SPEAKERS CONTENTS INSERTS Tables
Page 1 TOP OF DOC
THE QUALITY HEALTH–CARE COALITION ACT OF 1998
WEDNESDAY, JULY 29, 1998,
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10:00 a.m., in room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, F. James Sensenbrenner, Jr., Bill McCollum, George W. Gekas, Howard Coble, Charles T. Canady, Ed Bryant, Steve Chabot, William L. Jenkins, Asa Hutchinson, Edward A. Pease, John Conyers, Jr., Rick Boucher, Jerrold Nadler, Melvin L. Watt, Sheila Jackson Lee, and William D. Delahunt.
Also present: Representative John Cooksey.
Staff present: Joseph Gibson, chief antitrust counsel; Brendan Dignan, majority staff; Maria Pia Tamburri, majority staff.
OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. The committee will come to order.
Page 2 PREV PAGE TOP OF DOC
Today, the committee conducts a legislative hearing on H.R. 4277, the ''Quality Health-Care Coalition Act of 1998.'' H.R. 4277 would allow doctors to negotiate jointly with HMOs and other insurers while enjoying the same antitrust exemption that labor unions currently have. It arises from the concern that doctors do not have equal bargaining power when they negotiate with HMOs and other health insurers. The doctors contend that the HMOs and the insurers exercise too much control over health care decisions and thereby lower the quality of care.
I certainly agree that the doctor-patient relationship must be preserved, and I am concerned that it is eroding. I think that many others are also concerned about this issue, as the legislation we passed last week demonstrates. On the other hand, those who propose any exemption from the antitrust law start with a heavy presumption against them. They must make a compelling case to justify an exemption. There are concerns that this exemption might lead to price fixing and group boycotts by doctors. However, I am certainly willing to hear the arguments to see if a compelling case can be made.
I have called this hearing so we can have a public airing of this issue. I certainly want to thank my colleague, Tom Campbell, for his work in this field, and all of our other witnesses today, some of whom have come from far away. We deeply appreciate all of you coming. And with that, I will turn to Mr. Conyers for an opening statement.
[The prepared statement of Chairman Hyde and the bill follow:]
PREPARED STATEMENT OF HENRY J. HYDE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS AND CHAIRMAN OF THE COMMITTEE ON THE JUDICIARY
Page 3 PREV PAGE TOP OF DOC
Today the Committee conducts a legislative hearing on H.R. 4277, the ''Quality Health–Care Coalition Act of 1998.''
H.R. 4277 would allow doctors to negotiate jointly with HMOs and other insurers while enjoying the same antitrust exemption that labor unions currently have. It arises from the concern that doctors do not have equal bargaining power when they negotiate with HMOs and other health insurers. The doctors contend that the HMOs and insurers exercise too much control over health care decisions and thereby lower the quality of care. I certainly agree that the doctor-patient relationship must be preserved, and I am concerned that it is eroding. I think that many others are also concerned about this issue as the legislation we passed last week demonstrates.
On the other hand, those who propose any exemption from the antitrust laws start with a heavy presumption against them. They must make a compelling case to justify an exemption. There are concerns that this exemption might lead to price-fixing and group boycotts by doctors.
However, I am willing to hear the arguments to see if a compelling case can be made. I have called this hearing so that we can have a public airing of the issue.
I want to thank my colleague Tom Campbell for his work in this area and all of our other witnesses today, some of whom have come from far away. We appreciate all of you coming. With that, I will turn to Mr. Conyers for an opening statement.
Page 4 PREV PAGE TOP OF DOC
INSERT OFFSET RING FOLIOS 1 TO 3 HERE
Mr. CONYERS. Good morning, Mr. Chairman and members of the committee.
Because it is Congressman Tom Campbell, my mind opens wider to receive the instructions that he has on this subject. He is a distinguished lawyer and member of the Congress and a good friend of mine.
As I get it, the measure we will discuss provides independent health care professionals with an antitrust exemption for joint negotiating activities with health insurance companies. As the chairman has referenced, there certainly is a problem involving abuses by health insurance companies.
Is there anybody that wants to comment on that?
We know what they have been doing to patients, but now we know what they are trying to do to doctors, which ironically have driven doctors to sections of the medical profession to support national health insurance—I said it; I am glad my mouth didn't fall off—national health insurance, you know, the kind that every industrial nation on the planet has except the biggest industrialized nation.
So we will learn today that it can be very difficult for doctors to perform important medical tests and to perform what they deem to be necessary operations and surgical procedures.
Page 5 PREV PAGE TOP OF DOC
We know the insurance companies frequently do everything in their power to deny coverage and avoid paying for specialists. The question we need to consider at this hearing is the extent these problems are attributable to any market power that insurance companies may unfairly wield over independent physicians and other health care professionals. And so there is real and credible evidence that a serious antitrust problem exists.
We start with the fact that, for all intents and purposes, the insurance industry is exempt from the antitrust laws. They may not be forever because members are beginning to revisit this subject. Because of the 1945 McCarran-Ferguson legislation, insurance companies benefit from a near total antitrust immunity that no other industry, except maybe baseball, enjoys.
This is compounded by the fact that independent health care professionals are at a significant disadvantage when they negotiate service contracts with health insurers. Under current law, health care professionals can't even share information among themselves about the exploitive terms of the contracts that they either have to take or leave. And if they leave it, they leave their patient lists and they are cut out of hospital privileges.
I have a whole army of doctors in Detroit waiting to come to this hearing room to tell you what is happening, especially if you are a medical doctor of color. There have been numerous stories about insurers which dominate a local market threatening doctors with economic ruin unless they immediately agree to a one-sided agreement.
And so we want to hear today about real, live cases, and I thank Chairman Hyde and I return the balance of my time.
Page 6 PREV PAGE TOP OF DOC
Thank you very much.
Mr. HYDE. Thank you Mr. Conyers. Does anyone else seek to make an opening statement? The gentleman from Pennsylvania.
Mr. GEKAS. If I asked unanimous consent to waive my opening statement, would you object?
Mr. HYDE. Golly, I have to think about that.
Mr. GEKAS. I waive.
Mr. HYDE. Mr. Delahunt.
Mr. DELAHUNT. I just would welcome our friend and colleague here. And in the course of his testimony, I would ask him also to address the question, what if the McCarran-Ferguson Act should be repealed, what would be the impact, as you see it, in terms of the health care industry?
Mr. HYDE. I thank you.
The gentleman from Florida.
Mr. CANADY. I will be brief. I want to thank you, Mr. Chairman, for calling this important hearing.
Page 7 PREV PAGE TOP OF DOC
Of course, we have had some consideration of this issue in the past in the committee. Unfortunately, we have not seen the past work produce a result in the law that some of us would like to see, so I also want to express my gratitude to the gentleman from California for his leadership on this issue. I think this is a very important piece of legislation, and I appreciate your doing everything you can to move it forward. I look forward to your testimony, as well as the testimony from all of the other witnesses.
Mr. HYDE. Mr. Bryant.
Mr. BRYANT. No.
Mr. HYDE. Mr. Jenkins.
Mr. JENKINS. No, thank you, Mr. Chairman.
Mr. HYDE. Our first panel consists of the chief sponsor of H.R. 4277, our colleague, Tom Campbell, of the 15th District of California. Congressman Campbell has a B.A., an M.A. and a Ph.D. in Economics from the University of Chicago and he also is a graduate of the Harvard Law School.
After law school, he clerked for Supreme Court Justice Byron White. Before coming to Congress, he was in the private practice of law and was Director of the Bureau of Competition at the Federal Trade Commission. He was a professor at Stanford University Law School.
Page 8 PREV PAGE TOP OF DOC
He was first elected to Congress in 1989, serving through 1992, and then he returned after winning a special election in December 1995.
Tom, we are very glad to have you with us today. We will adhere to our usual practice of not questioning members who appear before us, and we would invite you to join us on the dais when you have finished testifying.
The practice of the committee is to welcome any member who wishes, and I understand Representative John Cooksey of Louisiana is here, and he is welcome to join us on the dais if he wishes to.
We don't welcome questions from you, however, so if the great honor of just sitting up here is enough, that would be fine.
Congressman Campbell.
STATEMENT OF HON. TOM CAMPBELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. CAMPBELL. Mr. Chairman, I would like to waive the formal treatment and ask that you be kind enough to allow Chairman Pitofsky to sit here with me. I would like to have him here, because I wish to—and I also want to waive the point about not asking questions to me. I believe we could explain the bill better together, he against it and me in favor of it.
Page 9 PREV PAGE TOP OF DOC
Mr. HYDE. I certainly have no objection, but I will leave that to Mr. Pitofsky.
Does that suit you?
Mr. PITOFSKY. I am delighted and honored to join in the discussion.
Mr. HYDE. Permit me to introduce the Chairman of the Federal Trade Commission. Robert Pitofsky is a graduate of New York University and Columbia Law School. He is now serving his third tour of duty at the Commission. He was Director of the Bureau of Consumer Protection from 1970 through 1973. He was a Commissioner from 1978 through 1981. He became Chairman in April 1995.
In between those stints, he has been both a dean and a professor at Georgetown University Law School and of counsel to the Washington law firm of Arnold & Porter.
We welcome you, Chairman Pitofsky, and look forward to your testimony as well.
Mr. CONYERS. Mr. Chairman, could we just remind Chairman Pitofsky that this is the fruits of his professorship. This is where it all comes out. This is just desserts.
Page 10 PREV PAGE TOP OF DOC
Mr. PITOFSKY. Thank you for the reminder, sir.
Mr. HYDE. If you would, try to hold your formal remarks—I don't know if we are into a seminar or not, but if you would hold your formal remarks to approximately 5 minutes, and any written statements will be fully printed in the record.
Mr. CAMPBELL. Thank you. I will do that.
I am very happy if there are any questions; I think that would be beneficial, and I would be happy to respond.
Thank you, Mr. Chairman, you are awfully good to hold this hearing, and it just shows your openness to exploring a difficult issue.
I get to start with a hypothetical because I am a law professor. Three eye doctors in Elgin, Illinois. One HMO, for practical purposes, in the town. The HMO says no cataract surgery on patients above 80 years old, too many complications, just don't want to take the risk.
Dr. A calls up Dr. B and says, ''Can you believe it?'' Dr. B calls up Dr. C and says, ''Why don't we have lunch?''
They have lunch, and then they go to the HMO together and they say, ''None of us will agree to this.''
Page 11 PREV PAGE TOP OF DOC
The next week they get a letter from the Federal Trade Commission with a cease and desist order for having violated the Sherman Act.
What I just gave is a hypothetical. Now I will give you real world.
The steelworkers worried about an unsafe machine in a steel plant in Gary, Indiana. They go to Inland Steel, Republic Steel and United States Steel, and they say, we are not working on that unsafe machine.
No letter from the Federal Trade Commission.
What is the difference between these two cases? It is not that one is a labor union recognized by the National Labor Relations Act and the other isn't because of the exemption in the Clayton Act where the labor of a human being was adopted 21 years before the National Labor Relations Act. The Clayton Act was passed in 1914, and it says the labor of a human being shall not be an article of commerce in order to allow people who are laboring, offering their services, to present a united front to somebody who is presenting a united front to them.
The difference is not that it is possible that the doctors will add to cost—it will, by the way; taking care of an 80-year-old will add to the cost of the HMO, but so will buying a new machine which replaced an old machine that wasn't as safe.
The difference is one has a labor exemption and the other doesn't, and the logic behind giving the steelworkers the exemption applies to the doctors because in each case they are providing an intermediate service. Whether or not the price of medical care goes up and whether or not the price of steel goes up is determined by conditions in the final marketplace, the market for medicine at the final consumer level, the market for steel when the auto companies or others purchase that steel, and the fight at the intermediate stage is, who gets the profit, whether the shareholders of United States Steel get a higher dividend or better working conditions and, yes, higher wages.
Page 12 PREV PAGE TOP OF DOC
Or in the medical example, whether the HMO makes an exceptional profit—and I invite the committee's attention to that; I am in favor of profit, but I just observe that the industry has been characterized by exceptional profit—or whether some of that profit is shared in the form of more health care and, yes, higher reimbursement rates on occasion.
If you are providing an intermediate service, you ought to be allowed to present a united front against a united front, and it just does not follow that this automatically passes on to higher costs and less efficiency.
I have two remaining points. Final point number one: What else can these medical professionals do—doctors, nurses, pharmacists, dentists; what else could they do? Under the law that was passed in 1996, the Professional Service Organizations Act, they could vertically integrate. They could form their own HMO; and if they have the capital and if the market allows them to do it, God bless them, so be it, they could.
But that is exactly equivalent to saying that United States Steel could become employee-owned. It could vertically integrate. Then you don't need the antitrust exemption for the employees to bargain with the employers because the employees would be the employers. You could go that route, but I point out by my U.S. Steel example that it is not every circumstance that can yield itself to that opportunity—capital requirements, market conditions, and maybe the will of the doctor who doesn't want to be a business person, just wants to be a doctor.
Page 13 PREV PAGE TOP OF DOC
The second and last option, you could become a labor union. Here you run smack into the National Labor Relations Act. Some doctors and medical professionals can become members of a labor union because they are employees of hospitals. But the NLRA is very strict. If you are not an employee of a hospital, if you are a doctor the way most doctors are, private practice, you cannot form a labor union.
I conclude, the purposes for the antitrust exemption for those who present themselves in a bargaining context is logical because they are intermediate service providers and because they face a united front on the other side. To force them, instead, into an HMO of their own making is to deny consumers the possibility of their independent service, and to force them into a labor union is impossible.
I am just hoping that somebody asks about my chart.
Thank you, Mr. Chairman.
[The chart follows:]
"The Official Committee record contains additional material here."
Strip offset folio 4 here
Mr. HYDE. Mr. Pitofsky, do you choose to respond to Mr. Campbell or make your own statement?
Page 14 PREV PAGE TOP OF DOC
STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE COMMISSION
Mr. PITOFSKY. I will do both, Mr. Chairman, if I may.
Thank you very much, Mr. Chairman, Mr. Conyers, and members of the committee. Since I, too, am a former law professor; I will start with a hypothetical.
All of the doctors in Elgin, Illinois, get together over lunch and say, ''We are not making enough money, our kids are going to expensive colleges, and we are not driving the luxury car that we prefer. Let's go to this one HMO that is committed to cost containment, and we will say we are going on strike. Unless you pay us twice as much money, we are going on strike. We are not going to take care of people in your organization.''
And one of the doctors says, ''Wait a minute, we can't do that. That is price fixing. That is criminal behavior.''
No, no, no, they say, under a new law, are just like workers at General Motors; we are like people that run a lathe. We can do anything we want by way of ''bargaining'' because we have a labor exemption.
I don't think that is the way to go, although I agree there is a problem here, as Mr. Campbell has pointed out.
Mr. Campbell is an alum of the FTC and a fine legal scholar, and we must take his proposal seriously. In this case, I think his proposal looks in the wrong direction. His exemption is not necessary to achieve the legitimate goals that he mentioned, could have adverse consequences and would represent a radical departure from the widely accepted approaches that we have followed in this country for many, many years.
Page 15 PREV PAGE TOP OF DOC
You have already heard H.R. 4277 would give a labor exemption to doctors in order to more or less equalize bargaining power between insurers and groups of doctors.
Let me introduce this subject with a little background. The health care market, as you well know, is extremely dynamic. There are new forms of health care emerging every year. The role of antitrust is not to select among different kinds of health care; I mean, we don't care if people choose PPOs or HMOs or whatever they want. We want to keep the marketplace open so patients make the choice as to the kind of health care that they want; and there have been occasions, as you also well know, when doctors have banded together in violation of the antitrust laws to prevent new forms of health care from entering the market that they occupy.
In a sense we already have a preview of coming attractions of what the world would be like if health care professionals could operate as if they were members of a union. In late 1996, the College of Physicians and Surgeons in Puerto Rico decided to take collective action to attempt to raise the reimbursement level from the government. When their demands were resisted, they called an 8-day strike. Physicians closed their offices and, in some cases, cancelled elective surgery without notice. The FTC and the Commonwealth of Puerto Rico challenged that behavior and eventually required the medical groups to pay $300,000 in restitution and agree not to engage in future boycotts.
Is there a need for legislation that would make the behavior of the doctors in Puerto Rico legal? I believe not for several reasons. First of all, as Congressman Campbell pointed out, if the doctors are really employees, if they work for a hospital, they already have a labor exemption and we don't have to do anything about that.
Page 16 PREV PAGE TOP OF DOC
Second and more important, doctors who are not employees already can organize joint ventures and bargain collectively with payers if those joint ventures produce efficient procompetitive benefits to consumers. The 1996 amendments to the DOJ–FTC health care guidelines, which responded to concerns that members of this committee had raised, clarified that such joint ventures can be organized and receive rule-of-reason treatment.
Incidentally, since we amended the guidelines, 15 groups have asked for advisory opinions on whether or not they satisfied our guidelines and we—''we'' being the Department of Justice and the FTC—cleared every one of them.
On the other hand, an antitrust exemption treating self-employed health care professionals as employees in a union—when they are not part of an efficiency creating joint venture—could have adverse effects. They could join together, indeed all doctors in a relevant area could join together, and insist on higher fees. Through their joint negotiations, they could impair the ability of new forms of health care to enter the market.
Finally, it is hard for me to see how we can give an exemption like this to doctors like this, and then when the architects lawyers, and the other professionals ask for a similar exemption, why wouldn't we give it to them? They often bargain with powerful organizations as well.
Summing up, we amended our health care guidelines to clarify the zone in which joint ventures organized by health care professionals would be treated as illegal under an inflexible per se approach, and we moved many of those joint ventures into a flexible rule of reason. If the joint venture is ''reasonable'' they can then bargain jointly.
Page 17 PREV PAGE TOP OF DOC
In effect, I would suggest that H.R. 4277 would go much further and move many of these collaborations out of the per se and rule of reason area into a zone of per se legality. We would not be able to address the competitive effects of these collaborations regardless of their purpose and intent, regardless of the market power of the doctors, regardless of the market power of the people they negotiate with, regardless of the presence or absence of efficiencies or health care costs.
I suggest that inflexible rules on either side of this spectrum—per se legality, per se illegality—is not a good idea. The rule-of-reason treatment—which, by the way, most knowledgeable people, as I indicated in my testimony, feel it is working fairly well—should be retained; and I thank you.
[The prepared statement of Mr. Pitofsky follows:]
PREPARED STATEMENT OF HON. ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE COMMISSION
INTRODUCTION
Mr. Chairman and Members of the Committee, I am pleased to appear before you today to present the testimony of the Federal Trade Commission concerning H.R. 4277, which would create an exemption from the antitrust laws to enable health care professionals to negotiate collectively with health plans over fees and other terms of dealing. The Commission believes that the interests of consumers would be harmed by such an exemption. The immunity that would be granted by H.R. 4277 is unnecessary to protect legitimate collaboration among competing health care providers. It would immunize anticompetitive activities that could diminish the effective functioning of health care markets. This, in turn, could harm consumers and raise health care costs, and would likely encourage those in other industries to seek similar special interest exemptions.
Page 18 PREV PAGE TOP OF DOC
We are aware that some health care providers, as well as others, have expressed concerns about the effects that certain managed care arrangements may have on the quality of patient care. We do not question the sincerity of those raising concerns about the welfare of patients. However, we do not believe that granting a broad antitrust exemption to health care providers for anticompetitive collective activity is the best way to address those concerns.
Health care markets are undergoing rapid and far-reaching changes. The issue of how best to protect consumers in the changing health care system is a matter of fundamental national importance, and the subject of substantial public debate. As Members of this Committee are well aware, Congress is currently considering various legislative proposals designed to address concerns that consumers may lack adequate protections in dealing with the health care system. While the Commission is not now offering comments on the merits of these various proposals, it respectfully submits that an exemption such as the one before this Committee today would undermine efforts to address concerns about the current state of our health care system.
In this testimony, the Commission will first briefly discuss the role of antitrust law enforcement in the health care area, and then address the proposed legislation under consideration by the Committee. We understand that H.R. 4277 is intended to allow health care professionals to present a united front when negotiating with health plans over fees and other terms governing the plans' dealings with health care providers, and the Commission's testimony is based on its understanding of that intent.
I. The Role of Antitrust in the Evolving Health Care System
Page 19 PREV PAGE TOP OF DOC
A key focus of the Commission's efforts in the health care area has been to help assure that new and potentially more efficient ways of delivering and financing health care services can arise and compete in the market for acceptance by consumers. The development of these new arrangements, which have helped substantially to slow the rate of increase in health care costs, depends on vigorous competition among market participants. To that end, the Commission, the Department of Justice, and state antitrust enforcers have challenged numerous practices that restrict competition among health care providers when those restraints have harmed consumers. These practices include price fixing, ethical restrictions on the dissemination of truthful information, restraints on physician participation in HMOs and other types of managed care organizations, and efforts by some health care providers to stifle cost-containment efforts.
In over 20 years of antitrust law enforcement in the health care area, the Federal Trade Commission has addressed numerous instances of collective activity by otherwise independent health care providers aimed at third-party payers whose policies or mere existence the providers found objectionable for one reason or another. A broad range of payers, including Blue Shield plans, health maintenance organizations (HMOs) and other managed care plans, dental insurers, and state Medicaid programs, at various times, have been the targets of such actions. Early cases involved instances of collective boycotts or similar activity by physicians and other health care providers to prevent HMOs from entering the market.(see footnote 1) Subsequently, the vast majority of cases has involved collective action aimed solely or primarily at increasing (or preventing reductions in) payment levels to providers. This collective activity has involved joint agreement and/or collective negotiation on prices or reimbursement issues, often accompanied by actual or threatened coercive boycotts to pressure payers into accepting the terms demanded by the providers.(see footnote 2)
Page 20 PREV PAGE TOP OF DOC
Most of the Commission's past enforcement actions have been directed at health care providers' efforts to forestall the development of, or raise prices charged to, privately funded health plans. Yet for many citizens, private insurance is unavailable. Many states are currently developing forms of publicly-sponsored insurance to provide medical coverage for the otherwise uninsured. One of our most recent health care enforcement actions involved such a program.
The Commonwealth of Puerto Rico developed a program for providing health care coverage for the uninsured, known as the Reform, which currently covers about 30% of the population. In late 1996, the College of Physicians and Surgeons decided to take collective action in an attempt to raise their reimbursement level under the Reform, which would have raised the costs of health care to the citizens of Puerto Rico. The College ultimately called an eight-day strike, with physicians closing their offices and, in some cases, canceling elective surgery without notice. The potentially serious impact on patients of such anticompetitive behavior is obvious. The FTC and the Commonwealth of Puerto Rico jointly filed a complaint and obtained a consent agreement, under which the College and three large medical groups that contracted with the government paid $300,000 in restitution and agreed not to engage in future boycotts or unintegrated collective price fixing.(see footnote 3)
We believe that sound antitrust enforcement in situations like the one in Puerto Rico has been a major factor in permitting the emergence of alternative health care arrangements that today vie for the patronage of consumers, private employers, and government purchasers. Although health care markets have changed dramatically over time, and continue to evolve, collective action by health care providers to block innovation and interfere with cost-conscious purchasing remains a significant threat to consumers. The prospect of effective antitrust enforcement therefore continues to be a crucial, positive influence on the marketplace which encourages better responses to consumer demands for high-quality and cost-effective health care.
Page 21 PREV PAGE TOP OF DOC
While many of our cases have focused on health care providers' efforts to obstruct managed care plans, we wish to emphasize that the Commission does not favor any particular model of health care delivery—whether it be fee-for-service, managed care, or some other type of arrangement. Our goal simply is to deter restraints that unduly limit the options available in the market or artificially raise prices, so that consumers will be free to choose the health care arrangements they prefer at competitive prices.
II. The Antitrust Exemption for Health Care Professionals Embodied in H.R. 4277 Would be a Radical Departure From Existing Labor Law Standards
As presently drafted, H.R. 4277 would create a broad antitrust exemption for price fixing and boycotts by physicians, dentists, and other health care professionals, by granting competing providers the same antitrust exemption that is accorded to employees who create legitimate labor organizations to negotiate with employers. The bill states that any group of health care professionals that negotiates with a ''health insurance issuer,'' such as an HMO or commercial health insurer, is entitled to ''the same treatment under the antitrust laws as that which is accorded to members of a bargaining unit recognized under the National Labor Relations Act.'' Workers in such bargaining units enjoy what is known as ''the labor exemption'' from the antitrust laws.(see footnote 4) In essence, the labor exemption allows employees to unionize and use collective economic pressure against an employer to gain higher wages and more favorable working conditions. Thus, the bill would create a ''collective bargaining'' exemption to allow doctors and other health care professionals to exert economic pressure on health plans to gain higher fees and other, more favorable, terms of dealing. As was noted earlier in this testimony, challenges to such collective action have been and continue to be a central focus of antitrust enforcement in the health care sector because of the harm such activity inflicts on consumers.
Page 22 PREV PAGE TOP OF DOC
It is important to recognize that the labor exemption already operates in the health care sector under the same standards that apply in other industries—that is, where there is a ''labor dispute'' involving a bona fide labor organization. Thus, physicians who are employees are already covered by the labor exemption under current law. The exemption, however, is limited to the employer-employee context. An antitrust defendant must demonstrate that the dispute at hand grew out of an employer-employee relationship—i.e., a ''labor dispute''—to successfully invoke the labor exemption.(see footnote 5) But when independent business people combine to enhance their entrepreneurial interests, rather than to affect some employer-employee relationship, the labor exemption does not apply.(see footnote 6)
This distinction between employees and independent contractors is fundamental to the labor relations scheme established by Congress. NLRA Section 2(3) gives the right to bargain collectively only to ''employees.'' The 1947 Taft-Hartley amendments to the NLRA included an amendment to Section 2(3) to provide expressly that the term ''employee'' does not include ''any individual having the status of an independent contractor.'' 29 U.S.C. §152(3). The House Report accompanying the amendment stated:
In the law, there always has been a difference, and a big difference, between ''employees'' and ''independent contractors.'' ''Employees'' work for wages or salaries under direct supervision. ''Independent contractors'' undertake to do a job for a price, decide how the work will be done, usually hire others to do the work, and depend for their income not upon wages, but upon the difference between what they pay for goods, materials, and labor and what they receive for the end result, that is, upon profits.
Page 23 PREV PAGE TOP OF DOC
H.R. Rep. No. 245, 80th Cong., 1st Sess. 18 (1947) (emphasis supplied).
Some self-employed physicians have contended that they must contract with dominant purchasers, and that managed care health plans control their medical practices to such a degree that they are effectively ''employees.'' To the extent that sufficient control in fact exists to create an employment relationship, no legislative exemption, such as that proposed in H.R. 4277, is needed. Such physicians would be able under existing labor laws to function as a legitimate collective bargaining unit.
Typically, however, the relationship that self-employed physicians have with health plans differs in many ways from that of an employer-employee relationship. For example, recently a group of New Jersey physicians who contract with a large HMO in their area asserted that their relationship to the HMO met the requirements for the labor exemption. The NLRB Regional Director, in rejecting their argument, concluded that the physicians were independent contractors rather than true employees entitled to the labor exemption, citing numerous factors that distinguished the physicians from such employees.(see footnote 7) The Director noted that:
The physicians themselves make the fundamental decisions that determine the profitability of their practices. For example, they decide whether to be sole practitioners or join a group practice, have virtually total control over their expenses (such as the cost of their offices, equipment, and staff), and can vary their incomes by choosing to work more hours.
The physicians spend only a minority of their time and derive only a minority of their incomes from services provided to the HMO's members. They treat patients who are members of other HMOs, are covered by other types of private health insurance or the Medicare program, or who pay directly for physicians' services.
Page 24 PREV PAGE TOP OF DOC
Many of the restrictions and procedures imposed on the physicians by the HMO's contracts were mandated by state law, either directly or by virtue of state law requiring certification by an accrediting organization whose standards require the procedures in question. Under labor law principles, restrictions and procedures imposed by governmental regulation do not amount to control by an employer.
In sum, H.R. 4277 is designed to confer the labor exemption on those whose situations are vastly different from those eligible for the exemption under long-standing and well- established principles of labor law. Moreover, the bill makes no provision for bringing these providers within the regulatory scheme of the labor laws that applies to others entitled to the labor exemption. Instead, it would merely grant them a broad immunity to present a ''united front'' when negotiating price and other terms of dealing with health plans, without any efficiency benefits for consumers or any regulatory oversight to safeguard the public interest. The Commission believes that enacting a labor exemption for health care providers who are not employees is not justified, and would seriously harm competition and consumers. In addition, providing such an exception to a requirement that applies to all other professionals—that they must be employees in order to qualify for the labor exemption—is likely to encourage others who do not meet that standard to seek such special treatment. H.R. 4277, therefore, would be the first step on a slippery slope.
III. The Proposed Exemption is not Needed to Allow Providers to Raise Concerns About Managed Care Quality, or to Offer Their Own Alternative Plans to Consumers
The broad exemption from the antitrust laws that H.R. 4277 would create is unnecessary for health care providers to effectively express their concerns about the quality of managed care plans, or to offer to consumers what they believe to be a superior alternative. The antitrust laws already allow health care professionals to create joint ventures and to negotiate collectively with health plans where those ventures are likely to produce procompetitive benefits for consumers. Such negotiations are analyzed under the ''rule of reason'' if the group involves integration that may significantly enhance efficiency, and if the joint price setting is reasonably necessary to achieve that procompetitive goal. These arrangements will pass muster under the rule of reason unless their anticompetitive effects outweigh their contributions to consumer welfare.
Page 25 PREV PAGE TOP OF DOC
As some Members of this Committee may recall, in 1996 the Federal Trade Commission and the Department of Justice revised their health care guidelines to emphasize that providers can organize network joint ventures in a variety of ways without raising antitrust problems.(see footnote 8) The goal was to ensure that unwarranted fears about the antitrust laws did not discourage innovation by providers that would stimulate competition and benefit consumers. Those revised guidelines have been widely cited for reducing uncertainty and recognizing that a wide range of joint activities by health care providers potentially can be procompetitive and benefit consumers.(see footnote 9) In addition, since issuing the revised guidelines the agencies have issued 15 advisory opinions and business review letters approving proposed provider networks (and disapproving none).
Thus, collaboration among providers in dealing with health plans and other purchasers, in circumstances where it is likely to benefit consumers through enhanced efficiency, already is permitted under the antitrust laws and has been encouraged by the Agencies' health care guidelines and advisory opinion programs. Provider networks can organize and contract directly with employers and other payers, and thereby compete with health plans that providers believe offer fees and other contractual terms that they consider unfair or potentially harmful to patients. Simply put, if health care providers believe that a health plan does not offer consumers good quality, those providers are free to establish and offer the public their own, better, product without fear of the antitrust laws. And if purchasers agree with the providers and prefer their approach, such plans should flourish in the marketplace. Congress has concurred in this approach by recently amending the Medicare program to allow physicians and other health care providers, through the establishment of ''provider sponsored organizations,'' to offer alternatives to the Medicare HMOs currently available in the market.(see footnote 10)
Page 26 PREV PAGE TOP OF DOC
In addition, there are a variety of other ways in which health care providers can express their concerns about both price and quality issues relating to managed care. Current law permits collective efforts, such as standard setting and certification, by physicians and other health care providers to promote quality, provided that such efforts are properly circumscribed to achieve that purpose, and thus do not unreasonably injure competition. Such actions, and more generally the offering of a professional group's opinion on issues affecting quality, are unlikely to restrain, and in fact can improve, the ability of consumers to choose among competing alternatives. The value and lawfulness of providers giving information and views also is explicitly recognized in our health care guidelines.(see footnote 11) What is forbidden under current antitrust law standards is for anyone—including medical groups—to enter agreements that coercively impose on the market their view of what choices should be available to consumers and what prices they should receive.
IV. The Exemption Would Permit Conduct That Could Injure Consumers
The antitrust exemption language contained in H.R. 4277 is prefaced by a statement that the bill's purpose is ''[t]o ensure and foster continued patient safety and quality of care.'' Yet the activities protected by the bill are not limited to conduct furthering those purposes; rather, the bill would authorize a broad range of anticompetitive joint conduct by physicians and other health care professionals that could seriously harm consumers and undermine efforts to make available and promote high quality, cost-effective health care for consumers. For example, the bill would permit otherwise competing health care providers to jointly agree to raise their prices and increase their payments from insurers and other payers, at the expense of consumers. Like the physicians in the Puerto Rico case discussed above, they could ''strike'' by refusing to provide services to patients covered by payers who did not accede to their payment and other demands.
Page 27 PREV PAGE TOP OF DOC
Third-party payers, attempting to respond to the demands of their customers to control costs, increasingly have sought to obtain lower fees from providers, and to develop ways to control what previously was the providers' virtually unrestricted ability to provide expensive health care services to patients, even when such services were unnecessary or inappropriate. Not surprisingly, at various times payers have faced concerted opposition to their cost-containment efforts from some health care providers, in an effort to thwart what the providers perceived as unwarranted intrusions into their professional practice autonomy.(see footnote 12) Many of these instances involved assertions that the collective conduct was aimed, at least in part, at protecting consumers and assuring quality of care. For example, this was precisely the rationale used by the AMA to justify its ethical prohibition on its members providing their services on other than a fee-for-service basis, or affiliating with HMOs or other novel arrangements for delivering health care services.(see footnote 13)
This is not to say that many of the issues raised by physicians and other health care providers regarding changes in the health care system are not motivated by genuine concerns about their patients' welfare. The Commission shares those concerns. But ''quality-of-care'' arguments also easily can be invoked as a justification for even the most egregious anticompetitive conduct. They have been advanced to support, among other things, broad restraints on almost any form of price competition,(see footnote 14) policies that inhibited the development of managed care organizations,(see footnote 15) and concerted refusals to deal with providers or organizations that represented a competitive threat to physicians.(see footnote 16) Thus, even if the antitrust exemption in H.R. 4277 were limited to conduct aimed at protecting patient safety and quality, history nevertheless cautions that the exemption could be subject to abuse.
Page 28 PREV PAGE TOP OF DOC
The bill could also make it harder to develop innovative approaches to health care delivery and financing. For example, small HMOs, facing the aggregated power of provider collective bargaining, could find it more difficult to enter or succeed in the market.(see footnote 17) Ironically, this effect would undermine the purposes of H.R. 4277, since such thwarted market entrants could have been competitive alternatives to the larger health plans whose policies and operations health care providers seek to respond to under the bill's protection.
Allowing providers to enter agreements that restrict the price/quality mix of health care services available to consumers in the market, even if motivated in part by genuine quality-of-care concerns, removes that choice from consumers. Moreover, it could force many consumers to forgo health care coverage altogether because they would be unable to afford the only available arrangements that result from providers' jointly determined prices and other terms for the market.(see footnote 18)
CONCLUSION
The health care system is a complex and dynamic sector of our economy. New arrangements and approaches to delivering and paying for care are continually emerging in the private sector, as well as in Medicare, Medicaid, and other government programs. Competition is the basic approach that our nation increasingly is relying upon to control costs and assure quality in the delivery of health care services, with resort to regulatory intervention only as needed to address specific problems that the market cannot cure. The result is a complex, difficult, and ongoing process. Different options are being tried. Some are successful, while others proving less so have been or will be abandoned. Problems that arise will need to be addressed one way or another—either by making the market work better or, if that fails, by regulations designed to protect consumers. But in either case, the solution does not lie in eliminating competition and granting health care providers the right collectively to raise their prices and jointly agree on the terms and conditions under which their services will be available in the market.
