Most Favored Nation Clauses Banned by Michigan Insurance Commissioner

Kevin Clinton, the Michigan Insurance Commissioner, issued an order on July 18, 2012 that bans insurance companies from enforcing most favored nation clauses in health insurance contracts unless they are first submitted to him for approval. The order is effective February 1, 2013.

As defined by the order, a most favored nation clause is one that grants a contracting insurer an option to:

1. Prohibit a provider from contracting with another party for a lower rate 2. Guarantee it pays the lowest rates to providers 3. Require a provider to terminate or renegotiate contracts for lower rates with other insurers 4. Require a provider to disclose their contractual payments or rates agreed to with other parties
In 2010, the Michigan attorney general and the U.S. Department of Justice filed a lawsuit against Blue Cross Blue Shield of Michigan (“Blue Cross”) for pressuring 22 of Michigan’s 131 hospitals to sign illegal “most favored nation-plus” contracts. Those 22 hospitals, representing 45 percent of all acute-care beds in Michigan, were allegedly forced to sign contracts that require the hospitals to charge competing health insurers rates that were more than 20 percent higher than the rates charged to Blue Cross.

Aetna, Inc. filed a federal lawsuit against Blue Cross last December accusing them of unfair contract practices in connection with its most favored nation contracts. Aetna is seeking damages and an order by the court to invalidate Blue Cross’s most favored nation-plus contracts.

Blue Cross officials argue that their most favored nation contracts are negotiated in order to keep premiums at the lowest level possible. Blue Cross’s vice president and general counsel, Jeffrey Rumley, stated that the action taken by the state of Michigan is a “fair, formal regulatory review of both existing and new contracts.” Rick Murdock, executive director of the Michigan Association of Health plans, said that this order will help create a more level playing field for health insurers in Michigan.

The order gives insurers 6 months to seek approval from Michigan’s Insurance Commissioner to use the most favored nation contracts.

As a result of this action, the insurance landscape in Michigan will be transformed following the February 1, 2013 effective date of the Order as providers no longer will be subject to demands for most favored pricing by payors (except in those cases expressly approved by the Commissioner).

For more information regarding this and related issues, please contact Carey Kalmowitz, Esq., or Adrienne Dresevic, Esq., at (248) 996-8510 or visit the HLP website.