Most Favored Nation Clauses - State Ban Ends Antitrust Action Against Michigan Blues

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In the wake of the passage of a Michigan statute and regulatory order banning the use of most favored nation (MFN) clauses by insurers, health maintenance organizations and nonprofit healthcare corporations in contracts with providers, the U.S. Department of Justice Antitrust Division (DOJ), the State of Michigan and Blue Cross Blue Shield of Michigan (Michigan BCBS) have agreed to end nearly two and a half years of antitrust litigation.

In a complaint filed in October 2010, DOJ and the state of Michigan sued Michigan BCBS, alleging that it had taken steps to insulate itself from competition in the sale of commercial health insurance by entering into agreements containing MFN provisions with more than 70 Michigan hospitals. DOJ and the state of Michigan alleged that Michigan BCBS's MFN provisions effectively prevented Michigan BCBS's competitors from offering customers competitive rates, because they resulted in Michigan BCBS's competitors paying higher prices for hospital services. MFNs may have this effect if they discourage hospitals and other providers from 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.

On July 18, 2012, the Commissioner of the Michigan Office of Financial and Insurance Regulation entered an order banning the use of MFN provisions in health insurance contracts unless approved by the Commission. Then on February 8, 2013, the Commissioner issued a bulletin stating that "all MFNs currently in use by any insurer are void and unenforceable" as of February 1, 2013, and that "any attempt by an insurer to use or enforce an MFN clause in any provider contract, without the Commissioner's prior review and approval, is prohibited." Michigan BCBS acknowledged that the Commissioner's order makes its MFN clauses "void and ineffective." And even more significantly, on March 18, the state of Michigan enacted laws that ban the use of MFN clauses by insurers, HMOs and nonprofit healthcare corporations in contracts with providers. Those laws take effect January 1, 2014.

In light of the Commissioner's order and the enactment of the Michigan laws banning MFNs, DOJ, the state of Michigan and Michigan BCBS agreed that the injunctive relief sought by DOJ and the state is now unnecessary and the litigation between the parties should be dismissed. Only time will tell what (if any) impact all of this will have on the other ongoing antitrust challenges Michigan BCBS is facing. Notably, Michigan BCBS is still facing a challenge brought by its competitor, Aetna Inc., as well as several antitrust class actions.

DOJ's interest in MFNs is likely to continue. In September 2012, DOJ and the Federal Trade Commission held a joint workshop on the significance of MFNs for antitrust enforcement in healthcare as well as other contexts.