Page 29 PREV PAGE TOP OF DOC
The Commission believes that H.R. 4277 would do just that. It would allow health care providers to aggregate their market power and impose their collective will on consumers and the marketplace. It would erase more than 20 years of effective effort to allow health care markets to function competitively so as to better meet the needs and wants of consumers. For the reasons discussed above, the Federal Trade Commission believes that H.R. 4277 would harm consumers, and for that reason respectfully opposes its enactment. Instead, we believe that it would be better to continue the approach we took two years ago when we and the Department of Justice revised the health care guidelines. This involves continued enforcement of the antitrust laws to ensure that consumers have choice in competitive health care markets, while at the same time making clear that the antitrust laws do not stand in the way of collaborative efforts by health care providers to offer alternatives to consumers that will lower costs and assure quality for their patients.
Mr. HYDE. Thank you, Chairman Pitofsky.
Mr. Conyers.
Mr. CONYERS. Thank you so much.
We appreciate this procedure, Tom; I think it is very constructive. Your response, please?
Mr. CAMPBELL. Thanks. The Chairman's testimony focuses on two fears, one of which simply is not in the bill, and the other, I think is easily dealt with. The one that is not in the bill is that this will lead to price fixing and boycotts, and this will lead to other antitrust violations. The bill only exempts the conduct of negotiations.
Page 30 PREV PAGE TOP OF DOC
Let me take a second to say, in labor law and antitrust law there are two exceptions known as the statutory and the nonstatutory exemption. My bill is only dealing with the statutory exemption, and let me explain what that means.
The exemption is only so that the doctors can present a united front if the contract negotiated in that process is anticompetitive because it says, ''Don't hire nurse-midwives.'' That would be subject to a challenge under the antitrust law. It would be a vertical restraint, a supplier and a purchaser, exclusionary of another supplier. It would be subject to the rule of reason. And if there is anything that I can do to make that clearer in the bill, I will, and that is why I refer to these very words in my bill at line 16, these health-care provider professionals ''shall, in connection with such negotiations, be entitled to the same treatment under the antitrust laws as that which is accorded to members of a bargaining unit.''
Chairman Pitofsky used the word ''strike.'' I knew it would come today. I didn't think that it would come up in the first 5 seconds of his testimony, but that is always what the other side argues.
This bill does not give the right to strike where it does not otherwise exist. Why? Because it is not the negotiating; indeed, it is the absence of negotiating. All that I do, but it is very important what I do, is allow the doctors to come together for the purpose of negotiating.
Lastly, the argument which I can deal with, which is correct—if this is granted, will others come to this committee seeking antitrust exemptions—yes, they will, and you ought to evaluate each one on the merits.
Page 31 PREV PAGE TOP OF DOC
Mr. Delahunt asked me about McCarran-Ferguson. When I was a member of this committee, I was the only member on my side of the aisle who voted to repeal that exemption, to take away insurance antitrust exemption.
Thank you.
Mr. CONYERS. Thank you very much.
Robert, have you any reflections?
Mr. PITOFSKY. Let me make sure that I understand the proposed bill.
If the doctors come together to negotiate—demand all the doctors—and they present a common front. They demand twice as much reimbursement as you have been paying us so far. Is that conduct immune from challenge under the antitrust laws under your bill?
Mr. CAMPBELL. Yes.
Would you allow me to ask a question in return?
Mr. PITOFSKY. Yes.
Page 32 PREV PAGE TOP OF DOC
Mr. CAMPBELL. If the doctors want to get together and tell the HMO, sorry, we want to treat 80-year-olds for cataracts, is their action in getting together and presenting a united front a violation of the antitrust laws as they presently are?
Mr. PITOFSKY. Yes, if there is no more to what they do than to say, we—we insist on certain levels of quality of care, I think it is vulnerable.
I would simply add, they could reach this goal in a slightly different way, and we would achieve the purposes that, legitimately, I think, everybody is concerned about. But what they would have to do is something—they would have to do something more than simply bargain. They would have to put their operations together at some kind of clinic where there is an integration, some kind of—there is some kind of integration that helps patients.
It is the patients that we should care about, and if the doctors get together in a joint venture that has procompetitive effects for patients, then they can do what you are asking.
And I want to clarify, my emphasis is on bargaining for higher fees. I recognize that it is rather uncertain that they can bargain to keep new forms of health care out of the marketplace, even under the labor exemption.
Mr. CONYERS. Tom, you have some wonderful options here. One, you could allow me to help fix your bill, so we make it very clear that price fixing is not going to be permitted where it is prohibited. And all these other things that are important, like getting rid of gag rules and limiting restrictions on procedures, that could possibly meet the chairman's level, the strict, existing requirements. And that may be a possibility.
Page 33 PREV PAGE TOP OF DOC
Now, do either of you have any response to the discussion that the chairman and I have been engaging in since February of 1996 about the problems of doctors who are being pushed into PPOs and HMOs that they really don't want to be in? I mean, for God's sake, it is still a democracy even where doctors are concerned. And the question is, does your legislation touch on this very sensitive, alive, and, as the chairman said, dynamic position of the health industry right now?
Mr. CAMPBELL. If I might start, and maybe Bob has a response, you bet he does. And we faced this identical problem in the company town when we gave labor the right to say, ''We all speak together; you speak with one, you speak with all.'' And that is what is happening now.
But because the labor law does not apply to professionals, it is denied them. That is the heart of this bill.
Mr. CONYERS. You are saying that you have provisions that will correct this very sorry situation?
Mr. CAMPBELL. It only goes to negotiations, but that is the most important step. I repeat, antitrust should not have barred those doctors from presenting a united front. If you read the 1914 Clayton Act correctly, the labor of a human being is not an article of commerce, but because the 1935 National Labor Relations Act came along and was viewed as the description of Federal policy on labor, we were left with this lacuna.
Page 34 PREV PAGE TOP OF DOC
Mr. CONYERS. Tom, can't we correct this without making doctors form unions?
Mr. CAMPBELL. And that is my bill.
Mr. CONYERS. There are a hundred other ways to cure this without forming the United Automobile Doctors Union. Let's look at prohibiting some of these outrageous practices where—in Detroit, where I have some familiarity, the doctors get a letter—well, first of all, they get in. They turn over their patient lists, and then they get kicked out and then they lose hospital privileges. This is going on all over America as we have these hearings in 2141 in the health industry.
Now, Chairman, we have been at this thing for a couple of years now—2 1/2 years. With or without Representative Campbell's proposal here, we have to do something. This is outrageous, collusive behavior.
I know it is hard to prove. They don't meet in a cafeteria and say, ''Let's screw the docs in Detroit, and the black ones especially.'' It is very difficult subject matter, but it is going on and everybody in this room knows it.
Mr. PITOFSKY. Two answers.
There is something that they can do. The doctors can join forces in a joint venture, but the joint venture must be designed to improve patient care. It is not just a joint venture to bargain for more money for doctors. That is one thing.
Page 35 PREV PAGE TOP OF DOC
Second, some of the things that you describe—overreaching by insurance companies and HMOs, taking the doctor's list of patients and throwing people out of the HMO—the labor law exemption is not going to solve that kind of problem. That problem is there anyhow.
Mr. CONYERS. That is why I addressed this question to you a couple of years ago.
Now, has there been one complaint ever brought against a collusive insurance company for this kind of conduct?
Mr. PITOFSKY. I don't think so, but I would like to get the answer and provide it for you.
[The information is included within the letter from Chairman Pitofsky reproduced at the end of his testimony.]
Mr. CONYERS. I think I know what that answer is, and I thank you, Mr. Chairman.
Mr. HYDE. The gentleman from Pennsylvania.
Mr. GEKAS. I thank the Chair.
Page 36 PREV PAGE TOP OF DOC
The HMO we all agree came about partially because this was a way perceived to reduce costs in health care on every level. If we adopt your bill, Tom, we know that one of the elements will be the possibility of increased remuneration to doctors; is that correct?
Mr. CAMPBELL. Yes.
Mr. GEKAS. So the original purpose of the HMO is subject to being whittled away, at least partially, by the new bargaining position granted the doctors? Aren't we back to enigma?
Mr. CAMPBELL. An elaboration, if you permit?
Mr. GEKAS. Yes.
Mr. CAMPBELL. Bargaining will certainly increase the opportunity of the medical professional in what is now in my view a very one-sided situation. I answered your question, yes. It is distinctly possible that will result in higher reimbursements to professionals.
I also, from my heart and soul, want to point out to you that it will just as surely result in greater control over the quality of care provided by the professional to his or her patient, which is so much the complaint of those professionals who take care of sick people. The HMO won't let them take care of them in the way that they wish, so that granting your premise that the original purpose of the HMO was to drive down costs, the responsibility of the health care professional to take care of the patient was one of the costs itself that was incurred in achieving that.
Page 37 PREV PAGE TOP OF DOC
My last response to you, whether or not the final price goes up is a separate question from whether the cost of one component goes up; and the reason for that is that it is economically possible and, in my view, likely that the HMO's profit will drop if conditions in the final marketplace do not permit a higher price to the consumer.
You cannot predict that the price of the consumer will go up, as opposed to the profit to the HMO dropping, simply because the doctors or the medical professionals will have more opportunity to bargain.
Mr. PITOFSKY. May I interrupt at this point?
Mr. GEKAS. Yes.
Mr. PITOFSKY. A lot of this debate depends on what vision you have in mind in presenting the problem. If you think about a community in which there is one HMO and the doctors are divided, you say that is very unequal; and we are all concerned about that, and I think rightly so.
If you think about a community where the doctors are joined together in an efficient joint venture and there are 10 HMOs, then you don't have much of a problem because they have options. In that situation the market will work. They can play off one HMO or payer against another.
My concern with the ''labor exemption'' is that it takes all doctor negotiating tactics out of the reach of the antitrust laws regardless of which of these two visions you are addressing.
Page 38 PREV PAGE TOP OF DOC
Mr. GEKAS. I have no further questions.
Mr. HYDE. The gentleman from New York, Mr. Nadler.
Mr. NADLER. Thank you, Mr. Chairman.
Chairman Pitofsky, I have a couple of questions. First of all, I don't understand the difference. You said that you have issued certain guidelines which permit, in effect, bargaining. How does that differ from what this bill proposes?
Mr. PITOFSKY. Well, the difference is—to oversimplify a little bit—if the joint venture has a level of efficiency, if it is designed to improve patient care and cost containment, if it is designed to improve treatment, then it kicks over to a rule of reason; and frankly, we have had 15 advisory opinion requests since the guidelines were revised and we have cleared all 15. It is pretty easy to escape under the rule of reason.
Mr. NADLER. What is the key requirement?
Mr. PITOFSKY. That there be some integration that leads to patient advantages, efficiencies which lead to patient advantages.
Mr. NADLER. What is the patient advantage—is the basic objection to this bill that it will lead to price fixing?
Page 39 PREV PAGE TOP OF DOC
Mr. PITOFSKY. Yes.
Mr. NADLER. Let's assume that to be true, and frankly, I would hope it to be true.
One of the greatest complaints that we are hearing all over the country is that the HMOs come in and they suddenly impose reimbursement rates or capitation rates so low that your doctor's office becomes a mill where the doctor can't give more than 3 1/2 minutes to a patient, and he is spending all of his time on paperwork, and he is paying four nurses to do the paperwork to get reimbursement.
Then the doctors come along and say, In order to give proper amounts of time to patients, to explain to patients what is going on, proper diagnosis, we must have higher reimbursement fees and the improvement to the patients is the higher reimbursement fees, which enables us to give them proper time.
And what is wrong with that, and why shouldn't they be able to do that?
Mr. PITOFSKY. First of all, there is an alternative in most communities. We saw in the Wall Street Journal this morning how badly Aetna is doing because——
Mr. NADLER. Because Aetna screwed up.
Mr. PITOFSKY. They did what you are describing, and the doctors said we don't want to have anything to do with you.
Page 40 PREV PAGE TOP OF DOC
The patients and the payers could do the same thing.
Mr. NADLER. The patients can't. The employers choose the HMO.
Mr. PITOFSKY. They would have to lean on their employers.
Mr. NADLER. Try leaning on IBM. They are one employee.
Mr. PITOFSKY. You are correct, of course.
The question is whether you want the market protected by antitrust to address this question, or do you want to take the doctors completely out of the antitrust system, call them employees even though from every standard that the NLRB has followed, these are not employees. They set their own profit levels they set their own terms of sale.
Mr. NADLER. Under the normal criteria, yes, they are independent contractors, not employees. But under the experience in the country, they are being turned into employees.
I read that story in the Wall Street Journal about Aetna; and frankly, everything that I have heard from doctors and from others is that you generally don't have much, that the doctors, especially in communities dominated by two or three HMOs—and as the HMOs shake out, that is going to be everybody pretty soon—have no market power at all.
Page 41 PREV PAGE TOP OF DOC
Why not let them have the countervailing power, because otherwise, what protects us from the HMOs dictating everything?
Mr. PITOFSKY. As I tried to indicate before, I am not defending the way that the HMOs work with doctors. What I am saying is a solution that would insulate from antitrust all-doctor collaboration and move it into a protected area even, where the doctors are powerful and the HMOs are weak. That is what would happen if you have a labor exemption.
Mr. CONYERS. Mr. Chairman, can I ask my friend for an additional minute?
Mr. HYDE. Mr. Nadler. Certainly, without objection.
Mr. CONYERS. Mr. Pitofsky, doctors are independent in name only, true or false, with explanation?
Mr. PITOFSKY. I think in terms of the way that the labor laws have been applied, doctors are independent contractors and are not entitled to the labor exemption.
Mr. CONYERS. So true or false?
Mr. PITOFSKY. I think that is not true. I think it is false.
Page 42 PREV PAGE TOP OF DOC
Mr. CONYERS. Representative Tom Campbell, same question.
Mr. CAMPBELL. True in large part. I can't say 100 percent, but true in large part, they are independent.
Mr. NADLER. One question of Representative Campbell: Would you think that perhaps the bill might be both more acceptable politically and more rational in terms of its justification if it were amended to apply to certain classes of doctors—perhaps not certain specialists; I don't know the factual predicate—where in fact you could make the case that these classes of doctors, internists, GPs, are in fact being reduced to employees while certain specialists are not?
Do you think that there is evidence for that?
Mr. CAMPBELL. The concept of what economists call ''monopsony power.'' It is the mirror image of monopoly; if you have one buyer, it is monopsony. And what they do is, they drive down the price to the offerers of services.
The company town is a monopsony; you owe your soul to the company.
Mr. CONYERS. Mr. Chairman, I ask the gentleman to receive one additional——
Mr. HYDE. Without objection.
Page 43 PREV PAGE TOP OF DOC
Mr. CAMPBELL. That would be the perfect way to approach this. The perfect way to do it would be to say, wherever there is monopsony power, where there is the company town, for heaven's sake, give the other side the right to present the united front or they are killed. The footnote is that it is going to be a very hard concept in practice.
And so law makes generalizations. The labor exemption is a generalization. My bill is a generalization. It is overwhelmingly the case; that is why I put the bill forward. If I could craft it by angels to be interpreted by saints, it would say——
Mr. CONYERS. You are in the right place.
Mr. NADLER. Mr. Chairman, I yield to the gentleman from Michigan.
Mr. CONYERS. How can we describe the independence of doctors at this hearing that are controlled by HMOs, PPOs—national, regional, sometimes international organizations—and here this little guy, he worked all of his life, he goes into medical training, he finally comes out, he opens up an office, and Chairman Pitofsky announces him to be an independent contractor; and the HMOs are waiting for him in New York, Chicago, Manhattan, everywhere in the country, and saying, ''Look, little independent buddy, you have to join this one or else. Talk to me, please.''
Mr. PITOFSKY. I would like to give you an opinion of the NLRB in which a group of doctors in New Jersey claimed that they were employees, we are just little old workers here, and the NLRB turned them down.
Page 44 PREV PAGE TOP OF DOC
Mr. CONYERS. But that is not the question. The question is—I am not advocating doctors join unions, I am telling you that these fellows are not any more independent than an intern in a congressional office. They don't have any control over where or how they are going to practice or set their prices or how they are going to deal with the procedures.
We have cases where a doctor has treated a patient for 15 years, and a little MBA calls from Connecticut and says, ''You can't do that procedure, our standard—our averages show that you can't treat him that way.'' He says, ''I have been treating him for a decade and a half.''
He says, ''You won't anymore; and if you do, you will do it at his cost.''
Now tell me how independent this young fellow is practicing medicine in 1998.
Mr. PITOFSKY. I will adopt Congressman Campbell's response. That describes many people, but not all.
Mr. CONYERS. Tell me where in America of the 50 several States a doctor can go in and say, I am following the Pitofsky theory of medicine, I am opening my own shop and charging my own prices. I am doing my procedures and I am doing what I want because I am an independent contractor.
Page 45 PREV PAGE TOP OF DOC
Name me a city, and you can't because there is not one. We are subjugating the doctors, Bob, and we have to change it. I have given you this lecture every year.
Mr. HYDE. I am going to try to recapture some discipline here.
Mr. Bryant.
Mr. BRYANT. Thank you, Mr. Chairman.
I think I want to welcome the two of you. I feel like I am back in law school today, and I appreciate that very much, and I want to call you both Professor.
Chairman, you did a good job on this student, but obviously he missed a couple of classes.
Mr. CAMPBELL. Did not.
Mr. BRYANT. Tom, I understand what you are saying, and I agree with the Chairman that there are certainly problems in this arena.
Essentially, this condition has existed under the labor laws and antitrust laws for years, and it has not been addressed, because there has not been a need for it. But I suppose you would make the argument that because of the HMOs—and certainly we have gotten into that debate on other issues, pricing, such as which are beyond the scope of this particular hearing—the situation has been exacerbated, and therefore we need to change this law to help out.
Page 46 PREV PAGE TOP OF DOC
I am wondering if there are not other ways to address your specific example and other hardships that have been raised by members of this committee. Of course, we have to realize that not everybody is involved with an HMO. There are PPOs and private pay; and the majority, I assume, will go to the HMO situation.
Would not we be better off approaching protection of patients in other ways, such as the Patient Protection Act. And I think as we begin to shape and mold—although the bill we passed last week certainly is not a perfect bill—but does not that method of us, as Congress, providing patients with, in effect, a bill of rights to go through an appeals process, to challenge that HMO's decision not to give patients over 80 years old cataract surgery?
And, secondly, I want you to explain your chart.
Mr. CAMPBELL. As to the first, I voted against both the Democrat and the Republican bills, and the reason is that I believe in the market. It is a very sincere question on your part, and my answer is equally sincere.
The last thing I want is Federal law to specify how old you can be before you get cut out from a specific cataract surgery. And the last thing I want is for Federal law to say how many days you can stay in a hospital for delivery of a baby. The last thing I want is a Federal government, by statute, let alone by HCFA, to establish rules for medicine. And so if you come at this from a free market perspective, which I profoundly do, I see one side with an antitrust exemption because they are an integrated HMO, or because under the bill that was passed 2 years ago, they are a vertically integrated group of doctors, a professional service organization; and I see somebody who cares most about the patient, second only to the patient herself, left out, unable to negotiate effectively because the moment they talk with their neighbor, they are up against the antitrust law.
Page 47 PREV PAGE TOP OF DOC
Mr. BRYANT. Can you explain your chart? And I may need some additional time.
Mr. CAMPBELL. Thanks.
Mr. BRYANT. But first, let's say the three doctors in Elgin, Illinois, negotiate against the HMO, and the HMO says, ''No, we will bring our own doctor into town and let you folks go elsewhere.'' Would that be permissible?
Mr. CAMPBELL. Yes.
Mr. BRYANT. Would that be in the interest of consumer fairness?
Mr. CAMPBELL. It may. It certainly would be no worse than having the HMO dominate; and the answer is, that would be permissible.
The essential point is, when you are dealing with an intermediate good—in labor economics we call it the ''derived demand''; it is not a final product. You use steel to make a car and you buy the car, and so the demand for steel is the derived demand for the car or refrigerator. Similarly, in health care, the HMO is demanding from the doctor.
But the HMO is not going to consume the doctor services; it is the final supplier.
Page 48 PREV PAGE TOP OF DOC
In labor economics, the conditions are quite different than in other forms of economics. And particularly in health-care labor economics, the demand curve is generally flat, which is to say that the additional value brought by one more doctor is pretty much the same until you get way out there where you fully outserve the entire community. The supply, however, is upward sloping, which is to say that a doctor can come from Aurora, Illinois.
These examples are chosen for the chairman's attention, you understand. Or the Fox River Valley or Geneva. I am really pushing my knowledge of northwestern suburbs of Chicago now. So as the price rises, you get more eye doctors from Chicago itself who might want to go out to Aurora or Elgin.
So you have an upward sloping supply curve but a relatively horizontal demand curve. This is heaven for an HMO. What they do is they restrict the numbers. They say three is enough, thereby not attracting the folks from Chicago, Aurora, Fox River Valley. The quantity of dollars is at B, the compensation paid to the doctors is at W B, whereas in free market it would have been A with compensation paid to W sub A. The point is that the final price to the consumer is going to be the same because the HMO takes the difference between W sub A and W sub B and calls it dividend, and the consumer is worse off because there is only Q sub B doctors instead of Q sub A.
Mr. HYDE. The gentleman's time has expired.
Mr. CAMPBELL. Thank you.
Page 49 PREV PAGE TOP OF DOC
Mr. HYDE. Mr. Watt.
Mr. WATT. Mr. Chairman, I apologize to the members of this panel for not being able to be here to hear their testimony, and so I won't try to replow any of the ground. I yield back.
Mr. HYDE. I thank the gentleman. Before recognizing Mr. Chabot, or Mr. Sensenbrenner, rather, I want to make a comment.
I am hardly a scholar in antitrust, but it seems to me that the problem that antitrust seeks to remedy is concentration of power. And when you get too much power concentrated in the HMOs you have a problem because the doctors are unequal. When you get too much power concentrated in the doctors, you have got a problem, too, because while we idolize doctors, the fact is that they are human beings and they can go on strike.
I remember a hospital strike in Kentucky, and I was aghast at the thought that people could really be suffering and in pain and these professional people were on the picket line. So it can happen. And when you get that much power in a group that have the exclusive control of eye surgery or brain surgery or orthopedics, you have a dangerous situation.
What it seems to me is needed is a mechanism to ameliorate the differences of opinion, an effective professional way, not running to court, but some sort of board that is agreed upon by everybody as being competent to resolve the difficulties. If the doctors want to do cataract surgery on people over 80, then God knows they should because at least you have some eyesight left at that age.
Page 50 PREV PAGE TOP OF DOC
There ought to be a way to resolve that so we ought to not accrete more power to one group which is capable of abuse, and they are not steelworkers. They are the only eye surgeons in town, so we ought to be reducing the power of the insurance companies rather than adding to the power of the doctors. And so we need a mechanism to resolve their disputes that is fair and agreed to by both sides, it would seem to me, rather than continue adding to the power so everybody stays on a level playing field and the patient is down in the basement.
Mr. SENSENBRENNER. I have no questions, so my time can be yielded to whomever.
Mr. HYDE. Let me first ask Mr. Campbell to respond.
Mr. CAMPBELL. Thank you, and thank you, Mr. Sensenbrenner.
Where the power already exists, granting the other side of the bargaining table a mirror image does not harm the consumer. That is why my bill is limited to the negotiations, in the context of the negotiations.
Mr. HYDE. But negotiations don't mean anything if you can't enforce your position. If you want more money, you say I want more money, and they say we are not going to give you more money, then what?
Mr. CAMPBELL. If you don't have a contract, any conduct you take outside of negotiations is still subject to the antitrust laws.
Page 51 PREV PAGE TOP OF DOC
Mr. HYDE. I don't know what that means. You are into negotiations and you are not getting anywhere, so you strike.
Mr. CAMPBELL. No, a strike means where you break a contract where you presently are employed.
Mr. HYDE. You withdraw the availability of your services which are unique. And again we have different communities with different situations. Some places you have the proliferation of HMOs; here you have one.
Mr. CAMPBELL. It is the intent of my bill from the moment that I drafted it that it not cover the right to strike. I want an antitrust exemption to allow you to sit at the table. That is why I phrased it ''in connection with such negotiations.'' But if I can make that clearer by saying, ''but in no way does this mean the right to strike,'' I would put that in tomorrow.
Mr. HYDE. Mr. Delahunt.
Mr. DELAHUNT. Just to follow up on the point that the chairman was making, Tom, if it was just restricted to negotiations and you bring the parties together, what is the leverage of the HMOs to bargain in good faith?
Mr. CAMPBELL. Because it is not a strike. The HMO goes to Elgin, Illinois. There are three medical doctors who say we are not operating under your terms, and the HMO then won't be able to offer its services in Elgin, Illinois. That is not a strike. That is a failure to reach a contract because the other side said no.
Page 52 PREV PAGE TOP OF DOC
Mr. HYDE. Mr. Pitofsky.
Mr. PITOFSKY. I think this last exchange, Mr. Bryant, your own comments really put the spotlight where it ought to be. I really am not quarreling that there can be some problems where there is a dominant HMO and many unorganized doctors, and the doctors have nowhere else to turn. The question is whether a labor exemption is overkill, because the whole point is that it will kick in when the HMOs are big, small or medium and when the doctors are together or not together, and that is really my concern about the proposal.
There is also a suggestion that as soon as the doctors get together over lunch and start talking, they are going to get a letter from the Federal Trade Commission saying you are vulnerable to enforcement. We have never sent a letter like that. If the doctors want to talk over quality of care matters among themselves, that is not an antitrust problem.
It is when they go into a negotiation and present a united front. They say, you want us to be a part of your HMO, we want twice as much money. If you don't give it to us, in some communities they will go to another HMO. And the only efficiency of their operation is the fact that they are going to get more money for themselves, not that they are going to improve patient care.
That is your Puerto Rico situation I described earlier. The question is whether you want to legalize the Puerto Rico situation in all parts of the United States.
Mr. HYDE. Thank you.
Page 53 PREV PAGE TOP OF DOC
Mr. Chabot.
Mr. CHABOT. Thank you. Tom, you and I share one belief, and that is that there is too much government and that government has played a role in creating the problem that we are discussing today, and I also agree with what you say about being a believer in the markets. We passed the Patient Protection Act and the other folks are pushing the Patient's Bill of Rights, and there are other versions.
Would you discuss how government—and we are now taking all kinds of actions to try to deal with HMOs and managed care and now antitrust, and the way that doctors are unable to practice medicine the way that they would like to and that patients are hurt by that—would you discuss government's role in fouling this up to begin with?
Mr. CAMPBELL. You bet. If there were no antitrust exemption for insurance, there would not have been the united front to doctors way back when we passed McCarran-Ferguson. Start with the market, add competition on both sides, and I will trust the outcome. But you give one side the right to create a monopoly and tell the other one you have to bargain with them, and you are going to get distortions of the nature that we have heard in health care. I want to offer services to this patient but I can't because my employer, in every sense of the word except the National Labor Relations Act, my employer won't let me provide service to this patient.
So the chairman's comments are right on point on this as well. If you want to decrease both sides, fine. I am for repealing McCarran-Ferguson. I voted that way. But I am pretty confident that we are not going to repeal McCarran-Ferguson, and so you have an insurance exemption out there and you have nothing on the other side. You get better results by evening things out.
Page 54 PREV PAGE TOP OF DOC
Mr. CHABOT. Thank you, and I yield back the balance of my time.
Mr. HYDE. Counsel reminded me that McCarran-Ferguson leaves the regulatory power to the States. Why wouldn't that assist in this situation?
Mr. CAMPBELL. That is better than the Patient's Bill of Rights, better than the Republican alternative. Montana has different problems than California. Indeed, you don't need McCarran-Ferguson anymore at all, because the antitrust exemption for State action has now progressed so far that if there is State regulation with State oversight, which there is for insurance, it is exempt from the Federal antitrust laws.
So my advice, if I could recreate the world, would be to get rid of McCarran-Ferguson, let the State antitrust exemption apply wherever the State takes a hands-on approach. Maybe Rhode Island comes up with the answer for all of us.
Mr. HYDE. Thank you.
Ms. Jackson Lee.
Ms. JACKSON LEE. Thank you very much, Mr. Chairman, and thank you for holding this hearing. Tom, I am sympathetic to what I hear is an attempt to balance power and to get the best solution.
Page 55 PREV PAGE TOP OF DOC
I looked at the witness list and I had not—someone may correct me, but I did not see a representative from the National Medical Association, which is the association which represents most of the African-American doctors, and I assume there are some other minority organizations as well. Did you raise this issue with those groups?
And I am going to ask a series of questions and then you can answer them, on whether or not the doctor-dominated groups, they are not HMOs per se but doctor-dominated managed care types of associations that doctors are now organizing, where they structure the plan and they dominate and control the plan versus an HMO and a third party, does this legislation cover that?
Do we have a problem with the threat of doctors fixing prices because of the legislation, the potential impact, or doctors excluding others such as midwives?
And I would like the chairman to answer the question whether he sees that potential and whether he sees that potential of the impact—this legislation impacts those doctor-associated type HMOs?
Mr. CAMPBELL. Thank you. If a contract excludes midwives, it would be subject to antitrust challenge. Bear in mind that the exemption that I propose in this bill simply allows the medical professionals—we have been using ''doctor'' but it could be other medical professionals, including nurse midwives—to present a united front.
But if the contract that comes out of those negotiations is an exclusionary contract and says you can't do business with somebody else, it is subject to full antitrust analysis, and traditional antitrust analysis would view that as a vertical restraint between a supplier and a purchaser excluding another supplier, analyzed under the rule of reason. And if you don't have a good reason for an exclusive contract and you have an effect on competition as a result, it is violative of the antitrust laws.
Page 56 PREV PAGE TOP OF DOC
Have I discussed this with physician provider organizations? Only individuals, Sheila, and I am sorry, I don't prepare the witness list, as you know. I wish I could. I think it is wise to get their point of view directly. I tell you that I have not spoken to a doctor who is not in favor of my bill, whether in a PPO or PSO or managed care or fee-for-service.
And regarding the National Medical Association, I regret I have not, and I will pursue that directly. Before you came Mr. Conyers had several points that he raised concerning African-American medical professionals which he thought might support my bill, but I have not made such inquiries and I shall.
Mr. PITOFSKY. Briefly, I am not enough of a labor lawyer to know whether the union exemption would allow you to exclude or preclude groups, but I take Tom's point. That is not the intent of his bill, and I assume that it could be written to make that clear.
What I have a lot of trouble with is this business that it is not price-fixing, it is just designed to allow people to produce a united front. What is a united front except price fixing? If all of the bakers in town said we just want to produce—we want to offer a united front to Giant and Grand Union, what does that mean except that they are going to charge the same price, so they are all going to get more money from the purchaser than would otherwise be the case.
I don't understand what leverage this gives the doctors unless the united front allows them to coerce, induce, persuade the people that they are serving to allow them to raise prices, and I think there ought to be a better way to get that than to give the doctors a labor exemption. We have done nothing like this in 70 or 80 years.
Page 57 PREV PAGE TOP OF DOC
You know, I can't speak for the Commission about McCarran-Ferguson, but I too am uncomfortable with McCarran-Ferguson. But part of the reason is that exemptions from the antitrust laws are a bad idea. This is a far more sweeping exemption from the antitrust laws than McCarran-Ferguson ever was.
Ms. JACKSON LEE. Thank you.
Mr. HYDE. There is a vote on. It is a motion on the previous question, and then there will be a vote on final passage of the rule, and then we can come back. So as soon as the second vote is over, we will return, if you can stand at ease. The committee is in recess until after the second vote.
[Recess.]
Mr. HYDE. The committee will come to order.
The two defendants will return to their seats.
The gentleman from Arkansas, Mr. Hutchinson.
Mr. HUTCHINSON. Thank you, Mr. Chairman.
Your testimony has been very enlightening on a very important subject. When I first started practicing law in the small town of Benton, Arkansas, the bar association had a recommended fee schedule which the lawyers used as a guideline. It wasn't mandatory. We could charge fees for title opinions and we knew that is pretty much what everybody was charging in the area. I believe it was the Federal Trade Commission that said that we can't do that, that it violates some Federal statute called the antitrust laws, and so we stopped doing that as lawyers.
Page 58 PREV PAGE TOP OF DOC
So my question to Mr. Campbell, Tom, if your bill was passed, would the medical association be able to adopt a recommended fee schedule?
Mr. CAMPBELL. No, sir. The bill is narrowed to the context of negotiations. That is a very important point, both to your question and to several that the chairman has had. I can't emphasize it enough.
In the negotiations, unless we change the law, you would violate the antitrust laws the moment you walk into those negotiations with your colleague and present a united front. But the fee schedule is outside of the context of negotiations entirely.
Mr. HUTCHINSON. You are talking about negotiations with the HMO?
Mr. CAMPBELL. Yes, sir.
Mr. HUTCHINSON. So you can negotiate on the quality of care as well as reimbursements for doctors, but you are saying that the doctors could not join together and discuss what they charge their patients?
Mr. CAMPBELL. Outside the context of negotiations. We actually have this in the labor exemption. My whole approach is patterned on an exemption which has been in antitrust law for 84 years, and that is the Clayton Act section 6 provision that the labor of a human being is not an article of commerce. And the way that the courts have interpreted that, and we have all of that body of law to rely on, it says in the context of negotiations, yes; outside of the context of negotiations, no.
Page 59 PREV PAGE TOP OF DOC
Mr. HUTCHINSON. Now, they can negotiate, and there was a question whether or not they could strike. Your position is that under your bill the physicians could not strike if the negotiations broke down?
Mr. CAMPBELL. What does it mean to strike? That is where you have got a working relationship and the laborers decide that they are walking out. This is a different context. Here the HMO says here is a contract, and the doctors say we don't agree to that contract.
Mr. HYDE. Would the gentleman yield? Rather than strike, I think he means withhold their services.
Mr. CAMPBELL. From the HMO, not from the patient.
Mr. HYDE. Well, if the patient belongs to the HMO and the patient's only way of paying for it, which is why they are in the HMO, it is the same as a strike. You are just refusing to perform the services.
Mr. CAMPBELL. I really disagree, Mr. Chairman. The patient can still do a fee-for-service without violating a word of the HMO.
Mr. HYDE. Would Medicare let him do that?
Mr. CAMPBELL. That is a reason for Kyl-Archer. I think Medicare needs to be fixed regarding those people eligible for Medicare.
Page 60 PREV PAGE TOP OF DOC
It is not a strike to say we won't agree with this contract and you still provide the medical care to the patient. The patient will pay for it like it used to be.
Mr. HYDE. I don't want to cut your time short. If you want additional time, you may have it.
Mr. HUTCHINSON. If I could, Mr. Chairman.
Mr. HYDE. Surely.
Mr. HUTCHINSON. They could withhold services from the HMO, treat the patient outside if the patient chose to do so, or the patient might feel compelled for financial reasons to go to another doctor that is not withholding services from the HMO?
Mr. CAMPBELL. Although the chairman uses that phrase ''withholding services'' as preferable to ''strike,'' that in itself is an odd phrase. Do I withhold services when I fail to agree to a contract with you?
Mr. HYDE. You don't perform the services.
Mr. CAMPBELL. I choose not to enter into a contract with you.
Mr. HYDE. If you are one of the three eye doctors, then 33 1/3 percent is no longer available to the elderly patient.
Page 61 PREV PAGE TOP OF DOC
Mr. CAMPBELL. To the HMO. To the HMO. It is fully available to the elderly patients. That is why this is an intermediate issue as opposed to a final product. The elderly patient can still get all three of those doctors. It is the HMO who will not get the services of the physician.
Mr. HUTCHINSON. Let me just ask one final question, and that is to you, Mr. Chairman. You indicated in your testimony, in response to Mr. Campbell, that there is a problem here? I wrote that down.
Mr. PITOFSKY. Yes.
Mr. HUTCHINSON. There is a problem here, and I think your answer was that physicians can organize in a professional organization. There is some remedy there which I think Mr. Campbell and some people believe is not adequate, so let me ask it this way. You have identified a problem. If you reject this solution, what other idea is out there to address the Elgin, Illinois, problem of no cataract surgery over 80?
