What is a Most Favored Nation Clause?
The term “most favored nation” traces its origin to international trade agreements. When two nations agreed that the tariffs between them would be no higher than the lowest tariffs granted to any other nation, they were said to have conferred “most favored nation” status on their trading partner. In the health care context, MFN clauses have been used by health insurers to ensure that providers (i.e., physicians or hospitals) charge the insurer a rate no higher than the lowest reimbursement rate the provider accepts from any other commercial insurer. Advocates of the use of MFN clauses in health care contracts contend they reduce insurer expenses, promote efficiency and lower insurance rates, ultimately benefitting consumers. Opponents of the clauses, however, contend that they cause competitive harm, particularly when utilized by a “dominant” health insurer. The purpose of the clause, opponents claim, is to dissuade providers from contracting with other health care insurers (who may of
