Competitors react

Published in The Wall Street Journal

The most-favored-nation clauses have proven so constricting in South Carolina that “even large insurers can find it hard” to enter or remain in the market, according to the S.C. Medical Association, which represents the state’s physicians.

National health insurer Cigna, which said it does not have any most-favored-nation contracts in South Carolina, said in a statement the clauses “hinder fair competition by artificially inflating rates, forcing area employers and customers to pay more.”

UnitedHealthcare, South Carolina’s second biggest insurer, echoed Cigna’s remarks, but declined to say whether it uses the clauses in the state.

Carolina Care Plan, a regional insurer, does not use the clauses in its South Carolina contracts and is worried about their use by other carriers, said Donald Pifer, a Carolina Care Plan vice president. In a statement, he said: “We have concerns about the potential anti-competitive effects in South Carolina, particularly given the concentration of market power in the state.”

Officials from Aetna, which also declined to say whether it uses the contract provision in South Carolina, recently wrote a letter to the Insurance Commissioner in Georgia in support of legislation prohibiting the use of the clauses in contracts between hospitals and insurers.

“Use of (most-favored-nation) clauses by dominant insurers can dissuade hospitals or other providers from doing business with competing plans and sometimes result in a price floor for health care services to the detriment of consumers,” the June 15 letter said. “Competing health plans which may have received a lower price from the hospital in the absence of the clause are now prevented from obtaining one, preventing a reduction in the cost of health care services which ultimately harms consumers.”

The letter also warned Georgia officials of a “price buffer” that leads to higher rates for medical services for insurers that do not use the clauses. Fear of breaking the most-favored-nation contract leads hospitals and doctors to charge other insurers higher rates to “ensure that they can never be accused by the dominant health plan of violating the (most-favored-nation) provision,” the letter said.

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