Mr. PITOFSKY. I really feel that if it is not broke, you don't need to fix it. If there is—and I think there are HMOs that are overreaching and insensitive and they don't pay as much attention to the quality of care as they should, but the doctors can get together in health organizations. They can get together and they can bargain with the HMO to do a better quality of care job, so long as the nature of their bargaining is something more than improving their own income.
Page 62 PREV PAGE TOP OF DOC
There probably are other ways to address HMOs that don't pay enough attention to quality of care. But I think the present way of addressing it solves many problems—and my testimony has a long footnote in which many people on different sides of this issue say with the 1996 amendment to our guidelines, we have a pretty good situation here and people are not complaining. So I am not sure you need any fix. If you do, my concern is that this fix is overkill.
Can I ask Tom a question?
Mr. HYDE. Absolutely. It is always fun to have a professor raise his hand.
Mr. PITOFSKY. Tom, suppose there are three HMOs in town and a hundred doctors, and the doctors all get together and say Smith is going to negotiate for us. Smith goes to the first HMO and they say we will give you 100 percent. He says that is not good enough.
He goes to the second HMO. They say we will give you 125; the third, 150. Back to the first one, they say I will give you 165. Why isn't that so-called united front price fixing?
Mr. CAMPBELL. This is what the United Auto Workers do when they go to Chrysler, Ford and GM. That is the labor example. Price fixing is a bit humorous because it taught me this. Price fixing is traditionally viewed as a horizontal arrangement, and what we are doing is negotiating a vertical arrangement. So it is precisely patterned bargaining which is what you are describing. It is done under the labor exemption.
Page 63 PREV PAGE TOP OF DOC
And with your permission, I would turn the question around. If you believe that should be illegal, ought we also not ban patterned bargaining in the auto workers?
Mr. PITOFSKY. Congress made a decision in 1914 that employers were strong and laborers were weak, and unless they could bargain jointly, they didn't have a decent chance. To talk about the kinds of doctors that I deal with in my life and compare them with a person that runs a lathe in a manufacturing operation seems to me an inappropriate extension of the reasons for the labor exemption.
Mr. CAMPBELL. The words that Congress adopted in 1914 are the labor of a human being is not a commodity or article of commerce. It says nothing that would distinguish a doctor providing labor to make someone better from a lathe worker to make an automobile.
Mr. PITOFSKY. Under that interpretation the labor exemption would cover lawyers or architects or accountants or everybody else. NLRB has struggled with that for a long time, and they have drawn a line. They say if you are on this side of the line, you are a worker, and if you are on that side of the line, you are an independent contractor. My concern is that these doctors by every standard that the NLRB imposes fall on the independent contractor side of the line, and they decided that up in New Jersey a couple of years ago.
Mr. CAMPBELL. To say that NLRB has decided it and therefore it is closed does not answer the question logically why we should treat one laborer different from another laborer when the term applies to someone offering their personal services.
Page 64 PREV PAGE TOP OF DOC
Mr. HYDE. Because the consequences to the community can be horrendous if one laborer, the doctor, withholds his services because he isn't getting enough money. Now if the lathe operator withholds his services, the globe will still spin on its axis.
Mr. CAMPBELL. If that is right, we shouldn't allow the doctors who are employees of a hospital to form a union, and yet they can.
Mr. HYDE. The fact that they have an M.D. after their name doesn't have any real impact on their status as far as employment is concerned. If they are salaried employees, they are salaried employees.
Mr. CAMPBELL. But the concern is the same, namely, withholding service from patients who need the service.
Mr. HYDE. I can live with lathe operators on strike, but if all of the doctors and nurses go out, I have a problem. Maybe that is because I am old and fragile.
Mr. CAMPBELL. It is not a strike to refuse to agree to an HMO contract.
Mr. HYDE. You are making a technical point. You are right. The refusal to perform services one otherwise might perform if the conditions were different. We have to think of a word like monopoly or monopsony.
Page 65 PREV PAGE TOP OF DOC
Mr. CAMPBELL. It is a refusal to enter a contract. It is the refusal to enter a contract with an intermediary. The refusal to help a patient, that is a strike.
Mr. HYDE. We can argue because if you can have only one HMO and that is the only way that these things are going to be paid for, you have a situation.
Mr. CAMPBELL. A monopsony, only one HMO, then you can't respond. That is a bizarre outcome.
Mr. HYDE. How do you negotiate without leverage? What do you do if you reach an impasse? You are representing 12 doctors and you are getting nowhere but you can't strike, what do you do?
Mr. CAMPBELL. You offer your services to another HMO or fee-for-service or Blue Cross or Blue Shield. What is wrong with saying if you have a cataract, I will treat it?
Mr. HYDE. If that is so, but I think under the Medicare laws right now——
Mr. CAMPBELL. You are right. When we get to Medicare, we need to dynamite before we reform it properly.
Page 66 PREV PAGE TOP OF DOC
Mr. HYDE. Mr. Delahunt.
Mr. DELAHUNT. Thank you, Mr. Chairman, and I do appreciate the seminar.
It has been fascinating. To pick up on the point that the chairman made, there is a difference, in terms of the fiduciary responsibilities in the culture and a canon of ethics, between an HMO and a physician. Do you care to discuss that, Tom?
Mr. CAMPBELL. It is fair, and Chairman Pitofsky used price fixing because that is his best case and you always make your best case before the committee, and it is fair that I talk about denying service to 80-year-olds because that is my best case. But the heart of your question is profoundly right. The doctor takes an oath to provide service.
Mr. DELAHUNT. I would much prefer to have a decision made by a physician as opposed to a HMO when I grow to be old and fragile.
Mr. HYDE. It's coming.
Mr. DELAHUNT. It's here.
But Mr. Pitofsky, you made the point about weak and strong. That is the underlying philosophy of our antitrust scheme, if you will. And I think really what we are talking about now is that we are at a point where at least anecdotally, for those members whom you have heard—and it is implicit in our questions—it is clear that the insurance companies are dominating the market. It is a real world, take it or leave it situation, and there is no leverage. There is no leverage.
Page 67 PREV PAGE TOP OF DOC
In one of the committee memos, and I am going to quote the sentence, ''Many doctors have offered to work directly for these insurance companies rather than compete with them directly with 56 percent of physicians currently treated as employees.'' Presumably they would have collective bargaining rights. What has occurred—I am shocked by that particular number. It would appear that those concerned about doctors and physicians working for the government find that they are now working for insurance companies. My guess is that they probably would have preferred to work for the government. That is a whole different debate.
But the question is, out of that 56 percent, what have we seen in terms of physicians organizing to bargain collectively, and has it made any difference, and will the trend continue? I pose it to both of you.
Mr. CAMPBELL. You will have experts later who will speak to it from the FPD and AFSCME, and I would just defer to them because they will give the best answer.
Mr. PITOFSKY. I would also like to give the committee a better answer than I am prepared to give you right now. During the break I was talking to some of the people on the FTC staff, and what they said to me is that in many parts of the country very large groups of doctors are getting together in a way that is legal under our guidelines, partly because they are concerned with the questions that you have raised. I would like to get you some numbers on that.
Mr. DELAHUNT. That is fair.
Page 68 PREV PAGE TOP OF DOC
Mr. PITOFSKY. I think this is a dynamic market and it is responding to the issues that you have raised.
Mr. DELAHUNT. For many of us, Mr. Chairman, the system is broke. I am hearing from physicians, but it is also true of all segments of the health care industry. I mean, hospitals are being told, these are the rates, take it or leave it, and it goes all the way down the chain, if you will.
And inevitably, Chairman Hyde talks about concern about the quality of patient care. Well, it is going to happen. It is going to translate into a diminution of the quality of health care. I mean, that is just bound to happen, so this isn't just about the economic dynamics, it is the end result.
Mr. PITOFSKY. Assuming your premise, I think things are going on to address the problems that you raise and I would like to have a better answer for the committee than I can offer sitting here right now.
Mr. DELAHUNT. Let me tell you, for your information, I know physicians who are leaving the medical field because of a whole variety of circumstances, including the remuneration and the fact that they have to deal with tens of thousands of rules and regulations put out by HCFA. I think in the end what we are really saying is this is not a free marketplace by any stretch of the imagination.
Mr. HYDE. The gentleman's time has expired.
Page 69 PREV PAGE TOP OF DOC
Mr. McCollum of Florida.
Mr. MCCOLLUM. I am very intrigued by your bill because I was attending a Florida Medical Association State meeting where I was the keynote speaker at lunch on other matters, and they were taking a vote that afternoon on unionizing, and I don't know what the legalities and the technicalities were, but the big debate—and they chose not to do it. They had a vote but it was reasonably close.
But the reason that it didn't happen, I was told in discussion about it, was that they didn't want to be perceived as laborers or workers, they wanted to remain professionals, and they don't like the idea of being union. They don't like the idea of HMOs or collective bargaining. They don't like this whole constraint.
It goes against the grain that many of us have always thought of what doctors were like. They were the fellows that you dealt with on a one-on-one basis, and yet they are being strangled. I don't think that there is any question that the whole process of HMOs and doctors are in terrible shape.
Chairman Pitofsky, don't you think that we need to do something different than what we are doing now? There is something amiss here when you have doctors such as in Florida taking a vote on whether they are going to unionize.
Mr. PITOFSKY. I think that we need to do something. My instinct is that exemptions from the antitrust laws for groups like this are not a good idea, and the Campbell proposal is an overkill for all of the reasons that I have indicated. It is going to immunize doctor collaborative behavior in circumstances where they are powerful and the payers they are dealing with are weak.
Page 70 PREV PAGE TOP OF DOC
Mr. MCCOLLUM. Can we find a common ground that you would consider being on the side of, maybe not as far as Mr. Campbell goes but short of unionization?
Mr. HYDE. Something like an NLRB that could resolve these conflicts between the HMOs, the number crunchers and the professionals, and have some mechanism where they can resolve their difficulties without making the public suffer?
Mr. PITOFSKY. That is a possibility. We tried to think creatively two years ago with the members of this committee and I thought that we made some real progress. Most people in the health care field thought that we made some real progress. Is there more that we can do? Absolutely. I am open to consider it. I don't think that an absolute labor exemption for all collaborative behavior by doctors is the way to go.
Mr. MCCOLLUM. Mr. Campbell, do you want to respond to that?
Mr. CAMPBELL. Mr. Chairman, if I may ask a question, I don't think Bob Pitofsky would have voted for the labor exemption in 1914. Would you have?
Mr. PITOFSKY. Would I have voted for the labor exemption? Absolutely.
Mr. CAMPBELL. Then why not? Let me answer your question, Mr. McCollum. Why not is what he has been testifying to. If he truly believes there is a reason for the labor exemption, he ought to allow it to conduct its beneficial effects for those providing their services in the core field of medicine. It is a stronger case, so they might present their opportunity to serve the patients without being driven by HMOs or intermediaries to do less than what they believe that their oath requires.
Page 71 PREV PAGE TOP OF DOC
I would use your kindness to offer one last thought. It stems from a discussion with Mr. Nadler and Mr. Delahunt earlier. To say that this is just to get them more money is unfair. If the HMO says you will only get this level of reimbursement, then the only way you are going to get a living out of that is by volume.
Mr. MCCOLLUM. I agree. I see that as a very big problem today in medicine. Thank you, Mr. Chairman.
Mr. HYDE. Mr. Pitofsky.
Mr. PITOFSKY. I have to say to compare the turn of the century position of workers in this country—low salary, sweat shops weakness in bargaining, their lack of rights, their ease with which they could be replaced, to compare that with doctors today is a misplaced analogy.
Mr. HYDE. The gentleman from Michigan is by unanimous consent granted 1 minute because we have another panel.
Mr. CONYERS. Mr. Chairman, this is not the way to go. Mr. Campbell is straight off of your doctrine that you trained him in so well, and he has gone into other forces and environment, but what is the way to go? Since we all know we have a problem and Campbell is rejected, what are we to do?
Mr. PITOFSKY. I wasn't prepared to answer that question. I was prepared to address his proposal. We tried to do something 2 years ago in cooperation with this committee. If we haven't gone far enough, we ought to go further.
Page 72 PREV PAGE TOP OF DOC
Mr. CONYERS. You need more evidence of wrongdoing and oppression and the reducing of doctors far from their independent contractor status, which is a figment of our collective congressional federalist government imaginations. These people are not independent any longer. I don't know how many hearings we have to hold to document the abuses before you say not only should we go further, here is what we propose to do.
Mr. PITOFSKY. Mr. Conyers, let me answer that in the same way I did Mr. Delahunt, and that is I think the doctors in this country today are doing things to protect themselves and their patients from foolish behavior by the insurers, and I would like an opportunity for the Commission to submit something to the committee along those lines.
[The information follows:]
| Federal Trade Commission, |
| Washington, DC., November 2, 1998. |
Hon. HENRY HYDE,
Chairman, Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.
DEAR MR. CHAIRMAN: I appreciate the opportunity to provide supplementary information relevant to the Committee's consideration of H.R. 4277, ''The Quality Health-Care Coalition Act of 1998.''
Page 73 PREV PAGE TOP OF DOC
By way of background, H.R. 4277 provides that doctors and other health care professionals be granted an exemption from the antitrust laws, much like the exemption presently enjoyed by organized labor. Presumably, doctors on behalf of their patients could negotiate with HMOs and other health plans to improve the quality of care provided under the insurance plan, but they would also, at least as H.R. 4277 is presently drafted, be permitted to jointly negotiate (and presumably to strike) to increase their compensation.
At several points in the exchange with members of the Committee, there appeared to be an assumption that in most markets in the United States, HMOs and other health plans enjoy substantial market power and little competition, and that doctor organizations have little market power and little ability to stand up to unreasonable terms and conditions imposed upon their patients, and indirectly upon doctors' ability to provide high quality health services. I do not quarrel with the suggestion that an imbalance of bargaining power between HMOs on the one hand and health care providers on the other exists in some markets in the United States. In other areas, however, the HMO market may be highly competitive, and doctor organizations may be strong and growing stronger.
I appreciate this opportunity to elaborate on issues relating to market power in the health care sector of the economy. In offering this information to the Committee, I do not mean to suggest that there are no significant problems in the way HMOs deal with physicians, physician groups or people enrolled in health plans. I simply note that the health care sector is unusually dynamic and the market power of HMOs and other health plans on the one hand and physician organizations on the other varies in different communities—and the Committee ought to be aware of these variations.
Page 74 PREV PAGE TOP OF DOC
In a final section, I will respond to Representative Conyers' inquiry about whether we have seen any evidence of collusion among health plans concerning the terms of their contracts with doctors, and also the possibility that health plans may systematically discriminate against physicians on the basis of inappropriate factors such as race.
I regret that it has taken so long to furnish the Committee with the data contained in this letter. It turns out that there is very little comprehensive, publicly available information on the share of individual plans in particular markets or the presence of larger physician practice groups and individual practice associations, and that dearth of information has delayed our response.
I. Health Plan Market Power and Competition
In attempting to determine whether health plans are able to exercise power over both physicians and patients, Commission staff have obtained public information on the market shares of HMOs and other health insurers and about competition among health plans.(see footnote 19) While the information does not present a full picture of competitive conditions in any particular market, it does provide some factual context in which to assess the desirability of permitting collective negotiation between groups of competing providers of health care services and health plans.
Overall, the information summarized below confirms that there is a wide variation in market conditions among geographic areas. Among the variables are the number and market penetration of various types of health plans; the extent of competition among plans; and the presence of large physician groups or networks that negotiate and contract with health plans on behalf of their member physicians. As might be expected, the statistical evidence does not support any uniform or hard-and-fast conclusions about whether HMOs or other forms of insurance plans are able to exercise market power over physicians and patients. Instead, the evidence shows significant variations that reflect different conditions in local health insurance markets across the United States. These variations also reflect the complex and dynamic nature of local health care markets.
Page 75 PREV PAGE TOP OF DOC
Physician Dependence upon Managed Care
During my testimony in August, it was suggested that physicians in many parts of the country are compelled to negotiate with only a single HMO. Although this may be the case in some local markets, statistics show that in 1996, 77% of all doctors in the United States participated in one or more HMOs, and those who participated had a median of four HMO contracts. They received on average about 20% of their practice receipts from HMOs, and HMOs covered about 22% of all their patient encounters. Eighty percent of doctors participated in PPOs, and those who participated had a median of four contracts. They received 20% of their gross revenues from PPOs, which accounted for 18% of their patient visits.(see footnote 20) These figures suggest that in many markets, no individual HMO or PPO covers a very large percentage of a typical doctor's patients or accounts for a large portion of physician revenues.(see footnote 21)
Overview of HMO and Health Plan Operations
In determining whether physicians should enjoy antitrust immunity for collective negotiations with health insurers, the Committee should consider whether physicians face dominant health insurers that have the power to impose choices that compromise the quality and availability of patient care. The limited evidence available at this time suggests that in many local areas, there is no single, dominant HMO that can unilaterally impose those choices upon physicians and their patients. Although HMOs, as a general matter, account for a significant percentage of commercial health insurance enrollment in many of these areas, they usually face competition from other HMOs and alternative forms of health insurance. Thus, while it is likely that many physicians in these areas must negotiate with HMOs, the availability of multiple HMOs increases the negotiating power of physicians and their patients in these areas in securing appropriate levels and quality of health care.
Page 76 PREV PAGE TOP OF DOC
At the end of 1996, a total of 77.3 million people nation-wide were enrolled in 749 HMOs; this number of operating HMOs represented an all-time high.(see footnote 22) At the national level, there seems to be an increasing preference among employers for lower-cost HMOs. But there is considerable regional variation in the percentage of people enrolled in HMOs: HMO penetration by state (measured as the proportion of state residents enrolled in HMOs) ranged in 1996, for example, from a low of 1.8% in Mississippi to 59.4% in Delaware.(see footnote 23)
The American Association of Health Plans publishes information on the percentage of persons having commercial health insurance who were enrolled in fee-for-service plans, point-of-service plans, PPOs, and HMOs in selected MSAs in 1996. Attached in Table 1 are its figures for a selection of MSAs. Included are 12 communities selected for intensive study by the Center for Health System Change,(see footnote 24) other large metropolitan areas, and a few MSAs that were mentioned during the hearing on H.R. 4277 or that may be of particular interest to members of the Committee. Because these percentages are based on persons with commercial health insurance only (and exclude revenues from government programs, self-insured employers, and out-of-pocket consumer payments), they may overstate the proportion of physicians' total practice revenues that are derived from these sources. Nevertheless, the statistics show that in 14 of the 24 local areas listed in Table 1, HMOs accounted for over 40% of the population enrolled in commercial health insurance plans. This demonstrates what many providers have felt—that HMOs represent a significant force in many metropolitan health care markets, and that many physicians in these markets must negotiate with one or more HMOs to maintain their revenues from commercial health insurance plans. In San Diego, for example, where HMOs account for 73.1% of the population in commercial health insurance plans, physicians who choose to provide care outside of HMOs can only compete for less than 27% of the commercially-insured population. That choice is simply not feasible for many physicians, forcing them to negotiate with HMOs.
Page 77 PREV PAGE TOP OF DOC
Although HMOs in these areas may be growing in their collective influence, individual HMOs usually face considerable competition from other HMOs (and other forms of health insurance) in these markets. Table 2 shows the number of operating HMOs and total HMO penetration for the same MSAs that are listed in Table 1, based on InterStudy data published in June, 1998.(see footnote 25) These statistics show a strong positive correlation between the number of individual HMOs in local markets and their collective share of commercial health insurance enrollment. In short, HMOs tend to be numerous in areas where they have gained widespread commercial acceptance.
Competition Among Health Plans
A number of broader market trends suggest that many, and perhaps most, HMO and health insurance markets have remained fairly competitive. For example, in direct response to consumer demand for greater choice among providers of care, health plans in many areas of the country moved rapidly to offer broader panels of participating physicians and other service providers. Expanding panels makes it easier for employers to change plans, and thus increases employers' bargaining power relative to the plans.(see footnote 26)
During 1995–97, health insurance premiums grew at a lower rate than underlying costs, with negative effects on insurers' profits.(see footnote 27) This suggests that there is competition among payers for contracts with employers. One observer has attributed the sustained period of low premium increases to continuing erosion of health plan bargaining power and plan aggressiveness in attempting to enter new markets, as well as continued low growth in underlying costs.(see footnote 28)
Page 78 PREV PAGE TOP OF DOC
Decreasing HMO earnings and profits also indicate that HMOs are facing significant competition. A majority of HMOs lost money in 1997, and the industry as a whole suffered a loss of $768 million. That was the third year in a row in which industry profits declined. HMOs that lost money included many of the largest firms in the country, including Oxford Health Plans, Kaiser Permanente, Foundation Health Systems, and Pacificare Health Systems.(see footnote 29)
Finally, market entry by new HMOs continues. Between July 1994 and July 1997, 162 new HMOs across the country were licensed; between 2/3 and 3/4 of these were independent plans not affiliated with national managed care firms.(see footnote 30) Even in areas with a history of having one dominant health plan, new entry has occurred. In Pittsburgh, for example, The University of Pittsburgh Medical Center has established a new health plan that is challenging Highmark Blue Cross Blue Shield, which currently insures between 60 and 65% of the population.(see footnote 31) Significant market change also occurred in Boston, where local physicians established Harvard Community Health Plan (now Harvard Pilgrim Health Plan) and Tufts Associated Health Plan to compete against Blue Cross and Blue Shield of Massachusetts. Although Blue Cross insured about 74% of the privately-insured population in Massachusetts in the 1980s, its market share has fallen to about 12%.(see footnote 32)
Our limited statistical evidence confirms that HMOs generally face competition from other HMOs in local health insurance markets. Table 2 shows the ''index of competition'' among HMOs calculated by InterStudy for the selected metropolitan areas. The index of competition is computed as ''one minus the sum of the squared HMO market shares. A value close to one indicates several nearly equal competitors; a value close to zero indicates a monopoly.''(see footnote 33) For the selected metropolitan areas, the HMO index of competition ranged from a low of 0.603 (Lansing) to 0.885 (Dallas). In addition, data in Table 3 show that the number of HMOs operating in a market is positively correlated with HMO penetration in that community. Moreover, the index of competition tends to increase with increased penetration by HMOs. This evidence suggests that, in general, local markets in which HMOs cover a significant share of the population enjoy significant competition among HMOs.
Page 79 PREV PAGE TOP OF DOC
Conclusion
The information presented above does not, of course, permit us to draw definitive conclusions about the state of health plan competition in any local market, or to predict future competitive conditions. It does, however, suggest that market conditions facing doctors, patients and health plans vary enormously among cities, states, and regions of the country. In some areas, HMO penetration has been significant, but each HMO faces competition from a host of competitors. In other areas, there may be only one or two HMOs, but they account for a small part of the health care market. There is little doubt that insurance plans, particularly HMOs, have gained increasing leverage on a national level.
This is a trend that merits continued attention from the Commission and from this Committee. There may be a case for supporting some legislative solution that will address problems. But this trend is not sufficiently pervasive to support a national exemption for collective negotiations by physicians that would apply regardless of whether negotiations relate to quality of care and regardless of whether HMOs are significant in local health insurance markets.
II. Physician Responses to Changing Market Conditions
Physicians and other health care providers have always played an important role in developing health care plans and methods of delivering health care services. As you know, in the mid-1990s there was some concern that the antitrust laws impeded the ability of physicians to develop these health care delivery alternatives. In response, in 1996, the Commission and Department of Justice revised the Statements of Antitrust Enforcement in Health Care (''Enforcement Statements'') to clarify the law and permit a wider range of physician sponsored innovation in this area.(see footnote 34) As my testimony noted, the enforcement Agencies have approved every physician sponsored health care network since the new Enforcement Statements were issued.
Page 80 PREV PAGE TOP OF DOC
It is true of course that most doctors practice medicine in groups of four or less,(see footnote 35) and often are not in a position to negotiate effectively with large HMOs. But physicians are developing a number of innovative ways of responding to the changing health care market. Groups of doctors are forming larger practice groups and independent practice associations (IPAs), as well as affiliating with practice management companies and hospitals, and these organizations negotiate and contract with health plans on behalf of their members. IPAs, large group practices, and similar arrangements offer physicians a number of advantages compared to small independent practices, including helping doctors realize economies of scale; permitting the groups to accept risk though capitation contracts, and thereby to reap the rewards that come from developing cost-effective methods of treatment; enhancing their ability to build and maintain relationships with other components of the health care delivery system, such as HMOs and hospitals; and increasing the potential for innovation in the process of managing care.(see footnote 36)
These groups, it can be expected, will better position the providers to negotiate with managed care plans. In addition, however (and unlike immunized collective bargaining by otherwise independent physicians), these arrangements have the potential to benefit patients by permitting the doctors to operate more efficiently, both from a business point of view and clinically. Clinical efficiencies can come from such things as better coordination of services, increased use of non-physician personnel, and interaction among physicians that leads to more uniform, high quality and effective care. To offer only one example, a recently-published article discussed how three physician groups, by using case managers for selected high risk or chronically ill patients, are saving money, reducing mortality and hospitalization, and providing services to their patients covered by capitated contracts that most likely would not otherwise be available.(see footnote 37)
Page 81 PREV PAGE TOP OF DOC
In addition, some physician groups have established HMOs and other health plans, and more may be founded under the provisions of the Medicare+Choice program. In these organizations, the physician owners are directly responsible for patient care decisions. Not all of these ventures will succeed; indeed, they are subject to the same market pressures felt by nonprovider owned plans. But their success will depend on whether the customers, not the providers, decide that the benefits offered are worth the cost.
Physicians may also explain to HMOs why they think a particular policy or practice is medically unsound, and present medical or scientific data to support their views. There is nothing in the antitrust laws suggesting that doctors cannot collectively discuss and articulate their concerns about HMO decisions affecting their patients. Indeed, the 1996 Enforcement Statements state that providers supplying ''underlying medical data that may improve purchasers' resolution of issues relating to the mode, quality or efficiency of treatment'' is not likely to raise antitrust issues.(see footnote 38) The Statements provide an antitrust ''safety zone'' for a medical society's collection of outcome data from their physician members about procedures they believe should be covered. The ''safety zone'' also permits groups of physicians to provide this information to payers, to develop suggested standards for patient management, and to discuss with purchasers the scientific merit of the data that they submit.(see footnote 39) This collection and communication of medical information may be useful to patients, providers, and purchasers.
Ultimately, as described above, the market offers many options for doctors to offer competitive alternatives. Many of these alternatives are growing and having a greater impact as consumers become better informed of their choices on quality of care. In some cases, legislation may be needed to cure consumer protection issues.
Page 82 PREV PAGE TOP OF DOC
Responses targeted to specific problems are, in my view, preferable to giving groups of physicians broad power to negotiate collectively about reimbursement and other issues. As was discussed in my earlier testimony, such legislation poses serious dangers to consumers.
III. Response to Rep. Conyers' Inquiry Concerning Insurers' Collusion
In response to Rep. Conyers' inquiry, we have not brought any cases involving insurers' collusion regarding the terms of their contracts with physicians, nor am I aware of any complaints we have received regarding such collusive behavior. Certainly, we would be concerned about collusion among plans on their terms of dealing with providers, and would take action in such cases to the extent consistent with the McCarran-Ferguson Act.
We note, for the Committee's information, a study recently published in the Journal of the American Medical Association concerning managed care plans' selection and exclusion of primary care doctors. The study provided some evidence that plans may disproportionately refuse to contract with physicians who provide greater amounts of care to uninsured and nonwhite patients.(see footnote 40) Further studies by others may reveal stronger evidence of racial or ethnic discrimination and adverse effects on the quality and availability of health care for minority patients.
Systematic exclusion of minority physicians may, of course, implicate both federal and state civil rights laws. But such conduct may, in certain circumstances, also constitute a violation of the antitrust laws. The Commission is prepared to investigate and take enforcement action in those cases.
Page 83 PREV PAGE TOP OF DOC
IV. Conclusion
I hope the Committee finds this additional information useful when it revisits health care issues. The limited evidence that we have suggests that competitive conditions for physicians, insurance plans and patients vary significantly from market to market across the United States. These variations reflect the dynamic nature of health care competition and numerous competitive strategies that physicians and insurance plans have implemented to provide patients with affordable and acceptable levels of health care.
Although HMOs and other insurance plans have expanded their presence in many local markets across the United States, large physician practice groups continue to retain leverage in many areas. Indeed, some physicians have enhanced their bargaining position through collaborations and mergers. Others have even entered the HMO business. These competitive strategies can benefit patients and their physicians by increasing the quality of care and expanding the range of health care options. It would be unfortunate to discourage these procompetitive responses from physicians by granting a labor exemption for collective negotiations with insurance companies. While serious problems unrelated to market power may exist and deserve the Committee's attention, a blanket exemption for collective negotiations by physicians, which would apply regardless of whether the negotiations relate to the quality of patient care, would be an overreaction to problems that exist and would not be an appropriate or necessary solution at this time. We look forward to working with the Committee on these important issues.
Sincerely,
Page 84 PREV PAGE TOP OF DOC
Mr. CONYERS. That is what I need, and we will wait with bated breath because I can then tell doctors who get the letter, join up or jump into the Detroit River, I can tell them wait a minute, Chairman Pitofsky has a set of solutions which you have not considered.
Mr. HYDE. I want to thank this panel for a stimulating and illuminating morning. We will press forward with our next panel. Thank you.
Mr. PITOFSKY. Thank you.
Mr. CAMPBELL. Thank you.
Mr. HYDE. Our third panel consists of four private sector witnesses who have varying views on H.R. 4277. First is Dr. Donald Palmisano, a member of the board of trustees of the American Medical Association. He is a graduate of Tulane University, its medical school, and the Loyola University Law School. After serving in the Air Force, he became a general surgeon in New Orleans. He has been active in a variety of public policy issues. He has published scientific research in his field and is a professor of surgery and medical jurisprudence at Tulane.
Page 85 PREV PAGE TOP OF DOC
Our next witness is Dr. Michael Connair. Dr. Connair is a graduate of Holy Cross College and Harvard Medical School. He is a board certified orthopedic surgeon practicing in North Haven, Connecticut. He is currently the president of the Connecticut State Medical Society, and he appears on behalf of the Federation of Physicians and Dentists which is affiliated with AFSCME.
Our next witness is Mr. Stephen deMontmollin, vice president and general counsel of AvMed Health plan. He is a graduate of Georgetown University Law School, and before joining Av-Med he was legislative assistant to Representative Don Fuqua, an Assistant United States Attorney, an attorney in private practice, and the State of Florida's chief inspector general. Mr. deMontmollin appears here today on behalf of the American Association of Health Plans.
Our final witness is Ms. Karen Fennell, senior policy analyst for the American College of Nurse-Midwives. Ms. Fennell is a registered nurse with a master's degree from the University of the District of Columbia and has been in her current position since 1988. She has an extensive background in health policy issues, and she appears here today on behalf of the Antitrust Coalition.
And so we will start with Dr. Palmisano. If you could hold your remarks to 5 minutes, we won't be too strict on that, but your printed statements will be made a part of the record.
STATEMENT OF DONALD J. PALMISANO, M.D., MEMBER, BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION
Page 86 PREV PAGE TOP OF DOC
Dr. PALMISANO. Thank you, Mr. Chairman and members of the committee. My name is Donald Palmisano. I am a member of the board of trustees of the American Medical Association, and I practice vascular and general surgery in New Orleans. On behalf of the 300,000 physicians and students of the American Medical Association, I want to thank you for inviting me to testify on Representative Campbell's legislation, H.R. 4277, the Quality Health-Care Coalition Act of 1998.
Mr. Chairman, thank you for your leadership on antitrust issues. Your bill, which this committee approved in the last Congress, and your support of the antitrust guidelines have given hope to physicians who feel powerless in their everyday dealings with health plans.
As you know, physicians have seen their negotiating power whittled away, to the detriment of patients and effective health care delivery. We believe that Representative Campbell's bill would go a long way in balancing plan and physician bargaining power. Our House of Delegates recently voted to endorse the legislation at its annual meeting.
In a nutshell, when a physician signs a contract with a health plan, he or she has no power to alter the provisions. The physician's only alternative is to swear off any involvement with the plan, which often is economic suicide.
Members of Congress heard during last week's debate on the patient protection bills how health plans control a broad range of issues, including treatment options, medical necessity determinations, approving care, and payment decisions. Our view has long been that health care decisions should reside with the patient and his or her physician.
Page 87 PREV PAGE TOP OF DOC
As you know, the past several years have produced significant health plan consolidation. In the past 2 years, Aetna has acquired U.S. Healthcare and New York Life, and Humana and United Health Plans have signed an agreement to form an even larger entity. Where there may have been six or seven major managed care players in a community, there may now be two or three. For example, in the Philadelphia area just two managed care plans account for 80 percent of covered lives.
Today 56 percent of physicians, including residents, are employees. Forty-four percent are self-employed and do not enjoy any bargaining power in their negotiations with managed care. To aid your understanding, I would like to review a few examples of representative major managed care contracts. Please keep in mind that these provisions are nonnegotiable. If a physician does not accept the terms, they are often told that they will not be able to be part of any of that company's products, HMO or PPO.
The exact wording of my first example is in your handout. Suffice it to say that the contract requires a physician to use a lower cost treatment as long as it ''may be,'' as opposed to ''is,'' as beneficial as a more expensive alternative. This provision also limits coverage to care that is ''essential'' to improving the patient's health as opposed to care that is ''likely'' to improve the patient's health. As a surgeon, you frequently have to operate with incomplete data. If you wait until treatment is essential, the patient dies.
Although I can offer the committee several other egregious examples of managed care contracts, many of which are described further in my written testimony, I will show you one contract provision that covers 60 percent of the physicians in a particular State. It requires health care practitioners to indemnify the plan for plan violations of a patient's privacy rights.
Page 88 PREV PAGE TOP OF DOC
I quote, ''Provider further agrees to defend, hold harmless and indemnify company and its officers, shareholders, employees, agents and subagents from any and all claims, causes of action, lawsuits, liabilities, damages and expenses, including settlements, judgments, court costs and attorneys' fees regardless of the outcome of such claims or actions, arising from or relating to any release or disclosure made by company pursuant to this section.''
Mr. Chairman, one of the first things any doctor learns in medical school is that the patient's privacy rights are sacred. Physicians with any type of negotiating power would never agree to these terms.
The AMA has long believed that an antitrust exemption for self-employed physicians is needed to level the playing field. Most physicians do not want to be part of a trade union. They do want to be able to engage in joint negotiations with a health plan. The Campbell bill, by allowing physicians to negotiate with health plans, would improve patient care and redirect some of the medical decision-making towards physicians and patients, where it belongs.
In conclusion, I hope your committee decides to move forward on the Campbell bill, and I would like to offer my services and those of the AMA as the issue progresses. Thank you for the opportunity to testify on this important issue, and I will be happy to answer any questions, including the concept of strikes, which the AMA opposes.
[The prepared statement of Dr. Palmisano follows:]
Page 89 PREV PAGE TOP OF DOC
PREPARED STATEMENT OF DONALD J. PALMISANO, M.D., MEMBER, BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION
INTRODUCTION
The American Medical Association (AMA) supports passage of The Quality Health-Care Coalition Act of 1998 (H.R. 4277), sponsored by Representative Tom Campbell (R–CA). The antitrust laws have been interpreted to allow health plans such a high degree of leverage that an appropriate balance of interests no longer exists in the market for health care delivery and finance. As a result, the power of health plans to determine the kind of health care that patients receive is virtually unchecked. While health plans have achieved many significant accomplishments, it is not healthy for any interest group to have virtually unlimited power over an issue as significant and sensitive as the kind of treatment needed by an individual with an illness or injury. When that unlimited power exists, it is inevitable that distortions will occur. That is what we are starting to see today, and a groundswell of public concern has arisen over the direction of our health care system. The antitrust laws need to be reformed to correct the imbalance in leverage. This bill would help correct the imbalance in power by allowing groups of physicians to negotiate with health plans.
