Insurance and Real Estate Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-6471

Title:

AN ACT PROHIBITING MOST FAVORED NATION CLAUSES IN HEALTH CARE PROVIDER CONTRACTS.

Vote Date:

3/8/2011

Vote Action:

Joint Favorable Substitute

PH Date:

3/3/2011

File No.:

SPONSORS OF BILL:

Insurance and Real Estate Committee

REASONS FOR BILL:

The bill prohibits managed care organizations and preferred provider networks from including most favored nation clauses in contracts with healthcare providers and hospitals. Such clauses prohibit healthcare providers from entering into contracts that may be more advantageous, and thereby the MFN clause unfairly stifles market competition and innovation. MFN clauses were allowed to come into existence because health insurance is exempt from federal trade law. This bill would prohibit MFN clauses in health provider contracts and will lead to increased competition which will benefit consumers.

REASON FOR SUBSTITUTE LANGUAGE

The substitute language removes dentists from the list of covered providers.

REASON FOR AMENDMENT

The amendment clarifies that October 1, 2011 is the effective date.

RESPONSE FROM ADMINISTRATION/AGENCY:

None expressed.

NATURE AND SOURCES OF SUPPORT:

Rep. Elizabeth B. Ritter, Thirty Eighth Assembly District, submitted written testimony in support of the bill, stating that it would affect “any contract between a health insurer and a hospital or healthcare provider that prohibits the hospital or provider from contracting with another insurer at a lower payment or reimbursement rate.” She also stated that MFN clauses “have been allowed to exist because the health insurance industry is exempt from federal trade laws.” She concluded her written testimony by stating that MFN clauses, “greatly serve the interests of the insurance companies over the consumer.”

Rep. Frank N. Nicastro, Sr., Seventy-Ninth Assembly District, testified in support of the bill, stating “The adoption of this legislation prohibiting the use of most favored nations (MFN) clauses in the health contracts is an important element to enhancing insurance competition in Connecticut. Nineteen states have already enacted similar legislation. And in addition, the United States Department of Justice has attacked the MFN in litigation.”

He stated that MFN clauses are anticompetitive. “MFN clauses limit competition and allow large insurers to dictate terms and conditions allowing them to perpetuate an enhanced market concentration. This is because MFN clauses limit and deter entry to the market by other insurers and payers. Even larger insurers, such as United Healthcare found that they cannot fairly compete in markets where MFN clauses are being used,” he stated.

He also stated, “MFN clauses in contracts require hospitals to continuously monitor for compliance, which involves a commitment of resource. Additionally, hospitals must participate in audits initiated by insurers, which may reveal pricing by competitors, which in itself is highly anticompetitive. Furthermore, the negotiation process may be more costly due to the amount of diligence and analysis required.” He also noted the affects of increase in price terms on a provider's ability to negotiate terms with individual plans and prevent a provider from rewarding competitors who provide better service or less red tape in the process of claims. He concluded his testimony by stating that preserving and enhancing concentration results in higher prices across the board and ultimately affects the amounts paid by consumers. He stated, “MFN clauses discourage providers from entering into innovative payment methodologies with other insurers. The federal reform legislation [suggests] that moving to non-fee for service payment methodologies, which create incentives to improve quality and reduce cost, is a key element of reform for the current legislation.”

Kurt Barwis, President and Chief Operating Officer of Bristol Hospital, testified in favor of the bill. He stated, “The existence of MFN clauses in health care provider contracts harms the public in the following ways. Specific to Bristol Hospital, with the exception of the Charter Oak Health Plan, which Bristol Hospital could initially not participate with because it had an MFN clause in one of its largest payer contracts, and the Medicare/Medicaid managed care products, which have been brought to us, which are exempted from MFN clauses, Bristol Hospital has been approached only twice during the last four years, by a health insurance company covering, primarily, workers compensation. One of them also represented third-party administration services. So, essentially, in four years, very, very little activity in terms of new products coming by way of Bristol Hospital.”

