The United States Department of Justice announcement of a civil antitrust lawsuit against Blue Cross Blue Shield of Michigan rings another ancient health care reform bell in Washington, the state.  In 1993, as part of its comprehensive health care reform, Washington adopted a series of laws intended to offset the growing market power of insurers. The new rules particularly focused on health care physician and hospital contracts with insurers.

The system created to oversee and intervene when health care markets became skewed to favor buyers or sellers of health services survived the repeal of most other health care reform standards. Originally, the state Attorney General’s office working with the newly created Health Services Commission adopted a series of rules prohibiting particular types of clauses in contracts. These rules and the authority to oversee anticompetitive activity in health care markets were transferred to the Washington State Department of Health (DOH) when the Commission was eliminated. However sleepy and dormant the DOH oversight activity has become, the law still lives and may yet bite the unwary. If a Washington insurer were to require a clause like the one challenged by the Justice Department in Michigan, there would not be much of a fight since the clause is banned.

Under the Washington statute 43.72.310, the Department of Health is required to adopt rules “governing conduct among providers, health care facilities, and health carriers including rules governing provider and facility contracts with health carriers.” The Department has never really paid much attention to the law; rather, the Department inherited rules that were adopted by the defunct Health Services Commission in 1995. These rules include prohibitions on particular provider contract provisions such as “most favored nation” (MFN) clauses at issue in the just announced Michigan case [Chapter 246-25 WAC].

The purpose of the rule remains as valid today as when the rule prohibiting MFN clauses was adopted by the Commission. As part of the process of adopting rules governing the health care marketplace, the agency was required to consult with the Attorney General before adopting a rule and required to articulate how the rule promotes competition. Here is the purpose for banning MFN clauses:

“Most favored nations clauses” may discourage discounting by the affected seller, may facilitate oligopolistic pricing and deter entry by more efficient competitors. “Most favored nations clauses” are often used as a replacement for innovation or efficiency by large competitors and act as a disincentive for creativity by small competitors. The commission finds that the use of “most favored nations clauses” in contracts between a health care provider or facility and a certified health plan create the potential to thwart the cost containment goals of health care reform. For these reasons, the use of “most favored nations clauses” in contracts between a health care provider or facility and a certified health plan is prohibited.

Once upon a time, all health insurance carriers were to become “certified health plans” (CHP) subject to stricter oversight than the current health insurance company regulations. These CHPs became dinosaurs along with the Commission; but, the CHPs were redefined as “health carriers” to include health insurers, Blue Cross and Blue Shield plans, and HMOs back in 1997 when the market competition power was transferred to the Department of Health. Thus, the rules affect every Washington health insurer today.

Physicians, hospitals and other health care practitioners face a much less competitive insurance market today than when these laws were originally enacted. Providers cannot afford to say no to a carrier that may cover a third or more of the provider’s patients. In fact, according to the last insurance market report from 2009, three major players in Washington’s private health insurance market account for over 56% of the market in health insurance – Group Health, Regence,  and Premera.

While the insurance market may be concentrated, the health care market for delivery of health services is also concentrated in some markets. Insurers bitterly complain about the dominance of some physician and hospital groups. Whether we consider buyers or sellers, the effect of market competition on the cost and quality of health care forms the backbone of the law’s purpose. Few statements about health care capture the goal of reform more than this one by the Legislature in adopting the 1993 statute:

The legislature recognizes that competition among health care providers, facilities, payers, and purchasers will yield the best allocation of health care resources, the lowest prices for health care services, and the highest quality of health care when there exists a large number of buyers and sellers, easily comparable health plans and services, minimal barriers to entry and exit into the health care market, and adequate information for buyers and sellers to base purchasing and production decisions. However, the legislature finds that purchasers of health care services and health care coverage do not have adequate information upon which to base purchasing decisions; that health care facilities and providers of health care services face legal and market disincentives to develop economies of scale or to provide the most cost-efficient and efficacious service; that health insurers, contractors, and health maintenance organizations face market disincentives in providing health care coverage to those Washington residents with the most need for health care coverage; and that potential competitors in the provision of health care coverage bear unequal burdens in entering the market for health care coverage. [RCW 43.72.300]

Amen. Will someone please wake up the DOH and let them know that work remains and reform has been resurrected? Can we use the tools we have before we buy new ones?


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