In the insurance world, MFN (no, that's not an acronym for something dirty) means "Most Favored Nation," a term usually reserved for international trade agreements. In this case, it's an agreement between an insurer and a provider (or many providers) which grants the insurer exclusive and substantial discounts on medical services. These are generally perfectly legal, but - as Blue Cross of Michigan has found out, to its chagrin - it's easy enough to cross the line.
In this case, Michigan Blue Cross (BX) is considered the "dominant carrier" in that state's health insurance market (no big surprise). This is a double-edged sword: it means a larger market share, but it also means that they're considered the "carrier of last resort," meaning they absorb a lot of high-claim insureds, as well.
Being the dominant carrier has at least one advantage: they can demand - and get - much greater discounts from medical service providers (e.g. hospitals). That makes sense, too: greater numbers of insureds mean greater numbers of patients that can be funneled to network providers. It's a win-win situation.
These discounts can be huge, by the way: up to 15% (or more!) off covered services. This helps the carrier two ways: one, it lowers their claims costs, which helps ameliorate rates (to a point). It also means that their insureds have less out-of-pocket, which is good PR, and helps with retention.
So where's the beef?
In a nutshell, it appears that BX decided to up the ante, and not only get their own discounts, but force providers to reduce the discounts they offered to other insurers. That's a double whammy, because it means an even greater reimbursement differential, and thus higher claims costs, for the other, non-dominant carriers.
And that's apparently where they stepped off the (metaphorical) cliff: as one of our sources put it, they were "writing into their own contract with the hospitals – 70 of the 131 in the state, and mostly small rural ones who need the business – that the hospital would charge competing insurers a higher rate. In other words, not just negotiating the terms of their own contract, but dictating the terms of contracts with competitors." [emphasis added]
It's one thing that your competitors are at a disadvantage - that's the free market, after all - but proactively interfering with your competitors' ability to conduct business is quite another. And that seems to be the case here, and why both the Feds and the State are going after the Blues: the Department of Justice for Sherman Antitrust Act violations, and the Wolverines for violations of that state's statutes.
It's worth noting, by the way, that the Federales have a pretty good batting average on these cases: over the past 16 years, they're 5-0 on health plan MFN cases.
Finally, there's this: this doesn't bode well as we look toward 2014 and the Exchanges. That is, if carriers are forced from the market (as has been the case in Michigan, among other states), it leaves fewer "players" to offer plans. Fewer choices means less competition, which was, after all, one of the major goals of ObamaCare©.
Of course, both sides will have their day(s) in court, and I'm sure that this won't be the last we hear of this sordid affair.
[Special IB Thank You to Rick B for his help in explaining the issues]
In this case, Michigan Blue Cross (BX) is considered the "dominant carrier" in that state's health insurance market (no big surprise). This is a double-edged sword: it means a larger market share, but it also means that they're considered the "carrier of last resort," meaning they absorb a lot of high-claim insureds, as well.
Being the dominant carrier has at least one advantage: they can demand - and get - much greater discounts from medical service providers (e.g. hospitals). That makes sense, too: greater numbers of insureds mean greater numbers of patients that can be funneled to network providers. It's a win-win situation.
These discounts can be huge, by the way: up to 15% (or more!) off covered services. This helps the carrier two ways: one, it lowers their claims costs, which helps ameliorate rates (to a point). It also means that their insureds have less out-of-pocket, which is good PR, and helps with retention.
So where's the beef?
In a nutshell, it appears that BX decided to up the ante, and not only get their own discounts, but force providers to reduce the discounts they offered to other insurers. That's a double whammy, because it means an even greater reimbursement differential, and thus higher claims costs, for the other, non-dominant carriers.
And that's apparently where they stepped off the (metaphorical) cliff: as one of our sources put it, they were "writing into their own contract with the hospitals – 70 of the 131 in the state, and mostly small rural ones who need the business – that the hospital would charge competing insurers a higher rate. In other words, not just negotiating the terms of their own contract, but dictating the terms of contracts with competitors." [emphasis added]
It's one thing that your competitors are at a disadvantage - that's the free market, after all - but proactively interfering with your competitors' ability to conduct business is quite another. And that seems to be the case here, and why both the Feds and the State are going after the Blues: the Department of Justice for Sherman Antitrust Act violations, and the Wolverines for violations of that state's statutes.
It's worth noting, by the way, that the Federales have a pretty good batting average on these cases: over the past 16 years, they're 5-0 on health plan MFN cases.
Finally, there's this: this doesn't bode well as we look toward 2014 and the Exchanges. That is, if carriers are forced from the market (as has been the case in Michigan, among other states), it leaves fewer "players" to offer plans. Fewer choices means less competition, which was, after all, one of the major goals of ObamaCare©.
Of course, both sides will have their day(s) in court, and I'm sure that this won't be the last we hear of this sordid affair.
[Special IB Thank You to Rick B for his help in explaining the issues]
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