Idaho outlaws clauses for 'most-favored-nation'

With intense pressure from the Idaho Medical Association (IMA) and heavy lobbying from hospitals, providers, and the non-dominant insurance companies, Idaho has become the first state to outlaw clauses on contracts that force providers to give health care plans their lowest rates. The bill passed by the Idaho Legislation last month prohibits the so-called "most-favored-nation," or best-price provision, in any insurance contract, according to a recent article in AMA News. This allows physicians to charge one payer a lower rate without having to do the same for others.

IMA's executive director Robert K. Seehusen considers Idaho's new law a great victory for pro-competitive pricing. "A contract is a contract. The biggest, the strongest, the most influential company in the state ought to be able to give a good contract and stick to it. If that same physician wants to contract with somebody else, that's his or her business. It's a constitutional, contractual right, period."

But Blue Cross officials say this bill endangers the constitutional right of free trade by abolishing traditional price breaks for volume and by prohibiting benefits providers could not obtain through negotiations. According to Steve Thomas, outside counsel for Blue Cross, consumers, particularly individuals, will end up paying more for the same medical services without the best-price clause.

While Idaho legislators rejected this argument, similar bills introduced as early as 1991 were rejected by the Tennessee legislature. The courts, too, have traditionally decided in favor of HMOs. Judge Richard Posner, chief judge of the U.S. Court of Appeals, Seventh Circuit, described the most favored nation clauses used by the Marshfield Clinic and its affiliated HMO as a pro-competitive tool to bargain for lower prices. A case brought by a physician-owned HMO in New Jersey was also ruled in favor of Blue Cross.

Yet, the FTC and the Justice Department have not shared the courts' view. The agencies brought antitrust enforcement actions against several companies whose use of most-favored-nation clauses discouraged rival plans from offering competitive price structures. In U.S. v. Delta Dental of Rhode Island, the government was able to convince the same court that ruled against the New Jersey physician-owned HMO that their use of most-favored nation clause destroyed competition which resulted in higher consumer prices.

Jim Price, a manager in health care practice for KPMG Peat Marwick in Atlanta, sees little change for the big guys. "They still have the market power before and after the law changes," he says.