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North Carolina bill challenges Blues' contract provision

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RALEIGH, N.C. (AP) — Rivals of Blue Cross and Blue Shield of North Carolina are again backing legislation that would eliminate a practice they say North Carolina Blue uses to discourage competition and keep health care costs high.

The state House Judiciary Committee voted overwhelmingly in favor of a bill on Wednesday that bars insurance companies from writing contracts that include a “most favored nation” clause requiring medical providers to give them whatever discounts their rivals are getting.

An insurer’s contract also couldn’t bar providers from negotiating with other carriers at equal or lower rates to what that insurer is getting.

The bill would prevent providers from having to disclose their rates with another insurance carrier as part of any agreement.

A similar measure passed the Senate in 2011 but failed to get through the House.

Prohibiting the contract requirements would “return our state and our state’s health insurance market to a competitive landscape so that everybody gets equal footing and opportunity to offer health insurance,” said Rep. Justin Burr, R-Stanly, one of the bill’s primary sponsors.

The measure pits North Carolina Blue, which has 3.7 million members and holds more than 80 percent of the state’s individual and small business markets, against those insurers with smaller market share. But bill supporters also have clout. A regional executive for United Health (NYSE:UNH), which has 900,000 North Carolina members and 80 million nationwide, spoke for the bill.

Ken Lewis, president of the North Carolina Association of Health Plans, said North Carolina Blue uses the most favored nation clauses in contracts and its sheer size to get the terms it wants. Some contracts allow a health insurer to force hospital and doctors to pay back money if it’s determine they’ve given deeper discounts to other providers.

“It’s an 800-pound gorilla versus a very small provider, and we all know when an 800-pound gorilla sits on you, you tend to do what the 800-pound gorilla wants,” said Lewis, who is also head of FirstCarolinaCare Insurance Co.

North Carolina Blue opposes the bill even though it has not been enforcing “most favored nation” provisions in contracts, company lobbyist Chris Evans told the committee. The company sent letters to those providers telling them the clauses have been waived, she said.

Still, Evans said, the bill would infringe on its ability to keep prices down for the people it insures.

“When has it ever made sense to tell (businesses) that if they know their consumers are paying more and their customers are paying more that I’m not allowed to go out and renegotiate a contract to try to remain competitive?” Evans asked. “It just absolutely makes no sense to us.”

Lewis said association members initiate their own “most favored nation” clauses in their own contracts as a defensive measure to counter efforts by North Carolina Blue. But Lewis said they are willing to stop writing them too if everyone is barred from doing so.

Fewer than 20 states have barred these clauses, according to committee speakers. The two sides disagreed on whether consumers would see lower health care costs if North Carolina joined the list.

Lewis said Ohio saw an increase in the number of providers entering the state after it barred such contract provisions. Lewis said North Carolina had 30 health insurance providers doing business in the state 12 years ago. Now there are seven, he said. Evans said sweeping and uncertain changes associated with carrying out the federal Affordable Care Act may mean the bill could create unintended consequences.

“We think that this bill is really just premature,” she said.

Barring a potential stop in the House Insurance Committee, the measure’s next stop is the House floor.

A pending lawsuit involving North Carolina Blue and other Blue Cross affiliates accuses them of limiting competition through similar pricing methods that inflate medical costs and higher premiums.