The Leverage of Health Plans over Physicians and Patients
Health Plan Control Over Physician Selection by Patients. Managed care health plans such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) have the power to determine which physicians will treat their beneficiaries. A health plan achieves this through its contract with the patient, where it requires the patient to agree that the health plan can deny payment for health care services rendered by physicians who are not part of the health plan panel. This prevents most patients from seeing physicians who are not on the health plan panel, as they are not reimbursed for their costs.
Page 90 PREV PAGE TOP OF DOC
Health Plan Control Over Patient Care. Health plans also have the power to determine what kind of medical care a physician may render to the patient. This is achieved by requiring physicians who wish to be part of the health plan panel to agree to its contract terms. In its contract with the physician, the health plan requires the physician to cooperate and comply with the plan's medical management program, which is usually called a ''utilization management'' program. These programs are primarily directed at controlling the cost of care provided to patients. This is done by reviewing physicians' treatment decisions to determine whether the care involved is ''medically necessary.''
The physician contract issued by a major health plan operating in the northeastern United States (hereinafter referred to as Company A) which has 40% of the commercial covered lives in a major U.S. metropolitan area provides a helpful example of this practice. The term ''Medically Necessary or Medical Necessity'' is defined in the Company A's physician contract in that metropolitan area as:
''The requirement that [health care services] are needed, in the opinion of: (a) the Primary Care Physician or the referred specialist, as applicable, consistent with [health plan] policies, coverage requirements, and utilization guidelines, and (b) [health plan] in order to diagnose and or treat a Member's illness or injury, as applicable, and:
A. are provided in accordance with accepted standards of American medical practice;
B. are essential to improve the Beneficiary's net health outcome and may be beneficial as any established alternatives;
Page 91 PREV PAGE TOP OF DOC
C. are as cost-effective as any established alternative; and
D. are not solely for the Beneficiary's convenience, or the convenience of the Beneficiary's family or health care provider.''
This is a restrictive definition. When used as the standard for what kind of care the health plan/s physicians may provide to patients, it limits the provision of health care services to those essential to improving the beneficiary's health (as opposed to care that is likely to improve the patient's health). It also requires the lower cost treatment alternative to be used so long as it may be as beneficial as a more expensive alternative (as opposed to is as beneficial).
For a given beneficiary, a physician might want to recommend care that the physician believes is likely to improve the patient's health. The physician may not be sure that it is essential, and the recommended treatment may cost more than an alternative. However, in certain cases, the physician knows the treatment is effective, as opposed to taking a chance with a cheaper alternative that may not be as effective as the more expensive care. However, physician contracts typically require the use of a ''utilization management program'' to restrict the care provided to patients to care the plan deems medically necessary. In Company A's contract, this program is defined as:
''[t]he functions including, but not limited to Prior Authorization, Referral and prospective, concurrent, and retrospective review, case management and disease management performed or required by [the health plan], to review and determine whether medical services or supplies which have been or will be provided to Beneficiaries are covered under a Benefit Program and meet the criteria as Medically Necessary.''
Page 92 PREV PAGE TOP OF DOC
Company A's contract also requires the physician to comply with all decisions of the utilization management program. In this regard, the contact says:
''Provider agrees to participate in, cooperate with and comply with all decisions rendered in connection with [health plan's] Utilization Management Program as detailed in the Provider Manual.''
The contract also requires the physician to practice medicine in accordance with the Utilization Management Program and the clinical performance standards recognized by the health plan. The relevant provision of the contract states:
''Provider agrees to render Covered Services to Beneficiaries . . . in accordance with: . . . the Utilization Management Program . . . and the clinical quality of care and performance standards that are professionally recognized and/or accepted by [health plan].''
To emphasize this, the contract bars the physician from billing the health plan or the patient for any health care services deemed not to be medically necessary. The contract states:
''Neither a beneficiary, nor [health plan] shall be liable to pay provider for any contracted service rendered by Provider to a beneficiary which is determined under a Utilization Management Program not to be Medically Necessary.''
Page 93 PREV PAGE TOP OF DOC
Therefore, the Company A contract requires the physician to render the type of care the health plan wants. For the reasons discussed above with regard to Company A, this can prevent the physician from providing care that the physician believes is likely to improve the patient's outcome. In addition, one can argue that this definition does not meet the standard of care applied in medical malpractice litigation. It is hard to imagine a jury absolving a physician of responsibility for injuring a patient for opting for a cheaper, less effective treatment just because he or she followed plan requirements.
Clauses in some health plan contracts go beyond restricting the kind of medical care that a physician may provide to a beneficiary. They also bar the physician from saying or doing anything that would undermine the beneficiary's confidence in the quality of care or the coverage provided through the health plan. Health plans refer to these clauses as anti-disparagement provisions that are designed to prevent unreasonable and unfair criticism of the health plan. However, if a physician tells a patient that the plan will not cover care the physician believes is likely to benefit the patient, or will not cover more expensive (and more effective) treatment, that would seem to contravene the terms of these clauses. This has the effect of preventing the physician not only from providing the care the physician would normally recommend, but also from telling the patient about treatment alternatives not deemed medically necessary by the plan. Therefore, physicians and others have referred to these provisions as ''gag clauses'' that bar the physician from telling patients about treatment alternatives that the physician recommends for the patient but that are not deemed medically necessary by the plan.
State legislatures have declared gag clauses illegal in 36 states. Health plans contracting with the Medicare program cannot use gag clauses. In addition, they are barred by the health plan accreditation criteria of the National Committee on Quality Assurance and the Joint Commission on Accreditation of Healthcare Organizations. However, health plans continue to use anti-disparagement clauses. An example of one currently used by a very large national health plan company (hereinafter referred to as ''Company B'') in at least one state is as follows:
Page 94 PREV PAGE TOP OF DOC
''Provider shall not provide or threaten to provide inferior care or imply to members that their care or access to care will be inferior due to the source of payment.''
Health plan contracts tightly control the kind of care a physician may provide, and in some cases even tell physicians that if they do not comply, the health plan will terminate the contract. Termination means the loss of patients. In some markets, loss of a contract with a large health plan can mean a practice's loss of viability. In the case of physicians practicing in the metropolitan area where the Company B contract applies, physicians would lose access to 40% of the commercial covered lives if the contract were terminated. When only a few health plans control most of the patients in a market, and all use similar contracts, failure to comply with utilization management programs means putting all of the contracts at risk, and the viability of the practice at risk. As is demonstrated below, in many markets physicians do not have any other options.
Degree of Health Plan Leverage over Physicians and Patients. The kind of health plan contract used by Company A has existed for many years. However, in past years patients had more choice between health plans, and physicians could choose the kind of health plan in which they participated. Physicians did not have to contract with health plans with medical policies that they did not agree with. Recently, employers have directed more and more employees into HMOs and PPOs, and now those managed care health plans are by far the most prevalent health plans in the United States. According to the American Association of Health Plans, HMO enrollment was 58 million as of the end of 1995, and PPO enrollment was about 91 million members, for a grand total of 149 million members in HMOs and PPOs. These numbers are higher in 1998.
Page 95 PREV PAGE TOP OF DOC
In many markets, these health plans control such a large percentage of patients that physicians must contract with them to have a viable practice. There simply are not enough patients outside of managed care health plans to provide most physicians in the market with enough patient volume to have a financially viable practice. In addition, in many markets a small number of health plans account for the bulk of the patients.
For example, the Alpha Center in Washington, D.C. (Alpha) reviewed market shares of health plans in 25 states. (Alpha restricted its review to 25 states because the study was funded with a grant that was insufficient to evaluate all 50 states). It found that the largest five insurers have more than 50% of the covered lives in 23 states, and in 16 of those states more than 70%. Also according to Alpha, the Herfindah/Hirschman index of market concentration is greater than 1800 for health plans in 11 of the 25 states reviewed. According the Horizontal Merger Guidelines of the United States Department of Justice (DOJ) and the Federal Trade Commission (FTC), index measures above 1800 are an indication that the market is highly concentrated. High concentration means that a small number of firms account for most of the market for a product or service. (The DOJ and FTC use the index as an indication of when they should try to bar a merger.) A merger in a market that is already highly concentrated can lead to the exercise of market power that is detrimental to consumer welfare.
There is an even larger number of metropolitan areas where just a few insurers account for the bulk of the patients. The reason is that managed care plans focus on urban metropolitan areas where they can amass a large concentration of patients and exercise leverage over a large number of providers. Therefore, concentration figures for metropolitan areas, as opposed to entire states, are likely to be higher. For example, in the Philadelphia, PA area just two managed care plans account for 80% of the commercial covered lives.
Page 96 PREV PAGE TOP OF DOC
Not only are the bulk of Americans enrolled in managed care plans, increasingly most of them are enrolled in a small number of plans. This gives individual health plans greater and greater leverage over physicians. This trend is continuing. Major mergers announced within the past two years include the acquisition of U.S. Healthcare by Aetna, the acquisition of NYL Care by Aetna/U.S. Healthcare, and the announced merger of Humana and United Health Plans.
A major reason why health plans merge is to gain greater leverage and control over providers. Health plans openly state that as they merge and control a larger volume of patients, they gain greater leverage over providers, obtain price concessions, and subject providers to a higher degree of control. Sometimes health plans threaten to use their leverage with physicians even before they have it. For example, a Michigan physician who declined to sign a contract with a major health plan was told that the plan was acquiring other HMOs in the area, and that if the physician did not sign the contract, she would be excluded in the future and would not be able to maintain a viable practice. This is a meaningful threat because the company involved has acquired several different health plans in the area.
Health plans are creative in how they use their leverage over physicians. For example, many companies that sell health plans offer more than one kind of health plan, including a PPO or an HMO, either of which could have a point-of-service option. The different offerings are usually called different ''products'' or ''lines.'' In the past, most health plans have recruited separate physician panels for each kind of health plan, and physicians signed separate contracts for each plan. Physicians could choose, for example, to participate in the PPO product but not the HMO product.
Page 97 PREV PAGE TOP OF DOC
Recently, large companies offering health plans required physicians to participate in all products or none of them. They will not, for example, allow a physician to participate in a PPO product but not the HMO. This increases the health plan's leverage, by allowing the company to force the physician to participate in products that are less desirable to physicians and patients by denying the physician participation in the desirable products.
For example, recently a group of physicians that participated in the HMO and PPO product lines of a health plan company decided that they no longer wanted to participate in the HMO, since the health plan was not providing the data necessary for physicians to effectively manage the HMO patients. When the physicians sent notice of termination of their participation to the HMO, the company told them that they would no longer be able to participate in the PPO. The company had 68,000 covered lives in its HMO plan, but over 300,000 in its PPO. Losing access to 368,000 patients is a lot more dramatic than losing access to 68,000.
As individual health plans grow larger, they can implement tactics like the ''all products or no products'' policy. Physicians have no choice but to go along.
Evidence of the Leverage of Health Plans Over Physicians. Evidence of the high degree of leverage that health plans have over physicians is found in the contracts that they enter with managed care plans. These contracts are so one sided in favor of the health plan that it is readily apparent that the physicians have virtually no leverage in contract negotiations. In fact, there rarely are contract negotiations. The contracts are issued on a ''take it or leave it'' basis. The AMA is aware of physicians who have been denied contracts because they attempted to negotiate over terms. The health plans are able to dictate the terms on which they deal with physicians, and the physicians have to accept it.
Page 98 PREV PAGE TOP OF DOC
Evidence of excessive leverage is also demonstrated in physician payment levels. Health plans have been able to obtain substantial fee concessions from physicians. The first wave of concessions came with the introduction of HMOs and PPOs into markets for the delivery of health care. Those health plans almost always paid less than traditional indemnity plans. Employers liked these plans because they offered lower premiums, and gradually physicians were forced to accept lower fees in order to maintain patient volume. Now that HMOs and PPOs have become dominant, and now that a small number of health plans have enormous numbers of patients, health plans are demanding that physicians accept still lower fee levels. For example, a large national health plan company is demanding that physicians in certain market areas accept fees for all of its health plan products at levels substantially below the Medicare RBRVS fee schedule. This company accounts for 40% of the commercial covered lives in the areas involved.
No party with any ability to negotiate would agree to certain one sided and onerous contract terms. For example, a number of major health plan contracts do not specify payment terms. They also give the health plan the unilateral right to change fee schedules at will. In other words, physicians who sign these contracts do not know what they will be paid for providing services. An example is from the contract of Company B, which states:
''Company shall . . . pay Provider for [services] rendered to Members in accordance with: (a) the then-current Company Reasonable, Equitable Fee Schedule (REF); or (b) the compensation arrangement the in effect as applicable to such Member's Plans; either of which may be modified from time to time by Company.''
Company B's contract also requires physicians to agree to participate in all products that do not exist at the time of signing the contract, but the health plan may decide to offer in the future. The provider is expected to participate in health plan products without knowing any of the material terms of these products, including their medical policies, the kinds of patients they will serve, the numbers of patients involved, the administrative requirements that the physician would have to comply with, or payment levels. With regard to payment, the Company B contract states:
Page 99 PREV PAGE TOP OF DOC
''Company reserves the right to introduce new Plans during the course of this agreement. Provider agrees that Provider will provide covered services to Members of such Plans under applicable compensation arrangements determined by company.''
No business or any other person would agree to such terms unless they had absolutely no leverage. By way of further example, many health plan contracts allocate liability arising out of patient care decisions to the physician, even though the health plan requires the physician to comply with the utilization management decisions of the health plan and other medical policies of the plan. For example, Company A's contract states:
''Provider shall be solely responsible for the quality of Covered Services rendered to beneficiaries.''
Given that, as discussed above, one can question whether the definition of Medically Necessary used in the Company A contract meets the standard of care in medical malpractice litigation, acceptance of this attempt to allocate liability to the physician is dramatic evidence of lack of leverage. No reasonable person would, unless compelled, accept a contract which allows one party to behave in ways that may not meet the standard of care in tort law, and then shifts liability for that conduct from the party to the person accepting the contract.
The contract of a health plan with over 60% of the covered lives in a state (hereinafter ''Company C'') requires that physicians release information to the health plan necessary for utilization management, practitioner profiling, quality improvement review, and peer review. This kind of information revolves around actual or proposed patient care which also involves confidential patient information. Given the sensitivity of this information, patients should object if a plan improperly discloses confidential patient information to others. In these instances, the Company C contract states:
Page 100 PREV PAGE TOP OF DOC
''Provider further agrees to defend, hold harmless and indemnify Company and its officers, shareholders, employees, agents and subagents from any and all claims, causes of action, lawsuits, liabilities, damages and expenses (including settlements, judgements, court costs and attorneys' fees regardless of the outcome of such claims or actions) arising from or relating to any release or disclosure made by company pursuant to this section.''
In other words, the Company C contract requires physicians to turn over sensitive patient information to the plan and then requires that physicians indemnify the Company for legal claims brought against it for how it uses the information. Again, persons who have any ability to negotiate contract terms would not agree to such inequitable provisions. Physicians are being required to assume responsibility for liabilities arising out of improper health plan conduct.
Adverse Effects of the Leverage of Health Plans
Concentration of Control over Medical Decision Making in Fewer Hands. Medical decision making power is becoming concentrated in fewer and fewer hands. Managed care contract requirements, as described above, force physicians to cooperate with and comply with the plans' medical policies. These medical policies are drafted by a small number of persons within the management of a managed care plan. As the size of the plans grows, and as the plans consolidate, the decision making power over the health care of millions of people is being controlled by fewer and fewer managers of large health plans. Due to the corporate structure of these plans, the ultimate decision making power does not even rest with physician medical directors; it rests with lay managers and lay governing boards.
Page 101 PREV PAGE TOP OF DOC
The result is an extraordinary transformation of the way health care decisions are made. Instead of individual physicians determining what is in the best interests of a given patient, a small number of health plan managers decide what is best for hundreds of thousands of patients at a time. While health plans' power has been used in positive ways to encourage physicians, hospitals, and other providers to find ways to reduce costs, the degree of leverage now held by health plans has become overwhelming and is becoming more extreme.
Chilling Effect on Advances in Medicine. In this nation, we have become accustomed to the rapid evolution of medicine through practitioners experimenting at the margins as well as through applied medical research. Advances in medicine have been projected out into practice at a dramatic rate as practitioners have shared advances with each other and as they have learned about advances derived from scientifically conducted studies. This has occurred because practitioners have been free to embrace and apply new developments.
Increasingly, a small number of individuals in health plans are controlling the direction of medicine. Physicians are reluctant to depart from the protocols of managed care plans for fear of being terminated from plan panels. This will result in a lack of diversity in medicine that will have a chilling effect on the development of new treatments and the diffusion of advances in medical knowledge.
Attempts to Change Practice Patterns Too Quickly. The object of managed care is to find ways to reduce costs while maintaining or enhancing quality. However, the tools for accomplishing this are not very advanced, and to the degree they exist, they are not widely disseminated. Much has to be done to perfect the tools for evaluating how care is provided in order to realize efficiencies, and how to make these tools available to physicians. A partial solution is a data gathering and aggregation infrastructure that makes useful data available for review and analysis by practicing physicians. Most managed care plans are not even close to being able to handle this function.
Page 102 PREV PAGE TOP OF DOC
However, managed care companies do have the leverage to force physicians to find ways to realize efficiencies. They can do this by unilaterally driving down physician payments. Physicians must then struggle to find efficiencies without having the tools necessary to do so effectively. The result could well be cutbacks that compromise quality. Physicians could be forced to spend less time with patients, delay new equipment purchases, cut back on support staff, and make other cuts that could affect quality.
Cutbacks in Quality. Managed care plans also come under financial pressure. If they are for-profit, they have to do more than show a positive return, they must demonstrate earnings growth for their stock prices to increase. In competitive markets, plans run the risk of losing money. The result can be a high degree of pressure to cut back on health care expenses by finding ways to deny more and more care. It is inevitable that, given their leverage and shareholder pressure, some health plan managers will simply go too far.
These concerns center on how managed care affects health care quality. Most studies comparing the quality of care in managed care plans and traditional indemnity plans have found the quality of care to be comparable.1\ However, many patients have been displeased with managed care companies requiring shorter hospital stays or denying requests for diagnostic tests or other care. As a result of these incidents, patients have become suspicious that necessary care is being withheld from them in order to make managed care health plans more profitable. Many felt that their suspicions were confirmed when, starting in mid-1992, national media reported on a series of anecdotal incidents involving plans withholding necessary care from patients.2\ In addition, starting in late 1995, managed care plans were criticized for using ''gag clauses'' in their contracts with physicians.3\ The gag clause publicity fueled patients' suspicions that health plans systematically and deliberately were withholding patient care. A book was written about these incidents that was very critical of managed care plans,4\ and public concerns persist.5\
Page 103 PREV PAGE TOP OF DOC
View of Economists. Several economists have commented on the adverse effects of allowing health plans to have too much leverage. Carl Stevens, an eminent Emeritus Professor of Economics at Reed College in Portland, Oregon, has analyzed the imbalance of leverage between physicians and health plans. He has written that the diminution of physician autonomy and lack of leverage with managed care plans has an adverse impact on consumer welfare.6\ He asserts that patients are poorly informed about the workings of managed care plans and about the science of medicine, and that they need an ally to aid them. In his view, the natural ally of the patient is the physician. Professor Stevens also asserts that health plans do more than use their leverage to force price concessions from providers. He argues that health plans reduce their costs with a number of strategies that may have adverse quality implications, including using gatekeepers to reduce the use of physician specialists, low ratios of physicians to patients served, economically motivated practice standards, and others. He concludes that:
''[C]onsumers might luck out, e.g. it might turn out that MCO Chairpersons and CEOs tend, in their concern for the welfare of their beneficiaries, to be Florence Nightingale and Mother Teresa types. However, consumers would be ill advised to rely on that prospect. For consumers, the first critical question is what features of market structure and of market conduct in the medical marketplace are most apt to protect their welfare—not just in the best of all possible worlds, but especially if the medical marketplace turns out to be not very user friendly, e.g. to feature cut-throat competition and draconian cost containment? And a second critical question is what strategies can increase the probability that such features of market structure and market conduct will obtain in the medical marketplace?''
Professor Jill Herndon, an Assistant Professor of Management and Economics at Hamline University in St. Paul, Minnesota, provides the theoretical foundation for why health plans' excessive leverage over physicians can have adverse effects on consumer welfare. She has written a paper entitled ''Monopsony Power of Health Insurers,'' which was presented at the Southern Economic Association Conference in November of 1995. The article analyzes the effect of health plans' monopsony power over the purchase of physician services for their beneficiaries. Professor Herndon demonstrates that monopsony power enables managed care plans to depress the price of physician services by restricting its purchases. The profit maximizing health plan will deliberately reduce the quantity of its purchases in order to lower the price of physician services. The result is the purchase of fewer services than would occur in a competitive market and lower prices. While at first blush the lower prices appear to be good for consumer welfare, in fact, the impact is neutral when the health plan faces a competitive output market and is negative when the health plan also has a monopoly over the health plan market.
Page 104 PREV PAGE TOP OF DOC
The reason is that in a competitive market, the health plan is a price taker and does not reduce patient premiums as a result of the lower physician prices, and when the health plan has a monopoly it does not reduce prices and is more likely to increase premiums. As a result, consumers are receiving less due to the impact of monopsony power but are not necessarily receiving a commensurate benefit. Professor Herndon also demonstrates that the reduction in services that patients receive as a result of monopsony leverage is likely to have an impact on quality. Physicians who are subject to the monopsony power are not likely to maintain the same level of service that they did a higher payment levels. Instead, they make adjustments to account for fee decreases, and this adjustment is likely to occur through a reduction in quality. In making this argument, Herndon uses a broad definition of quality, including factors such as the innovation rate, the speed at which new techniques are adopted, as well as elements such as length of office visits.
SOLUTIONS
When another modern institution was evolving—the hospital—many of the same concerns were raised about the impact of taking control of medical care away from physicians. The concern was that lay hospital governing boards and managers, instead of physicians, would control medical care. The solution was to create an independent and self-governing medical staff within the hospital. This balanced the influence of the hospital governing board and managers and physicians.
That kind of balancing of interests is does not exist between physicians and health plans. Professor Stevens recommends an approach to achieve a balance of power between physicians and health plans—allow physicians to engage in collective bargaining with health plans. This way, physicians could act as a check on excessive health plan leverage.
Page 105 PREV PAGE TOP OF DOC
Current Antitrust Laws do not Allow Physicians to Respond to the Leverage of Health Plans. The way antitrust laws are currently interpreted does not allow physicians to balance the influence of health plans. There are very few judicial cases on the abuse of health plan monopoly power. Existing case law makes it plain that courts will not consider a company to have monopsony power unless it controls well beyond 50% of the purchases of the commodity or service involved. Health plans have the ability to exercise controlling leverage over physicians at much lower levels of market power. As a result, the antitrust laws provide physicians with no practical remedy.
The only way that physicians can respond to monopsony power is to aggregate into large groups to negotiate on behalf of all of the physicians in the group. In this respect, the antitrust laws severely restrict the ways in which physicians can aggregate. Physicians may negotiate together if: 7
They merge their practices into one group practice, such as physicians in the large clinics like Mayo Clinic and Cleveland Clinic have done. However, anti-merger laws limit the size of these groups, and it is questionable whether all physicians should aggregate into a small number of large group practices in any market. Patients should have a choice of physicians in diverse practice settings.
Physicians who have not merged their practices form a network where the physicians share substantial financial risk, such as capitation or substantial fee withholds. However, there are limits placed on how large such a group can be if the physicians agree not to contract individually with plans that do not meet the group's terms. For example, such groups accounting for more than 20% of the physicians in a market do not fall within the safety zone from antitrust prosecution. In addition, formation of a group capable of assuming substantial financial risk is a major undertaking, and requires hundreds of thousands of dollars to pay for the management infrastructure necessary to manage risk.
Page 106 PREV PAGE TOP OF DOC
Physicians who have not merged their practices but coordinate their practices to such an extent that they are considered to be clinically integrated. However, many physicians are not able to engage in that degree of coordination. Such groups are subject to the same size limits as physicians who share substantial financial risk. Clinical integration also requires a substantial investment in management infrastructure.
Physicians can organize into larger groups if they share substantial financial risk or are clinically integrated if they are able to sign managed care contracts individually as well as through the group. That prevents the physicians from refusing to deal with health plans if they cannot arrive at terms with the health plan as a group. For example, as mentioned above, a group of 750 physicians in a large metropolitan area contracted to serve the HMO and PPO products of a large national health plan company. They physicians felt that the company did not provide adequate support to their management of the HMO product by failing to provide the amount of data needed by them. The group decided to terminate the HMO contract, and were told by the company that they would lose the PPO contract as well. After notices of termination of the contract were sent out, the health plan began to approach the physicians individually to contract directly with the health plan. The group cannot call on the individual physicians to resist signing directly with the company without risking a violation of the antitrust laws. In essence, the group does not have the leverage to negotiate for something as essential as adequate data support from the plan.
Reforming the Antitrust laws. H.R. 4277 would modify the antirust laws to allow individual physicians to engage in joint negotiations with health plans. The physicians could counter excessive health plan leverage by refusing to deal with plans that over reach. Health plans would still have the ability to approach physicians individually and try to persuade individuals to contract with the plan, but the physicians could also agree that they would not contract individually unless a satisfactory contract is negotiated by the group. This would allow physicians to act as a check on unrestrained health plan leverage.
Page 107 PREV PAGE TOP OF DOC
1\ R.H. Miller and H.S. Luft, Managed Care Plan Performance Since 1980: A Literature Analysis, 271 JAMA 1512, at 1516 (1994).
2\ A systematic study of media reporting on managed care is reported in Mollyann Brodie, Lee Ann Brady, and Drew E. Altman, ''Media Coverage of Managed Care: Is There a Negative Bias? 17 Health Affairs 9 (1998) See, e.g., Michael A. Hilzik & David R. Olmos, The Health Care Revolution: Remaking Medicine in California (pts. 1–14), L.A. TIMES, Aug. 27-Aug. 31, 1995 (reporting the results of a 14-month investigation into managed care); William Sherman, The 'Cookbooks': Docs use recipe for Cut-Rate Care, N.Y. POST, Sept. 20, 1995, at 4; Ellyn E. Spragins, Beware Your HMO, NEWSWEEK, Oct. 23, 1995, at 54 (exploring conflicts between HMO physicians and their patients); CBS Evening News With Dan Rather: Eye on America (CBS television broadcast, July 24–26, 1995) (discussing various problems encountered by HMO consumers).
3\ Robert Pear, Doctors Say HMOs Limit What They Can Tell Patients, N.Y. TIMES, Dec. 21, 1995, at A1 et seq.; Erik Larson, The Soul of an HMO, TIME, Jan. 22, 1996, at 44, et seq.
4\ George Anders, HEALTH AGAINST WEALTH: HMOS AND THE BREAKDOWN OF MEDICAL TRUST (1996).
5\ Playing the HMO Game, TIME, July 13, 1998, v. 152, No. 2, pages 22–28.
Page 108 PREV PAGE TOP OF DOC
6\ Carl M. Stevens, The Antitrust Bar to Physician Unions, the Case for Modification (March 1995).
7\ See Statements 8 & 9 of the ''Statements of Antitrust Enforcement Policy in Health Care, issued by the United States Department of Justice and the Federal Trade Commission'' in August, 1998.
Supplement to the American Medical Association Testimony
Contract 1: Medical Necessity Defined
''The requirement that [health care services] are needed, in the opinion of: (a) the Primary Care Physician or the referred specialist, as applicable, consistent with [health plan] policies, coverage requirements, and utilization guidelines, and (b) [health plan] in order to diagnose and or treat a Member's illness or injury, as applicable, and:
A. are provided in accordance with accepted standards of American medical practice;
B. are essential to improve the Beneficiary's net health outcome and may be beneficial as any established alternatives;
C. are as cost-effective as any established alternative; and
D. are not solely for the Beneficiary's convenience, or the convenience of the Beneficiary's family or health care provider.''
Page 109 PREV PAGE TOP OF DOC
Contract 2: Confidentiality of Patient Records
Provider further agrees to defend, hold harmless and indemnify Company and its officers, shareholders, employees, agents and subagents from any and all claims, causes of action, lawsuits, liabilities, damages and expenses (including settlements, judgments, court costs and attorneys' fees regardless of the outcome of such claims or actions) arising from or relating to any release or disclosure made by company pursuant to this section.
Mr. HYDE. Thank you.
Dr. Connair.
STATEMENT OF MICHAEL P. CONNAIR, M.D., PRESIDENT, CONNECTICUT STATE MEDICAL SOCIETY, ON BEHALF OF THE FEDERATION OF PHYSICIANS AND DENTISTS, AFSCME
Dr. CONNAIR. Mr. Chairman and members of the committee, I want to thank you for the opportunity to appear before you. I am an orthopedic surgeon in solo private practice in Connecticut, a dinosaur headed for extinction in the eyes of some insurers, without antitrust relief from Congress.
I am president of the Orthopedic Section of the Connecticut State Medical Society. As a union organizer and coordinator, I have helped establish physician labor unions for private physicians in 11 States and in the District of Columbia. Please ask your orthopedic surgeon in Washington or nearby Virginia or Maryland if he is carrying his union card because it is more likely than not that he is.
Page 110 PREV PAGE TOP OF DOC
Physicians find themselves powerless against managed care insurers in the same way that steel workers and miners found themselves against factory owners and mine owners before those workers they were given a collective voice. Individually, private physician bargaining power is dwarfed by the bargaining power of the insurance companies.
Many managed care insurers have been strongarming physicians into signing one-sided so-called contracts which often violate professional and ethical standards, and which are frequently not even reviewed by lawyers before they are signed. Physicians often have no choice; if they do not sign they will lose patients and therefore run the risk of going out of business. These contracts give the managed care insurers the legal right to deny care or to impose substandard care and to unfairly squeeze physicians financially.
The result is that insurance and managed care companies, whose primary responsibility is to stockholders and not to my patients, have the power to unilaterally set terms of contracts which govern my relationships with my patients. Let us consider some of the most egregious contract terms which I am coerced, extorted into signing.
Primary care physicians in a plan are often discouraged from appropriately referring. If they send too many patients to psychiatrists or orthopedic surgeons, they may be penalized financially. The wrist sprain which I should take care of, and not the primary care physician because he has not been trained to do so, may not be sent to me initially, though the patient may have a fracture which costs a lot more and doesn't do as well if it is not taken care of appropriately from the start.
Page 111 PREV PAGE TOP OF DOC
Capitation schemes pay physicians not to take care of patients. For a lump sum monthly a doctor is and I am expected to spend as many hours as necessary during the course of the year taking care of a patient, medical offices dread hearing from certain patients in capitated contracts who have been in the office too many times over the course of the year.
Hold harmless clauses: why should the insurance company take any care in its medical management decisions if the physician has accepted responsibility for the malpractice of the insurer?
One of the biggest problems for patients is physicians who accept low-paying contracts. Volume must increase. Half the reimbursement means a physician must see twice as many patients per week to pay overhead and salaries. What is cut out is talk time. Talk is considered cheap by the insurers. I consider talk half of my job in taking good care of my patients.
The antitrust laws were written to protect little companies from big companies putting them out of business. Why do intelligent doctors with 25 to 27 years of education sign foolish contracts?
Let me tell you what Blue Cross did to me and the physicians in New Haven including the attending staff at Yale New Haven Hospital. A Blue Cross representative visited my office and said that I could sign their contract, that I did not have to, but that Blue Cross would bring in their own docs or would send my patients to someone else if I did not sign. And if I did not sign within a certain length of time, I might not be able to sign.
Page 112 PREV PAGE TOP OF DOC
We and our patients are held hostage to the insurance companies' demands. Physicians have not been exempted from the antitrust rules under the NLRA and therefore are held to the same standards as Microsoft and Standard Oil. Ironically, the huge insurance industry is entirely exempted from the antitrust laws and managed care insurers are taking advantage of physicians' inability to bargain collectively, they often impose unfair terms of contract, harming physicians, patients, and the profession of medicine.
Physicians are now employees in the sense that we can be ''hired and fired'' at will by the HMO and that our terms and conditions of employment by that HMO have been established before we even see our first HMO patient. There is no reason we should not be able to bargain collectively with our new employers as other employee groups can. That is why this Campbell bill is so important. Doctors would be given an equal voice with insurers at the negotiating table. If these antitrust constaints remain in effect, I will be driven out of practice or forced to deliver suboptimnal care.
I again thank Chairman Hyde for listening to the arguments in favor of this bill, the committee for holding this hearing, and Representative Campbell for defining the problem. Thank you.
[The prepared statement of Dr. Connair follows:]
PREPARED STATEMENT OF MICHAEL P. CONNAIR, PRESIDENT, CONNECTICUT STATE MEDICAL SOCIETY, ON BEHALF OF FEDERATION OF PHYSICIANS AND DENTISTS, AFSCME
The bargaining power of physicians is dwarfed by the bargaining power of managed care and other insurance companies. As a result, managed care insurers have been able to strong-arm doctors into signing one-sided contracts which often violate professional and ethical standards. Physicians often have no choice but to sign these contracts; if they do not, they run the risk of losing a large block of their patients and perhaps going out of business.
Page 113 PREV PAGE TOP OF DOC
It is these contracts which give managed care insurers the legal ''right'' to deny care, to deny optimal treatment and to unfairly squeeze physicians financially. Patients, as well as physicians, are harmed as a result.
Among the more egregious contract provisions are:
Contracts which discourage appropriate specialist care;
Unreasonable administrative barriers to prompt and reasonable care;
Forcible separation of patients from trusted physicians;
Low paying contracts which result in high volume, low quality care;
Capitation schemes which pay physicians not to treat patients;
Deselection of physicians without just cause;
''Hold harmless'' clauses; and
Contracts which can be unilaterally modified by the insurer without negotiation.
The antitrust laws were written to prevent large companies from putting small companies out of business with unfair business practices. Ironically, those laws are now being used to prevent physicians from being able to bargain effectively for their patients and for themselves. Groups of physicians and other health care professionals must be able to negotiate jointly to restore some sense of balance and to obtain contracts that provide equitable treatment.
The ''Quality Health-Care Coalition Act of 1998,'' introduced by Representative Tom Campbell (R–CA), would give physicians and other health care professionals the ability to join together to negotiate fair and equitable contracts. Physicians acting collectively against managed care insurers can correct abuses which are rampant and which have serious, adverse implications for quality patient care.
Page 114 PREV PAGE TOP OF DOC
Chairman Hyde and the Committee on the Judiciary are to be applauded for holding this hearing. I look forward to working with you to pass legislation at gives physicians, acting together, the ability to negotiate fair contracts for themselves and their patients.
Mr. Chairman and members of the Committee, I want to thank you for the opportunity to appear before you today. I am Dr. Michael Pierce Connair, an orthopedic surgeon in private practice in Connecticut and president of the Orthopedic Section of the Connecticut State Medical Society. I trained at Harvard Medical School and did my orthopedic surgery residency at Harvard before moving to Connecticut. My practice includes taking care of the orthopedic needs of the children in The Spina Bifida Clinic at Yale and consulting for the regional school system for children with special needs. I am also a coordinator for the Federation of Physicians and Dentists (FPD), which is affiliated with the American Federation of State, County and Municipal Employees (AFSCME).
There is much talk these days about the need for enhanced consumer protections in the health care industry: access to emergency care, prohibitions against gag clauses, and other changes that would protect patients' rights. These are all extremely important issues which need to be resolved. But the ability of physicians to effectively negotiate contracts with health insurance and managed care companies is equally compelling. It is an issue of extreme importance not just to physicians, but to the patients we serve. However, it is an issue which has received little, if any, attention. So first I want to congratulate Chairman Hyde for holding this hearing and applaud Representative Campbell for putting this issue on the Congressional agenda through the introduction of H.R. 4277, the ''Quality Health-Care Coalition Act of 1998.''
