SPEAKERS CONTENTS INSERTS Tables
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62–446
2000
QUALITY HEALTH-CARE COALITION ACT OF 1999
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 1304
JUNE 22, 1999
Serial No. 26
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
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JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
C O N T E N T S
HEARING DATE
June 22, 1999
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TEXT OF BILL
H.R. 1304
OPENING STATEMENT
Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary
WITNESSES
Anderson, E. Ratcliffe, Jr., M.D., executive vice president and CEO, American Medical Association, Chicago, IL
Bascomb, Stuart, executive vice president, Express Scripts, Inc., Maryland Heights, MO
Campbell, Hon. Tom, a Representative in Congress from the State of California
Cooksey, Hon. John, a Representative in Congress from the State of Louisiana
Dennis, Gary, M.D., president, National Medical Association, Washington, DC
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Henry, Holly, legislative chairperson, National Community Pharmacists Association, Seattle, WA
Jones, Bill, president, Materials Transportation Company, Temple, TX, on behalf of the U.S. Chamber of Commerce and the Antitrust Coalition for Consumer Choice in Health Care
Klein, Joel, assistant attorney general, Antitrust Division, United States Department of Justice
Pitofsky, Robert, chairman, Federal Trade Commission
Stewart, Jan, C.R.N.A., A.R.N.P., president-elect, American Association of Nurse Anesthetists, Seattle, WA
Weinmann, Robert, M.D., president, Union of American Physicians and Dentists, AFSCME, AFL-CIO, Oakland, CA
Young, Don, M.D., chief operating officer and medical director, Health Insurance Association of America, Washington, DC
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Anderson, E. Ratcliffe, Jr., M.D., executive vice president and CEO, American Medical Association, Chicago, IL: Prepared statement
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Baldwin, Hon. Tammy, a Representative in Congress from the State of Wisconsin: Prepared statement
Bascomb, Stuart, executive vice president, Express Scripts, Inc., Maryland Heights, MO: Prepared statement
Conyers, Hon. John, Jr., a Representative in Congress from the State of Michigan: Prepared statement-
Dennis, Gary, M.D., president, National Medical Association, Washington, DC: Prepared statement
Henry, Holly, legislative chairperson, National Community Pharmacists Association, Seattle, WA: Prepared statement
Hoeffel, Hon. Joseph M., a Representative in Congress from the State of Pennsylvania: Prepared statement-
Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and chairman, Committee on the Judiciary: Prepared statement-
Jones, Bill, president, Materials Transportation Company, Temple, TX, on behalf of the U.S. Chamber of Commerce and the Antitrust Coalition for Consumer Choice in Health Care: Prepared statement
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Klein, Joel, assistant attorney general, Antitrust Division, United States Department of Justice: Prepared statement
National Guild of Medical Professionals, Office and Professional Employees International Union, AFL–CIO, The
Pitofsky, Robert, chairman, Federal Trade Commission: Prepared statement
Stewart, Jan, C.R.N.A., A.R.N.P., president-elect, American Association of Nurse Anesthetists, Seattle, WA: Prepared statement
Weinmann, Robert, M.D., president, Union of American Physicians and Dentists, AFSCME, AFL-CIO, Oakland, CA: Prepared statement
Young, Don, M.D., chief operating officer and medical director, Health Insurance Association of America, Washington, DC: Prepared statement
APPENDIX
Material submitted for the record
QUALITY HEALTH-CARE COALITION ACT OF 1999
TUESDAY, JUNE 22, 1999
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House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to call, at 9:35 a.m., in Room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, George W. Gekas, Howard Coble, Charles T. Canady, Bob Goodlatte, Ed Bryant, Bob Barr, William L. Jenkins, Asa Hutchinson, James E. Rogan, John Conyers, Jr., Barney Frank, Howard L. Berman, Jerrold Nadler, Robert C. Scott, Melvin L. Watt, Sheila Jackson Lee, Maxine Waters, William D. Delahunt and Tammy Baldwin.
