Substitute House Bill No. 6471
As Amended by House
Amendment Schedule "A"
Approved by the Legislative Commissioner
AN ACT CONCERNING MOST FAVORED NATION CLAUSES IN HEALTH CARE PROVIDER CONTRACTS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. Subdivision (2) of subsection (a) of section 38a-479 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2011):
(2) "Provider" means a physician, surgeon, chiropractor, podiatrist, psychologist, optometrist, natureopath or advanced practice registered nurse licensed in this state or a group or organization of such individuals, who has entered into or renews a participating provider contract with a contracting health organization to render services to such organization's enrollees and [ enrollee's ] enrollees' dependents.
Sec. 2. Section 38a-479b of the general statutes is amended by adding subsections (c) and (d) as follows (Effective October 1, 2011):
(NEW) (c) Except as provided in subsection (d) of this section, no contracting health organization shall include in any participating provider contract, contract with a dentist or contract with a hospital licensed under chapter 368v, that is entered into, renewed or amended on or after October 1, 2011, or contract offered to a provider, dentist or hospital on or after October 1, 2011, any clause, covenant or agreement that:
(1) Requires the provider, dentist or hospital to:
(A) Disclose to the contracting health organization the provider's, dentist's or hospital's payment or reimbursement rates from any other contracting health organization the provider, dentist or hospital has contracted, or may contract, with;
(B) Provide services or procedures to the contracting health organization at a payment or reimbursement rate equal to or lower than the lowest of such rates the provider, dentist or hospital has contracted, or may contract, with any other contracting health organization;
(C) Certify to the contracting health organization that the provider, dentist or hospital has not contracted with any other contracting health organization to provide services or procedures at a payment or reimbursement rate lower than the rates contracted for with the contracting health organization;
(2) Prohibits or limits the provider, dentist or hospital from contracting with any other contracting health organization to provide services or procedures at a payment or reimbursement rate lower than the rates contracted for with the contracting health organization; or
(3) Allows the contracting health organization to terminate or renegotiate a contract with the provider, dentist or hospital prior to renewal if the provider, dentist or hospital contracts with any other contracting health organization to provide services or procedures at a lower payment or reimbursement rate than the rates contracted for with the contracting health organization.
(NEW) (d) (1) If a contract described in subsection (c) of this section is in effect prior to October 1, 2011, and includes a clause, covenant or agreement set forth under subdivisions (1) to (3), inclusive, of said subsection (c), such clause, covenant or agreement shall be void and unenforceable on the date such contract is next renewed or on January 1, 2014, whichever is earlier. Such invalidity shall not affect other provisions of such contract.
(2) Nothing in subdivision (1) of this subsection shall be construed to affect the rights of a contracting health organization to enforce such clause, covenant or agreement prior to the invalidation of such clause, covenant or agreement.
This act shall take effect as follows and shall amend the following sections:
October 1, 2011
October 1, 2011
The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst' s professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.
OFA Fiscal Note
State Impact:
Agency Affected
State Comptroller - Fringe Benefits
GF & TF – Cost or Savings
Note: GF=General Fund and TF= Transportation Fund
Municipal Impact:
Municipalities
Cost or Savings
Explanation
The bill may result in a potential cost or a savings to the state employee health plan 1 and municipalities which is indeterminate. The potential cost or savings are a result of the bill' s prohibition of Most Favored Nation Clauses (MFN) from contracts entered into, renewed, amended or offered on or after October 1, 2011. In addition, for those contracts with MFN clauses that are in effect prior to October 1, 2011; these contracts are void and unenforceable on the contract renewal date or January 1, 2014, whichever is earlier.
The potential cost to the state and municipalities would depend on the rates the insurer with the MFN is able to secure when the insurer negotiates rates with providers 2 . The potential cost would accrue to the state and municipalities as the insurer would no longer be assured they received the lowest price for services from the provider. The potential increase in cost assumes any increase in provider rates is passed through to the state or municipalities by way of increased rates or premium costs. If the increase is passed through to the state or municipalities the cost of providing healthcare for employees may increase.
Conversely, there could be a potential savings to the state and municipalities. The savings would accrue to the state and municipalities if insurers who otherwise would not have been able to negotiate the MFN clause into a contract with a provider are able to secure lower prices as a result of MFN clauses being prohibited. The savings assumes two factors are true. First, the insurers secure lower pricing and the lower prices are passed on to the state or municipalities by way of decreased rates or premium costs. Secondly, the insurer who previously was not allowed to negotiate the MFN clause into the contract was not otherwise able to secure the lowest price that was offered by the provider to the insurer with the MFN 3 .
