In North Carolina, Will There Be “Freedom to Negotiate Health Care Rates”?

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Despite opposition and the claim from BlueCross BlueShield of North Carolina that it “has not used ’most favored nation’ clauses in [its] new contracts and in fact [they are] not part of our strategy to use those clauses on contracts executed in the future,” both houses of North Carolina’s General Assembly passed legislation that outlaws the use of most favored nation (MFN) provisions in healthcare provider contracts.

The “Freedom to Negotiate Health Care Rates” legislation provides, in relevant part, that no contract with a healthcare provider shall:

“(1) Prohibit, or grant a health insurance carrier an option to prohibit, the provider from contracting with another health insurance carrier to provide health care services at a rate that is equal to or lower than the payment specified in the contract.

(2) Require the provider to accept a lower payment rate in the event that the provider agrees to provide health care services to any other health insurance carrier at a rate that is equal to or lower than the payment specified in the contract.

(3) Require, or grant a health insurance carrier an option to require termination or renegotiation of an existing health care contract in the event that the provider agrees to provide health care services to any other health insurance carrier at a rate that is equal to or lower than the payment specified in the contract.

(4) Require, or grant a health insurance carrier an option to require, the provider to disclose, directly or indirectly, the provider’s contractual rates with another health insurance carrier.

(5) Require, or grant a health insurance carrier an option to require, the nonnegotiated adjustment by the issuer of the provider’s contractual rate to equal the lowest rate the provider has agreed to charge any other health insurance carrier.

(6) Require, or grant a health insurance carrier an option to require, the provider to charge another health insurance carrier a rate that is equal to or more than the reimbursement rate specified in the contract.”

If signed into law by North Carolina Governor McCrory, the legislation will take effect on October 1, 2013, and apply to contracts “entered into, renewed, or amended on or after that date.”

Early this year, the state of Michigan enacted a ban on the use of MFN provisions by insurers, HMOs and nonprofit healthcare corporations in contracts with providers. That ban, which takes effect January 1, 2014, was cited by the U.S. Department of Justice Antitrust Division (DOJ), the state of Michigan and BlueCross BlueShield of Michigan (Michigan BCBS) as a reason for ending nearly 2 1/2 years of antitrust litigation challenging Michigan BCBS’s use of MFN provisions in its contracts with Michigan hospitals. The parties to that litigation agreed that the relief sought by DOJ and the state of Michigan now was unnecessary and the litigation between them should be dismissed because of the ban.

DOJ and Michigan alleged that Michigan BCBS’s MFN provisions effectively prevented Michigan BCBS’s competitors from offering customers competitive rates, because they resulted in those competitors paying higher prices for hospital services. MFNs may have this effect if they discourage hospitals and other providers from selectively giving lower rates to smaller health insurance companies because the providers then have to make those same rates available to large insurers by virtue of the MFN’s requirements.

Topics:  Contract Drafting, Healthcare, Most-Favored Nations

Published In: General Business Updates, Elections & Politics Updates, Health Updates, Insurance Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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