Staff present: Thomas E. Mooney, Sr., general counsel-chief of staff; Daniel M. Freeman, parliamentarian-counsel; Joseph Gibson, chief antitrust counsel; Patrick Prisco, assistant to the deputy general counsel-staff director; James B. Farr, financial clerk; Shawn Friesen, staff assistant/clerk; Perry Apelbaum, minority general counsel; and Samara Ryder, minority counsel.
OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. The committee will come to order. Today the committee conducts a legislative hearing on H.R. 1304, the Quality Health-Care Coalition Act of 1999.
[The information referred to follows:]
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106TH CONGRESS
1ST SESSION
H. R. 1304
To ensure and foster continued patient safety and quality of care by making the antitrust laws apply to negotiations between groups of health care professionals and health plans and health insurance issuers in the same manner as such laws apply to collective bargaining by labor organizations under the National Labor Relations Act.
IN THE HOUSE OF REPRESENTATIVES
MARCH 25, 1999
Mr. CAMPBELL (for himself, Mr. CONYERS, Mr. MILLER of Florida, Mr. HOEFFEL, Mr. BAKER, Mr. LAFALCE, Mr. COOKSEY, Mr. PALLONE, Mr. NADLER, Mr. HORN, Mr. FROST, Mr. FILNER, Mr. BOUCHER, Mr. WEXLER, Mr. SCARBOROUGH, Ms. SCHAKOWSKY, Mr. SHOWS, Mr. SANDLIN, Mr. TOWNS, Mr. BLAGOJEVICH, Mr. BROWN of Ohio, Mr. PAUL, Mr. COBURN, Mr. GANSKE, Mr. DELAHUNT, Mr. ROHRABACHER, Mr. MCCOLLUM, and Mr. KLINK) introduced the following bill; which was referred to the Committee on the Judiciary
A BILL
To ensure and foster continued patient safety and quality of care by making the antitrust laws apply to negotiations between groups of health care professionals and health plans and health insurance issuers in the same manner as such laws apply to collective bargaining by labor organizations under the National Labor Relations Act.
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Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Quality Health-Care Coalition Act of 1999''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) A large number of Americans receive their health care coverage from managed health care plans. This represents a 10-fold increase over the last 20 years. Serious questions have been raised about the quality of care patients are receiving under these plans.
(2) Changes in the health care industry have led to an increased concentration of health care plans, including more than 162 mergers in the last 10 years.
(3) The McCarran-Ferguson Act has created an enhanced opportunity for market power of insurance companies in health care and has given such companies significant leverage over health care providers and patients.
(4) Permitting health care professionals to negotiate collectively with health care plans will create a more equal balance of negotiating power, will promote competition, and will enhance the quality of patient care.
(5) Allowing health care professionals to negotiate collectively with health care plans will not change the professionals' ethical duty to continue to provide medically necessary care to their patients.
SEC. 3. APPLICATION OF THE ANTITRUST LAWS TO HEALTH CARE PROFESSIONALS NEGOTIATING WITH HEALTH PLANS.
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(a) IN GENERAL.—Any health care professionals who are engaged in negotiations with a health plan regarding the terms of any contract under which the professionals provide health care items or services for which benefits are provided under such plan shall, in connection with such negotiations, be entitled to the same treatment under the antitrust laws as the treatment to which bargaining units which are recognized under the National Labor Relations Act are entitled in connection with such collective bargaining. Such a professional shall, only in connection with such negotiations, be treated as an employee engaged in concerted activities and shall not be regarded as having the status of an employer, independent contractor, managerial employee, or supervisor.
(b) PROTECTION FOR GOOD FAITH ACTIONS.—Actions taken in good faith reliance on subsection (a) shall not be the subject under the antitrust laws of criminal sanctions nor of any civil damages, fees, or penalties beyond actual damages incurred.
(c) LIMITATION.—The exemption provided in subsection (a) shall not confer any right to participate in any collective cessation of service to patients not otherwise permitted by law.