Page 115 PREV PAGE TOP OF DOC
The problem private practice physicians face today is no different than the problem miners or factory workers face when they cannot speak with a unified voice. Individually, our bargaining power is dwarfed by the bargaining power of the insurance companies. Many managed care insurers have been strong-arming doctors into signing one-sided ''contracts'' which often violate professional and ethical standards. Physicians often have no choice but to sign these contracts: if they do not, they run the risk of losing a large block of their patients and perhaps going out of business. These contracts give managed care insurers the legal ''right'' to deny care, or to impose substandard care, and unfairly squeeze physicians financially. My specialty is orthopedics. I am a solo practitioner. I have no formal training contract negotiation. There simply is no way I can negotiate with Aetna or Blue Cross or any other insurance company on equal footing.
The result is that insurance and managed care companies—companies which owe their only fiduciary duty to stockholders, and not patients—have the power unilaterally to set the terms of contracts which govern doctors' relationships with their patients. As a practical matter, doctors have no choice but to ''agree'' to these contracts. With little or no bargaining power, our only other option is to refuse to accept patients covered by certain plans. Doctors will lose business. Patients will lose their choice of providers and have their care disrupted—or be forced to pay for their care out of their own pockets. In fact, many patients ask their physicians to agree to contracts so that their relationship with a doctor they trust can be preserved.
Even if a physician rejects one contract, he or she cannot economically reject all contracts, most of which include provisions that restrict the ability of physicians to provide optimal care to their patients. Physicians cannot realistically reject every contract offered to them. In addition, it is not uncommon for 20% or more of a single physician's patient base to be covered by the same insurance company. This is especially true in areas with one major employer or where HMO consolidation has occurred. For example, three HMOs represent 80% of the market in Minneapolis, six HMOs in southern California represent 75% of the market. (Health Affairs, ''Ten Ways HMOs Have Changed During the 1990s,'' May/June 1997.) In my own practice, Blue Cross insures at least 20% of my commercially-insured patients. Do you really think physicians in this position can afford to turn away all patients covered by such large companies?
Page 116 PREV PAGE TOP OF DOC
In a health insurance industry increasingly dominated by managed care companies, most doctors must either play by the rules imposed by the insurance industry, suffer financially or leave the practice of medicine. Unfortunately, more and more senior physicians with a wealth of experience are choosing early retirement. The doctors who remain have less and less control over the medical decisions they were trained to make.
Not all contracts are identical, of course, and some are worse than others. But let me give you just a few examples of the more egregious contractual provisions imposed by insurance and managed care companies.
1. Displacement of physicians' medical decisionmaking authority.
Many contracts explicitly grant the insurance or managed care company absolute veto power over the medical judgments made by physicians. I may have been treating a patient with a specific medical condition for years. But if some insurance company reviewer—who may or may not be a physician—disagrees with the course of treatment I recommend, the insurance company has the right to deny coverage for that treatment, usually because the treatment is too expensive.
Similarly, many contracts require physicians to prescribe only medication listed in the company's pharmaceutical formulary. While different drugs may be equally effective in some cases, many patients with the same condition respond differently to different medications. But if the optimal drug for the patient is not on the company's formulary, I may be precluded from prescribing it as a covered benefit. Alternatively, I may first be required to prescribe cheaper alternatives which are not as effective and which can delay access to effective drugs for a significant length of time. This is a particularly serious problem for drugs such as anti-depressants, where new but costlier medications such as Prozac have proven to be more efficacious.
Page 117 PREV PAGE TOP OF DOC
I, of course, am still liable if I fail to provide the treatment or medication or referrals I believe are indicated and my patient suffers as a result. In that instance, many contracts include provisions that make me entirely liable for subsequent injuries to the patient, holding the managed care or insurance company ''harmless'' even if they refused to authorize treatment. But that is irrelevant to the insurance and managed care companies, whose only interest is their own bottom line. These hold harmless provisions enable managed care companies to increase profits at the expense of the patient without being exposed to potential liability.
Other provisions are somewhat more subtle in their interference with treatment decisions, but no less insidious. These provisions do not explicitly grant the insurance company absolute veto power. Rather, they shift apparent responsibility for inadequate care to physicians by imposing unreasonable and burdensome administrative procedures which must be followed in order to obtain prior permission for tests, consultations, referrals, surgery or other decisions. But the result is the same. As doctors are forced to expend enormous time, energy and resources fighting to obtain the required approval, can anyone seriously doubt that patient care is needlessly—and, all too often dangerously—delayed, or worse, that some patients' needs go completely unmet?
Some contracts do provide for an appeal process, but the process can take months, time that many patients do not have. In addition, the contracts often do not provide for an independent review, as many the insurance companies often retain the right to select the appeals panel. Can you imagine a legal system in which the defendant is given the right to choose the jury?
Page 118 PREV PAGE TOP OF DOC
2. Financial arrangements which discourage patient care.
Many contracts contain reimbursement schemes which discourage appropriate care and/or referrals. Under many contracts, for example, the physician agrees to provide care for a designated group of patients. The insurance company pays the physician a fixed—or capitated—amount per patient per month, regardless of how much treatment any given patient may require. In some contracts, the capitated payment is used to pay costs not directly provided by the physician, such as the cost of referrals, prescription drugs, or durable medical equipment. This effectively shifts the financial risk of patient care—risk otherwise borne by insurance companies—to physicians or hospitals, who have nowhere near the financial base enjoyed by insurance companies to absorb such risk. The result is that doctors' immediate financial interest is placed in conflict with patients' needs. In some cases doctors actually lose money on the contract and literally cannot afford to provide needed care. The business of insurance should be to assume risk. Instead, health insurers are shifting risk downstream to physicians and hospitals in order to increase profits.
Other contracts penalize doctors who make ''excessive'' referrals to specialists—more referrals, that is, than the insurance company has pre-determined an average physician should make, regardless of the patient mix and medical problems each physician actually confronts. Some contracts include ''withholds,'' provisions that ''reserve'' a certain percentage, e.g., 20%, of a physician's payment, which, at the discretion of the managed care company, may or may not be ''returned'' to the physician at the end of the year based on utilization patterns. Physicians faced with inadequate capitation rates or financial penalties may be forced to assume responsibility for medical decisions they believe should be handled by a specialist, or else face financial loss. For instance, a generalist may be asked to take care of a ''wrist sprain'' which ends up being a navicular bone fracture. The failure to make the correct diagnosis results in more complications which will, by the way, cost much more to treat.
Page 119 PREV PAGE TOP OF DOC
Still other contracts squeeze doctors financially the old-fashioned way: They simply provide extremely low reimbursement rates, which force doctors to increase the volume of patients served in order to make the contract profitable. Quality care takes time. It doesn't take much to figure out that, beyond a certain point, increased volume means decreased quality. ''Exclusive contracts'' attempt to entice physicians into signing a deeply discounted contract with the promise that they will receive additional patients from other practices to make up in volume what they are losing per service. Physicians are then played against each other, to force lower and lower rates.
3. Companies' right to make unilateral changes in contract terms.
Another insidious provision, found all too often in contracts between physicians and insurance companies, gives companies the right unilaterally to change any contract term at will. The physician's only recourse generally is to terminate the contract with a month or two months notice. Insurers typically refuse to negotiate; there is no room for give and take. Contracts that do not contain fee schedules are common. The insurer reserves the right to change the fee schedule at will depending on the profitability of the company. The company can significantly reduce reimbursement or capitation rates at will, making the contract increasingly less viable for the physician. Similarly, managed care plans often require that physicians comply with policy and procedures that are not detailed in the contract and which may be changed with minimal notice.
Insurance companies can restrict physicians' ability to make referrals; alter the appeals process; decrease reimbursement rates; or change any other contractual provision at their whim. (Some contracts require that, even if the physician decides that the new contract terms are too onerous and opts for termination, the physician must continue to care for the patient, under the terms dictated by the insurance company, for a period which can last up to a year.) Who is harmed if the physician feels compelled to withdraw from the contract? Certainly, the physician will be hurt financially. Even more important, however, is the impact on the patients who are insured through the company in question: If their doctor's contract with their insurance company is terminated, their relationship with their doctor, which may have developed over the course of many years, also will be severed.
Page 120 PREV PAGE TOP OF DOC
4. ''Deselection'' without just cause.
Patients' relationships with their doctors are jeopardized by another common feature of the types of contracts I am discussing today—namely, provisions which permit the insurance or managed care company to terminate the physician's contract without cause and without any right to appeal. Termination is usually done for administrative, contractual or financial reasons, rarely for quality concerns.
Why, you might ask, if the contracts are so onerous and burdensome, do doctors sign them? Why do intelligent doctors with twenty-five to twenty-seven years of education sign foolish contracts? Contracts which can be changed unilaterally without negotiations? Consider Blue Cross of Connecticut. Representatives came to my office and to Yale University, and basically said that they would like physicians to sign this contract, that physicians who did not sign the contract within a certain length of time might not later be able to sign the contract if the ''panel was filled,'' and that some of my colleagues would be signing the contract even if I did not. At least 20% of my privately insured patients are insured by Blue Cross. The contract had many unreasonable terms, but I felt obliged to sign it ultimately for fear of losing patients.
We and our patients are held hostage to the insurance companies' demands. The problem is that the health care deck is stacked and the insurance and managed care companies hold all the cards. The antitrust laws were written to prevent large companies from putting small companies out of business with unfair business practices. Physicians have not been exempted under the National Labor Relations Act and therefore are held to the same standards as Microsoft or Standard Oil. Ironically, the health insurance industry, itself exempted from antitrust under McCarran-Ferguson, is taking advantage of physicians' inability to bargain collectively in order to impose unfair contract terms.
Page 121 PREV PAGE TOP OF DOC
The current situation simply puts too much negotiating power in the hands of increasingly large HMOs and insurance companies. Physicians indeed are now employees in the sense that we can be hired and fired at will by managed care insurers and that our terms and conditions of employment have been established before we even see a patient. There is no reason we should not be able to bargain as well. Practice physicians cannot negotiate individually and be expected to bargain effectively for their patients and for themselves. That is why the Campbell bill, the ''Quality Health-Care Coalition Act of 1998,'' is so important. Groups of physicians and other health care professionals must be able to negotiate jointly to restore some sense of balance and to obtain contracts that provide equitable treatment. If the antitrust laws are allowed to remain in effect, the managed care and insurance companies will continue to dominate the health care marketplace, at the expense of doctors and patients alike.
Again, I want to thank Chairman Hyde and the Committee for holding this hearing and for allowing me to share my experiences with you.
APPENDIX I—EXAMPLES OF CONTRACT PROVISIONS
MEDICAL NECESSITY
It is understood and agreed that Company, or when applicable, the Payor shall have final authority to determine whether any services provided by Provider were Covered Services and to adjust or deny payments for services rendered by Provider to Members in accordance with the results of such determinations.
Page 122 PREV PAGE TOP OF DOC
Provider shall provide Specialist Services to Members only upon prior referral of such patients by a Primary Care Physician to Provider on prescribed forms or by electronic means as instructed by Company, if such a referral is required by the applicable Plan. Except in the case of the provision of Emergency Services, payment for retroactive referrals shall be subject to adjustment or denial by Company. Company reserves the right to utilize other specialist physicians in the same field in which Provider practices. Provider shall render services to Members only at those inpatient, extended care, and ancillary service facilities which have been approved in advance by Company.
With respect to all Elective Professional Services, payment by (PLAN) under this Agreement shall be conditioned upon prior certification of Medically Necessary Services and authorization of such services by Member's Referring Physician, in accordance with the referral procedures established by (PLAN) and communicated by (PLAN) to Physician. (Examples of Elective Services include but are not limited to, follow-up office visits, outpatient x-ray or laboratory studies, care furnished in connection with Elective hospitalization or surgery, and referral to another physician). Physician shall not refer a Member to any other physician without prior authorization of the Member's Referring Physician. Referrals shall be made to a Participating Provider, unless approved by the (PLAN) Medical Director.
UNILATERAL ABILITY BY PLAN TO CHANGE POLICY TERMS
Participating Physician shall comply with, participate in, and abide by the decisions of (PLAN's) administrative protocols and programs including, but not limited to, the Quality Improvement and Utilization Management programs, the Provider Guide, credentialing program, and Covered Person complaint resolution programs, and as otherwise established or directed by the Medical Director . . . (PLAN) may amend this Agreement by providing thirty (30) days prior written notice to Participating Physician. It shall be conclusive evidence of receipt and acceptance of the change unless, within that period, Participating Physician sends to (PLAN) a thirty (30) day written notice of termination of this Agreement. During such termination notice period, the amendment shall be in full force and effect.
Page 123 PREV PAGE TOP OF DOC
Compliance and Participation. Provider shall comply fully with and be bound by the Participation Criteria described in the Participation Criteria Schedule (attached hereto and made a part hereof) and shall also abide by the rules, policies and procedures that Company has established or will establish, including, but not limited to, those regarding: (a) quality improvement/management; (b) utilization management, including, but not limited to, precertification of elective admissions and procedures, referral process or protocols, and reporting of clinical encounter data; (c) claims payment review; (d) Member grievances; (e)) provider credentialing; and (f)) electronic submission of referrals, encounter data, claims and other data required by Company. Provider acknowledges and agrees that failure to comply with the terms of the participation Criteria and Company's other rules, policies and procedures may adversely affect any compensation due thereunder and could lead to sanctions including, without limitation, termination of this Agreement. Company may at any time modify the Participation Criteria, and all Company rules, policies, and procedures.
(PLAN) may amend this Agreement by providing thirty (30) days prior written notice to Preferred Provider. It shall be conclusive evidence of receipt and acceptance of change unless, within that period, Preferred Provider sends to (PLAN) a thirty (30) day written notice of termination of this Agreement. During such termination notice period, the amendment shall be in full force and effect.
TERMINATION WITHOUT CAUSE
(PLAN) may close the panel of Covered Persons permitted to obtain Covered Services from Participating Physician including, but not limited to, the number of Covered Persons who may select or be assigned to the Participating Physician as their Primary care Physician, if applicable, in (PLAN's) sole discretion.
Page 124 PREV PAGE TOP OF DOC
This agreement may be terminated for material breach by a party upon thirty (30) days prior written notice . . . The determination of whether or not there is a cure shall be made by the party giving the notice of breach. (PLAN) may revoke the ''participation'' status of a Physician associated with Participating Physician at any time upon sixty (60) days written notice.
This Agreement may be immediately terminated, or Provider's participation in any or all Plans immediately suspended, by Company at its sole discretion at any time due to: . . . (i)) Company's determination, in its sole discretion, that continuation of this Agreement could negatively affect patient care.
Further, upon written notice to Physician, (PLAN) may terminate this Agreement immediately for cause, which shall include, without limitation, the occurrence of any of the following events: . . . if (PLAN) determined that Member or regulatory agency dissatisfaction exists relating to services provided by Physician . . . In addition, either party may terminate this Agreement for cause by giving written notice to the other party of a material breach of any provision(s) thereof. . . . This Agreement will then terminate on said effective date of termination unless the party to whom such notice is given cures the reason(s) for which such notice was given, to the satisfaction of the party giving such notice, prior to such effective date of termination.
COMPENSATION
Financial Allowance: Percentage amount deducted from payment for Health Services rendered by Medical Group to Members, which shall be determined by Plan from time to time as Plan deems appropriate, but shall never exceed 20% Financial Allowance amounts shall belong to Plan and may be used by Plan as it deems appropriate.
Page 125 PREV PAGE TOP OF DOC
Payment. Company shall, or when it is not the applicable Payor shall notify each Payor to, pay Provider for Specialist Services rendered to Members in accordance with: (a) the then-current Company Reasonable, Equitable Fee Schedule (REF); or (b) the compensation arrangement then in effect as applicable to such Members' Plans; either of which may be modified from time to time by Company.
(PLAN) agrees to pay the Participating Group the lesser of Participating Group's billed charge for such Medically Necessary Covered Services, or the (PLAN) Payment Schedule, as determined by (PLAN), less any applicable Customer obligations for Copayment, Coinsurance and/or Deductible. (PLAN) agrees to review, monitor and adjust (PLAN) Payment Schedules at least annually. Such review will encompass changes in medical technology, inflationary indices, competitive marketer conditions and other relevant factors. Participating Group agrees that the payment accepted from (PLAN) and its Customers will be comparable to payment accepted by Participating Group from other health insurance purchasers and their customers, excluding government healthcare programs.
As compensation for the provision of Covered Services in connection with the Coverage Plans, Preferred Provider will be compensated for Covered Services provided to Covered Persons based upon the lesser of (a) Preferred Provider's usual and customary billed charges, (b) the (PLAN) fee schedules and (c) the compensation arrangement set forth in a contract between Preferred Provider and another entity which entity in turn has a contract with (PLAN) to provide or arrange Covered Services for Covered Persons, less appropriate amounts for copayment, deductibles and coinsurance.
Page 126 PREV PAGE TOP OF DOC
PHYSICIAN PAYMENT IN CASE OF RETROACTIVE INELIGIBILITY DETERMINATION
Compliance with the verification procedures and (PLAN's) confirmation of an individual's status as a Covered Person does not constitute a guarantee of eligibility. In the event that Participating Physician provides what would have been a Covered Service to an individual based upon compliance with the above-referenced procedures, and (PLAN) subsequently determines that such individual was not entitled to coverage as a Covered Person, then (PLAN) shall notify Participating Physician of that individual's ineligibility as a Covered Person. (PLAN) shall be permitted to recover payments to Participating Physician or financial allocations made on Participating Physician's behalf for that individual retroactive to the day on which the individual became ineligible as a Covered Person. . . .
GLOBAL CARE PERIODS
Participating Physician agrees, if this Agreement terminates, and if requested by (PLAN), to continue to provide and arrange, as applicable, Covered Services for existing Covered Persons until alternate care is arranged, but for no longer than one (1) year. Such services shall be provided in accordance with the terms of this Agreement, except that payments made to Participating Physician under this Agreement for services rendered pursuant to this Section shall be the lesser of (a) Participating Physician's usual and customary billed charges for the services, and (b) (PLAN)'s fee schedule as set forth in Attachment E, as determined by (PLAN). Upon the issuance of a notice of termination, Participating Physician will not be permitted to accept new Covered Persons as patients nor will Participating Physician be compensated for the commencement of a new course of care with existing Covered Persons, except as otherwise agreed to by (PLAN). This provision shall survive the termination of this Agreement regardless of the reason for termination.
Page 127 PREV PAGE TOP OF DOC
Upon termination of this Agreement for any reason, other than termination by Company in accordance with section 7.4 above, Provider shall remain obligated at Company's sole discretion to provide Covered Services to: (a) any Member under Provider's care who, at the time of the termination, is a registered bed patient at a Participating Provider that is a hospital or other institution until such Member's discharge therefrom or Company's orderly transition of such Member's care to another provider, whichever is less; and (b) any Member, upon request of such Member or the applicable Payor, until the anniversary date of such Member's respective Plan or for one (1) calendar year, whichever is less. This terms of this Agreement shall apply to such services.
LIABILITY
Participating Physician shall indemnify and hold (PLAN), their designees, and their respective directors, officers , and employees, harmless from any and all claims, lawsuits, settlements, and liabilities incurred as a result of professional services provided or not provided by Participating Physician with respect to any Covered Person. . . . This provision shall survive the termination of this Agreement regardless of the reason for termination.
Company shall not be liable for any indirect, incidental, punitive, exemplary, special or consequential damages of any kind whatsoever sustained as a result of a breach of this Agreement or any action, inaction, alleged tortious conduct, or delay by Company.
MEDICAL RECORDS
Page 128 PREV PAGE TOP OF DOC
All records, electronic files, books, and papers of Participating Physician including, but not limited to, medical records pertaining to Covered Persons, the administration of this Agreement, and the administration of the Coverage Plans, and as required for the research conducted by the (PLAN) Center for Health Care Research, shall be open for inspection by (PLAN) and authorized state and federal authorities during normal business hours. . . . The obligations of Participating Physician under this Section will survive termination of this Agreement regardless of the reason for termination.
Provider agrees that the Proprietary Information is the exclusive property of Company or a third party Payor and that Provider has no right, title or interest in the same. Provider shall keep the Proprietary Information and this agreement strictly confidential and shall not disclose any Proprietary Information or the contents of this agreement to any third party, except to federal, state and local governmental authorities having jurisdiction.
Provider agrees that Company, on behalf of itself and its Affiliates, shall have access to all data and information obtained, created or collected by Provider related to Members (''Information''). Such Information shall be jointly owned by Provider and Company, and Provider shall not enter into any contract or arrangement whereby Company or its Affiliates do not have unlimited free and equal access to the information in electronic or other form or would be required to pay any access, transaction or other fee to obtain such Information in electronic, written or other form.
ADVERTISING, USE OF NAME
Page 129 PREV PAGE TOP OF DOC
From time to time (PLAN) may request Participating Physician and Participation Physician agrees, to participate in employer presentations and meetings as part of the sales process.
Preferred Provider may not use (PLAN's) name . . . without the prior written consent of (PLAN). (PLAN) may use Preferred Provider's name and trademark and other relevant information . . . in (PLAN's) marketing and sales materials . . .''
Physician Contracting Principles
1. Contracts which exploit physicians often end up compromising patient care.
2. Physicians are not car dealers; competitive bidding for exclusive contracts is a tool of insurers to ratchet down prices, it is detrimental to physicians and their patients.
3. A physician would never take on a new medical associate or sign for a mortgage on his house without extensive legal input and financial negotiations; HMO contracting is just as important to the financial survival of a physician and should also be negotiated by an expert.
4. The physician relationship to HMOs is that of an employee to an employer and physicians must take advantage of laws designed to protect employees from unfair employment practices. Physicians must seek to be recognized as employees by the NLRB to make full use of labor laws.
Page 130 PREV PAGE TOP OF DOC
5. If physicians do not hang together while negotiating HMO contracts each will certainly be hung separately.
6. IPAs alone no longer protect the physicians from unfair contracting practices; insurers have learned how to ''get around'' IPAs by negotiating separately with frightened physician groups fearful of loss of market share.
7. Physician hospital organizations (PHOs) are often controlled by hospitals an negotiate contracts with insurers primarily to protect the hospital's self interest; the physician contracts and fee schedules are of secondary concern to hospitals and such contracts are frequently detrimental to the physician.
8. Managed care contracts which pay physicians NOT to take care of patients and financially reward primary care physicians for NOT referring to appropriate specialists are unethical (unfortunately they are not illegal).
9. ''Drive through deliveries'' mandated by some managed care insurers are only one of hundreds of abuses that managed care insurers perpetrate on patients and physicians; physicians and patients cannot depend upon legislators to outlaw each and every abusive practice and physicians have to take matters into their own hands through medical associations and trade unions.
10. Physicians must get involved with the patient end of contracting; patients are less knowledgeable about their insurance contracts than physicians and do not realize that their contracts are inadequate or abusive until they attempt to obtain services.
Page 131 PREV PAGE TOP OF DOC
INSERT OFFSET RING FOLIOS 5 TO 12 HERE
Mr. HYDE. Thank you, doctor.
Next is Mr. deMontmollin.
STATEMENT OF STEVEN J. DEMONTMOLLIN, VICE PRESIDENT AND GENERAL COUNSEL, AV–MED HEALTH PLAN, ON BEHALF OF THE AMERICAN ASSOCIATION OF HEALTH PLANS
Mr. DEMONTMOLLIN. Good afternoon Mr. Chairman and members of the committee. I am Steve deMontmollin, vice president and general counsel of the Av-Med Health Plan, which is Florida's oldest and largest not-for-profit health maintenance organization, serving some 355,000 members, including 70,000 Medicare members throughout the State. Av-Med contracts with close to 7,000 private physicians and 126 hospitals, is federally qualified, and is accredited by the National Committee for Quality Assurance and the Joint Commission for Accreditation of Health Care Organizations. Av-Med is a member of the American Association of Health Plans, which represents 1,000 health maintenance organizations, preferred provider organizations and similar network plans serving 140 million Americans nationwide. I appreciate the opportunity to testify today on behalf of AAHP with respect to H.R. 4277.
Health plans organize the delivery of comprehensive health care services in a way that makes a great deal of sense to many Americans. The benefit packages we offer tend to be significantly broader and more complete than those offered by indemnity insurers, usually with lower out-of-pocket costs. Health plans have been instrumental in making health benefits coverage affordable for employers and employees. For example, in 1996 employers with 10 or more employees paid 15 percent less per active employee for HMO coverage than for traditional health insurance.
Page 132 PREV PAGE TOP OF DOC
The topic of the hearing today is important to consumers, health plans and the future of our health care system. The basic purpose of the antitrust laws and antitrust enforcement in the health care industry is to promote and preserve competition, not to protect competitors. Competition promotes cost containment, consumer choice, and the development of innovative approaches to health care delivery that benefit consumers.
HMO and similar health plans have developed and expanded in large part due to the capable enforcement of antitrust laws by the Justice Department, the Federal Trade Commission, State attorneys general and the courts. There are many examples, current and past, where anticompetitive obstacles have been removed by reasoned interpretation and enforcement of these laws.
The chairman spoke earlier about the Puerto Rico case. In Florida, such actions have been brought against a Jacksonville IPA formed by the entire hospital staff of OB–GYNs for allegedly conspiring to agree on fee schedules. Ten Broward County surgeons conspired to fix services to trauma centers at two hospitals and threatened and carried out a refusal to deal, in other words a strike, forcing one trauma center to close.
AAHP member health plans contract with large and small employers, Federal, State and local governments, as well as with Medicare and Medicaid. Some health plans operate hospitals and employ their own staff physicians. However, most health plans contract for medical and hospital services with independent physicians, hospitals and other providers. Competition for these services leads to greater diversity among products and services, better quality and lower prices.
Page 133 PREV PAGE TOP OF DOC
Unfortunately, H.R. 4277 would protect per se illegal price fixing under current antitrust law by extending to competing physicians the ability to collectively bargain and negotiate terms with HMOs, insurers, self-funded employers and other payers without unionization or otherwise meeting the requirements of collective bargaining under the National Labor Relations Act.
In fact, as Mr. McCollum has already pointed out, the Florida Medical Association membership recently rejected a proposal to form a physicians' union. This bill would accord independent non-employees, physicians, with an antitrust exemption heretofore afforded only physicians who are employees and are unionized, and we have heard today apparently this bill is addressing only 44 percent of those physicians, according to the American Medical Association's testimony, that are independent physicians.
The AAHP has supported the enforcement agencies' efforts to clarify their enforcement policies and intentions. Thus we were pleased when the Justice Department and the Federal Trade Commission jointly issued their antitrust health care policy statements in 1993. The statements were revised in 1994 and again in 1996 in response to requests for guidance regarding specific proposed conduct involving the health care industry. The chairman said he would consider additional amendments if necessary. The statements, along with the agency's many public speeches and statements, have given our members and, we believe, all providers a clear understanding of current enforcement policies and the kinds of activities that they can safely undertake.
AAHP strongly opposes any policy or legislation that would make it harder to challenge anticompetitive combinations or agreements among local health care providers, whether organized informally or through cartels, joint ventures, networks, associations or mergers.
Page 134 PREV PAGE TOP OF DOC
The proposed legislation would undermine the consumer protections current antitrust laws are intended to provide, protections that have also enabled integrated health care delivery systems, including many that are provider-owned and managed, to flourish as an innovative, cost effective alternative to fee-for-service coverage. In addition, the proposed legislation would effectively overrule 70 years of Supreme Court precedent holding the type of activity sought to be protected here to be illegal.
Finally, we would be greatly concerned by any initiative that would foster collective activity by competing providers if it proceeded on an assumption that competition among hospitals and other providers in dealing with health plans or other payers could or should be sacrificed or put aside. Exemptions from the antitrust laws to permit blocks of providers to join together free of scrutiny not only would serve health plans and their members poorly, but also would be a disservice to all purchasers of health care services, including Federal, State and local governments, large and small employers, as well as individual consumers.
Thank you for this opportunity to testify, and of course I would be pleased to answer any questions that the committee might have.
[The prepared statement of Mr. deMontmollin follows:]
PREPARED STATEMENT OF STEPHEN J. DEMONTMOLLIN, VICE PRESIDENT AND GENERAL COUNSEL, AV–MED HEALTH PLAN, ON BEHALF OF THE AMERICAN ASSOCIATION OF HEALTH PLANS
Good morning, Mr. Chairman and committee members. I am Steve deMontmollin, Vice President and General Counsel of AvMed Health Plan, which is Florida's oldest and largest not-for-profit health maintenance organization, serving some 355,000 members, including approximately 70,000 Medicare members, throughout the state. AvMed contracts with close to 7,000 private physicians and 126 hospitals, is federally qualified and is accredited by the National Committee for Quality Assurance. AvMed is a member of the American Association of Health Plans (AAHP), which represents 1,000 health maintenance organizations (HMOs), preferred provider organizations (PPOs), and similar network plans serving 140 million Americans nationwide. AAHP member companies are dedicated to a philosophy of high-quality care that puts the patient first by providing coordinated, comprehensive health care. We appreciate your invitation to testify today with respect to H.R. 4277.
Page 135 PREV PAGE TOP OF DOC
My testimony will address the role of antitrust law in protecting and promoting competition for the benefit of consumers; how strong antitrust enforcement has encouraged growth and development of health plans and other health care innovation; and why legislative exemptions from antitrust laws, such as H.R. 4277, are unnecessary and anti-competitive.
Competition is Vital to the Future of Affordable, High-Quality Health Care
The basic purpose of the antitrust laws and antitrust enforcement in the health care industry, as in other industries, is to promote and preserve competition for the benefit of consumers, not individual competitors. Enforcement of antitrust laws is crucial to preserve and ensure competition in the health care marketplace. Competition promotes cost containment, consumer choice and the expansion of managed care and other innovative approaches to health care delivery that benefit consumers.
Health maintenance organizations and similar health plans (hereafter referred to as ''health plans'') have been on the cutting edge of health care reform for more than 50 years. Health plans offer comprehensive services to enrolled members on a prepaid, rather than on a fee-for-service basis.
Health plans are care systems that deliver care through highly qualified health care professionals. Their primary goals are keeping their members well and providing first-rate health care. Consumers consistently give health plans positive reviews, which are reflected in high enrollment renewal rates. In fact, health plan enrollment has quadrupled during the past decade alone, based almost entirely on consumer choice. In 1996, the total number of HMO members grew by an estimated 8.4 million people, to 67.5 million—or about one in four Americans. Since 1990, HMO enrollment has increased by 85 percent.1\ In 1996, the total number of PPO members grew by an estimated 6 million, to 97.8 million people. Since 1990, PPO enrollment has increased by 154 percent.2\ The vast majority of these health plan members selected their plans in an environment of choice—they chose to be our members.
Page 136 PREV PAGE TOP OF DOC
Health plans organize the delivery of comprehensive health care services in a way that makes a great deal of sense to many Americans. The benefit packages we offer tend to be significantly broader and more complete than those offered by indemnity insurers. For example, according to a 1996 industry survey, well-baby care, prenatal care, well-child care, and childhood immunization were covered by all HMOs, usually with minimal cost sharing. Virtually all HMOs covered flu shots and adult immunization.3\ Patient out-of-pocket costs are invariably lower in health plans than in fee-for-service plans. In 1996, more than 97 percent of fee-for-service plans required a deductible. The average deductible for these plans was $538 per family. Almost 80 percent of fee-for-service plans also required individuals to pay 20 percent of the cost of care (usually up to an out-of-pocket limit). By contrast, only 20 percent of PPO plans require individuals to pay 20 percent of the cost of care when using a preferred provider.4\
Health plans also have been instrumental in making health benefits coverage affordable for employers and employees. In 1996, employers with 10 or more employees paid 15 percent less per active employee for HMO coverage than for traditional health insurance. HMO coverage averaged $3,185 per worker, a savings of $554 over traditional indemnity insurance—even though, as discussed above, benefits under most indemnity packages are not nearly as comprehensive as those prescribed by the Federal HMO Act and indemnity plans generally have much higher employee-paid cost sharing. PPO coverage per active employee averaged $3,293, a savings of $446 over indemnity insurance.5\
Finally, and perhaps, most importantly, health plans provide a vehicle for systematic quality improvement that is not available under the old-style fee-for-service health care system. Health plans combine a number of interrelated features that foster a sophisticated, comprehensive approach to quality, including:
Page 137 PREV PAGE TOP OF DOC
Selection of a defined, fully-credentialed network of providers who can work together on care and quality issues;
Provision of comprehensive services across the spectrum of inpatient and outpatient settings, allowing a full range of quality improvement interventions; and
Clinical and fiscal accountability for the health care of a defined population—allowing population-based data collection, analysis, intervention, and monitoring—and ensuring accountability for performance.
These unique characteristics enable network-based plans to deliver high-quality care and to be accountable for the care provided. The organizations and individuals who purchase health care, including consumers, employers, and the federal and state governments, demand this accountability. It is this accountability that provides the mechanism for marketplace competition based on quality.
Sound Antitrust Enforcement Benefits Consumers
The topic of this hearing today is important to consumers, our industry, and to the future of our health care system. The basic purpose of the antitrust laws and antitrust enforcement in the health care industry is to promote and preserve competition, not to protect competitors. The antitrust laws and antitrust enforcement have played a historic and special role in the development of managed care as an alternative to fee-for-service medicine for consumers.
Page 138 PREV PAGE TOP OF DOC
Antitrust enforcement was directly responsible for enabling the first HMO-type plan to form more than 50 years ago. In 1941, the Supreme Court upheld a criminal antitrust conviction of the American Medical Association and the Medical Society of the District of Columbia for conspiring to obstruct the operation of Group Health Association, an early health plan here in Washington, D.C.6\ In that case, the medical associations initiated disciplinary actions against Group Health Association staff physicians, imposed sanctions against doctors who consulted with Group Health Association physicians, and took various actions against hospitals that permitted Group Health Association doctors to practice at them—all in an effort to prevent Group Health Plan from providing an alternative to fee-for-service coverage.
The existing antitrust laws have benefited health care consumers by removing obstacles to the formation and expansion of health plans as an alternative to fee-for-service coverage. For example, challenges have been brought against:
Professional society ethical rules and ''self-regulation'' that prohibited contracting with managed care plans; 7
Denials of hospital privileges to doctors affiliated with health plans; 8
Restraints by dominant fee-for-service payers on physicians affiliating with health plans; 9
Combinations among providers to force higher reimbursements; 10 and
Conspiracies to obstruct utilization review programs,11 boycotts and other conspiracies to maintain prices or force increases in reimbursements.12
Page 139 PREV PAGE TOP OF DOC
Unfortunately, a great deal of similar activity still occurs today. 13
H.R. 4277 Would Protect Anticompetitive Practices
AAHP member health plans contract with large and small employers, federal, state and local governments as well as with Medicare and Medicaid. Some health plans operate hospitals and employ their own staff physicians. However, most health plans contract for medical and hospital services with independent physicians, hospitals and other providers.
Unfortunately, H.R. 4277 would protect per se illegal price-fixing under current antitrust law by extending to competing physicians the ability to collectively bargain and negotiate terms with HMOs, insurers, self-funded employers and other payers without unionization or otherwise meeting the requirements of collective bargaining under the National Labor Relations Act (NLRA).
The federal labor laws provide exemptions from the antitrust laws for employees who unionize to collectively bargain with respect to wages and other terms of employment. Unionization permits physicians to engage in collective action that would otherwise constitute a per se violation of the antitrust laws. The labor laws, however, only shield physicians' collective activities from antitrust restrictions if they are employees of the health plan or hospital system with which they are negotiating and do not have managerial or supervisory responsibilities.14
Page 140 PREV PAGE TOP OF DOC
Outside this labor exemption, attempts by physicians to negotiate collectively are governed by the antitrust laws. Under the antitrust laws, collective activities may be engaged in only where the physicians are part of a single, economically integrated practice group, or where they have formed a legitimate joint venture through which they will share substantial financial risk or substantial clinical integration.
