In the realm of Indiana health insurers, Anthem Blue Cross and Blue Shield is king.
But a bill moving through the Indiana General Assembly could remove one of the major weapons Anthem has used to preserve
its market dominion.
Senate Bill 114 would forbid health care providers from granting Anthem–or any other health insurer–so-called "most
favored nation" clauses that guarantee Anthem has at least as large a discount as any other insurer.
Those clauses unfairly keep competitors at bay, say hospital and physician groups pushing the measure.
No, Anthem counters, they keep prices down. The subsidiary of Indianapolis-based WellPoint Inc. boasts 30-percent market
share in Indiana and has most-favored-nation clauses–or what it prefers to call "equal-rate provisions"–with all
120 hospitals in Indiana with which it has contracts.
Anthem provides health care benefits to 1.6 million Hoosiers and paid out $1.6 billion last year for health care services.
The bill passed 42-4 in the Senate last month and was approved by a House committee March 21. After having been proposed
many times before, it stands a good chance of passing, insurance insiders say.
Anthem has been negotiating most-favored-nation clauses into its Indiana contracts for about a decade, a span when it rapidly
gained market share. Such provisions have been used by health insurers in most states for decades, though critics increasingly
are attacking them on antitrust grounds.
In Indiana, "this was cutting off competition in the health insurance market," said Sen. Beverly Gard, R-Greenfield,
who wrote the bill this year. "It wasn't letting the free market dictate the rates."
But Anthem isn't lying down. It has sent out e-mail blasts urging its customers to "Ask For A 'NO' Vote
on Senate Bill 114." Anthem also has the influential Indiana Manufacturers Association supporting it in the fight.
"If Senate Bill 114 passes, you can count on increases in health care costs," one Anthem e-mail, sent March 15,
states. "There is the potential of provider costs increasing in Indiana if this legislation is adopted."
Anthem says that if the state bans favored-nation agreements, hospitals might give a deeper discount to one insurer, then
try to offset that by giving smaller discounts to every other insurer–a formula it contends would lead to higher costs overall.
The first companies to be hurt would be self-insured employers, said Eric Schmitz, Anthem's director of network management,
who negotiates most of the insurer's contracts. Such employers pay most of their workers' medical claims from their
own coffers instead of paying premiums to an insurance company.
"There's a lot of miscommunication that Anthem is out there strong-arming," Schmitz said. "We're not
trying to stifle competition."
But others say Anthem does exactly that. They say the most-favored-nation clauses have helped Anthem build and maintain its
dominant market share–because the company knows no other insurer can match its prices.
"It always guarantees that Anthem's got the lowest price," said Ed Abel, director of health care services at
Blue & Co., an Indianapolis accounting firm, and former director of finance at Methodist Hospital. "It immortalizes
their position as the biggest one in the state."
These discounts are highly variable, Abel said. A local HMO plan might get a 5-percent to 10-percent discount from hospital
networks. Anthem can achieve discounts three to five times as high–or more.
Most-favored-nation clauses are used in contracts in other industries, noted Anthem spokesman Tony Felts, such as between
auto manufacturers and their parts suppliers or even between hospital groups and their suppliers.
The U.S. Department of Justice has scrutinized several instances of most-favored-nation agreements in the health care industry.
It even interviewed many Indianapolis-area hospitals and health care professionals in 2003 and 2004 to see if Anthem's
contracts gave it an unfair advantage. No action has been taken against Anthem.
Nationally, one of the first court challenges to them occurred in the late 1980s when a doctors' group sued a Blue Cross
and Blue Shield plan in Rhode Island.
Major national insurers, such as Aetna, Cigna, Humana and UnitedHealthcare, have relatively small presences in Indiana. Removing
the most-favored-nation clauses might allow them to grow, insurance experts said, because a health insurer–particularly a
national company–could offer a low price in order to build market share in Indiana.
Dan Krajnovich, the Indiana CEO for Minnesota-based UnitedHealthcare, said it was too difficult to forecast how SB 114 might
change the marketplace for Indiana's health insurers. Asked if he thought the bill would lead to more competition, Krajnovich
said, "It could certainly serve that purpose."
Bobby Keen, CEO of Hancock Regional Hospital in Greenfield, hopes SB 114 passes but doesn't believe it would fundamentally
change the market. Because Anthem is the biggest, he said, it probably would be able to get the biggest discounts, anyway.
"We're probably going to wind up in the same situation even if we don't have most-favored-nation clauses,"
Keen said. He added that, contrary to Anthem's fear of price increases, pressures from business and government would keep
pushing prices down.
But there's no guarantee of that, said Indiana Manufacturers Association lobbyist Ed Roberts, who noted Indiana already
suffers higher health care costs than those of neighboring states. He wants legislators to give the bill an expiration date,
so they must renew it after there has been time to study its effect on costs.
"No one can tell us with any authority that prices aren't going to go up," Roberts said. "If this didn't
give [the hospitals] more money, they wouldn't be for it."