(d) DEFINITIONS.—For purposes of this section:
(1) ANTITRUST LAWS.—The term ''antitrust laws''—
(A) has the meaning given it in subsection (a) of the first section of the Clayton Act (15 U.S.C. 12(a)), except that such term includes section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to the extent such section 5 applies to unfair methods of competition, and
(B) includes any State law similar to the laws referred to in subparagraph (A).
(2) HEALTH PLAN AND RELATED TERMS.—
(A) IN GENERAL.—The term ''health plan'' means a group health plan, a health insurance issuer that is offering health insurance coverage, a Medicare+Choice organization that is offering a Medicare+Choice plan, or a Medicaid managed care entity offering benefits under title XIX of the Social Security Act.
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(B) HEALTH INSURANCE COVERAGE; HEALTH INSURANCE ISSUER.—The terms ''health insurance coverage'' and ''health insurance issuer'' have the meanings given such terms under paragraphs (1) and (2), respectively, of section 733(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1191b(b)).
(C) GROUP HEALTH PLAN.—The term ''group health plan'' has the meaning given that term in section 733(a)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1191b(a)(1)).
(D) MEDICARE+CHOICE ORGANIZATION; MEDICARE+CHOICE PLAN.—The terms ''Medicare+Choice organization'' and ''Medicare+Choice plan'' have the meanings given such terms in subsections (a)(1) and (b)(1) of section 1859 of the Social Security Act (42 U.S.C. 1395w–28).
(E) MEDICAID MANAGED CARE ENTITY.—The term ''Medicaid managed care entity'' has the meaning given the term ''managed care entity'' under section 1932(a)(1)(B) of the Social Security Act (42 U.S.C. 1396u–2(a)(1)(B)).
(3) HEALTH CARE PROFESSIONAL.—The term ''health care professional'' means an individual who provides health care items or services, treatment, assistance with activities of daily living, or medications to patients and who, to the extent required by State or Federal law, possesses specialized training that confers expertise in the provision of such items or services, treatment, assistance, or medications.
Mr. HYDE. H.R. 1304 would allow doctors to negotiate jointly with HMOs and other insurers while enjoying the same antitrust exemption that labor unions currently have. Doctors believe they don't have equal bargaining power when they negotiate with HMOs and other health insurers. They argue that HMOs and insurers have too much control over health care decisions and push for lower costs at the expense of the quality of care.
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I can understand their concerns. I used to be a practicing lawyer, and I would not have wanted an insurance company telling me how to run my cases, although they did regularly.
The doctor-patient relationship must be preserved, and I am concerned that it may be diminishing. On the other hand, almost everyone's life would be easier if they were exempt from the antitrust laws. Those who propose such an exemption start with a heavy presumption against them. Their case must be compelling to justify it.
Those who oppose this legislation are concerned that it might lead to price fixing and group boycotts by doctors. They are also concerned that it might lead to an explosion of the cost of medical care. I am aware of these concerns, and I have asked the Congressional Budget Office to give us an estimate of what this bill would do to health care costs. Congressional Budget Office has not yet completed that estimate, but it will be shared with Members when it arrives.
Of course I have been asked by both sides in this debate to take up their cause, and I want to tell both sides why I have been slow to do so. The quality of medical care is vital to all of us. When we or our loved ones are sick, we want only the best. This bill has the potential to affect that quality profoundly. Some of you think for the better; some of you for the worse. Quite frankly, I don't yet know which of you is right. Whatever we do on this issue, I want to make sure we make health care better, not worse. So please bear with our caution as we move forward.
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I have called this hearing so we can have a public airing of the issue. We have a good cross-section of views represented here today, and I want to hear everyone's arguments to determine what we should do.
I want to thank my colleague Tom Campbell for his work in this area and all of our other witnesses today. I think we have someone from almost every corner of the country and every corner of the argument. We appreciate all of you coming, and I am pleased to turn to Mr. Conyers for an opening statement.
