The United States Department of Justice (“DOJ”) and the State of Michigan filed suit on October 18, 2010 against Blue Cross Blue Shield of Michigan (BCBSM).  The DOJ alleges that BCBSM’s use of “Most Favored Nation” clauses in its contracts with hospitals and providers inMichiganis anticompetitive.  These preferential pricing policies, known in the hospital and insurance industries as “most favored nation” clauses typically require that BCBSM receive the lowest rates the participating providers and/or hospitals offer.  Participating providers and/or hospitals are then required to charge any competing plan an agreed percentage above the rate provided to BCBSM. 

The DOJ alleges BCBSM has “Most Favored Nation” contracts with at least 70 of Michigan’s 131 general acute care hospitals.  The complaint further alleges that BCBSM also reduced payments to smaller hospitals that declined to enter into agreements with “Most Favored Nation” clauses. 

The DOJ claims that “Most Favored Nation” clauses give BCBSM an unlawful competitive advantage, resulting in higher prices to consumers in violation of the Sherman Act as well as the Michigan Antitrust Reform Act.  The Sherman Act of 1890 attempted to outlaw the restriction of competition by large companies, and the Michigan Antitrust Reform Act of 1984, which was an act to prohibit contracts, combinations, and conspiracies in restraint of trade or commerce.

In response to this litigation, Michigan Insurance Commissioner Kevin Clinton issued an order on July 18 saying that the State of Michigan will no longer allow the use of “Most Favored Nation” policies by insurers, effective February 1, 2013.  It remains to be seen how this declaration will affect the actual application of Most Favored Nation clauses in facility and provider participation agreements, and much more needs to be done to clarify exactly what constitutes a MFN clause and how it affects contracts currently in force.  But it’s a start, and the order was supported by The Michigan Association of Health Plans, who released a statement on July 20, which began, "These orders will help create a more competitive market for health insurance in Michigan and are a start toward leveling a playing field that has been tipped toward Blue Cross for many years."

*image from opencongress.org