Boies famously says, how to disagree without being disagreeable. Talking on your feet, being persuasive as an oral advocate, even to people inclined to disagree with you. Those are things this profession hopefully makes you better at.