For illustrative purposes the following table presents the effect of a 1% change in the state' s portion of the premium for a state employee plus one dependent enrolled in the POE plan 4 :
Incremental Increase
Adjusted Premium
1% Increase in State Share
1% Decrease in State Share
The state employee health plan currently covers approximately 202,157 lives. Employees and retirees have the option of selecting coverage for which the POE plan is one option. The state' s share of premium costs range from $3,408 to $19,654 depending on the type and scope of coverage selected by the employee.
Lastly, the state employee health plan and many municipal health plans are recognized as “grandfathered” health plans under the Patient Protection and Affordable Care Act (PPACA). It is unclear what effect potential changes in plan costs will have on the grandfathered status of the state employee health plan or grandfathered municipal plans PPACA 5 .
House “A” specifies that (1) for contracts in effect prior to October 1, 2011 with a MFN clause; these contracts are void and unenforceable on the contract renewal date or January 1, 2014, whichever is earlier and (2) the contracting health organization has the right to enforce the a MFN clause before its invalidation. The changes result in the fiscal note explained herein and expands the potential contracts impacted.
The Out Years
The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.
It is unclear what effect the PPACA will have on health care contracts and therefore what the impact to the state and municipalities will be as a result of the bill' s provisions in the out-years.
OLR Bill Analysis
sHB 6471 (as amended by House "A")*
AN ACT PROHIBITING MOST FAVORED NATION CLAUSES IN HEALTH CARE PROVIDER CONTRACTS.
This bill prohibits a contracting health organization (i.e., managed care organization (MCO) or preferred provider network (PPN)) from including a “most favored nation” (MFN) clause in a contract with a health care provider, dentist, or hospital.
Specifically, it prohibits these contracts from including any provision that prohibits a provider, dentist, or hospital from contracting with another MCO or PPN at a lower payment or reimbursement rate. It also prohibits these contracts from (1) containing provisions requiring a provider, dentist, or hospital to disclose the payment or reimbursement rates of another MCO or PPN with which it contracts or (2) being renegotiated before renewal if a lower payment or reimbursement rate is agreed to between the provider, dentist, or hospital and another MCO or PPN.
The bill applies to contracts entered into, renewed, amended, or offered on or after October 1, 2011. Contracts in effect prior to this date that include a MFN clause are void and unenforceable on the contract renewal date or January 1, 2014, whichever is earlier. The bill specifies that its provisions do not affect the contracting health organization' s rights to enforce the MFN clause before its invalidation.
By law, “providers” includes physicians, surgeons, chiropractors, podiatrists, psychologists, optometrists, naturopaths, and advanced practice registered nurses.
*House Amendment “A” specifies that (1) contracts in effect before October 1, 2011 that include a MFN clause are void and unenforceable on the earlier of either the contract renewal date or January 1, 2014 and (2) the contracting health organization has the right to enforce a MFN clause before its invalidation.
EFFECTIVE DATE: October 1, 2011
CONTRACT PROVISIONS
The bill prohibits a contracting health organization from including in any contract with a provider, dentist, or hospital, any clause, covenant, or agreement that:
1. requires the hospital, dentist, or provider to (a) disclose to the organization its payment or reimbursement rates from any other organization it contracts or may contract with; (b) provide services or procedures to the organization at a payment or reimbursement rate equal to or lower than the lowest rate the provider, dentist, or hospital contracts or may contract with another organization; or (c) certify to the organization that the provider, dentist, or hospital has not contracted with any other organization to provide services or procedures at a lower payment or reimbursement rate;
2. prohibits or limits the provider, dentist, or hospital from contracting with any other organization to provide services or procedures at a lower payment or reimbursement rate; or
3. allows the organization to terminate or renegotiate a contract with a provider, dentist, or hospital prior to renewal if the provider, dentist, or hospital contracts with another organization to provide services or procedures at a lower payment or reimbursement rate.
Most Favored Nation Clauses
A “most favored nation clause” is a provision in a contract between a health care provider and an insurer that prohibits the provider from charging the insurer a rate that is higher than the lowest reimbursement rate the provider accepts from any other insurer.
COMMITTEE ACTION
Insurance and Real Estate Committee
Joint Favorable Substitute