Malloy signs “most favored nation” ban

Gov. Dannel P. Malloy has signed a bill prohibiting the use of “most favored nation” clauses in contracts between health insurers and providers, making Connecticut the latest of more than a dozen states to restrict or ban the practice.

A most favored nation clause requires a hospital or health care provider to give an insurance company the lowest rates it offers. Hospitals and physicians pushed to ban the clauses, arguing that they are unfair and anti-competitive. Bristol Hospital was one of the most outspoken in the effort; President and CEO Kurt Barwis told lawmakers that his hospital spent more than $113,000 and hundreds of hours responding to an audit to show that it had complied with a most favored nation clause. The insurance company ConnectiCare also argued for the ban, saying that most favored nation clauses create an uneven playing field among insurers.

But Anthem Blue Cross and Blue Shield, which uses most favored nation clauses in its contracts, argued that consumers benefit from the clauses because they allow Anthem to get the lowest rates. The insurer also noted that no federal or Connecticut courts have found the clauses to be illegal or anti-competitive.

The U.S. Department of Justice has taken aim at most favored nation clauses. Last year, it filed an antitrust lawsuit against Blue Cross and Blue Shield of Michigan, alleging that the use of most favored nation clauses raised hospital prices, prevented other insurers from entering the market, and discouraged discounts for medical care.

The law will apply to contracts entered into, renewed or amended on or after Oct. 1. Most favored nation clauses in existing contracts will still be enforceable until the contract is renewed or until Jan. 1, 2014, whichever comes first.