[The prepared statement of Chairman Hyde follows:]
PREPARED STATEMENT OF HON. HENRY J. HYDE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON THE JUDICIARY
Today the Committee conducts a legislative hearing on H.R. 1304, the ''Quality Health-Care Coalition Act of 1999.''
H.R. 1304 would allow doctors to negotiate jointly with HMOs and other insurers while enjoying the same antitrust exemption that labor unions currently have. Doctors believe that they do not have equal bargaining power when they negotiate with HMOs and other health insurers. They argue that HMOs and insurers have too much control over health care decisions and push for lower costs at the expense of the quality of care.
I can understand their concerns. I used to be a practicing lawyer, and I would not have wanted an insurance company telling me how to run my cases. The doctor-patient relationship must be preserved, and I am concerned that it may be diminishing.
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On the other hand, almost everyone's life would be easier if they were exempt from the antitrust laws. Those who propose such an exemption start with a heavy presumption against them. Their case must be compelling to justify it.
Those who oppose this legislation are concerned that it might lead to price-fixing and group boycotts by doctors. They are also concerned that it might lead to an explosion in the cost of medical care. I am aware of those concerns, and I have asked the Congressional Budget Office to give us an estimate of what this bill would do to health care costs. CBO has not yet completed that estimate, but it will be shared with Members when it arrives.
Of course, I have been asked by both sides in this debate to take up their cause, and I want to tell both sides why I have been slow to do so. The quality of medical care is vital to all of us. When we or our loved ones are sick, we want only the best. This bill has the potential to affect that quality profoundly. Some of you think for the better, and some of you think for the worse. Quite frankly, I do not yet know which of you is right. Whatever we do on this issue, I want to make sure that we make health care better, not worse. So please bear with my caution as we move forward.
I have called this hearing so that we can have a public airing of the issue. We have a good cross section of views represented here today, and I want to hear everyone's arguments to determine what we should do.
I want to thank my colleague Tom Campbell for his work in this area and all of our other witnesses today. I think that we have someone from almost every corner of the country. We appreciate all of you coming. With that, I will turn to Mr. Conyers for an opening statement.
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Mr. CONYERS. Thank you, and good morning. This matter has come to me from doctors in the Detroit metropolitan area, and not just African American doctors, who get the shortest and most terse orders to sign up or forget that they will be able to practice as they have known it. The other source is my colleague from California, Tom Campbell, who has worked indefatigably in the effort to bring this to a more public understanding, and I want to thank him from the outset.
What the legislation would allow is health care professionals to be able to talk with one another and present a united front with health insurers, HMOs, and other managed care companies so that they can protect patient benefits and welfare. This is the Quality Health-Care Coalition Act. It is not the Higher Pay for Doctors Act. We have to recognize that the only way we can help level the playing field between giant health care insurers and return decision-making from insurance bureaucrats to individual physicians, pharmacists, and other health care providers is to start with this measure.
Unfortunately, it won't solve the whole thing. I wish this was the magic amulet that would take care of the problem. This is a very modest approach. We are responding to two alarming anticonsumer trends, and I don't think there is a person at this hearing that is not very clearly aware of them: the ever-increasing level of concentration among health insurers and the exclusionary contracting practices by health insurance companies. In the last 5 years, we have seen a massive consolidation in the health care, in the health insurance and managed care market as more than a dozen health insurance competitors have been eliminated through mergers and acquisitions. This is going on faster than we can keep up with.
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The dangers posed by this ever-increasing market concentration are exacerbated by the practice of health insurers of engaging in rather heavy-handed negotiating tactics, in some instances requiring exclusionary contractual commitments from the health care providers. These restrictive terms are frequently offered on a take-it-or-leave-it basis under the threat of the loss of the provider's patients or exclusion from their access to other patients.
Our legislation responds to the problem by allowing professionals to join together to eliminate anticompetitive gag rules, limitations on patient testings, and other restrictions imposed by the large insurance companies without fear of antitrust liability. And as such, it merely grants these doctors the same status under antitrust laws as workers in other industry.
