How MFN Clauses Used in the Health Care Industry Unreasonably Restrain Trade under the Sherman Act
Wright, Beth Ann, Journal of Law and Health
INTRODUCTION I. THE SHERMAN ACT II. THE BALANCING TEST UNDER THE RULE OF REASON A. Quadrant I: Pro-competitive Purposes 1. Guard Against Discriminatory Pricing 2. Tool to Secure Volume Discounts B. Quadrant III: Pro-competitive Effects 1. Lower Prices Overall 2. Guarantee the Same Best Price C. Quadrant II: Anticompetitive Purposes 1. Creating an Artificial Price Floor 2. Price Certainty D. Quadrant IV: Anticompetitive Effects 1. Horizontal Price-fixing 2. Unreasonably Restrains Vertical Trade 3. Elimination of Price Discrimination 4. Preempts a Genuine Market Floor Price 5. Deters New Market Entrants 6. Eliminates or Cripples Existing Smaller Competitors 7. Prevents Development of Lower-cost Plans 8. Deprives the Market of Innovative and Alternative Service Delivery Models 9. Deprives Consumers of Differentiated Products III. DEFEATING THE PRESUMPTIONS OF PRO-COMPETITIVENES IV. U.S. CONSENT DECREES V. INDICIA OF A MERITORIOUS CLAIM AGAINST AN INSURER EMPLOYING AN MFN CLAUSE UNDER SECTION 1 OF THE SHERMAN ACT A. Claims Brought Under Sherman Act Section 1 B. MFN Clause-automatic Reduction in Price, and Monetary Penalty in Addition to Lowering Price C. Sufficient Market Power D. Intra-market Use of the MFN Clause E. Anticompetitive Injury in Fact Which is Causally Related to the MFN Clause F. Party Posture VI. CONCLUSION
A most favored nations (MFN) clause is a contractual agreement between a buyer and a seller stating that the price paid by the buyer will be at least as low as the price paid by other buyers who purchase the same commodities from the seller. (2) In health care, the contract is typically between the health insurer who acts as the purchaser of health care services on behalf of its subscribers and the medical provider who acts as the seller of health care services. (3) MFN clauses have also been dubbed prudent buyer clauses, (4) price nondiscrimination clauses, (5) usual fee-provisions, (6) and most favored rate requirements. (7)
Only a health insurer with sufficient market power can negotiate the incorporation of an MFN clause in consideration for the exchange of a relatively large volume of business in the relevant market. (8) Typically, only one health insurer per market will secure provider contracts incorporating the MFN clause. As an insurer with sufficient market power, Blue Cross and Blue Shield plans started using MFN clauses in contracts with providers as a way to maintain market strength in the face of the emerging alternative health care delivery models like HMOs and PPOs. (9) The U.S. Government, corporations offering employer-based health insurance, and American citizens as consumers, all have reason for serious concern regarding the anticompetitive nature of MFN clauses. These clauses have the effect of unnecessarily raising consumer costs, reducing choice among providers, constraining access to care, and preventing the development of alternative health care delivery models.
The purpose of this paper is four-fold. First, to design a four-quadrant matrix to evaluate the pro-competitive and anticompetitive purposes and effects of MFN clauses under the "rule of reason" standard of review where a violation of Section 1 of the Sherman Act is alleged. Second, to defeat the jurisprudential presumption that MFN clauses are pro-competitive in the health care industry and recommend that the presumption be abolished in health care cases. Third, to examine the U. S. Department of Justice's paradigmatic shift over the last decade toward prosecuting large insurers who employ MFN clauses resulting in U. …