"Most-favored-nation clauses" don't favor physicians

Contract Language. By Steven M. Harris, AMNews contributor. Aug. 6, 2007.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

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Often, clients will contact me during payer contract negotiations with questions about contract clauses such as this one:

"Provider represents and warrants that it has not agreed to accept from any other payer a reimbursement rate that is less than what is offered by Payer under this contract. If Provider offers a better reimbursement rate to any other Payer, the Provider must provide prior written notice of such an offer to Payer and give Payer the option to accept the reduced reimbursement rate. Thereafter, at Payer's option, Payer may accept the reduced reimbursement rate or it may terminate the contract immediately upon written notice to Provider."

A contract clause like this is called most-favored-nation pricing. In a nutshell, it means: Give me the lowest price you offer my competitors.

Most-favored-nation clauses vary in scope and methodology and in practical application. But in simplest terms, a most-favored-nation clause is an agreement in which the physician charges the payer no more than the lowest prices the physician charges any other payer. The clauses attempt to assure a payer it will receive the benefit of any price concessions that a physician extends to other payers.

Large payers that command a substantial portion of the relevant market often use most-favored-nation clauses in their provider contracts. These payers will often be able to persuade physicians to agree to these contractual provisions depending upon the relative importance of the payer to the doctor.