On July 8, Connecticut Governor Daniel Malloy signed legislation into law that prohibits health insurers from including “most favored nation” clauses in provider contracts in the state. Specifically, the new law prohibits health insurers from requiring a provider, dentist or hospital to (a) provide services to the insurer at a rate equal to or lower than its lowest contracted rate; (b) disclose the rates at which the provider, dentist or hospital has contracted with any other insurer; or (c) certify that the insurer has received the lowest contracted rate. The law also bars an insurer from terminating or renegotiating its contract with a provider, dentist or hospital prior to the contracted renewal date upon discovering that the provider has contracted with another insurer at a more favorable reimbursement rate.

In enacting the new law, Connecticut joins a growing minority of states that have banned most favored nation clauses in health insurer/provider contracts. The use of the provisions, however, remains highly controversial. Advocates of most favored nation clauses maintain that they reduce an insurer’s costs, thus permitting the insurer to offer consumers insurance at lower premiums, and therefore should not be prohibited. Proponents of the ban on such provisions, on the other hand, argue that the clauses impede the ability of smaller insurers to compete with insurers utilizing the clauses, thus ultimately harming consumers. Notably, similar legislation was proposed, but not enacted, in several other states earlier this year, including Maine and North Carolina. In Maine, a similar bill was passed by the Maine legislature, but vetoed by Maine Governor Paul LePage. In North Carolina, similar legislation was passed by the North Carolina General Assembly, but failed in the North Carolina Senate.

Despite the continuing controversy over such provision, in Connecticut the debate is now over (at least for now). Public Law 11-132 becomes effective on October 1, and from that date forward all clauses of the sort barred by the law are declared void and unenforceable. Existing contracts containing such provisions will, however, remain in effect until January 2014 or until their renewal date, whichever comes first, providing ample opportunity for the law on this issue to develop further before many contracts in Connecticut are affected. Stay tuned.