Finally, I would note that we have taken particular interest in this legislation because of the situation of minority physicians. Our support is growing. I am delighted that 19 of our colleagues have joined on this in total. While we understand that there is still a concern that price fixing will result if we allow doctors to jointly negotiate with managed care, in a new provision, we actually state that we do not sanction strikes or work stoppages. We are speaking to what we think was the basic reservation about this measure by our agency representatives.
It would be difficult to engineer a price-fixing agreement where the right to strike is precluded, and so even to the extent that this bill brings doctors into some equality, please recognize that under McCarran-Ferguson, we are sure that there is not going to be any massive rollover in the health care industry to the demands of doctors. We are open to any other concerns about dealing with price fixing, and to the extent that we can repair this, I think we have a measure that, like the State of Texas which has recently now moved in the direction of this bill, we find that more and more people realize that the quality of health care in America is going to turn on the ability of our doctors to be able to at least talk with one another without fear of coming into antitrust problems.
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I urge the careful consideration of the bill, and I thank all of the witnesses for joining with us this morning.
[The prepared statement of Mr. Conyers follows:]
PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I am pleased that we are holding today's hearing on legislation introduced by Rep. Campbell and myself This legislation would allow health care professionals to present a united front with health insurers, HMOs and other managed care companies so they may protect patient benefits and welfare. It will help level the playing field between giant health care insurers and return decision making from insurance bureaucrats to individual physicians, pharmacists, and other health care providers and their patients.
The legislation is needed to respond to two alarming anti-consumer trends—the ever increasing level of concentration among health insurers and exclusionary contracting practices by health insurance companies. The last five years have seen a massive consolidation in the health insurance and managed care market as more than a dozen health insurance competitors have been eliminated through mergers and acquisitions.
The dangers posed by this ever increasing market concentration are exacerbated by the practice of health insurers of engaging in heavy-handed negotiating tactics and requiring exclusionary contractual commitments from health care providers. Such restrictive contractual terms are frequently proffered on a ''take it or leave it'' basis to health care providers, under the threat of the loss of the provider's patients or exclusion from their access to other patients.
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Our legislation responds to this problem by allowing professionals to join together to eliminate anticompetitive ''gag'' rules, limitations on patient testing, and other restrictions imposed by the large insurance companies without fear of antitrust liability. As such, it merely grants health care professionals the same status under the antitrust laws as workers in other industries receive.
Finally, I would note that I have taken a particular interest in this legislation because of the unfairness of the current market situation on African Americans. I have heard countless stories from my constituents in Detroit and around the country of minority physicians being threatened that they will lose all of their business unless they enter into one-sided service contracts. This bill gives physicians the ability to respond to these abuses on a collective basis.
The legislation is strongly supported by a wide array of health care professional and trade organizations, including several testifying today. In addition, the AFL–CIO Health Fields Division has giving me a written statement in support of the bill that I would like to place into the record which states that ''[H.R. 13041 is formal recognition of the urgent need to dismantle the legal barriers that have, for the first time in this country's history, caused a diminution in the quality and availability of health care to our patients.''
I look forward to hearing the testimony of all of our panelists.
Mr. HYDE. I thank you, Mr. Conyers, and any other members who have an opening statement, it will be received in full in the record at this point in the record.
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[The prepared statement of Ms. Baldwin follows:]
PREPARED STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN
Thank you, Mr. Chairman. Mr. Chairman, I am a supporter and cosponsor of H.R. 1304. Americans are deeply concerned about the transformation of our health care system into one where large insurance companies and HMOs have increasingly seized the power to make decisions on patient care that used to be made by doctors and patients.
We have heard many examples of the consequences of this transformation. Congressional efforts to a pass a Patient's Bill of Rights and similar efforts in numerous states further demonstrate that the significant changes in the health care marketplace have resulted in a system that fails to adequately protect patients. Patients feel powerless against large health plan bureaucracies that control and restrict their access to treatment, their discussions with their doctors and their ability to pursue appeals of denial of care.
