A competitive analysis of most favored nations clauses in contracts between health care providers and insurers.

Abstract

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. During the past decade the anticompetitive impact of MFN clauses in the health care industry has been challenged under federal antitrust laws. The cases have considered MFN clauses included in contracts between large third-party payers, specifically Blue Cross and Blue Shield (BCBS) plans, and providers of health care. The clauses prohibit providers from selling their medical services to BCBS's competitors at a price lower than the price at which they sell to BCBS. The cases have challenged these clauses on the grounds that they limit selective discounting to the competitors thereby making it difficult for the competitors to attract subscribers from dominant BCBS plans by lowering premiums. In this Article, Professor Celnicker asserts that MFN clauses have significant anticompetitive potential. The Article examines the competitive consequences of MFN clauses used in the health care industry. The Article's analysis draws heavily from the economic criticisms of the Robinson-Patman Act, which prohibits a seller from discriminating in price between customers in certain circumstances. The Article concludes that in certain circumstances, MFN clauses discourage discounting, facilitate oligopolistic pricing, and deter entry or expansion by more efficient distribution systems.