Featured Health Business Daily Story, Aug. 22, 2012
Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, strategies, conversions, financing, profitability and strategic alliances of BC/BS plans. (Not affiliated with the Blue Cross and Blue Shield Association or its member companies.)
Most-favored nation (MFN) clauses in Blue Cross Blue Shield of Michigan’s contracts with hospitals are already controversial in Michigan, with two major lawsuits pending over their use. But the latest move by state regulators to rein in the use of such language has increased scrutiny of whether MFNs will survive in the Wolverine state, and for that matter in other states like North Carolina and Alabama where such arrangements are also under scrutiny in lawsuits.
As of Feb. 1, 2013, the use of MFN clauses in insurer provider contracts — including those currently in effect — are “strictly prohibited” unless approved by the state’s top insurance regulator, the July 18 order by Michigan Insurance Commissioner Kevin Clinton says. If an insurer tries to enforce an MFN clause without prior approval as of the 2013 date, penalties may occur. “This order does not constitute a determination regarding the permissibility of the use of any particular most favored nation clause, nor is it issued with the intent to preempt general antitrust enforcement in this area,” the order reads.
Industry observers note that Clinton’s directive is tackling a highly charged issue from a regulatory instead of a legislative angle, and puts the onus on the Michigan Blues plan and other insurers to explain their MFN arrangements in an entirely new way. “He’s doing what about a half-dozen states have done [legislatively] in outlawing MFNs in provider contracts,” Jack Rovner, an attorney and principal at The Health Law Consultancy in Chicago, tells The AIS Report. “He is taking the middle road. He wants the discretion to say let them happen, which should lead to lower prices for consumers, or he can veto the kind of practices Blue Cross of Michigan is alleged to have used,” he says.
The order defines an MFN clause as one that prohibits a provider from charging an insurer a rate that is higher than the lowest reimbursement rate the provider accepts from any other insurer. The MFN issue is at the heart of a 2010 U.S. Justice Department lawsuit against the Michigan Blues plan, as well as a separate suit filed last year by Aetna Inc. (The AIS Report 12/11, p. 1).
Rovner says MFN clauses are not that unusual in many sectors of the business world, but the allegations against the Michigan Blues plan, and the reason for the insurance commissioner’s order, is the way the carrier has written the contracts with hospitals and others. “The MFN clauses that Blue Cross Blue Shield of Michigan have allegedly used say that ‘you will always charge the competing insurer 20% more than me,’” he says.
The Michigan Blues plan said it welcomed what it called “the continued state review of health insurers’ MFN hospital contract language.” Jeremy Rumley, the Michigan Blues plan’s vice president and general counsel, said in a statement that the action is “a fair, formal regulatory review of both existing and new contracts to ensure any MFN provisions are proper.” He also noted that the commissioner’s order would have a positive effect on the pending litigation involving the Justice Department. “We will continue to negotiate reimbursement with hospitals that is fair, recognizes hospitals for their efforts to improve quality, and provides our customers with the most affordable pricing possible,” Rumley said.
Representatives on the other side of the MFN contracts, hospitals, tell The AIS Report they expect that providers will review their contracts with all insurers to ensure compliance with the Office of Financial and Insurance Regulation (OFIR) review process. “Opinions on the OFIR ruling may vary among hospitals. It is difficult to predict what the commissioner will consider a reasonable MFN,” says Tracey Shepard, manager of public affairs for the Michigan Health & Hospital Association.
Rovner says it will be interesting to see how all of this unravels, noting that hospitals could even be considered co-conspirators in legal proceedings since antitrust law prohibits restraint of trade and it “takes two to tango” for that violation.
Applauding the Clinton action is the Michigan Association of Health Plans (MAPH), a trade group of insurers in the state that does not include the Michigan Blues plan. MAPH Executive Director Rick Murdock says, “these orders will help create a more competitive market for health insurance in Michigan, and are a start toward leveling a playing field that has been tipped toward Blue Cross for many years. They reflect concerns raised by the Michigan Association of Health Plans in various venues.”
He adds there is much more work remaining “to unwind the massive surplus Blue Cross has amassed due to the practices these orders address, but MAHP salutes the commissioner for these steps, which will incur to the long-term benefit of all who purchase health insurance by increasing competition, which has proven to hold down rates.”
As for the legal actions pending in the courts, Murdock urges the federal court to continue to look at anti-competitive actions and to provide a clear direction of whether they violate federal antitrust laws, as many MAHP members believe. “This is an order issued by our current commissioner; other commissioners might take a different position, and clarity going forward is vital. It is also important for the federal courts to determine what damages should be awarded to the companies who have been harmed by the Blues’ antitrust activities,” he tells The AIS Report.
© 2012 by Atlantic Information Services, Inc. All Rights Reserved.
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