The consolidation of the health insurance marketplace along with other factors have served to diminish a health care professionals' bargaining power to negotiate any terms of their contracts with insurers and HMO's—including terms with important patient care implications. These health plans present physicians and other health care professionals with non-negotiable contract terms that no reasonable person with bargaining power would agree to. Antitrust laws make it impossible for independent contractor physicians to work together in order to gain have any leverage with health plans over important patient care issues.
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HR 1304 would remove restrictions on independent physicians' and other health care professionals ability to jointly negotiate with health plans and allow them to more effectively advocate on behalf of their patients and their professions.
Mr. Chairman, thank you again for convening today's hearing.
Mr. HYDE. Our first panel consists of two of our colleagues, Congressman Tom Campbell of California, the chief sponsor of H.R. 1304, and Congressman John Cooksey of Louisiana, a cosponsor. Congressman Campbell has a B.A., an M.A., and a Ph.D. in economics from the University of Chicago. He is also 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. He was the Director of the Bureau of Competition at the Federal Trade Commission, and he was a professor at Stanford University Law School. He was first elected to Congress in 1989, serving through 1992. He then returned after winning a special election in December 1995.
Congressman Cooksey is a graduate of the Louisiana State University and its medical school. After an Air Force tour in Vietnam, he returned to Louisiana, where he practiced ophthalmology for many years. Later in life he returned to school, earning a master's in business administration from the University of Texas. He was first elected to Congress in 1996.
There was a third Congressman, Congressman Joseph Hoeffel of Pennsylvania, who is scheduled to appear on the panel, but he has been detained in his district, and he may arrive later, and if so, we will hear from him then.
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[The prepared statement of Mr. Hoeffel follows:]
PREPARED STATEMENT OF HON. JOSEPH M. HOEFFEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA
INTRODUCTION:
Mr. Chairman, Congressman Conyers, and members of the Committee, I would like thank you for providing me and my colleagues the opportunity to testify today. The topic we address is very important to the constituents in my district.
Mr. Chairman, I am proud to testify in support of H.R. 1304, the Quality Health-Care Coalition Act of 1999, a bill to amend anti-trust laws to permit health care professionals to collectively bargain when engaged in negotiations with a managed care plan or health insurance company.
Enactment of this legislation is an important step for Congress to take in its efforts to restore some balance to the negotiations between health care providers and HMOs. This legislation is supported by doctors and health care providers in my district and across America. Literally scores of physicians in Montgomery County, Pennsylvania have contacted me about this issue. They face an uneven playing field during negotiations with HMOs and need relief if they are to get fair treatment at the bargaining table.
THE PROBLEM:
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Consolidation in the managed care industry has gone too far. In regions of the country where a handful of health insurance companies dominate the market and face no competition, reimbursement rates are driven so low that they threaten the ability of physicians and hospitals to maintain quality patient care.
Nowhere is this problem clearer than in my District, the 13th Congressional District of Pennsylvania. A report published in December 1998 by Interstudy, a nationally-recognized market share collections group, showed that two managed care companies dominate the health insurance product market in the Philadelphia region. Excluding traditional Medicare and Medicaid patients, these two companies control 76 percent of the market. 76 percent. This represents 3,800,000 patients out of a total population of 4.3 million.
Equally problematic is the lack of health care industry competition in the Philadelphia metropolitan area. The leading HMO controls 57 percent of the market, while the second largest company controls 19 percent and is seeking a merger to further increase its market share. Every other health insurance company in the service region controls less than 3.5 percent of the market. There is no real competition to keep the market leaders in check; they are the only game in town.
For individual physicians' practices in my district, this problem of market concentration can be even more severe: for some, 80 percent of patients hold policies from these two companies. For many practices, between 30 and 40 percent of revenue is generated by these two payers. With such dominant control and no competition to keep them in check, large HMOs can bankrupt a practice and dictate terms of patient care, giving physicians little recourse.