The antitrust enforcement agencies have made clear their position that collective bargaining by independent, competing health care providers outside of the labor exemption violates the antitrust laws. Challenged practices have ranged from collective negotiations of fee schedules to group boycotts and actual ''strikes.'' Such challenges include:
An action by the Federal Trade Commission (FTC) and the Commonwealth of Puerto Rico against the College of Physician-Surgeons of Puerto Rico and three physician independent practice associations. The defendants were charged with attempting to coerce the Puerto Rican government into recognizing the College as the exclusive bargaining agent for all physicians in Puerto Rico with the public corporation responsible for administering a health insurance system that provides medical and hospital care to indigent residents. The complaint also charged that to achieve their goals, members of the College called for an eight-day strike during which they ceased providing non-emergency services to patients. The final order prohibits the defendants from boycotting or refusing to deal with any third-party payer, refusing to provide medical services to patients of any third-party payer, or jointly negotiating prices or other more favorable economic terms. The agreement also calls for the College to pay $300,000 to the catastrophic fund administered by the Puerto Rico Department of Health.15
An action by the FTC against ten surgeons in Broward County, Florida for forming Trauma Associates of North Broward, Inc. (''Trauma Associates''), a corporation which allegedly served as a vehicle for the surgeons to engage in collective negotiations with the North Broward Hospital District on fees and other contract terms. The surgeons agreed to a consent order which settled charges that the surgeons, through Trauma Associates, conspired to fix the fees they were paid for their services in trauma centers at two area hospitals, and threatened and carried out a concerted refusal to deal, forcing one trauma center to close.16
Page 141 PREV PAGE TOP OF DOC
An action by the Department of Justice (DOJ) against a Connecticut Independent Practice Association (IPA) for engaging in an illegal boycott of an HMO. The DOJ alleged that the IPA in effect acted as an exclusive bargaining agent for the individual physician members by negotiating contracts with the IPA on behalf of the physicians, and when negotiations on behalf of the physicians broke down, organizing the independent physicians to refuse to enter into contracts individually with the HMO.17
An action by the FTC against an IPA formed by the entire staff of OB/GYNs at the Baptist Medical Center in Jacksonville, Florida. The alleged conspiracy consisted of: the formation by all 23 staff OB/GYNs of Southbank IPA and Southbank Health Care Corp. for the purpose of negotiating collectively with third-party payers on behalf of the physicians; the refusal to deal individually with any third-party payer that had a contract with Southbank IPA; agreeing on a fee schedule; and agreeing on a set of ''negotiating points.'' The physicians entered into a consent decree which enjoined them from, among other actions, dealing with a third-party payer on a collective basis. The consent decree also ordered that Southbank IPA be dissolved.18
AAHP strongly opposes any policy or legislation that would make it harder to challenge anticompetitive combinations or agreements among local health care providers, whether organized informally or through cartels, joint ventures, networks, associations or mergers. The proposed legislation would undermine the consumer protections the current antitrust laws are intended to provide—protections that have also enabled integrated health care delivery systems (including many that are provider owned and managed) to flourish as an innovative, cost-effective alternative to fee-for-service coverage. In addition, the proposed legislation would effectively overrule 70 years of United States Supreme Court precedent holding the type of activity sought to be protected here, to be illegal.19
Page 142 PREV PAGE TOP OF DOC
Legislative Exemptions are Unnecessary
Physicians are not inhibited by current law from forming legitimate joint ventures in order to collectively negotiate and do not need a special legislative exemption in order to do so. In fact, in its 1995 report to Congress, the Physician Payment Review Commission concluded ''that the available evidence of problems is not sufficient to warrant safe harbors or other exemptions from the antitrust laws for physician-sponsored networks at this time. Amending the antitrust laws is a serious step that should be undertaken only in the face of compelling evidence that change is required. The limited available evidence, however, does not currently suggest the widespread existence of problems.'' 20
AAHP has supported, however, the enforcement agencies' efforts to clarify their enforcement policies and intentions. Thus, we were pleased when the Department of Justice and Federal Trade Commission jointly issued their antitrust health care policy statements in 1993. The statements were revised in 1994 and again, in 1996,21 in response to requests for guidance regarding specific proposed conduct involving the health care industry. The statements, along with the agencies' many public speeches and statements, have given our members and, we believe, all providers, a clearer understanding of current enforcement policies and the kinds of activities they can safely undertake.
From our perspective, the policy statements are unusual for at least three reasons. First, they are industry-specific, offering health care providers guidance tailored to their unique circumstances and concerns. Second, they create ''safety zones'' that assure providers that they will not be prosecuted for a wide range of activities, absent extraordinary circumstances. Third, the policy statements commit the enforcement agencies to respond to requests from the health care community for business reviews or advisory opinions on prospective transactions in 90 days regarding any matter addressed in the policy statements, except requests relating to hospital mergers that are outside the safety zones. Thus, even if providers remain uncertain about whether their proposed activities fall within the safety zones, they are guaranteed an answer from the agencies in less than three months.
Page 143 PREV PAGE TOP OF DOC
These policy statements are important for another reason. They not only help remove enforcement uncertainty, but they also have opened an important dialogue with the industry that must continue. This dialogue and the enforcement agencies' commitment to issue additional policy statements when needed has enhanced the responsiveness of all concerned to the realities of a changing marketplace.
Conclusion
Vigorous enforcement of antitrust laws is crucial to preserve and ensure competition in the health care marketplace. Competition promotes cost containment, consumer choice and the expansion of managed care and other innovative approaches to health care delivery that benefit consumers. There is no substantive reason why competition cannot continue to serve that role. Competition always has encouraged innovation. The antitrust laws are uniquely suited to promote these goals.
We oppose any legislative change that would make it harder to challenge and remedy anticompetitive concerted activities among health care providers that obstruct health plans in achieving quality assurance and cost containment objectives. Finally, we would be greatly concerned by any initiative that would foster collective activity by competing providers if it proceeded on an assumption that competition among physicians, hospitals and other providers in dealing with health plans or other payers could or should be sacrificed or put aside. Exemptions from the antitrust laws to permit blocks of providers in a community to join together free of antitrust scrutiny not only would serve health plans and their members poorly, but also would be a disservice to all purchasers of health care services—including federal, state and local governments, large and small employers, as well as individual consumers.
Page 144 PREV PAGE TOP OF DOC
AAHP wishes to thank the committee and the chairman for this opportunity to present its views.
1\ ''Managed Care Facts,'' American Association of Health Plans (January 1998).
2\ Id.
3\ ''HMO & PPO Industry Profile 1995–1996 Edition,'' American Association of Health Plans (1996).
4\ ''Health Benefits in 1997,'' KPMG Peat Marwick (1997).
5\ ''Foster Higgins National Survey of Employer-Sponsored Health Plans,'' (1996).
6\ American Medical Association v. United States, 317 U.S. 519 (1943).
7\ See American Medical Association, 94 F.T.C. 701 (1979), aff'd as modified, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided court, 455 U.S. 676 (1982); American Medical Association v. United States, 317 U.S. 519 (1943); American Society of Anesthesiologists, 93 F.T.C. 101 (1979).
Page 145 PREV PAGE TOP OF DOC
8\ See Forbes Health System Medical Staff, 94 F.T.C. 1042 (1979); Medical Staff of Doctors' Hospital, 110 F.T.C. 476 (1988). See also Medical Staff of Holy Cross Hospital, No. C–3345 (consent order of Sept. 10, 1991); Medical Staff of Broward General Medical Center, No. C–3344 (consent order, Sept. 10, 1991).
9\ Medical Service Corp. of Spokane County, 88 F.T.C. 906 (1976); Blue Cross of Washington and Alaska v. Kitsap Physicians Service, 1982–1 Trade Cas. (CCH) 64,950 (W.D. Wash. 1981).
10 Association of Independent Dentists, 100 F.T.C. 518 (1982); Michigan State Medical Society, 101 F.T.C. 191 (1983); United States v. Massachusetts Allergy Society, 199201 Trade Cases (CCH) 69,846 (E.d. Mass. 1992); United States v. Alston, 974 F.2d 1206 (9th Cir. 1992).
11 See Indiana Federation of Dentists v. FTC, 476 U.S. 447 (1986).
12 See e.g., American Medical International, 104 F.T.C. 177 (1984); Hospital Corporation of America, 106 F.T.C. 455 (1985), aff'd, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987).
13 See United States and State of Connecticut v. HealthCare Partners, Inc., Case No. 395–CV–)1946–RNC (D. Conn; filed Sept. 13, 1995)(including complaint, proposed final judgment, and competitive impact statement,), 60 Fed. Reg. 52014, 52020 (Oct. 4, 1995) (only acute care hospital in the Danbury, Connecticut area, IPA that included 98 percent of the physicians on the hospital's staff and PHO formed by the hospital and IPA alleged to have conspired to restrain the development of managed care in the Danbury area by, among other things, requiring payers to negotiate solely through the PHO); See also, United States v. Health Choice of Northwest Missouri, Inc., Case No. 95–6171–CVSJ6 (W.D.Mo.; filed Sept. 13, 1995). See United States v. Women's Hosp. Found., 61 Fed. Reg. 21489 (May 10, 1996); Mesa County Physicians Indep. Practice Ass'n, Inc., 63 Fed. Reg. 9549 (Feb 25, 1998); M.D. Physicians of Southwest Louisiana, Inc., 63 Fed. Reg. 34423 (June 24, 1998).
Page 146 PREV PAGE TOP OF DOC
14 See, ''Collective Bargaining by Physicians and the Antitrust Laws,'' Robert E. Bloch, Esq., Scott P. Perlman, Esq. and Jay S. Brown, Esq., Paper presented to the Annual Meeting of the American Association of Health Lawyers, June 28–July 1, 1998.
15 FTC v. COLLEGE OF PHYSICIANS-SURGEONS OF PUERTO RICO, Civil No. 97–2466 HL (D.P.R. Oct. 2, 1997).
16 Trauma Associates of North Broward, Inc., 118 F.T.C. 1130 (1994).
17 United States v. Greater Bridgeport Individual Practice Ass'n, 57 Fed. Reg.46874 (Oct. 13, 1992).
18 Southbank IPA, Inc., 56 Fed. Reg. 50912 (Oct. 9, 1991).
19 See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982); FTC. v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986).
20 ''Annual Report to Congress,'' Physician Payment Review Commission (1995).
Page 147 PREV PAGE TOP OF DOC
21 Statements of Antitrust Enforcement Policy in The Health Care Area, U.S. Department of Justice and the Federal Trade Commission (August, 1996).
Mr. HYDE. Thank you very much, sir.
Ms. Fennell.
STATEMENT OF KAREN FENNELL, R.N., M.S., SENIOR POLICY ANALYST, AMERICAN COLLEGE OF NURSE–MIDWIVES, ON BEHALF OF THE ANTITRUST COALITION
Ms. FENNELL. Thank you very much, Mr. Chairman, for the opportunity to testify today regarding the Quality Health-Care Coalition Act of 1998 legislation. My name is Karen Fennell. I am senior policy analyst for the American College of Nurse-Midwives, a trade association representing over 6,500 nurse-midwives in the country. I also should share with you in my previous career I spent 12 years negotiating labor contracts.
However, I am here today on behalf of the Antitrust Coalition, an informal coalition of organizations strongly opposed to any statutory changes to the antitrust laws as they relate to health care. Our coalition, which was formed in 1994, consists of representatives of the health plan, hospital, employer, pharmaceutical manufacturer and non-physician communities. We are a unique blend of the health care marketplace, in that we are competitors and purchasers and we often find ourselves, as you well know, on opposite sides of the table in regards to legislation. However, the common ground that unites this coalition is a recognition and understanding that competition in the marketplace is the key to our survival and that the antitrust laws are crucial to maintaining a competitive environment.
Page 148 PREV PAGE TOP OF DOC
As you know, Mr. Chairman, legislative proposals to change the current antitrust laws to favor physicians are not new. In fact, it was just 2 years ago that you yourself introduced a bill that we believe was responsible for the changes that the Federal Trade Commission and the Justice Department made in their guidances as to how we can move in this new marketplace. These guidances called for financial integration.
What this bill does is to propose no financial integration or risks of the parties coming together, and I would like to talk about that a little bit more. It is not in my written testimony, but to give you some examples in this area: essentially all physicians or even all health professionals could come to the table together even though we share no financial risk.
Let us say Karen owns a birth center in Bethesda, Maryland; Mary has a independent practice; Sue, and so forth and so on. When we negotiate with the plan as proposed under this law, we would have to share prices and charges. So, if Karen, for example, charges $70 for a pap smear and office visit and Mary charges $50, you know darn well when we go to the table we are not going to ask for $50 from the health plan; we as a group are going to ask for $70 or more. This is definitely going to drive up costs; ''price fixing in a back door way.''
The other interesting part of this bill, it is really an ''any willing provider'' bill. There is no other way to label it, and this is a provision that Congress has rejected repeatedly.
First of all, health plans do have the right and do decide that certain professionals and others will not be brought into their networks as providers. This bill essentially says if a group of physicians or health professionals or nurse-midwives get together, it says that that health plan must accept all of those providers into the network because they are negotiating as one unit. This has phenomenal ramifications in regards to an area that we have moved away from in looking at health care systems.
Page 149 PREV PAGE TOP OF DOC
There are other things that concern us, particularly as to what happens to the consumer in the marketplace. Repeatedly over the years, physicians have had control over the marketplace. They have been the ones who decide which of the health professionals get admitting privileges to hospitals and which don't. They also have had the ability to effectively determine what many of us get paid in the marketplace.
We, as non-physician providers, now that it has been the antitrust laws that have opened these doors to us. It has opened admitting privileges in hospitals to us and opened the door to us to participate in the managed care market.
This is a hard thing for physicians to accept. In fact, repeatedly the AMA in their recent convention has called for Congress to roll back payment levels that you established under Medicare and Medicaid to nurse practitioners, PAs. It is well recognized in the marketplace and well recognized by HMOs that the non-physician provider group can provide some of the same services physicians do with cost savings and very effective quality outcomes.
As we look beyond this whole area I also want to share with you my experiences in negotiating as a union negotiator for registered nurses. Basically the registered nurse population has not changed since the law was passed in 1974 that gave rights to nurses to collectively bargain in hospitals and other health care settings.
One of the biggest issues that still faces the profession is a lack of staffing, a lack of sufficient numbers of nurses to deliver the quality care services or the tools to do that. Collective bargaining has not solved that problem, and nowhere in this legislation is there a guarantee because services are being denied or physicians are not being paid enough, that bringing parties together to negotiate is going to solve these problems.
Page 150 PREV PAGE TOP OF DOC
Thank you very much. We appreciate the opportunity to testify before you today, and I would be glad to answer any of your questions.
[The prepared statement of Ms. Fennell follows:]
PREPARED STATEMENT OF KAREN FENNELL, R.N., M.S., SENIOR POLICY ANALYST, AMERICAN COLLEGE OF NURSE-MIDWIVES, ON BEHALF OF THE ANTITRUST COALITION
Thank you, Mr. Chairman, for the opportunity to testify today regarding the ''Quality Health-Care Coalition Act of 1998,'' legislation introduced recently by Representative Tom Campbell (R–CA) (H.R. 4277).
My name is Karen Fennell. I am Senior Policy Advisor for the American College of Nurse-Midwives, a trade association representing 6,500 nurse-midwives nationwide. Our members provided services in all areas, ranging from urban city settings to the most rural settings. While we often work hand-in-hand with physicians, we also provide an affordable alternative in areas where physician care is not readily available.
I am here today on behalf of the Antitrust Coalition, an informal coalition of organizations strongly opposed to any statutory changes to the antitrust laws as they relate to health care. Our coalition, which was formed in 1994, consists of representatives of the health plan, hospital, employer, pharmaceutical manufacturer and non-physician provider communities. We are a unique blend of health care marketplace competitors and purchasers—who often find ourselves on opposite sides of legislation.
Page 151 PREV PAGE TOP OF DOC
However, the common ground that unites this coalition is a recognition and understanding that competition in the marketplace is the key to our survival, and that the antitrust laws-conceived well over 100 years ago—are crucial to maintaining a competitive environment.
As you know, Mr. Chairman, legislative proposals to change the current antitrust laws to favor physicians are not new. Over the last several years, our Coalition has successfully fought numerous efforts to provide physicians or ''health care professionals'' with a competitive advantage by relaxing antitrust scrutiny over their activities. Legislation that you sponsored in the 104th Congress would have guaranteed physicians the right to form their own networks and limited the ability of the antitrust enforcement agencies to scrutinize these networks for potential anti-competitive behavior.
While we officially opposed this legislation, your sponsorship of this legislation was directly responsible for prompting the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to revise their enforcement guidance as it related to physician-owned networks. And to the satisfaction of nearly all parties involved, the FTC and DOJ jointly released a revised set of enforcement principles nearly two years ago that have effectively balanced the marketplace needs of physicians to lawfully form their own health networks with the expectations of consumers to be protected from the insidious price inflation, choice erosion and quality ramifications that result from such anti-competitive conduct as price-fixing, boycotting and collusion.
Since August of 1996, numerous physician-sponsored organizations have been formed, many with the blessing of the enforcement agencies. These new organizations are now co-existing and competing with the more entrenched managed care entities—without the antitrust exemption they so long advocated. Consumers benefit from greater choice and price competition.
Page 152 PREV PAGE TOP OF DOC
Most of our Coalition believed that the 1996 revised enforcement guidance did dramatically minimize—if not eliminate—the need for any legislative changes to antitrust law. Not so.
Now, some in the provider community have renewed their push for special treatment under antitrust law. The ''Quality Health-Care Coalition Act of 1998'' is a bold statement that reaches far beyond the recent FTC/DOJ Enforcement Guidance and far beyond your proposed legislation.
Simply put, Mr. Chairman, H.R. 4277 is the largest threat to our antitrust laws that we have seen in quite some time. It's simplicity is lethal. With one simple sentence, physicians would allowed to actively engage in price-fixing activities. With one simple sentence, our Century-old antitrust law would be wiped from the books and decades of case law would be moot.
In one simple sentence, H.R. 4277 provides a back-door exemption from antitrust law by expressly allowing competing providers to collectively discuss, agree to and negotiate contract terms with health plans and other purchasers of health care services. Under H.R. 4277, physicians would no longer be required or even encouraged to form legitimate business ventures to service patients. Rather, they would be given the competitive advantage to operate collectively while maintaining their independence.
It is a frightening thought, not only for other professionals and plans who must compete in the marketplace, but also for consumers who rely most heavily on market competition to provide them with affordable value.
Page 153 PREV PAGE TOP OF DOC
Many non-MD health professionals perform the same functions as medical doctors and work in every setting in which health care is delivered: traditional hospitals; surgical and delivery suites; the offices of podiatrists; ophthalmologist; rehabilitation and mental health services; ambulatory surgical centers; free standing birth centers; health maintenance organizations, preferred provider organizations; and federal institutions such as the U.S. Public Health Service and the Armed Services. Although, historically, the playing field upon which non-MDs have sought to compete with medical doctors has not been a level one, due primarily to medicine's dominance over the marketplace, non-MDs have established a presence in that marketplace. Non-MDs are, however, severely affected by physician network formation, even where such networks might, in other respects, satisfy antitrust guidelines.
However, H.R. 4227 would go even further by not requiring physicians to even form networks. This leaves non-MD health professionals even more vulnerable to such unscrupulous and anti-competitive activities as boycotting. And which nurse-midwives also could arguably take advantage of collective bargaining capability under H.R. 4277, therefore, we remain more concerned that the legislation would provide physicians with an unfair competitive advantage. Further, our current experience has taught us that without strong antitrust protection, our members have difficulty competing.
Non-MD health professionals have the education and the state-regulated scope of practice to compete in the healthcare marketplace. Furthermore, due to the cost-effectiveness and quality of the services they deliver, they can be highly effective competitors. Although historically, physicians have dominated access to the healthcare market by control of hospital access and control of influence of payment mechanisms, non-MD health professionals have successfully prosecuted actions against physicians for antitrust injury based on such exclusions. Without the protection of the current antitrust laws, however, some physicians may successfully eliminate the practice of their competitors—non-MD providers.
Page 154 PREV PAGE TOP OF DOC
For example, in Oltz v. St. Peter's Community Hospital, 861 F. 22 1440 (9th Cir. 1988), plaintiff Oltz sued four anesthesiologists and the hospital that granted them an exclusive contract to provide anesthesia services, alleging violations of section 1 of the Sherman Act. The anesthesiologists settled before trial. The court found that the anesthesiologists pressured the hospital to terminate Oltz's contract to provide anesthesia services and grant them the exclusive contract. With Oltz gone, the anesthesiologists' annual earnings increased by 40 to 50 percent.
Nurse-midwives and podiatrists have also used the antitrust laws—or have turned to the FTC for antitrust enforcement—when excluded from hospital access. Sec. E.g., Nurse-Midwifery Associates v. Hibbitt, 1990–2 Trade Cas. (BNA) PP 69, 234 (6th Cir. Nov. 13, 1990); in re: Medical staff of Memorial Medical Center [Cite]; [FTC PODIATRIST CASE], Hahn v. Oregon Physician Service, 689 F 2d 840 (9th Cir. 1982). The Supreme Court has held that consumers who are prevented from utilizing the services of non-MD health professionals by a physician-controlled payment plan would have standing under the antitrust laws to sue for damages. Blue Shield of Virginia v. McCready, 102 S. Ct. 2540 (1982). In addition, the antitrust laws have been held to apply to exclusion of psychologists and podiatrists by physician-controlled prepayment plans, which were precursors of modern day physician networks. Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia, 624 F2d 476 (4th Cir. 1980) and [podiatrists case from gth circuit]. Loss of the antitrust laws willseverely hamper the ability of non-MDs and the enforcement agencies to deter anti-competitive practices of physician controlled groups.
Page 155 PREV PAGE TOP OF DOC
In addition to our concern that H.R. 4277 provides a backdoor antitrust exemption, we continue to feel strongly that antitrust law changes are completely unnecessary and remain concerned that this particular proposal would result in government-sanctioned price-fixing and completely ignores important consumer safeguards envisioned in settings which allow collective bargaining.
Current labor law already allows most physicians and health care providers to formally unionize and to collectively bargain with health plans and other purchasers. In fact, some 14,000 physicians are already represented by labor unions for collective bargaining purposes. So why, then, is H.R. 4277 necessary? Our concern is that while providers may already collectively bargain, this legislation does not technically require that they formally unionize. Rather, it extends to them all of the advantages of unionizing, but none of the attendant responsibilities and consumer protections.
For example, H.R. 4277 appears to ignore the important procedural safeguards imposed under the National Labor Relations Act (NLRA) which are designed to protect consumers during labor disputes. Under the NLRA, several requirements relating to notice must be followed before union participants may strike or picket. As drafted, these same NLRA-imposed requirements would not apply to physicians or other health professionals who choose to collectively bargain.
As a direct result, the Coalition is concerned that H.R. 4277 would directly result in government-sanctioned price-fixing and anti-competitive activities otherwise considered unlawful under existing antitrust law. If the goal is to be able to compete with health plans, physicians have that ability under the 1996 FTC/DOJ Enforcement Guidance. This Guidance renders completely unnecessary and unproductive any statutory changes to antitrust law. Physicians received the meaningful enforcement clarification they have been seeking which better enable them to compete in the marketplace by forming legitimate business ventures to serve consumers. H.R. 4277 boldly ignores these important principles.
Page 156 PREV PAGE TOP OF DOC
But most of all, H.R. 4277 ignores consumers. In its sincere quest to better balance competition between and among managed care organizations and physicians, H.R. 4277 is a dangerous over-reach which would single- handedly undermine competition for choice, price and value.
We respectfully discourage you from pursuing this particular legislation, Mr. Chairman, and appreciate very much the opportunity to testify on this most important issue.
Thank you.
Mr. HYDE. Thank you, Ms. Fennell.
Mr. Conyers.
Mr. CONYERS. Thank you, Mr. Chairman.
Dr. deMontmollin, do you support antitrust law?
Mr. DEMONTMOLLIN. Absolutely.
Mr. CONYERS. Are you a doctor?
Mr. DEMONTMOLLIN. No.
Page 157 PREV PAGE TOP OF DOC
Mr. CONYERS. Thank you very much for correcting that. Attorney deMontmollin, do you support antitrust law?
Mr. DEMONTMOLLIN. Absolutely.
Mr. CONYERS. Did you support antitrust law before 1945, before they exempted insurance companies?
Mr. DEMONTMOLLIN. Insurance companies are not exempted by the McCarran-Ferguson Act. There is a chairman of the insurance department in Florida, a member of this body previously, his name is Bill Nelson, we have little FTC acts, we have any number of——
Mr. CONYERS. They are not exempt?
Mr. DEMONTMOLLIN. From a technical standpoint they are, but the fact of the matter is that it doesn't affect the manner in which insurance companies are regulated, other than the fact that the States have the primary responsibility. The Patient's Bill of Rights is a perfect example.
Mr. CONYERS. Were you supportive of that?
Mr. DEMONTMOLLIN. Which one?
Mr. CONYERS. The Patient Bill of Rights?
Page 158 PREV PAGE TOP OF DOC
Mr. DEMONTMOLLIN. We were supportive of a number of provisions, and a number we weren't.
Mr. CONYERS. I thought your organization, not you personally, I thought your organization was not supportive of the Patient's Bill of Rights.
Mr. DEMONTMOLLIN. The American Association of Health Plans developed its own patient rights measures which incorporated many of those provisions that came out of the President's commission.
Mr. CONYERS. And so that is why you didn't support ours?
Mr. DEMONTMOLLIN. I don't believe that there was complete support with respect to all of the provisions of the Patient's Bill of Rights.
Mr. CONYERS. Okay. I read from a United States Supreme Court case 322533, Southeastern Underwriters, holding that the insurance industry was a business in interstate commerce subject to the Sherman Act. Congress enacted the McCarran-Ferguson Act which created a statutory antitrust exemption for insurance companies, et cetera, et cetera, et cetera.
This is probably incorrect.
Mr. DEMONTMOLLIN. Tell me how that affects the——
Page 159 PREV PAGE TOP OF DOC
Mr. CONYERS. Tell you how. I teach law classes in the evening in 2426 Rayburn. I will be delighted to. And I have a very able staff of a dozen lawyers, some law professors. I will be happy to explain it to you, but not during my 5 minutes.
Now, attorney, tell me what do you have to say about the AMA testimony which you have heard this afternoon with your own ears?
Mr. DEMONTMOLLIN. I think that Dr. Connair probably put his finger on what I believe is the major problem, and it may be an issue with you as well, Representative Conyers, and that is that he was concerned about those physicians who would accept low-paying contracts. That is really what the problem is, that there is an oversupply of physicians in the major metropolitan areas, and the real concern is that physicians in various specialty groups will agree to contract for less than what those doctors wish to.
However, in the rural areas, and Mr. McCollum will attest to this, very few, about half of our counties in the State of Florida have managed care, have HMOs, and that is because in the rural areas there is a complete refusal to contract with managed care companies.
Orthopedic surgeons in Gainesville, Florida, a county of 200,000 people, refused to accept 175 percent of the Medicare RBRVS fee schedule, insisting on 200 percent, and said that if you don't like that, you can go to the University of Florida and contract with the Department of Orthopedic Surgery there. There is no question in the rural areas there is not enough competition.
Mr. CONYERS. I understand the rural area problem, but contrasting it against these other issues, I guess we lawyers can indulge in that.
Page 160 PREV PAGE TOP OF DOC
Now, let me take you to a place, the ninth largest city in America, Detroit. Could you and I meet to talk about the problems that they have been meeting on for a year, which includes racial discrimination?
Mr. DEMONTMOLLIN. We would be delighted to, and I am very pleased that Ms. Jackson Lee is back because I would like to address those issues.
Mr. CONYERS. I don't know how her coming back will help you address those issues, although she is an international figure, but I am talking about Detroit. And what I would love to do is for you and me, and this is friendly—look, this is what democracy is all about.
Mr. DEMONTMOLLIN. Absolutely.
Mr. CONYERS. People have competing views. We are democratically elected. So let's you and I get together. Maybe we will go to Detroit and listen to these whining doctors that are always besieging me about the fact that they can't get their HMOs to defend them against malpractice suits. They have to sign a provision that says you are on your own. They control everything else, but if you get sued, tough, baby.
Mr. HYDE. Those plaintiff lawyers are tough, aren't they, John?
Mr. CONYERS. Well, when they get sued they are defense lawyers, and the plaintiff lawyers are tough, but it would help them if they could get a lawyer to defend them against the tough plaintiff lawyers.
Page 161 PREV PAGE TOP OF DOC
But I thank you for your cordiality, counsel, and I look forward to getting to know you better.
Mr. HYDE. Mr. McCollum.
Mr. MCCOLLUM. Dr. Palmisano and Dr. Connair, I had an occasion to be at that meeting, as you heard me say earlier, and the retiring president of that organization was relating to me his own situation with regard to a large HMO—it was not Mr. deMontmollin's HMO—and the fact that he doesn't belong to any HMO, doesn't want to, but he had been wanting to be a participant in the PPO that same company had for a long time, and finally he thinks that they have agreed to that after years of discussion in which they prohibited any doctor from being a participant in the PPO if they were not in the HMO.
Is that a common problem, and are there problems like that which don't have a lot directly to do with what a doctor charges or the fees, since I hear everything coming from the opposition being in that regard? Are there issues of that nature, issues that indirectly are very tangential as to the cost and pricing of medicine as opposed to the way that the structure is set up, that doctors would like to negotiate about?
Dr. PALMISANO. Yes, I had the privilege to be at that meeting. I was there to address the House of Delegates of the Florida Medical Association. And yes, there are problems. This is not about fees as the only issue. This is really about patients and patient care, and that is the thrust of the American Medical Association.
Page 162 PREV PAGE TOP OF DOC
There are problems when—I have a patient in my office who suddenly went blind in the right eye and temporarily couldn't move his left hand. It lasted 5 minutes, and I witnessed that. I knew what that most likely was and I knew what needed to be done, and I knew if we didn't do something soon he may break off another piece of clot from the equivalent of a pothole in the carotid artery; it goes to the brain and paralyzes this man or kills this man.
And so I have to get on the phone and get permission, preauthorization, and someone asks me, ''Well, is the patient okay now?'' And I am rather impatient and I want to move on up. I said, ''I need to talk to somebody with an M.D. degree, and I am admitting the patient, and if you don't allow me to admit the patient, I am going to write in here that you said that the patient couldn't be admitted but I am doing it for the patient's best interests.'' That is just one example.
Mr. MCCOLLUM. Suppose you said I am going to admit the patient anyway? Is that a cost problem?
Dr. PALMISANO. First of all, the hospital is going to say we don't have authorization. The patient is already in great distress because the patient is fearful of having a stroke.
Mr. MCCOLLUM. You are saying that this is a life-and-death matter and if the hospital refused, it would be a real legal problem.
Dr. PALMISANO. I have been faced with those things in the middle of the night, at midnight. They say, ''We can't reach the managed care organization. We get a busy signal and nobody answers.'' I always tell the administration of the hospital, ''I am putting here we are going to take care of this patient. That is what I am trained to do and that is my ethical responsibility. I am going to admit the patient. If you want to throw the patient out, take your best shot at doing that.''
Page 163 PREV PAGE TOP OF DOC
Mr. MCCOLLUM. Some would say it would be the emergency room physician in charge that would make that decision and not you.
Dr. PALMISANO. If it is my patient, I am going to make that decision. Nobody has prevented me, and I always say get the administrator on the phone.
Mr. MCCOLLUM. Dr. Connair, is the problem that I described common? You just heard Dr. Palmisano describe some other examples of where a doctor would like to be a participant in a PPO but he can't because it is attached to the HMO. Is that something that you have heard?
Dr. CONNAIR. That is frequently the case. Typically the HMO reimbursement rates are lower than the PPO rates, and as a condition for joining a more liberal, perhaps less restrictive organization like a preferred provider organization, a doctor will be forced to join the HMO as well.
A comment on the patient admission discussed by Dr. Palmisano: Ultimately, though, if it is an emergency, both of us force the hospital to admit the patient no matter what the legal, administrative and financial consequences.
Mr. MCCOLLUM. I am going to ask Mr. deMontmollin about the HMO/PPO. Do you think that it should be that way?
Mr. DEMONTMOLLIN. It is not that way. We have owned a physician integrated health care company for a number of years. Blue Cross/Blue Shield, probably the company you are talking about, came to us and said, ''We are not going to allow you to sign up for the general hospital or your physician practice unless you agree also to do something else.'' I said, ''We have a problem. There is a State contract for State employees. We are going to make a squawk and you are not going to be able to do it, so we are not going to agree to do it.''
Page 164 PREV PAGE TOP OF DOC
From time to time that may happen, but as far as throwing away 70 years of antitrust law and labor law, it doesn't make sense.
Mr. MCCOLLUM. My point is that at least in Florida pretty universally Blue Cross/Blue Shield had that policy. I think they have changed it. That was a problem for a long time with a lot of physicians.
Mr. DEMONTMOLLIN. And your comment is extremely well taken. There are other remedies.
Mr. MCCOLLUM. I am not trying to argue with you but I don't think that they changed it out totally because there was some bargaining. It was because they ultimately thought it wasn't the right thing to do. Maybe it was political pressure.
Mr. DEMONTMOLLIN. The American Medical Association has published a document which says that there are a number of ways to address the issue. One is, the antitrust laws allow medical societies to advocate medical policy before health plans. In the event that practicing physicians feel that a health plan is following a medical policy that harms patients, they may collectively demonstrate the error of the health plan and advocate an alternate policy.
Mr. HYDE. The gentleman's time has expired. I would like to finish.
Page 165 PREV PAGE TOP OF DOC
Mr. Nadler, we have a vote. Can we let this panel go?
Mr. NADLER. We still have 15 minutes on the vote. I will be brief. I would like to ask——
Mr. HYDE. You get over there quicker than I do.
Mr. NADLER. Mr. deMontmollin, you saw the contract. It is a typical contract, we are told by Mr. Palmisano. Do you regard this as consistent with good health care?
Mr. DEMONTMOLLIN. Most of those provisions are not in our contract. I don't know what they are.
Mr. NADLER. You represent all of the HMOs, don't you?
Mr. DEMONTMOLLIN. A perfect example, Mr. Nadler, is this anecdotal evidence, is the question about the gag rules. This Congress said——
Mr. NADLER. Excuse me. I asked you about this contract.
Mr. DEMONTMOLLIN. Tell me a provision and I will respond.
Mr. NADLER. Dr. Palmisano read it.
Page 166 PREV PAGE TOP OF DOC
Mr. DEMONTMOLLIN. These apparently are provisions that are gleaned from various contracts around the country.
Mr. NADLER. Is this gleaned from one contract, Dr. Palmisano?
Dr. PALMISANO. That is from one contract. We have a supply of those that we will be glad to give to the committee.
Mr. NADLER. This is a common contract for large HMOs?
Dr. PALMISANO. Yes.
Mr. DEMONTMOLLIN. What provision?
Mr. NADLER. Page 1, that in the opinion of the HMO as well as of the company, the treatment that is necessary has to be essential to improve the beneficiary's net outcome, and ''may be,'' not ''is,'' as beneficial as any established alternatives. Do you think that is conscionable?
Mr. DEMONTMOLLIN. I don't think that is a common provision in the contract.
Mr. NADLER. Is that common?
Dr. PALMISANO. It is one of the provisions that we have seen in a large company.
Page 167 PREV PAGE TOP OF DOC
Mr. NADLER. So whether—excuse me.
Mr. DEMONTMOLLIN. The National Committee on——
Mr. NADLER. I am strapped for time. Whether it is common or not, is this a conscionable provision in your opinion?
