@NCCapitol

BCBS objects to outlawing "Most Favored Nation" rule

Posted June 28, 2012

— The state's biggest insurer is fighting a bill that would take away its ability to demand the best possible rates from hospitals and doctors using contract terms that Justice Department officials have called "anti-competitive."

An executive with BlueCross BlueShield told the House Judiciary B subcommittee Thursday that the company objected to outlawing the clauses, even though the company no longer put them in contracts.

"Since the beginning of this year, BlueCross has not used 'most favored nation' clauses in new contracts and in fact it's not part of our strategy to use those clauses on contracts executed in the future," said Christine Evans, director of regulatory affairs for the company.

Health insurers such as BlueCross sign contracts with hospitals, doctors and other health providers that specify what rates those providers will be paid for particular services. A most favored nation clause allows an insurer to insist that no other company can get a lower rate for the same services. Some versions of the clauses demand that an insurer get a 10 percent or better rate than any other competing insurance company.

Senate Bill 517 would outlaw such clauses. 

Evans said although BlueCross doesn't use such contracts any more, the company does not want to see them banned. 

"If you don't use the MFN clauses any longer and have removed them from older contracts, then what's the harm of the legislation?" asked Rep. Rick Glazier, D-Cumberland.

Evans said the company was concerned the proposal could affect contract items other than most favored nation clauses.

"We stand by the philosophy that we'd prefer that the General Assembly not get involved in contracts between private parties," she told the committee.

But questions from the committee and remarks from those lobbying on the other side of the issue suggest skepticism about whether BlueCross has truly abandoned the practice. 

Rep. Paul "Skip" Stam, R-Wake, asked how BlueCross defined a contract, noting that there are often letters, memos and other written documents that accompany a contract when it is signed.

"There are references that incorporate numerous types of different documents...it would apply to those," Evans said. 

BlueCross BlueShield controls more than 80 percent of the market for coverage sold to individuals and small businesses in North Carolina, according to the Associated Press. It has similarly dominant positions in other states.

Ken Lewis, CEO of First Carolina Care and president of the North Carolina Association of Health Plans, said the five health care companies he represents are still encountering hospitals and other providers who refer to BlueCross' most favored nation clauses.

Told that BlueCross had told the legislature it has given up such clauses, Lewis said, "I doubt that seriously."

Not only can BlueCross get better rates with MFN provisions, he said, but it has the power to audit provider's books to ensure that it is getting the best rates.

"If I have to pay a rate 30 percent higher than Blue, how long am I going to stay in business?" Lewis said. 

He noted that a key component of the Affordable Care Act, the health reform law just upheld by the U.S. Supreme Court, encouraged competition among health insurance providers. Most favored nation clauses cut down on the competition the federal law hopes to encourage, he said.

A working group assembled by the Department of Insurance to study the health care law agreed. 

"Most TAG members believe that the anti-competitive impact of MFN clauses will be intensified in a post-ACA environment, further limiting competition among carriers and creating barriers to market entry for new carriers, thus restricting consumer choice," reads a statement from the group, which includes representatives of hospitals and doctors as well as small insurers.

In Michigan, the U.S. Justice Department alleged BlueCross used most favored nation provisions in contracts to build that market dominance.

"Without Blue Cross’s MFNs, some hospitals had an incentive to offer lower prices to other insurers to increase competition in the hospital’s service area," Sharis Pozen, an assistant U.S. Attorney General, said in a speech earlier this year. "Blue Cross’s MFNs inhibit competitive entry and expansion from other health insurance plans and likely raise insurance rates."

It's unclear whether the bill outlawing most favored nation provisions will pass this session. Although it has already passed the Senate, the measure has hit a bottleneck in the House committee.

BlueCross spokesman Lew Boreman reiterated Thursday afternoon that the company had stopped putting MFN clauses in their contracts. Such clauses, he said, had been useful when signing longer term deals.

"We might want it as an option sometime. But on principle, we believe it should be a market-driving decision whether to use them and not imposed by the state," Boreman said. 

Sen. Tom Apodaca, R-Henderson, is the measure's sponsor. He said if the measure doesn't pass, BlueCross will have a chance to prove it has dropped MFN clauses. 

"If not," he said, "we can always bring it back up next year." 

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