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When individual health care providers sit down at the negotiating table, and one insurance company controls 57 percent of all managed care policies in the area, and another insurance company controls 19 percent of all patients covered by managed care, doctors cannot negotiate a fair contract. With such a huge, unchecked advantage, HMOs can refuse contract changes proposed by doctors and simply threaten to lock out any individual provider from a huge number of patients. In the words of one health care provider in my district, the choice which HMOs offer doctors is ''Take my business, or go out of business.''
Under these conditions, HMOs force doctors into contracts with two types of problems: unfair reimbursement rates, and reduced physician control over medical decision-making.
1. Unfair reimbursement rates unjustly harm doctors in the short term, but they also harm patients in the long-term by reducing access to quality health care. Over time, unfair rates drive talented doctors out of a service area and drive experienced doctors into retirement.
2. Reduced control over medical decision-making is forced upon doctors alongside reimbursements cuts. Viewing all facets of medicine through the lense of cost, HMOs erect walls of procedure and mazes of referrals and denied claims to further reduce expenses. What they truly accomplish are poor working conditions for doctors and eroded quality of care for patients.
Unfair rates drive doctors away from the area and reduce access; poor working conditions erode quality of care. In each case, the patients lose along with health care providers under unfair contracts.
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THE PROBLEM MANIFESTED IN PENNSYLVANIA'S 13TH CONGRESSIONAL DISTRICT:
Mr. Chairman, I am seeing evidence of all these problems in my district.
One year ago, the HMO that controlled 57 percent of the market in my district announced it was cutting reimbursement rates to orthopedic surgeons by 40 percent within the month. The HMO did not consult doctors before doing this. It simply acted on its own, saying ''take it or leave it.'' In addition, if doctors refused to accept the reduced rates of the HMO product, the company would lock them out of its traditional insurance policy as well.
The new rates were to drop reimbursement for private patients to the equivalent of 80 percent of Medicare rates. This is particularly ironic because historically, Medicare reimbursement rates were the lowest reimbursements that physicians accepted, and they did so in significant part due to social responsibility for treating the elderly. In the era of huge HMOs, is Medicare to become the highest level of reimbursement? If that happens, doctors in my district warn they will be forced to reduce the amount of charity care they provide because they cannot afford it under those conditions.
Under these bleak financial circumstances, physicians in my district have seriously considered moving out of the region. One of my constituents already reports that his practice cannot sign up a new associates. He told me, ''The reaction I get from the young doctors is, why should I put up with unfair treatment and dropping reimbursement rates when I can move across the Delaware River to New Jersey, and set up a healthy practice?'' By moving to Delaware or New Jersey and providing the same services, doctors in my home district could make 30–50 percent more.
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Countless more physicians have cited to me frustrations with delivering quality care to their patients. They struggle each day with excessive requirements for referrals and paperwork, and must routinely contest denials of service. Many are forced to hire extra administrative staff to cope with an ever-expanding administrative burden.
In fact, the HMO business paradigm is to make up for lower reimbursement rates by directing higher volumes of patients to their doctors. This business model intrinsically sacrifices personal attention to patients and puts quality of care in jeopardy.
THE PROBLEM ACROSS THE COUNTRY:
This sequence of problems originates with the excessive consolidation of the managed care industry, which leads to market dominance by a few companies without competition to check them. This trend is particularly acute in southeastern Pennsylvania but is on the rise in other areas of the country: Pittsburgh, Houston, Dallas-Fort Worth, and Atlanta all display these features; other areas trending in this direction are New York City, Boston, Los Angeles, Chicago, and other top-ten major metropolitan areas.
Consolidation on one side of the bargaining table distorts negotiations and produces unfair results unless it can be met by similar consolidation on the other side. But nowhere in the country can doctors match HMO negotiating power because they are precluded by current law from doing so.
THE SOLUTION:
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These problems started at the negotiating table and can be solved at the negotiating table. Congress need only ensure that the field is level and the rules of the game are fair.