Mr. DEMONTMOLLIN. I don't know what you mean by ''conscionable.''
Mr. NADLER. Would you in good conscience think this is an okay provision?
Mr. DEMONTMOLLIN. Are essential to improve?
Mr. NADLER. Are essential, likely to, and may be, not is beneficial. In other words, that the company substitutes its judgment, and if there is a lower cost alternative that might be but is not definitely as effective in treating a problem, you have to use that one. Is that within the realm of good conscience? Yes or no.
Mr. DEMONTMOLLIN. I can't answer that. I will say this is a very unusual contract. It is not in most, but let me explain what the relationship of the medical director and the treating——
Page 168 PREV PAGE TOP OF DOC
Mr. NADLER. I am not interested in that and I don't have time for lectures.
Dr. Palmisano, we talked before about volume. I have had doctors tell me that because of reimbursement rates imposed on them by HMOs, they have to see three or four times as many patients as they think that they can to give good medical care. Is that a common problem?
Dr. PALMISANO. Yes, it is a common complaint amongst physicians. In fact, physicians in Rockford, employed physicians, that was one of their complaints.
Mr. NADLER. And the only way to solve that problem is to give physicians bargaining power with respect to fee rates, so-called price fixing?
Dr. PALMISANO. If you drive the price down artificially, you are going to sacrifice quality in the long run. The problem's solution is all we want is what we heard earlier in my testimony. We want doctors to be treated like the rest of America.
Mr. HYDE. Mr. Nadler, I want to give Sheila Jackson Lee a chance to ask some questions before we adjourn. Would you mind terribly? I would appreciate the courtesy.
Mr. NADLER. All right.
Mr. HYDE. Ms. Jackson Lee.
Page 169 PREV PAGE TOP OF DOC
Ms. JACKSON LEE. Thank you, Mr. Chairman.
Let me ask Dr. Palmisano, and forgive me for the mispronouncing of your name, has the AMA consulted with the National Medical Association or other minority doctor's organizations about this legislation and this problem?
Dr. PALMISANO. Specifically, the National Medical Association sits in the House of Delegates, in our House of Delegates. Our policy is formed by the House of Delegates. Everything that the AMA advocates is policy that is formed by the House of Delegates, and the National Medical Association sits there. The orthopedic surgeons sit there, the American College of Surgeons, all of the specialty groups and organizations sit in our House of Delegates.
Ms. JACKSON LEE. But not a separate consultation with their board or leadership?
Dr. PALMISANO. I would have to ask staff about that. I am not certain.
Ms. JACKSON LEE. Are you asking for an even playing field for your physicians?
Dr. PALMISANO. Absolutely. Many of the issues and questions can be fine-tuned and addressed. The example of the three doctors, you could have a percentage in the marketplace of physicians. We want to have it so it is a level playing field.
Page 170 PREV PAGE TOP OF DOC
We don't want to force doctors to have to form unions. We certainly are against strikes. It is our ethical precept that we will not use patients as bargaining chips. These are not widgets we are dealing with. We do not work on an assembly line.
We want to advocate for physicians. This goes beyond price, although price plays an important role because if you keep cutting back, cutting back, you can't get the supplies that you need to treat the patient.
Ms. JACKSON LEE. This is my last question and it is to Mr. deMontmollin, only to say that what I have heard here sounds very much like our Patient's Bill of Rights that did not pass last week. Do you have opposition or support for this legislation that we are presently discussing?
Mr. DEMONTMOLLIN. We are opposed to it.
Ms. JACKSON LEE. Your main problem?
Mr. DEMONTMOLLIN. The main problem is that for every 1 percent increase in premium, 400,000 Americans are denied access to health care. Our main problem is that this is going to overturn 70 years of antitrust laws. It is going to overturn the guidelines for health care organizations that have been carefully balanced by the Federal Trade Commission and the Justice Department, and it is going to result in a return to the good old boy network.
I was here in 1974 when they passed the HMO act, and the reason for that was if you joined up with a managed care company, you couldn't get into the country club, you couldn't get on the staff at the hospital. And if you want to see what happens to midwives, nurse-anesthetists, osteopaths, minority providers when the physicians, the M.D.'s are taken out from under the antitrust laws, you are going to see a return to the bad old days.
Page 171 PREV PAGE TOP OF DOC
Mr. HYDE. I dislike very much interrupting you, but we are going to have to recess.
Ms. JACKSON LEE. I thank you very much, Mr. Chairman. I think there is room for solutions to all of these problems.
Mr. HYDE. I want to thank this panel for adding to our understanding of this very complicated issue. This is only the beginning, but you have been there at the beginning. Thank you. The committee hearing is adjourned.
[Whereupon, at 1:01 p.m., the committee adjourned.]
A P P E N D I X
Material Submitted for the Hearing
PREPARED STATEMENT OF JOHN M. RECTOR, SENIOR VICE PRESIDENT OF GOVERNMENT AFFAIRS AND GENERAL COUNSEL, NATIONAL COMMUNITY PHARMACISTS ASSOCIATION
Mr. Chairman, Members of the Committee, I am John M. Rector. I serve as Senior Vice President of Government Affairs and as General Counsel for the National Community Pharmacists Association, formerly the National Association of Retail Druggists.
The National Community Pharmacists Association (NCPA) represents more than 35,000 independent pharmacies, where over 75,000 pharmacists dispense more than 70% of the nation's prescription drugs and related services. Independent pharmacists serve 18 million persons daily. NCPA has long been acknowledged as the sole advocate for this vital component of the free enterprise system. We are the only national pharmacy association with universal state association membership, including those of the Committee's members.
Page 172 PREV PAGE TOP OF DOC
As owners, managers and employees of independent pharmacies, our members are committed to legislative and regulatory initiatives designed to protect the public and to provide them a level playing field and a fair chance to compete. We appreciate the opportunity to assist the Committee in the assessment of H.R. 4277, the Health Care Coalition Act of 1998, introduced by Representative Tom Campbell. H.R. 4277 provides that ''Any group of health care professionals, negotiating with a health maintenance organization, insurer, or other payer, shall, in connection with such negotiations, be entitled to the same treatment under the antitrust laws accorded to members of a bargaining unit reorganized under the National Labor Relations Act.''
We have endorsed H.R. 4277 and agree with Representative Campbell that its enactment will enable pharmacists to secure contracts of a more fair and equitable nature and that the patients will be better served. Major drug store chains in irrespective of their size are currently able to negotiate contracts providing prescription drug coverage. The Campbell bill will enable groups of independent pharmacies to similarly negotiate.
For the community retail pharmacist, H.R42?7 will help put an end to the present ability of the insurance industry and its intermediaries to fix prices in pharmacy reimbursement; and to the tying of insurance to the mandatory or coercive use of mail order pharmacy, which denies equal access to neighborhood pharmacies by consumers.
Another notable untoward outcome of the unlevel playing field spawned by exempt insurance practices has been the devaluation of professional pharmacy services. The non-negotiable third party contracts usually depict coverage as for ''drugs'' with at best minimal, if any, recognition of the value of or coverage for important, cost effective professional pharmacy services.
Page 173 PREV PAGE TOP OF DOC
The failure to provide incentives for full pharmacy services leads to unnecessary and inappropriate prescriptions; to uncounseled prescription drug use; and to reduced patient compliance with appropriate drug regimens. In the long run, the insurance industry's ''commodity only'' approach to pharmacy services has increased total annual health care expenditures by billions and diminished the quality of life for covered consumers and their families. In summary, there is less payment for less care.
The dominance of the insured prescription coverage now called ''managed care'' without the ability for pharmacists to negotiate has served to create additional barriers to competition, not enhanced competition. Those attempting to ''manage'' our market seek to reduce the number of viable competitors and steer unwilling consumers to a few select competitors often owned by pharmaceutical manufacturers or insurance companies. The Committee can see that ''managed care'' is a very misleading phrase, at least in our marketplace. It is very reminiscent of an ad that ran during the 1994 health care reform debate, featuring the words ''if you call him a goldfish, would he be any less dangerous,'' superimposed on a very large predator: the great white shark.
Not only are we forced to accept whatever reimbursement the insurance industry and its ''co-conspirators'' demand, but industry associations and companies characterize such reimbursement as discounts ''given'' by pharmacies.
Those who are familiar with the impact of the insurance industry antitrust exemption know that to characterize the reimbursement for pharmacists fixed by the insurance industry and intermediaries in ''take-it-or-leave it'' contracts as voluntary on the part of the pharmacists is similar to characterizing the victim of an armed robbery as having donated cash to the assailant's favorite charity. It is our view that once H.R. 4277 is enacted, the notion of ''given'' will have a more traditional meaning.
Page 174 PREV PAGE TOP OF DOC
In the early 1970's, your former colleague, Mr. Hungate (D–MO) conducted one of the initial investigations by the Small Business Committee of insurance problems unique to our market. Later, members of this committee, led by Mr. Hamilton Fish, (R–NY) attempted to address retail pharmacy's unique problem through the bipartisan ''Prepaid Prescription Program Negotiation Act'', which as an alternative to repealing the insurance industry's antitrust exemption would have leveled the playing field in our marketplace through an antitrust exemption for our community retail pharmacist members.
In several Congresses, Rep. Fish and Rep. Addabbo (D–NY) introduced their bill which would have established a limited exemption from the antitrust laws to permit community pharmacists to collectively negotiate with third party program administrators and sponsors. The key provision read as follows: ''to negotiate collectively with a third party prescription program administrator or sponsor with respect to their reimbursement for dispensing prescriptions under such programs or with respect to the administrative and operational features of such programs.''
Importantly the bill specifically preserved the application of the antitrust laws ''which are otherwise cognizable under the antitrust laws and not directly related to third party prepaid prescription programs.''
It appeared then as it does now that what is good for the goose would be good for the gander.
We also have pursued as a top legislative priority the elimination of the insurance antitrust exemption including H.R. 9 introduced by then Chairman Jack Brooks, which was endorsed 5 years ago today by the Clinton Administration. H.R. 9 which was reported by the Committee, also was a key provision in the Clinton Health Care Reform Legislation H.R. 3600. H.R. 3600 also had provisions enabling providers to negotiate with insurers and payers, which we supported. The Mitchell bill in the Senate also contained both the exemption and negotiation provisions.
Page 175 PREV PAGE TOP OF DOC
Of course the seriousness of our members' problems have increased as the percent of third-party prescription programs has grown from 12% of retail prescriptions in 1969 to 40% in 1990 and now in 1998 to 65%. The typical NCPA member is now losing $5.51 on every third party prescription that is dispensed. [See attached: Eevaluating Third Party Prescription Program—Sixth Edition, page 10].
Independent pharmacists are understandably seeking relief. A blue ribbon NCPA Task Force on Third-Party Contracts Negotiation has recently restated support for legislation like H.R. 4277 in its March 1998 Action Plan (See Step 4). [See Attachment: America's Pharmacist, April 1998, pages 19–21].
In 1996 we endorsed Chairman Hyde's Antitrust Health Care Advancement Act because we too believe as its author stated that ''Costs will be lower because contracting directly with health care providers would eliminate an intermediate layer of overhead and profit . . . and that health care professionals are better qualified than in insurers to strike a proper balance between conserving costs and meeting the needs of the patient.'' Our support for H.R. 4277 is based on virtually identical reasoning.
Former HHS Secretary Sullivan, M.D., portrayed a community retail pharmacy as ''the pulse of the community: a source of vital health care information, products and professional assistance, as well as the nerve center of the community, both socially and politically''. For the 9th year in a row, our members have been noted by the Gallup Poll as the most respected and trust worthy of all professions. The late Senator and Vice President of the United States, Hubert H. Humphrey, himself a community retail pharmacist, referred to the drug store as ''a living civics lesson.'' We intend to leave no stone unturned in helping to assure that our high respected members fully participate in a contemporary civics lesson on the Campbell bill.
Page 176 PREV PAGE TOP OF DOC
The insurance industry's current use of its antitrust exemption denies access for many consumers to independent pharmacies and their professional services, and in turn, denies access of retail pharmacies to the insured prescription business. These anticompetitive consequences have been amplified by the unique and radical price fixing engaged by the prescription drug manufacturers benefiting our competitors, especially mail order outfits. If left unabated, these anticompetitive forces have the potential for eliminating the life blood our businesses; namely, access to citizens in their neighborhood.
We look forward to assisting the Committee in the enactment of the Health Care Coalition Act, H.R. 4277. It is a top legislative priority and we will continue to give it priority attention.
On behalf of the members of the National Community Pharmacists Association, we thank you for the opportunity to continue participating in the effort to enact this procompetitive, pro-consumer legislation.
NCPA NEGOTIATIONS TASK FORCE ANNOUNCES INITIAL FINDINGS
Alexandria, VA, March 27, 1998—''Independent pharmacists must be empowered to negotiate third-party contracts.' That simple, but difficult premise represents the clear consensus of a blue-ribbon Third-Party Contract Negotiation Task Force in its first public report. The task force was convened early this year by the National Community Pharmacists Association.
Page 177 PREV PAGE TOP OF DOC
The exact words are those of Negotiation Task Force Chairman Carmen DiCello at NCPA's 30th Annual Conference on National Legislation and Public Affairs held earlier this month. NCPA released the task force's ''initial findings'' at the meeting, as well as a six-point ''action plan' to guide the future initiatives of the task force.
The findings and action plan are the products of meetings and discussions of the seven-member task force, in collaboration with NCPA staff and the Washington, D.C. law firm Patton, Boggs, since its assembly in early February. Growing out of a resolution adopted at NCPA's Annual Convention last October, the task force is exploring legal ways to allow independent pharmacists to negotiate third-party contracts, and the extent to which independent pharmacists would agree to be bound by negotiated contracts.
Members of the diverse task force range from the retired chairman and CEO of PCS Health Systems to the founder of a grass-roots pharmacy group that was instrumental in the landmark litigation to gain community pharmacists equal access to prices.
The task force's initial findings are:
''Pharmacists must be able to collectively negotiate and must be bound by the negotiated contracts.'
''National, regional, and state organizations; pharmacy services administrative organizations (PSAOs); pharmacy buying groups; independent practice associations (IPAs); limited liability corporations (LLCs); pharmacist guilds; and pharmacist unions are among the entities that could be eligible to negotiate.''
Page 178 PREV PAGE TOP OF DOC
''The subject of negotiations should include the general terms of contracts, as well as enhanced services such as pharmacist care, which ensures that patients are provided optimum care and information.
DiCello explained that the findings are based on ''research of the marketplace, antitrust laws, and regulations'' by the task force and its legal counsel. He added that such research will continue, especially in further assessing pharmacists' attitudes about collective negotiations.
Noting that one of the missions of the task force is to determine whether pharmacists will join and fully support collective negotiation entities, DiCello said that the task force had conducted pharmacist surveys at two recent NCPA meetings. ''So far the surveys come up very positive that, yes, we need to have a means for independent pharmacists to negotiate and, yes, they would be very supportive of such efforts.''
The task force's action plan calls for further soundings of pharmacists' attitudes, more aggressive action on contracts within existing law, and passage of federal legislation to allow independent pharmacists to collectively negotiate prices and terms of third-party contracts. (The complete action plan is attached.)
In a press briefing at the legislative conference, NCPA Executive Vice President Calvin Anthony said that one of the major actions the task force will pursue is to Educate our pharmacists about what we can already do today. to legally negotiate contracts with third-party managed care. ''There are a lot of areas where we can more aggressively negotiate now,'' he said.
Page 179 PREV PAGE TOP OF DOC
NCPA Senior Vice President for Government Affairs and General Counsel John Rector explained that, from a legal standpoint, independent community pharmacists have not always taken advantage of the areas of contracts in which they already have the right to negotiate. They have every right to negotiate in areas in which they do not have monopolistic control, he said, including for disease management and other areas in which a variety of professionals compete.
The task force's research indicates that the contract terms already open to negotiation include: price updates, timely payment and penalties, audit terms, payment of professional services, quality standards, assurance that consumers receive listings of all providers, the ability to charge patients for additional items and services, and the ability to deny 100 percent copayment plans.
It is specifically in the area of dispensing fees that pharmacists would run afoul of the antitrust laws were they to act collectively now, said Rector, explaining that dispensing is an area in which pharmacists have a virtual monopoly. ''That's where you have antitrust risk and where we need relief,'' said Rector.
That relief could be on the way. Chairman DiCello announced that Rep. Tom Campbell (R-Calif.) and others are prepared to introduce legislation that would specifically allow all health care professionals, including pharmacists, to negotiate fees with third-party payers without risking an antitrust violation. The legislation would treat health professionals as if they were recognized by the National Labor Relations Board without requiring them to actually take on the trappings of a union or guild.
Page 180 PREV PAGE TOP OF DOC
''It would provide an antitrust exemption for negotiating all aspects of practice,'' explained Rector. ''And it's presented as if such bargaining units had been approved by the National Labor Relations Boards.''
''This legislation goes to the heart of what the task force has been talking about,'' said Anthony. ''That is, for independent community pharmacy to survive and prosper into the future, we have to be able to collectively get together and discuss contracts.''
Can legislation pass, after years of pharmacists and other health professionals being frustrated by the numerous antitrust obstacles to collective action? ''The environment has changed significantly,'' said Rector, ''and I think there will be a growing amount of bipartisan support for the bill. He noted that Representative Campbell was the director of the FTC's Bureau of Competition in the first Reagan Administration, a former Stanford University professor, and a highly regarded conservative scholar on antitrust issues. Predicted Rector, ''He will be very effective.''
Anthony summed up the current situation: ''A chain drugstore, representing thousands of outlets, can agree or disagree collectively when a third-party payer presents a contract to them. Yet, when we independents get together and decide whether we do or don't like a contract, then that's collusion. It puts us at an enormous disadvantage. This task force, this legislation, and our other efforts all are designed to level the playing field.''
The National Community Pharmacists Association, formerly NARD (the National Association of Retail Druggists), represents the pharmacist owners, managers, and employees of nearly 30,000 independent community pharmacists across the country. Independent pharmacists—more than 75,000 nationwide—dispense the majority of the nation's retail prescription drugs.
Page 181 PREV PAGE TOP OF DOC
*The task force members are: Carmen DiCello, executive director of the Pennsylvania Pharmacists Association, Harrisburg, Pennsylvania, chairman; Bob Gude, president of the Pharmacy Freedom Fund, Fort Worth, Texas; Steve Brandt, executive director of Garden State Pharmacy Owners, Rochelle Park, New Jersey; Robert Johnson, president of R.C. Johnson Associates, Scottsdale, Arizona, and retired chairman and CEO of PCS Health Systems; Tom Rosenthal, CEO of MedOutcomes, Inc., Richmond, Virginia; Lonny Wilson, executive director of Pharmacy Providers of Oklahoma, Oklahoma City, Oklahoma; and Curtis Woods, vice president, Pace Alliance, Lawrence, Kansas. The Washington, D.C., law firm of Patton, Boggs, with expertise in wide-ranging areas including antitrust law, has been retained to assist the task force.
INSERT OFFSET RING FOLIOS 13 TO 15 HERE
PREPARED STATEMENT OF ROBERT L. WEINMANN, M.D., PRESIDENT, UNION OF AMERICAN PHYSICIANS AND DENTISTS
The first question people ask when they hear that physicians are joining unions is ''why?'' Why would physicians, usually regarded as privileged, need to join a labor union?
One answer is that patients, even more than physicians, need to have their doctors belong to unions. As the juggernaut of managed care careens through patients' lives causing delays and denials of care, doctors and patients become progressively disenfranchised. Patients can't get care because doctors are prevented from providing it. Managed care companies regard the sick and vulnerable as loss factors detracting from corporate profit. An X-ray becomes a debit factor, an MRI scan becomes an even bigger debit factor, and an operation is seen as a corporate disaster.
Page 182 PREV PAGE TOP OF DOC
The main effort of managed care companies is to generate profit for shareholders. Gargantuan efforts are made to reduce expenses and to streamline healthcare such that minimal care is called efficient when a better word would be cruel. Healthcare companies use thinly disguised cost control as a confiscatory financial device to deny care and call it ''peer review.'' The key mechanisms to reduce costs are delays and denials of care. These means may be unethical but they are not illegal.
Doctors worry about their ability to provide care and about taking the blame when something goes wrong it's called malpractice from which HMOs enjoy ERISA protection whereas individual doctors do not.
Doctors need to be allowed to negotiate with managed care plans, with HMOs, with for-profit entities, with any organization that seeks control over their professional practices. Individual doctors cannot slug it out on the telephone or by fax with claims agents every time there is a wrongful denial of service—there isn't enough breath or time in life for that!
Doctors need professional negotiators who know the ins and outs of contracting and negotiating and who can represent them and their patients in timely fashion when wrongful delays or denials of care occur. Doctors practicing as independent contractors need to be represented in every facet of the negotiating process by professional persons equally as skilled at developing and implementing contracts as are the professional staffs retained by managed care companies and HMOs.
Page 183 PREV PAGE TOP OF DOC
Passage of Representative Tom Campbell's Healthcare Coalition Act would help remove the inequity that now exists between corporate interests devoted to shareholder profit and physicians who want to practice the best medicine they know how. Physicians need an antitrust exemption to reach this goal. The Healthcare Coalition Act would be a big step in that direction without empowering only unions. In fact, Representative Campbell's bill allows non-union organizations to provide the same service, medical associations, for instance, because such associations would receive the same treatment for antitrust purposes as labor organizations already recognized under the National Labor Relations Act.
Health insurers are exempt from federal antitrust regulation. Basically unrepresented, doctors end up with mean-spirited contracts whereby they can be fired for spending too much time with patients or for doing too many diagnostic tests even when the medical indications for so doing are there. Doctors have not been able to negotiate their way out of this mess. That's where professional negotiators come in. We know how. We can do it. Our doctors' unions also understand the intricacies of actual medical practice.
Doctors need more bargaining power as much for their patients as for themselves. That's why I urge you to pass the Healthcare Coalition Act.
PREPARED STATEMENT OF ROBERT L. WEINMANN, M.D., PRESIDENT, UNION OF AMERICAN PHYSICIANS AND DENTISTS
This exhibit is two articles from the San Francisco Examiner, 6th of April, 1996, and 12th of January, 1996.
Page 184 PREV PAGE TOP OF DOC
The article entitled ''Why HMOs want to muzzle doctors'' shows how a patient was shuttled from one hospital to another and was eventually denied care altogether by a managed care plan that in the end managed not to take care of its client.
The article entitled ''Medical red-lining: 'Economic credentials' for physicians'' illustrates how financial profiles are used in the doctor-selection process, and how doctors get ''deselected.''
The San Jose incident (column 4) where doctors were told that if they provided a certain operation to their managed care patients ''the costs resulting from such will be deducted from your income'' is a bare knuckle illustration how one healthcare company pitted the doctors' incomes against their own enrollees' needs.
The Healthcare Coalition Act by Representative Tom Campbell is needed to supplement comprehensive managed care standards. Physicians need negotiating organizations to help develop and implement contracts that put patients before profits. Patients may need The Healthcare Coalition Act even more than the doctors!
INSERT OFFSET RING FOLIOS 16 TO 17 HERE
PREPARED STATEMENT OF ROBERT B. SKLAROFF, M.D., PRESIDENT, THE PENNSYLVANIA SOCIETY OF INTERNAL MEDICINE
''To ensure and foster continued patient safety and quality of care, any group of health care professionals, negotiating with a health maintenance organization, insurer, payor licensed under state law to offer health benefits coverage directly to individuals or groups or any other purchaser exempt from state licensure under ERISA, shall, in connection with such negotiations, be entitled to the same treatment under the antitrust laws accorded to members of a bargaining unit recognized under the National Labor Relations Act.''
Page 185 PREV PAGE TOP OF DOC
The Pennsylvania Society of Internal Medicine endorses the Campbell Bill. Doctors cannot protect their patients optimally from distortion of professional judgment by payment agencies unless they have the ability to counterbalance the power of insurers to substitute economic for scientific priorities. In Pennsylvania, during the past decade, medical professionalism has eroded because of monopsonies by insurers. When the HMO's enjoy both a ''seller's market'' when patients are offered limited choice, and a ''buyer's market'' when providers find few purchasers for their services, it is within the traditional responsibility of government to guide restructuring of the system so that true competition can re-emerge. Without such guidance, the corporate practice of medicine—in myriad guises—will substitute institutional priorities for individual ones . . . and the patient population will not be able to receive access to the best quality medical care. It makes little difference whether the monopolist in question is non-profit or tax-paying.
Insurers have tried to create artificial divisions among doctors (academic v. community, internist v. surgeon, primary care v. specialist), but these are bridged when all become subject to dictation from those who control funds flow. Leaders of organized medicine now see that these concerns apply to independently-contracting physicians as much as they do to physicians who work as employees. Independently-contracting physicians are routinely sent ''contracts of adhesion,'' which they are compelled to accept without the ability to negotiate individual terms; unless they sign, they would otherwise lose access to a majority of patients in their communities. Employed physicians are doubly dependent upon the generosity of the owners of their medical practices; institutional ''practice plans'' are predicated on how hospitals structure reimbursement for their services, and insurers' ''bundling plans'' rely on how hospitals decide how much of a global fee should be given to the doctor. Contractual details often can't be influenced by doctors because the monies have been rechanneled long before they could reach the providers.
Page 186 PREV PAGE TOP OF DOC
In Pennsylvania, Blue Plans dominate the insurance marketplace and have recently issued preemptory edicts that exploit that unbridled power. In Western Pennsylvania, their overwhelming market dominance has emboldened them even to disregard the Medical Practice Act and the protests of physicians by a ''Blues on Call'' program; patients are encouraged to call a nurse salaried by the insurer instead of their primary physician, should they become ill. In Eastern Pennsylvania, the Blues have unilaterally slashed reimbursement rates to surgeons, persuading regulators not to hold hearings to determine whether this action could yield decreases in the quality of or access to medical care in the Philadelphia Region. They rely on contract terms, often signed years earlier, which are so open-ended that they flout providers' ability to refuse to deal with their monopoly.
Unfortunately, with a vital human service like healthcare, even government regulators are hesitant to quarrel with a monopolist. The U.S. Department of Justice, Antitrust Division, Healthcare Task Force has retreated behind unspecified departmental priorities to avoid dealing with this situation. For 2 1/2 years, the DOJ has been provided reams of data documenting the fact that the creation of a consolidated Blue Cross and Blue Shield violates antitrust law. All requests from its staff attorneys have been satisfied repeatedly. Instead, investigations of small physician groups have been initiated by this same entity at the behest of the same Blue Cross/Blue Shield organizations that, themselves, dominate insurance markets. Despite repeated requests, the DOJ refuses to explain why.
Antitrust legislation concerning medical care involves many complex issues, but the underlying concept is simple. Who should be making medical decisions for the patient? These can be critical decisions, decisions that can affect the promptness of the patient's return to health, the patient's long term quality of life, and even whether the patient lives or dies. Should such decisions be made by the patient's physician, the trained professional who is face to face with the patient, and who has the training, knowledge, and understanding to assess the situation, draw complex conclusions, and develop a plan of treatment? Or, should the decisions be made by some unknown person, with unknown qualifications, not accountable for the results, unfamiliar with the patient's history, and with an undisclosed or undefined set of procedures for evaluating the situation and developing a treatment plan. Pity the courts, faced with such conflicts.
Page 187 PREV PAGE TOP OF DOC
Thus, Congressional Intent must be clarified, urgently, lest physicians be stripped of their capacity to advocate on behalf of patients in this modern era. ''Patient Protection Acts'' will be impotent if both patients and physicians are functionally shackled to insurers, fearing loss of coverage for one and loss of livelihood for the other. Rapidly, the health care delivery system is consolidating; passage of Congressman Campbell's bill is vital.
In the longer term—if left undisturbed—present policies will result in changes in medicine adversely affecting the physician's ability to provide professional care. These changes, forced onto the fee structure by monopoly power rather than by market forces, are driving the best of the established physicians out of the work force, and will cause the brightest of our youth to choose other professions. Corresponding changes in the administration of medical schools will make devoting a career to the university far less attractive to the most experienced educators.
The Campbell Bill implicitly, but not explicitly, encompasses physicians. They must not be excluded because of whatever supervisory or managerial roles they have in patient care. The NLRB must adapt to the contrasting circumstances of a commercial enterprise and a profession. Under the antitrust statutes, the courts have applied only one standard, a competitive economic one. In the case of a profession, circumstances arise when the quality of and access to the product are more important than its cost. Therefore, preserving the capacity of physicians to control medical decision-making emerges as the challenge now before Congress. It is necessary to empower physicians to negotiate collectively with insurers. If necessary, language could be added to clarify these points.
Page 188 PREV PAGE TOP OF DOC
My name is Robert B. Sklaroff, M.D.; I am a hematologist-oncologist-internist. Presently, I serve as President of the Pennsylvania Society of Internal Medicine. This has been such a controversial issue among my colleagues that, for many years, I have attempted to articulate my views independently. Nevertheless, it's vital that we take action to prevent our profession from being overrun by corporate medical practitioners. Time is tight, as many rapidly occurring changes—such as mergers and acquisitions—appear irreversible.
I am not an attorney, but I will try to address legal phraseology as it impacts upon the present medical environment. I am not an employed physician, but I will try to convey the current academic environment in the Philadelphia area. I am not an administrative physician, but I will try to encompass real-life experiences while attempting to practice clinical medicine in these volatile times. I am not an economist, but I will try to invoke antitrust precedents to illustrate what physicians confront.
First, I will describe how I came to view this issue as vital, based on my personal experience. Second, I will analyze the implications of the bill from the perspectives of the employed and independently contracting physician. Third, I will probe the practical implications of this proposal. Fourth, I will elucidate the power-politics of the physician-insurer relationship by discussing monopolistic actions of the Blues. Finally, I will show how this law will help rebalance the forces affecting health care delivery.
A. The Failure of Personal Efforts to Empower Physicians . . . Thus Far
I care for patients with cancer and blood disorders. This means that, in the parlance coined last year by the AMA, I pursue ''principal'' care—an amalgam of primary care and consultative input. Insurers try to ''divide and conquer'' my profession by forcing doctors such as myself to choose between these roles—thereby creating battles among doctors—but I'll continue to try to synthesize these roles until doctors are given legislative relief.
Page 189 PREV PAGE TOP OF DOC
I have tried to preserve medical professionalism within organized medicine by policy development, and within society by organizational work. This has spurred strong reactions from some hospitals which, in turn, led to litigation generated by myself over the rights of physicians within the Medical Staff environment. On both the state and federal levels on both the primary and appellate levels—I have been unable to obtain any ongoing recognition that Hospital Medical Staff Bylaws represent a binding contract. This is an issue that merits further elaboration, but in a different venue.
As a Medical Staff President and as a Medical Staff Member, I watched bylaws ignored by the hospitals' administrations. I've been forced to conclude that the individual doctor cannot hope for fundamental recognition when trying to influence the very clinical decision-making functions that a Medical Staff should control.
B. The Bill's Effect Upon Both Employed and Independently—Contracting Physicians
The question before you today is how to give doctors the ability to advocate for their patients in this modern era, taking into account the tremendous growth of managed care structures during the past decade. I do not rail against the philosophy behind the designation of one physician as a ''point-person'' when coordinating care; I do oppose those who invoke this concept to undermine the individual patient-physician relationship.
Congressman Campbell has pegged the ''unit of care'' in this setting when he challenges insurers to perceive payment for health care as more than merely a ''risk-loss ratio.'' Indeed, the AMA Organized Medical Staff Section has established policy that basic rights of a ''hospital'' Medical Staff should be afforded to the group of physicians that cares for patients covered by a given insurer. This bill would allow such doctor-groups to engage in meaningful interactions with controllers of funding flow generated, for example, by physicians' requests for laboratory studies and radiographs.
Page 190 PREV PAGE TOP OF DOC
The implications of the AMA's input transcend the rhetoric that has become customary from many physician leaders and organizations. Doctors must ''work up a sweat.'' Those who philosophically oppose our right to bargain collectively must respond to the challenge Ms. Clara Peller issued a decade ago, in ''Wendy's'' ads: ''Where's the Beef?'' They must propose any other way to reinstill our patients' trust in their physicians.
Employed physicians already find themselves in academic groups that would appear ready-made for collective bargaining. Until recently, these physicians have been the most reticent to accept the concept of unionization. Now, as their administrations unilaterally shave physician payments, they are discovering the competitive environment.
Independently-contracting physicians—even those in group practices—are increasingly squeezed by insurers who ''bundle'' their expenses by paying hospitals and who capitate their costs by reimbursing ''episodes of care.'' These physicians fear the loss of their patient-bases were they to refuse to participate in all insurers' health coverage plans. They have discovered, too, that they share the core concerns of academicians.
Each set of physicians needs collective bargaining rights. The independent community doctor should be able to negotiate through a ''third party messenger,'' at the very least. The university-associated researcher should be able to attain full NLRB-recognition for clinical work. Both need structures to protect them from retribution if they advocate for their patients over the objections of the employer/insurer.
As I have fought the corporate practice of medicine, I have been told that I must choose between fighting insurers and creating unions. I have always countered with the view that these are two sides of the same coin. Last month, my suspicions were confirmed, and the necessity for prompt action on both fronts became abundantly clear.
Page 191 PREV PAGE TOP OF DOC
C. PSIM and The Blues
Experience with Blues organizations in Philadelphia and Pittsburgh has been unsettling. In the Philadelphia area, Independence Blue Cross controls 70% of the marketplace. In western Pennsylvania ''Highmark,'' the product of the consolidation of Pennsylvania Blue Shield and Blue Cross of Western Pennsylvania controls 85% of the marketplace. We sued to have this merger reversed; after we had been granted ''standing'' in this venue, we won a unanimous Commonwealth Court Decision to have this entire matter transferred back to the Pennsylvania Insurance Department because it had not held full adjudicatory adverse-party hearings. This decision was rendered on August 12, 1997. Amazingly, we held oral arguments on its impact this past January, but the Insurance Department continues to stonewall any effort to rectify its gigantic, embarrassing error.
IBC has made unilateral decisions that are not subject to meaningful oversight. This has rendered urologists powerless to reverse its blithe denial to reimburse a therapy for benign prostatic hypertrophy (BPH) called TUNA (trans-urethral needle ablation) that is recognized by both researchers and HCFA as non-experimental and clinically useful. IBC has also disbanded an independent five-physician panel (which had included myself) which made final determinations on the appropriateness of home and nursing home care. Also, IBC has rendered the marketplace captive to its self-serving view that the antitrust territory for health insurers is solely national, rather than being regional or statewide.
And IBC also taught hospitals the futility of appealing ''denied reimbursement days.'' Furthermore, IBC has refused to communicate with individuals whom its providers have empowered to negotiate contracts on their behalf. This ''messenger model'' has been recognized in other venues, but IBC claims an entity that engages in collective bargaining cannot, by its very nature, perform this service. This is contrary to deregulatory trends, akin to prohibiting a department of a bank from providing investment advice. This yields ''contracts of adhesion''—preventing any individualization thereof with doctors—and it constitutes a thinly-veiled attempt to reduce doctors to serving as ''interchangeable parts.''
Page 192 PREV PAGE TOP OF DOC
Surprisingly, the Blues have prompted the U.S. Department of Justice to investigate these rag-tag groups of physicians, despite the absence of evidence they have hurt the public. The Justice Department's Healthcare Task Force (in the Antitrust Division) has deemed this a priority. Yet, it has failed to probe the above-mentioned Blues Consolidation, despite its overt ''monopolistic'' and ''monopsonistic'' effects on employers and providers. Thus insurers can, respectively, enjoy both a ''seller's'' market (limiting patients' choices) and a ''buyer's'' market (limiting providers' choices). Recall the dictum from the Watergate Era: ''Follow the Money!'' The Justice Department is allowing the Blues to control the financing of health care in Pennsylvania. It ignores gross violations of antitrust laws by the Blues, perhaps because of its investigation of doctor groups at the behest of the Blues! Doctors, meanwhile, are afraid of speaking out, lest they become ''deselected'' and lose their livelihood.
