States strike at "most-favored" pay clause

Some insurers are joining physicians in successfully lobbying against a contract provision that requires doctors to give an insurer their lowest reimbursement rate.

By Bob Cook — Posted Nov. 12, 2007

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The most-favored-nation contract clause is becoming least favored by more legislators and regulators.

Indiana and Colorado this year banned the practice of insurers requiring, by contract, that doctors always give them the lowest reimbursement rate, while Maryland did so in 2006. Idaho this year extended its ban to foreign-based insurers. And Ohio's House has passed a ban that covers any insurer that controls more than 20% of a local market, a measure now being taken up by the state's Senate.

The District of Columbia's attorney general is investigating whether the use of most-favored-nation clauses by one major insurer, CareFirst BlueCross BlueShield, violates antitrust law. The company is cooperating with the investigation and says its "cost containment" program violates no laws. In Pennsylvania, the insurance commissioner is looking for assurance from two merging Blue Cross Blue Shield plans -- Highmark and Independence Blue Cross -- that the newly combined entity won't violate a state consent order that has prohibited the use of such clauses.

Analysts attributed the latest wave of activity to increasing health plan market domination, which they said has made it difficult for competing insurers to start up, enter a new market, or merely survive in the market in which they already operate.

Analysts and those in the physician community said having small plans and the businesses that wish to use them as allies has helped push anti-most-favored-nation legislation over the top.

After three attempts to get the Indiana Legislature to ban the clauses, this year "we were helped out tremendously by small business interests and other insurers that were not using most-favored-nation clauses," said Zach Cattell, director of government relations for the Indiana State Medical Assn.

A "small" insurer willing to help lobby for such legislation is defined by market penetration, not overall revenues. In Indiana, where WellPoint's Anthem Blue Cross and Blue Shield of Indiana is the major player, Golden Rule, a division of giant UnitedHealth Group, was a supporter.

No one organization keeps track of how many states have passed anti-most-favored nation legislation. But an AMNews review finds Colorado, Indiana and Maryland joining at least eight other states -- Alaska, California, Idaho, Kentucky, Minnesota, New Hampshire, Rhode Island and Washington -- in either banning the clauses or placing restrictions on which plans might use them. For example, Kentucky's law, like the one the Ohio House just passed, bars any insurer with a local market share of more than 20% from putting a most-favored-nation clause in a contract with physicians.

The current government push to stop most-favored-nation clauses is the most active since the early-to-mid-1990s. That's when bans went up in a few states, and regulatory orders went up in others, in response to widely varying and inconsistent federal court rulings that failed to establish consensus on whether most-favored-nation clauses violate antitrust laws. Instead, opinions are determined on a case-by-case basis, such as the Justice Dept.'s decision three years ago that such a clause used by Anthem Inc. passed antitrust muster.

Health plans and other advocates for most-favored-nation clauses said they don't violate antitrust law because they keep costs down. The clauses are sometimes called "equal rate" or "comparable rate" provisions because they require doctors to let plans match, not beat, any lower reimbursement rate from another insurer.

"These provisions promote competition and are pro-consumer by helping to lower costs to consumers ... and preventing Anthem's customers from paying more for health services than customers of other health plans," WellPoint spokeswoman Jill Becher wrote in an e-mail to AMNews.

Becher said the company was "disappointed" in Indiana's new law because "state and federal laws that protect competition already exist, and there is no economic evidence that these provisions harm consumers."

But physicians have argued otherwise -- that these provisions are unfair to doctors and consumers, because they are used by dominant health plans to freeze out competitors. The American Medical Association is opposed to most-favored-nation clauses and has written model legislation for banning them. The AMA also testified in favor of the Ohio legislation.

"Most-favored-nation status ought to be earned," said AMA Immediate Past President William G. Plested III, MD. "You ought to be able to say, 'This insurer treats me better than anyone else, therefore I will grant him the lowest price I will offer anybody.' "

Ohio State Medical Assn. general counsel Almeta Cooper said such provisions are unfair not only to doctors but also to smaller insurers, because big plans often demand the right, as a part of most-favored-nation status, to audit all physician charges. This allows them to find out what their competitors pay.

"Certainly, physicians are not allowed to do that," Cooper said, referring to federal antitrust rules that in most cases bar physician groups from sharing information with each other about charges.

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