NC Governor Signs Law Banning Most Favored Nations Provisions in Health Care Contracts

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Despite opposition and Blue Cross Blue Shield of North Carolina’s claim 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,” on May 8 North Carolina’s Governor, Pat McCrory, signed into law legislation that outlaws the use of most favored nation (“MFN”) provisions in health care provider contracts.

The “Freedom to Negotiate Health Care Rates” legislation provides, in relevant part, that no contract with a health care 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.

The new law takes effect on October 1, 2013, and applies to contracts “entered into, renewed, or amended on or after that date.”

Early this year, we reviewed Michigan’s enactment of a ban on the use of MFN provisions by insurers, HMOs, and nonprofit health care corporations in contracts with providers. That ban, which takes effect January 1, 2014, was cited by the Department of Justice Antitrust Division, Michigan, and Blue Cross Blue Shield of Michigan (“Michigan BCBS”) as a reason for ending nearly 2 ½ years of antitrust litigation challenging Michigan BCBS’s use of MFN provisions in its contracts with Michigan hospitals. The parties to that litigation agreed the relief sought by DOJ and Michigan was now unnecessary and the litigation between them should be dismissed, because of the ban.

With more than 20 full-time antitrust lawyers in our Washington, D.C. office alone (more than 40 firm wide), we have the depth and experience to handle the most significant antitrust litigation and challenging transactions. If you have any questions regarding this matter, or would like to learn more about our antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557, or Lee H. Simowitz, lsimowitz@bakerlaw.com or 202.861.1608.

Topics:  Contract Drafting, Healthcare, Most-Favored Nations

Published In: Antitrust & Trade Regulation Updates, General Business 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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