States are setting their sights on health care provider contracting practices with payors. Specifically, state legislatures are increasingly seeking to prohibit health care providers from willfully entering into contracts that contain restrictive covenants and funding agencies to investigate these prohibited contracting practices. This emerging trend is usually tacked on to larger legislative bills aimed at transactions in health care or in setting standards related to cost, quality, and market competitiveness. Therefore, health care providers should take notice and understand this growing trend and how it may affect negotiation approaches and terms that can be included in agreements with payors.

Historically, states have generally prohibited certain unfair trade practices. But now, states are moving to introduce and enact legislation that would prohibit health providers, including facilities and physicians, from engaging in certain negotiation practices or entering into contracts containing terms that restrict insurers. For example, Nevada SB 329, effective October 1, 2021, bars contract provisions that restrain the ability of insurers to contract with other unaffiliated providers of health care, including health facilities, that are not parties to the contracts or conditionally requires third parties to contract with affiliated health care providers.¹

Nevada’s new law defines a violation to occur when a health care provider willfully enters into, willfully offers to enter into, or willfully solicits a contract with a third party insurer that directly or indirectly does one or more of the following: (a) restricts a third party insurer from offering incentives to a covered person to use specific health care providers or otherwise steers covered persons to a specific health care provider; (b) restricts a third party insurer from assigning health care providers into tiers to encourage the use of certain health care providers; (c) requires a third party insurer to place all health care providers affiliated with a business entity in the same tier; (d) requires a third party insurer to contract with a business entity affiliated with a health care provider as a condition of contracting with the provider; or (e) prohibits a third party insurer from contracting with a health care provider that is not a party to the contract, or penalizes a third party for entering into such a contract. For this law, a health care provider is defined to include physicians or other health care practitioners licensed in Nevada, hospitals, ambulatory surgery centers, skilled nursing facilities, residential group facilities, laboratories and institutions providing health care services. Contracts containing these restrictions will be deemed void and severed from the agreements, and providers cannot execute new contracts, amendments, or renewals that contain restrictive covenants of this nature. A provider who violates or conspires to violate the law is guilty of a misdemeanor offense² and would be subject to a civil penalty.³

California also recently sought unsuccessfully to pass similar payor contracting restrictions. If passed, AB 1132, the Health Care Consolidation and Contracting Fairness Act of 2021, would have prohibited providers from contracting with health plans or health insurers that either (a) restricted the plans or insurers from steering enrollees to other providers or facilities; or (b) required the plans or insurers to contract with other affiliated providers or facilities. Additionally, the bill would have prohibited contractual restrictions on affiliates of health plans or insurers from offering rates lower than the amounts providers or facilities accepted from contracting health plans or insurers. Despite failing to pass, these themes are expected to be re-introduced in future bills.

California and Nevada are not alone in these legislative efforts. They join other states, including Connecticut, Washington, Massachusetts, Virginia, Washington, New York, New Jersey, and Indiana, which are actively seeking ways to address increasing health care costs as well as market competitiveness. We anticipate this trend will continue at the state level. Therefore, healthcare providers are encouraged to consult with counsel before employing related negotiation strategies or embarking on payor contracts in which restrictive covenants may be contemplated.

Footnotes

1 N.R.S.§ 598A.060.

2 N.R.S.§ 598A.160; N.R.S.§§ 598A.180 – 598A.210.

3 N.R.S.§ 598A.170.