Bill would eliminate 'most favored nation' clauses in health insurance contracts
Posted March 27, 2013
Raleigh, N.C. — Supporters say a bill that cleared the House Judiciary Committee Wednesday would put a leash on the 800-pound insurance market gorilla that is Blue Cross Blue Shield of North Carolina.
House Bill 247 would prohibit insurance companies from putting so-called "most favored nation" clauses in contracts that negotiate with hospitals and other health care providers. These clauses typically require that providers give a dominant insurance company, such as Blue Cross, rates as good as or better than rates negotiated by competing insurance companies. Those same provisions often require hospitals to show contracts with other companies to Blue Cross.
A similar bill made it part way through the legislative process in 2011 and 2012. The measure stalled as Blue Cross officials pledged they had abandoned the practice.
Rep. Justin Burr, R-Stanly, said that he brought the bill back due to concerns he heard from hospitals and others in the health care business.
"These folks seemed to disagree with the idea that the (most favored nation) clauses are no longer in the Blue Cross Blue Shield contracts," Burr said, adding that such provisions drive up health care costs for the clients of other insurers.
"We want to do everything we can to make sure our constituents have low health care costs," he said.
Christine Evans, a lobbyist and director of regulatory affairs for the company, told the Judiciary Committee that Blue Cross no longer uses the clauses but argued the state should not outlaw them in case the state's insurance environment changes.
"We think this bill is a little bit like trying to burn down the house to chase the cat out," Evans said. "It really goes much further than intended."
In addition to having a philosophical disagreement with the measure's authors, Evans said, the bill could pose practical problems for the company. Prohibitions on sharing information could interfere with providing payments when someone is insured by more than one company, she said.
"There hasn't been any analysis done on this bill to determine what the impact will be on the market," she said.
Although it does not involve hugely emotional issues that bring public attention to the General Assembly, the measure involves some of the most politically involved interests in the state.
Blue Cross itself has no fewer than eight registered lobbyists for the session. Its political action committee spent $88,700 on elections in North Carolina during the past election cycle, which doesn't count individual campaign donations by company executives or money given by the company through independent expenditures or 501(c)(4) groups.
On the other side are business groups like the Employers Coalition of North Carolina, other insurers and, more quietly, health care providers.
The sensitivity and heavy-hitting interests with a stake in the bill are reflected in its path through the General Assembly. The measure did not go to the House Insurance Committee. Instead, it was referred to the full House Judiciary Committee, a group that rarely meets except to handle high-profile or highly controversial bills.
When asked why his committee was handling the matter, Chairman Leo Daughtry simply replied that the decision was "above my pay grade."
"Why does there need to be a law saying these provisions are not allowable?" asked Rep. John Blust, R-Guilford. He asked whether health care providers could simply reject the provisions.
Ken Lewis, chief executive of First Carolina, a small health insurer, said that Blust was assuming the contracts were being forged between equal parties.
But with 3.7 million members, Blue Cross is by far the largest insurer in the state. It also manages the health plan for state employees.
"When the 800-pound gorilla sits on you, you tend to do what the 800-pound gorilla wants," Lewis said.
At least 15 other states have outlawed most favored nation clauses, and more states are considering doing so, according to testimony before the committee.
In Ohio, Lewis said, where the clauses were eliminated 12 years ago, more insurers have come to the state and are providing more competition.
The bill passed on a voice vote. It could be heard on the House floor Thursday or early next week.