He also stated, “Furthermore, the negotiation process may be more costly due to the amount of diligence and analysis required as a result of accepting one of these provisions. Bristol Hospital spent $113,712 and over 376 hours responding to an MFN audit last year, and that's a fact. Bristol Hospital has an MFN clause in one of its largest commercial health insurance contracts. That's a fact. Bristol Hospital would not have a contract with this payer if it had not continued to accept the MFN clause in this payer contract. That is also a fact. Without this payer's contract, Bristol Hospital would likely go out of business. That is also a fact.'

He concluded his testimony by stating, “Ohio put together a commission with approximately 16 to 18 members. They actually put four of the largest insurers on that commission. And in [that commission's] report it says, 'Another convincing detail that emerged from the commission's discussion, is that there is a difference of opinion on the MFN issue within the insurance sector. Of the four insurers on the commission, it appears that only one, Anthem, supports the use of MFNs in health care contracts.' The other three, Aetna, CIGNA, United Healthcare have all indicated that the existence of an MFN in Anthem's contract with providers has discouraged them from entering or expanding into certain segments of Ohio's market, and they went on to conclude that this was probably the most pervasive fact.”

Debbie Osborn, CT Society of Eye Physicians, et al. testified in support of the bill on behalf of Dr. Mahesh Bhaya who was unable to attend due to an emergency work obligation.

She stated, “We don't want to single out just Aetna. It's a problem throughout the state. It's a problem for physicians in every contract that they have.” She also stated, “What I find telling is the fact that the lobbyists, four, five, three years ago testified when the settlements were in place, that we didn't need to codify these provisions into state statute. And now that the settlements have expired and sunsetted, we're seeing that these provisions are once again resurfacing. So we're reverting right back to where we were before the settlements were in place.”

Matthew Katz, Executive Vice President of the Connecticut State Medical Society (CSMS), testified in support of the bill stating that it will prohibit the use of contractual clauses by insurers and other contracting entities that are inherently unfair and have a detrimental impact on physicians and on patient access to care. He stated, “CSMS believes that these most favored provisions of contracts should be expressly prohibited, as they are in most of our neighboring states, as well as in at least 13 additional states throughout the country.”

He also stated that most favored nation clauses limit competition among insurers, and also limit the ability for physicians to negotiate on price, or any other term of importance to patients, such as quality, access, and even efficiency. “When MFN clauses are in effect, providers, including physicians, cannot lower their prices to attract more business, and cannot effectively negotiate with insurers on price. In addition, payers may be less aggressive in offering lower prices, if they know that an MFN is in effect. Now this doesn't disadvantage providers, physicians, however it does increase costs for consumers.”

Mike Nicastro, President and Chief Executive Officer of the Central Connecticut Chambers of Commerce in Bristol, CT, testified in support of the bill. He stated, “In a broad market, where there's many vendors and many players -- no matter what that service might be – MFN clauses have some value because they actually do create environments where small players can leverage large players for growth. And they can be used, when used properly, as an advantage. But they can also be used as an offensive and defensive tool. There's just no question about it.” He also stated, “I serve as the chairman of the leadership cabinet that runs the insurance trust for the chambers, where we offer health insurance to our members. And I can tell you, that looking at MFN with regards to health insurance, it is a challenge, and it is anticompetitive in this particular situation -- even though it's counterintuitive to a businessperson.”

The Connecticut Association of Health Plans, submitted written testimony in favor of the bill, stating, “Assuring that Connecticut's health insurance marketplace remains competitive is critical to the overall delivery system. MFN clauses create an unlevel playing field among carriers. Practices that have the potential to destabilize the market should be discontinued.”

Also submitting testimony in support of the bill:

Paul Knag

Janice Perkins, ConnectiCare, Inc.

CT Academy of Family Physicians

NATURE AND SOURCES OF OPPOSITION:

Anthem Blue Cross-Blue Shield of Connecticut submitted written testimony in opposition to the bill, stating, “The opposition to the use of MFN clauses is fundamentally based on theories and assumptions which cannot be relied upon. Since there is no empirical evidence of any adverse affects from the use of these clauses, there is no valid legal or economic basis for the Legislature to interfere in the contract negotiations of buyers and sellers in the healthcare market.” Anthem concluded its testimony by stating that the bill “would create bad law and bad healthcare policy in Connecticut.”

Reported by: Sheila McCreven

Date: March 23, 2011