The DOJ has refused to initiate a preliminary investigation despite our submission—during the past two and a half years—of thousands of pages of proof of specific anticompetitive actions. This decision has been unaffected by our having recruited others (social-advocate, insurer, provider, medical society and industry) to corroborate our complaints and by our having gained precise confirmation of our antitrust analysis—employing the Herfindahl-Hirshman Index by its internal economic consultants.
Those who spend thousands of hours fighting corporate medical practice easily see how it affects doctors charged with the ultimate responsibility to ensure quality patient care. During these battles, I have observed how many subtle clinical implications follow when doctors are controlled by insurers. You have all heard examples; many are empiric. Patient care is adversely affected in ways that can not easily be traced, even through lawsuits. Clinical vignettes fill newspaper ''letters to the editor,'' but the motive here is to provoke recognition of the urgency to interrupt the current, transcendent forces at-play.
Page 193 PREV PAGE TOP OF DOC
I wrote an essay this past fall that postulated how state medical societies might create ''umbrella'' entities to help physicians gain collective bargaining rights. I then tried to identify such learned unions that might collaborate and give legal consultative support. I hoped that a ''Pennsylvania Physicians Guild'' would meld professionalism and action, and I then proceeded to seek any union that would support this construct. The response was often polite lip-service, until I encountered the Federation of Physicians and Dentists.
I contacted many unions, among them the Office and Professional Employees International Union; the Food-Handlers and the Machinists unions in New Jersey, the Pennsylvania Nurses Association and the Pennsylvania State Education Association; and the American Association of University Professors.
I am now encouraging the Pennsylvania Medical Society to relate with the Federation of Physicians and Dentists, which obtained collective bargaining rights for physicians in Tucson, Arizona. PMS Trustees have been studying the panoply of alternatives, but it has not chosen to create a collective bargaining unit. It continues to study the definition of a manager and of a supervisor, and it will then study whether doctors always act independently to promote the ill-defined interest of the employer. Meanwhile, time ticks.
D. Political Science
Congressman Campbell has submitted philosophically bipartisan legislation to create a ''comfort level'' with allowing doctors to pursue their legitimate concerns collectively. A classic difference between the two major political parties is the degree to which they assume government has a responsibility to ''create jobs.'' This bill satisfies the modern trend towards creating collaborative models for resolving anticipated legitimate conflict between those who are primarily responsible for maintaining a company's fiscal health and those who are primarily responsible for implementing its professional activities.
Page 194 PREV PAGE TOP OF DOC
As American ''management'' learns how to think beyond quarterly reports, it blends input from its ''labor'' force into its procedures. I experienced this challenge when I was President of the Medical Staff of a union-owned hospital; there was always debate over the limits to what physician leadership should be expected to do. Therefore, the concepts inherent in this bill extend beyond health care delivery; simply put, they re-establish the potency of the professionalism that has made America the world's industrial leader.
The need to ''mainstream'' such concerns is reflected by the trend within health-oriented professional organizations to integrate administrative and medical components, with the Join Commission for the Accreditation of Healthcare Institutions serving as a key example thereof. JCAHO Standards have increasingly blurred the line between the actions of committees primarily committed to patient care and those strictly focused upon administrative activities. Although the implementation of this concept has been painful during the past decade, it has resulted in more effectively streamlined decision-making.
Two examples follow: physicians on a ''Continuing Quality Improvement'' Committee are charged with ''problem-solving'' when ensuring implementation of a given therapy, but this may entail tracking a given issue through various departments of a hospital; those on a Cancer Committee deal with input from a Tumor Registry customarily acting within a Medical Records (often dubbed ''Information Management'') Department. In both instances, doctors must appreciate and accommodate purely administrative concerns.
Congressman Campbell's statute will help rebalance the health care delivery system without antagonizing either pole of the intellectual argument regarding physician unionization. He does not mandate these structures be employed; rather, he allows them. He does not sculpt a complex bill; rather, he establishes a basic principle. Recognizing that each phrase therein will subsequently trigger scrutiny, he supplies an unambiguous statement. Diagnosing the problem, he liberates health providers—including doctors—from the McCarran-Ferguson Act and the ERISA Exemption. Validating professionalism thusly would not unduly redirect national labor policy in favor of collective bargaining.
Page 195 PREV PAGE TOP OF DOC
Prescribing a treatment, he cleanly recognizes the need to ensure that patient care decisions are predicated principally on the exertion of patients' interests, he clarifies Congressional Intent. Physicians are re-installed into their role as patient advocates, inasmuch as they are the only potent buffer between the premium-dollar and the services it is intended to ensure are provided as needed. This is axiomatic; it cannot be forgotten.
If doctors are to provide ''managed care,'' and if insurers are to ''manage'' managed care, then someone must ''manage'' the managers of managed care. Providers will defer, otherwise, to the wishes of the entity paying them. Governmental overseers cannot ensure routine provision of timely, humane, appropriate and necessary care. This is the quandary the citizenry' has been struggling to articulate and rectify as it confronts underlying access, cost and quality concerns. Patient Protection Acts don't suffice.
Such lofty goals can be achieved by recognizing the utility of a basic labor-management tug-of-war without becoming bound by it. Some argue the Founding Fathers expressed the desire to charge institutions (including government) with primary responsibility to guide the electorate and, specifically, to encourage individuals to demonstrate initiative. The exertion of monopolistic control of health care delivery is inconsistent with this goal. Physicians must not be shackled to insurers.
E. Practical Considerations
Doctors functioning as part of a Medical Staff are dealing routinely with administrative matters that had been the exclusive province of Hospital Administration, as noted previously in the discussion of the JCAHO,. The key difference is that the Governing Body retains ultimate authority; physicians are relegated ultimately to being advisors.
Page 196 PREV PAGE TOP OF DOC
Probing this relationship is crucial to appreciating how physicians can participate in governance while still recognizing its current limitations. The AMA's Organized Medical Staff Section has adopted many policies that attempt to rectify this imbalance—such as advising Medical Staffs to retain counsel independent of that of the hospital's—but the ultimate problem remains meeting the challenge of satisfying professional urges without upsetting administrative controllers. Their power is understated, but no less real. Thus, Medical Staffs have extensive control over professional issues, but it isn't absolute.
Medical Staffs also have independence to self-govern, but function at the ''pleasure'' of the parent institution. Medical Staffs try to act in their own interests, but are forced ultimately to represent the interests of their employer, the hospital, instead of their own. This distinguishes Medical Staff functions from those of the collective bargaining unit.
This became painfully apparent to me at two separate hospitals when administrative judgments were reflexly adopted by Medical Executive Committees, only to be reversed unanimously following a full airing of obvious facts through Fair Hearing mechanisms. Doctors can be manipulated by power and money, and government should help neutralize that threat to those who would resolutely aspire advocate for their patients.
Although hospitals may look to doctors for advice on medical and professional matters, the Medical Staff offers recommendations to serve its own independent interest in creating the most effective environment for healing and education. While hospitals defer to the Medical Staff's competence whenever possible, they ultimately apply their own distinct perspective to these matters, based on fiscal and other managerial pressures.
Page 197 PREV PAGE TOP OF DOC
Even if the overwhelming majority of Medical Staff recommendations are implemented, it's those that aren't that reflect the key contrasts in how the two entities are oriented. Clearly, Medical Staffs exerting their expertise never substantially and pervasively operate the hospital. They fulfill delegated roles, and dare not become uppity.
This does not impugn the capacity of doctors to devote undivided loyalty to the hospital, regardless of whether they are ''managing'' or ''supervising.'' The Medical Staff structure allows them to represent their perception of the hospital's interests, and recent events in Philadelphia suggest hospital administrations ignored such input at their ultimate peril. For example, as the Allegheny system teetered on the verge of bankruptcy, its trustees discovered the attendant loss of federal funds could lead to closure of its medical school.
How doctors routinely function in the academic world is comparable to how others provide input in the pyramidal hierarchies of private industry; the distinction between medicine and other professional pursuits is not pivotal. Employed physicians are expected to conform to the hospital's policies and are judged suitable for reappointment [read: ''hired'' or ''fired''] according to their ability to implement them. Union pressure would not divert doctors from adhering to such interests, of a non-occupational nature.
Whether functioning in a hospital academically or in collaboration with an insurer, doctors must have recognized rights to organize. To whatever degree other professionals enjoy this parallel administrative pathway, the ability to unionize should not be frustrated. Rejecting this right by invoking a purely industrial analogy would only apply if doctors determined the product produced, the terms upon which it were offered, and the patient population served; obviously, this doesn't exist, here, nor can doctors determine their own working conditions and reimbursement.
Page 198 PREV PAGE TOP OF DOC
Ultimately, the Medical Staff is obligated to implement policies it hadn't developed. Hospitals always retain ultimate decisionmaking authority, and their administrations give what weight and import to the Medical Staffs collective judgment as they choose and deem consistent with their perceptions of the hospital's needs and objectives. Instead, physicians base their behavior on professional freedom, regardless of hospital policy, while they are asked to fulfill the hospital's basic policy, the ''business'' of healthcare.
Such dual authority reflects both coincidence and antagonism of interests, for proper discharge of physician-level duties will always further essential interests of the hospital. Differences of opinion and emphasis invariably arise and may be resolved through the peaceful process of collective bargaining. Ultimately, the absence of such protection removes deterrence against any unreasonable administrative conduct. When it exists, collective bargaining protection would thereby be afforded to physicians who also, through their work, assume quasi-''managerial'' responsibilities. This type of alliance with a hospital is limited; it doesn't automatically entail making all its policies operative.
Medical Staffs dare not refuse to participate in this sort of decision-making to position themselves to win back any such power at the collective bargaining table, for few would risk ceding influence to the hospital in the interim. Instead, Medical Staffs could invite all but Department Chairpeople into a collective bargaining structure without concern with divided loyalty; they could avoid elect guild leaders perceived as administrators.
Doctors who are employed in medical colleges must be allowed to engage in collective bargaining. For example, hospital use increasingly popular ''practice plans'' whereby salaries are adjusted by the income accrued. Thus, the physician-employee must have the right to influence how that income is generated. Inasmuch as this occurs via contracts between the hospital (customarily through separate subsidiaries thereof) and an insurer, the doctor is otherwise captive to whatever the hospital decides, particularly when his/her services are to be ''bundled'' into the global payment for an episode of care. Doctors could only influence such contracts through having the ability to collectively bargain with the employer-institution and to proactively address reimbursement.
Page 199 PREV PAGE TOP OF DOC
If physicians are to bargain collectively, they must also maintain their role as patient advocates and the traditional dignity of our profession. We should pursue ''job actions'' instead of striking, commensurate with how a medieval ''guild'' might have acted. Indeed, we must integrate into American culture our focus on providing high quality care to all citizens, allowing doctors to ensure—contractually—that all their patients can avail themselves of what modern medicine has to offer. This would allow physicians to accept shared responsibility for disciplining the cost of providing that care.
Thus, doctors properly function independently and loyally within an employer-hospital. They can't accomplish what they legitimately want and need, on behalf of patients, only through statutorily-enhanced governmental activity. They must negotiate for themselves.
F. Implications of Physician-Based Collective Bargaining
Judges may not wish to be ''persuaded'' by doctors who allege hospitals have exerted unfair pressure upon them, but this occurs routinely. Granting doctors basic procedural rights against arbitrary administrative decisions would not create a ''parade of horribles.'' Their routine direction of employees based on a higher level of skill or experience is not evidence of supervisory status. The position in which these doctors are situated is no different from that of any other staff physician carefully caring for his/her patients, writing orders for nurses to implement. It is simply part of the job of being a doctor.
Self-employed doctors must be able to engage in collective bargaining to maintain the very professionalism that is being acutely threatened by overbearing insurers. When I discussed the new Pennsylvania Patient Protection Act with journalists recently, they reported that insurers liked it. Why? Because it didn't threaten any of the essential powers they wield over physicians, hospitals, other providers, and the people they insure.
Page 200 PREV PAGE TOP OF DOC
For example, it omitted a definition of medical necessity. Thus, any appellate effort would saddle the doctor with the burden of proof, in counter-distinction to de novo review of Medicare decisions by Administrative Law Judges, carrying no preconditions. Few doctors would risk paying for an adverse decision. Finally, it didn't define the ''primary care provider,'' allowing less ''expensive'' providers to displace doctors.
Medical Professional Societies have found themselves impotent to combat these insurers. Thus, internists have joined in opposition to IBC's edict, an insurer that has ''spun'' its actions by asserting it cuts surgeons' income to enhance that of primary care doctors. By ignoring parochial interests, we show how insurers are muscling everyone. We know we could be next.
G. The Impact on the Delaware Valley
The inability of physicians to have had any impact on events in the current—volatile—medical environment in the Philadelphia Area, must be appreciated. It is unlikely physicians will be able to muster the fiscal resources, for example, to purchase even one of the Allegheny hospitals.
In the academic world, there has been little activity regarding unionization. Years ago, basic scientists at Hahnemann University were able to favorably affect tenure policies, but this carried limited impact with regard to other procedures and/or to the clinicians. Inasmuch as physicians have grown to cherish simply having a job, of late, it is not a surprise to listen to doctors rationalize (in various ways) their continued obeisance. Behavior of this ilk would be entertaining, were it not so sad a confession of failure. Presently, there is no way to channel such anxieties in a productive, constructive way.
Page 201 PREV PAGE TOP OF DOC
Among physicians whose medical practices have been purchased by medical schools, however, distinct and separate entities exist that could serve as umbrellas under which collective bargaining structures could be erected. For example, Allegheny has placed its physicians under the aegis of the ''Allegheny Integrated Health Group,'' although it has also granted them academic appointments. These doctors may be given a ''title'' that necessitates some degree of oversight (both of doctors and of other paraprofessionals); this doesn't suddenly confer supervisory or managerial status. They remain ''employed.''
Physicians unionized through a ''Pennsylvania Physicians Guild'' must be afforded procedural safeguards against wanton job loss—such as might occur were patient advocacy pursued preferential to incurred costs—and this would remain the central goal of any organizational pursuit. Indeed, four years ago, I argued that health care reform, regardless of its structure, had to maintain the uniqueness of the patient-physician relationship, the axis around which all patient care spins. In today's environment, no one else can function without fiscal constraints other than the physician. The insurer has additional pressures that are dominant, and pare-professionals generally are barred by state law from establishing diagnoses. Enactment of this bill would empower physicians to counter bureaucratic decisions without fear of decredentialing, unilateral behavior pursued by the Blues in Western PA Dreading loss of one's livelihood is a powerful motivator to do what an insurer wants; afforded job protection, physicians would be more apt to ensure adequate patient care.
H. The Role of Organized Medicine
The Pennsylvania Medical Society House of Delegates reflected these concerns when it created a Division of Representation, and it is specifically studying how to deal with a ''collective bargaining'' component based upon a resolution I submitted this past year. Since then, I've promoted implementation of the PPG model discussed earlier, entailing affiliation of a ''reasoned,'' competent union with a state medical society subsidiary.
Page 202 PREV PAGE TOP OF DOC
A ''sea change'' in the national mood of organized medicine has occurred simultaneously. New AMA policy was generated by its Organized Medical Staff Section a month ago, drawn directly from a Governing Council Report written as a result of a resolution I had submitted to it a year ago. Initially, there was much resistance to this idea, but sufficient support was mustered to keep the issue alive; Assembly members became increasingly supportive and enhanced its priority because they had grown to appreciate the urgency of ''leveling the playing field with health care payers.''
Formal action of the AMA House of Delegates has taken the matter one step further; by year's end, the AMA is to have created an internal collective bargaining unit. It now will ''consider as its highest priority the formation of a negotiating unit free of anti-trust constraints for all of its members . . . [and to] work with the Department of Justice and the Federal Trade Commission to allow physicians to negotiate in a collective manner.''
I. The Impact on Patient Care
A physician can maintain loyalty to an employer-institution and/or to an insurer-health plan through collective bargaining. A physician can routinely supervise other employees, subjecting the quality of this work also to the scrutiny of his/her superiors. Finally, a physician can apply independent professional judgment while performing these tasks. Only if current structures were to allow physicians to control all essential occupational functions (e.g., salary and working conditions) would collective bargaining be obviated.
Page 203 PREV PAGE TOP OF DOC
Following completion of negotiations, doctors would implement institutional policy, representing it to the public as might other employees. Concomitantly, physicians would have available an entity that would provide ''union stewards who adjust grievances.'' The Department Chair, carrying responsibility for generating and following a budget, would be responsible for professional activities of members thereof and would not be a guild member. Contrariwise, a Divisional Chair who did little more than triage daily matters and bring those of a substantive nature to the attention of the Department Chair, would act as a ''shop steward'' and, thus, could be granted collective bargaining rights.
Some physicians say they fear unionization if, as AMA President Nancy Dickey, MD argued last year in Philadelphia, they can't ensure their elected leadership will comply with rank-and-file desires. Democratic electoral structures would obviate this concern.
J. Conclusions
This testimony contains numerous, individualized examples of the urgency of the need for Congressional Action to empower physicians to counterbalance the insurers. Also, this testimony contains proof that lesser measures have not sufficed solve this problem.
Professionals must be able to collectively bargain, pursuant to the Campbell Bill. Whether academicians or independent contractors, doctors must be able to protect their continued practice of medicine and advocacy for the patients they have pledged to serve. We need a model through which we may reassert our responsibility to help our patients.
Physicians must be afforded great latitude when attempting to individualize key details of their contracts; these agreements can concomitantly encompass standardized grievance procedures implemented in conjunction with professional activities of their colleagues. The alternative is continued erosion of the capacity of a patient to entrust his/her health to a doctor who is not constrained to satisfy the dictates of the insurer/employer. Individual physicians cannot gain proper recognition in this venue; they must function together when collaborating in the implementation of an insurer's health care plan.
Page 204 PREV PAGE TOP OF DOC
I greatly appreciate your attention to this core concern of my physician colleagues.
K. Attachments:
Appended are a number of stand-alone documents that have been cited within the testimony in order to make conceptual points. [They are identified by page number.] Elaborative comment and Further are, of course, available upon request.
Congressman Campbell's Statement [#1] and the AMA Endorsement Letter [#2] serve as the foundation for the analysis of the potential (salutary) impact of this Bill. [Three] Last year, I wrote an essay that postulated creation of a ''Pennsylvania Physicians Guild,'' a collaborative effort between organized medicine and a reasoned union [#3]. [Seven] Recently, I exchanged letters with a high official of Independence Blue Cross [#4], and his response to my myriad concerns is clear, shocking, and dismissive; also, the TUNA procedure is now accepted nationally, but not by IBC [#5]. [Five] Efforts to enlist the aid of the Healthcare Taskforce, within the Antitrust Division of the Department of Justice have failed to prompt any inquiry [#6]. [Seven] Newly-enacted state law won't alleviate fundamental problems facing patients & doctors [#7]. [Sixteen] Editorial pieces have articulated the physician's dilemma [#8 & #9]. [Eighteen]
L. Acknowledgements:
The consistent and comprehensive input of John Nikoloff (PSIM Executive Director) and of Jeff Barg (''Physicians News Digest'' Editor) has proven indispensable, again & again.
Page 205 PREV PAGE TOP OF DOC
| McDermott, Will & Emery, |
| Washington, DC., August 27, 1998. |
Hon. HENRY J. HYDE,
Chairman, House Committee on the Judiciary,
Washington, DC.
DEAR MR. CHAIRMAN: On behalf of the members of the Healthcare Guild of the Office & Professional Employees International Union (''OPEIU''), AFL–CIO, I would like to offer our strong support for passage of the Quality Health-Care Coalition Act of 1998 (H.R. 4277) sponsored by Representative Tom Campbell (R-Calif.). The Healthcare Guild represents a broad cross-section of health care providers which includes physicians, psychiatric social workers, podiatrists, and optometrists. All of our members have felt the impact of managed care on their ability to practice their professions. Here are some examples of their experiences:
In Philadelphia, an orthopedic Surgeon who normally prescribes three months of rehabilitation three times a week for a knee transplant had a total of three visits authorized by the Medicare HMO.
In Pittsburgh, an HMO is requiring that all x-ray and imaging be performed by a single subcontractor. This requires patients with broken bones, including broken bones in the foot and ankle, to move from office to office before treatment can even be started. This exposes the practitioner to increased liability, and the patient to increased pain and suffering.
Page 206 PREV PAGE TOP OF DOC
In the area of mental health, the HMO's review of medical treatment forces the disclosure of patient specific diagnostic information which could constitute violation of the doctor/patient relationship.
In Pittsburgh, the failure of primary care practitioners to refer patients to specialists has resulted in limb loss, while, in Philadelphia, a patient was seen as a walk in, requesting treatment, because a primary care practitioner had placed a rubber band over a patient's foot, rather than strap the patient, or supply a boot.
Managed Care Organizations (''MCO'') have the ability to dictate the hours of operation and restrict care. This allows the MCO to increase the practitioners risk of professional liability, without being, in any way liable for loss should there be patient injury. The practitioner cannot avoid, or pass on the liability, even though, in normal terms, the MCO is an intervening third party.
Our concern is patient care, and the incentives against care which specialists could negotiate out of contracts if they were not in jeopardy of civil and criminal liability.
Our Nation's antitrust laws are intended to promote competition and to protect consumers from the inappropriate exercise of market power that leads to higher prices or lower quality. Section 6 of the Clayton Act provides that ''(t)he labor of a human being is not a commodity or article of commerce.''
Page 207 PREV PAGE TOP OF DOC
The changing nature of the healthcare market demands that the historic interpretation of these provisions be revisited. The purpose of the law is to protect the consumers. The introduction of third-party payment, either through an insurance company or managed care plan, hides the actual consumer of health care services.
It has been argued that third-party payment hides the actual costs of health care from the consumer of services. Those costs are borne by employers or the insurance carrier. Allowing beneficiaries to consume services without regard for the actual cost of the service. In our pelf men rush to control costs, we have lost sight of quality and the best interest of the consumer.
Today providers are not free to make decisions with their patients on what is the most effective course of treatment. Those decisions are made by a third party who decides on the efficacy of a course of treatment based on the cost of the treatment. The bulk of Americans are not enrolled in managed care plans; and increasingly most of them are in a small number of plans. That kind of market penetration places providers and consumers at a disadvantage. The purpose of our anti-trust laws is not only to promote competition and protect the consumer from higher prices but, also guarantee the consumer access to a quality product.
H.R. 4277, The Quality Healthcare Coalition Act of 1998, gives the providers of the healthcare services the opportunity to negotiate with managed care organizations to protect the quality and availability of care.
On behalf of the members of the Healthcare Guild of the Office and Professional employees International Union, AFL–CIO thank you for the opportunity to present our views on these important issues.
Page 208 PREV PAGE TOP OF DOC
Sincerely,
I76
(Footnote 1 return)
See, e.g., Forbes Health System Medical Staff, 94 F.T.C. 1042 (1979) (consent order) (hospital medical staff, including physicians, dentists, and podiatrists, agreed not to discriminate against medical staff members who were associated with HMOs, and not to exclude applicants for hospital privileges simply because they provided services on other than a fee-for-service basis); Medical Service Corp. of Spokane County, 88 F.T.C. 906 (1976) (consent order) (physician-controlled Blue Shield plan and affiliated physicians' association agreed to cease conduct that discriminated against HMOs, or against physicians who practiced with an HMO or on other than a fee-for-service basis). See also Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order); Eugene M. Addison, M.D., 111 F.T.C. 339 (1988) (consent order); Medical Staff of Doctors' Hospital of Prince George's County, 110 F.T.C. 476 (1988) (consent order); American Medical Association, 94 F.T.C. 701 (1979), aff'd as modified, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided Court, 455 U.S. 676 (1982).
(Footnote 2 return)
See, e.g., M.D. Physicians of Southwest Louisiana, Inc. (MDP), FTC File No. 941–0095, 63 Fed. Reg. 33423 (June 24, 1998) (proposed consent order); Mesa County Physicians Independent Practice Association, Inc., Dkt. No. 9284, 63 Fed. Reg. 9549 (February 25, 1998) (proposed consent order); FTC and Commonwealth of Puerto Rico v. College of Physicians-Surgeons of Puerto Rico, FTC File No. 971–0011, Civil No. 97–2466–HL (D.P.R. October 2, 1997) (consent order); Montana Associated Physicians, Inc./Billings Physician Hospital Alliance, Inc., C–3704, 62 Fed. Reg. 11,201 (March 11, 1997) (consent order); Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order); La Asociacion Medica de Puerto Rico, 119 F.T.C. 772 (1995) (consent order); McLean County Chiropractic Association, 117 F.T.C. 396 (1994) (consent order); Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Patrick S. O'Halloran, M.D., 111 F.T.C. 35 (1988) (consent order); Eugene M. Addison, M.D., 111 F.T.C. 339 (1988) (consent order); New York State Chiropractic Association, 111 F.T.C. 331 (1988) (consent order); Rochester Anesthesiologists, et al., 110 F.T.C. 175 (1988) (consent order); Preferred Physicians, Inc., 110 F.T.C. 157 (1988) (consent order); Michigan State Medical Society, 101 F.T.C. 191 (1983); Association of Independent Dentists, 100 F.T.C. 518 (1982) (consent order).
(Footnote 3 return)
FTC and Commonwealth of Puerto Rico v. College of Physicians-Surgeons of Puerto Rico, FTC File No. 971–0011, Civil No. 97–2466–HL (D.P.R. Oct. 2, 1997).
(Footnote 4 return)
The labor exemption from the antitrust laws is derived from Sections 6 and 20 of the Clayton Act and Section 4 of the Norris-LaGuardia Act. The exemption has two branches: (1) the ''statutory exemption,'' which is based on the express wording of the statutory provisions; and (2) the judicially created ''nonstatutory exemption,'' which harmonizes the policies underlying the National Labor Relations Act of 1935 (''NLRA'') with the antitrust laws.
(Footnote 5 return)
See, e.g., H.A. Artists & Assocs. v. Actors Equity Ass'n, 451 U.S. 704, 717 n.20 (1981) (''a party seeking refuge in the statutory exemption must be a bona fide labor organization and not an independent contractor'').
(Footnote 6 return)
Columbia River Packers Ass'n v. Hinton, 315 U.S. 143 (1942). Accord, Los Angeles Meat and Provision Drivers Union, Local 626 v. United States, 371 U.S. 94 (1962); United States v. National Ass'n of Real Estate Boards, 339 U.S. 485 (1950); United States v. Women's Sportswear Mfg. Ass'n, 336 U.S. 460 (1949); American Medical Ass'n v. United States, 317 U.S. 519, 533–36 (1943) (rejecting assertions that the labor exemption to the antitrust laws applied to joint efforts by independent physicians and their professional associations to boycott an HMO in order to force it to cease operating).
(Footnote 7 return)
Letter from Dorothy L. Moore-Duncan, Regional Director, Region Four, NLRB, to Robert F. O'Brien (January 8, 1998). The decision currently is on appeal to the full NLRB.
(Footnote 8 return)
United States Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care, issued August 28, 1996, 4 Trade Reg. Rep. (CCH) 13,153.
(Footnote 9 return)
See, e.g., Reardon, ''Oral Statement of the American Medical Association to the Joint Venture Project of the Federal Trade Commission in Collaboration with the United States Department of Justice, Re: Impact of Federal Antitrust Law and Enforcement Policy on Physician Network Joint Ventures,'' (July 1, 1997) (''. . . we believe that they [the revised statements] have facilitated the formation of physician networks.'' Id. at 1–2; ''The AMA believes that all three sets of statements of antitrust enforcement policy for health care issued by the agencies, including the 1993, 1994, and 1996 versions, have facilitated the formation of certain kinds of POs [physician organizations].'' Id. at 7); Hirshfeld, ''Key Changes in Federal Antitrust Enforcement Policy for Physician Joint Venture Networks,'' 10 The Chronicle 9 (Fall 1996) (''The AMA believes that the new guidelines provide a rich source of tools for physicians to form different kinds of networks, and that there are now many options open to physicians to meet the needs of their markets in a realistic and practical fashion.'' Id. at 12); Grady, ''1996 Revised Antitrust Policy Statements: Building a Bridge to Network Competition,'' 24 Health Law Digest 3 (October 1996) (''The 1996 Statements provide a much better clarification of and insight into the Agencies' position on physician networks and multiprovider networks. . . . [They] should go a significant way to responding to claims by physicians and other providers that the Agencies are hostile to provider networks. . . . [T]he Agencies' 1996 Statements provide a welcome guide to appropriate antitrust analysis of provider networks.'' Id. at 11); Horoschak, ''The Revised DOJ/FTC Health Care Enforcement Policy Statements: An Overview,'' 10 The Chronicle 2 (Fall 1996). See, generally, Hirshfeld, ''Interpreting the 1996 Federal Antitrust Guidelines for Physician Network Joint Ventures,'' 6 Ann. Health L. 1 (1997); Miles, ''Joint Venture Analysis and Provider-Controlled Health Care Networks,'' 66 Antitrust L. J. 127 (1997).
(Footnote 10 return)
Section 4001 of the Balanced Budget Act of 1997, Pub. L. No. 105–33, August 5, 1997.
(Footnote 11 return)
See, e.g., United States Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care, issued August 28, 1996, supra n. 8, at Statement 4 (''Providers' Collective Provision of Non-Fee-Related Information to Purchasers of Health Care Services'') and Statement 5 (''Providers' Collective Provision of Fee-Related Information to Purchasers of Health Care Services'').
(Footnote 12 return)
See, e.g., Indiana Federation of Dentists, 101 F.T.C. 57 (1983), rev'd, 745 F.2d 1124 (7th Cir. 1984), rev'd 476 U.S. 447 (1986); Michigan State Medical Society, 101 F.T.C. 191 (1983); Texas Dental Association, 100 F.T.C. 536 (1982) (consent order); Indiana Dental Association, 93 F.T.C. 392 (1979).
(Footnote 13 return)
The AMA's ethical prohibitions on such purely price-related issues as physicians' being paid ''on a basis other than the traditional fee-for-service norm,'' or on ''contractual arrangements which affect the adequacy of fees, [or] involve underbidding'' were justified by the AMA on quality grounds, since such payment methods were viewed as ''terms or conditions which tend to interfere with or impair the free and complete exercise of . . . [a physician's] medical judgment and skill or tend to cause a deterioration of the quality of medical care.'' American Medical Association, 94 F.T.C. 701, 1011–12 (1979), aff'd as modified, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided Court, 455 U.S. 676 (1982).
(Footnote 14 return)
See American Medical Ass'n, supra.
(Footnote 15 return)
Id.
(Footnote 16 return)
E.g., State Volunteer Mutual Insurance Corp., 102 F.T.C. 1232 (1983) (consent order) (physician-owned malpractice insurance company agreed not to unreasonably discriminate against physicians who work with independent nurse midwives).
(Footnote 17 return)
Even very large payers that are well-established in a local market may not have the ability to reject provider demands, however unreasonable, in the face of such concerted provider power.
(Footnote 18 return)
On March 12, 1998, the Presidential Advisory Commission on Consumer Protection and Quality in the Health Care Industry, which included representatives from a broad range of interests involved with the health care system, issued its final report, entitled ''Quality First: Better Health Care For All Americans.'' While addressing an array of issues, and offering numerous recommendations, the Commission nowhere suggested that reducing competition among health care providers and eliminating antitrust law enforcement in the health care sector were approaches likely to lead to better quality health care for consumers.
(Footnote 19 return)
As noted, it has been difficult to obtain comprehensive publicly available information on the share of individual plans in particular markets. InterStudy is the only source of nationwide market and plan-specific data relating to HMOs that FTC staff have been able to identify, but resource constraints precluded purchase of that data. Other published InterStudy data are discussed below.
(Footnote 20 return)
While the percentage of doctors participating in HMO or PPO plans was fairly uniform across the nation (89% in the East, 87% in the South, 86% in the Midwest and 86% in the West), the percentage of gross income from, and percentage of active patients in, HMOs and PPOs was more variable (48/55% in the East, 44/48% in the South, 41/46% in the Midwest, and 58/65% in the West). ''How fast are doctor's managed-care revenues rising?,'' Medical Economics 188, 200 (October 13, 1997).
(Footnote 21 return)
FTC staff have not been able to identify any comprehensive public information that aggregates individual firms' market share across products lines; thus, in most areas, firms' total market share based on their indemnity, PPO, and HMO business cannot be determined.
(Footnote 22 return)
Hoechst Marion Roussel Managed Care Digest Series 1997/HMO–PPO Digest 6, 8.
(Footnote 23 return)
Hoechst Marion Roussel Managed Care Digest Series 1997/HMO–PPO Digest 18–19.
(Footnote 24 return)
The Center for Studying Health System Change is conducting a Community Tracking Study to assess in depth changes in the health care systems in 12 representative communities across the country. These communities include Boston, Cleveland, Greenville (S.C.), Indianapolis, Lansing, Little Rock, Miami, Newark, Orange County (California), Phoenix, Seattle, and Syracuse. An additional 48 communities are being studied in less detail. Kohn et al., Health System Change in Twelve Communities iv (1997).
(Footnote 25 return)
The InterStudy Competitive Edge, Regional Market Analysis 8.1 (June 1998).
(Footnote 26 return)
See Center for Studying Health System Change, 1997 Annual Report, ''Charting Change: a Longitudinal Look at the American Health System'' 3–4.
(Footnote 27 return)
Ginsberg & Gebel, ''Tracking Health Care Costs: What's New in 1998?,'' 17:5 Health Affairs 141, 144, Table 4 (Sept./Oct. 1998).
(Footnote 28 return)
Center for Studying Health System Change, 1997 Annual Report, ''Charting Change: a Longitudinal Look at the American Health System'' 8.
(Footnote 29 return)
Financial ratings of HMOs slide; half lost money,' '' American Medical News 16 (Sept. 21, 1998).
(Footnote 30 return)
The InterStudy Competitive Edge, HMO Industry Report 8.1, at Table 21 and pp. 4243 (June 1998); 7.2 at Table 21 (December 1997); 6.2 at Table 26 and pp. 49–51 (December 1996); 6.1 at Table 29 and pp. 65–68 (May 1996).
(Footnote 31 return)
''High noon for the old guard,'' American Medical News 13 (Aug. 17, 1998).
(Footnote 32 return)
Corrigan et al., ''Health System Change in Boston, Mass.,'' in Kohn et al., Health System Change in Twelve Communities 13 (1997).
(Footnote 33 return)
The InterStudy Competitive Edge, Regional Market Analysis 8.1 3 (June 1998).
(Footnote 34 return)
U.S. Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (August 1996), reprinted in 4 Trade Reg. Rep. (CCH) 13,153.
(Footnote 35 return)
See Emmons & Kletke, ''An Examination of Practice Size,'' in American Medical Association, Socioeconomic Characteristics of Medical Practice 1997 21, 23, 28–29.
(Footnote 36 return)
Robinson & Casalino, ''Vertical Integration and Organizational Networks in Health Care,'' 15:1 Health Affairs 7, 12–13 (Spring 1996).
(Footnote 37 return)
''How Groups are Profiting from Case Management,'' Medical Economics 69 (Aug. 10, 1998). The groups discussed in the article are HealthCare Partners, a 300-doctor group in Pasadena, California; Carte Clinic, a 300-doctor group in Champaign-Urbana, Illinois; and Partners Community Healthcare, a Boston-area hospital-affiliated network of 3,870 doctors.
(Footnote 38 return)
Statements of Antitrust Enforcement Policy in Health Care 40 (August 1996).
(Footnote 39 return)
Id. at 41.
(Footnote 40 return)
Bindman et al., ''Selection and Exclusion of Primary Care Physicians by Managed Care Organizations,'' 279:9 JAMA 675 (Mar. 4, 1998).