H.R. 1304 would intervene precisely at this point. The bill would accomplish something only Congress can do: change current anti-trust laws to allow health care providers to engage in collective bargaining. In the era of giant managed care companies, I believe it is necessary to give health care providers some relief.
H.R. 1304 will allow health care professionals, including physicians, dentists, and pharmacists, to form coalitions to jointly negotiate with an HMO at the time they are negotiating a contract. The bill provides a temporary allowance and does not create a permanent coalition. In addition, the bill specifically prohibits work stoppages and strikes: no one is advocating picketing by physicians. The point is to improve the quality of medicine delivered to patients.
I believe that health care providers make better patient advocates than HMOs. While managed care companies may be effective at keeping down expenses, cost control must be balanced with quality. H.R. 1304 would empower doctors to fight for quality during contract negotiations, and resist ''gag clauses'' and other quality-eroding policies.
Today's consideration of H.R. 1304 marks an important beginning. By discussing the Quality Health-Care Coalition Act, we are signaling our intention to reverse the anti-doctor, anti-patient trend in managed care. I do not intend to let matters in Pennsylvania's 13th Congressional District reach the point where conditions are so bad for doctors that my constituents will face problems with access and ever-declining quality of care. I will work hard to solve this problem, and look forward to collaborating with Members of this Committee on this effort.
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Mr. Chairman, thank you for listening to my testimony, and thank you for making this issue a priority.
Mr. HYDE. Let me just say that our normal practice is not to question congressional witnesses. I know Congressman Campbell wants to stay and answer questions. In the interest of time, we will proceed in the following manner. We will call Congressman Cooksey to give his statement first, and then he can leave when he wishes to leave or needs to go. Then Congressman Campbell will give his statement. After that, we will call up the next panel, and Congressman Campbell can remain at the table and answer questions with Chairman Pitofsky and Mr. Klein.
With that convoluted arrangement, we welcome you all, and we turn to Congressman Cooksey.
STATEMENT OF HON. JOHN COOKSEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA
Mr. COOKSEY. Thank you, Mr. Chairman and Mr. Conyers.
I am a physician and an eye surgeon. Prior to coming to Congress, I had been in the full-time practice of ophthalmology for 24 years. Just after medical school and internship, I did family practice for a short period of time before going into the Air Force during the Vietnam War.
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My hometown is small. My congressional district is rural, with relatively limited managed care penetration compared to larger cities and urban areas. For this reason, this legislation will have little effect on my practice or my colleagues in my area.
Physicians, nurses, and other health care professionals often come to me as a Member of Congress and relate horror stories about the dark side of managed care with its adverse effect on patients, people with illnesses. Physicians, nurses and other health care professionals are educated and trained first to take care of patients, these other human beings. These are the professionals who look into the eyes of newborn babies as they are struggling to begin life and then look into the eyes of older patients who are struggling to continue life. These are professionals who must live with the fact that sometimes no matter how skilled you are, the patients in your care may slip away.
Running the business side and participating in the political process is usually a secondary or lower priority than taking care of patients. In medicine, when the course of treatment is right, it is followed. Health care professionals tend to believe that when they are right on the issue, the proper legislative action will follow. Needless to say, this is not always the case. I had a physician friend who used to say the only—that the only thing worse than a doctor in politics was a political doctor.
Insurance companies and HMOs are stock-driven, profit-making corporations that just happen to be in the health care business. These corporate CEOs' primary obligation is to their stockholders, whose primary goal is to make money. As many of my colleagues here in Congress can tell you, I am generally a fan of the capitalist model because our country has truly boomed under this model. It is a great model. But do not forget that these companies are primarily making money off of the health care of patients, of people, of your constituents. Too often this profit is made by reducing costs by denying needed and paid for health care to sick people, or, as they tend to refer to them, as covered lives. Because of the employer-based insurance system that dates back to World War II, those patients to whom medical care is denied are usually powerless to leave their company health plan and choose other coverage. These employee-patients are in a system much like veterinary medicine in which the animals' health care is decided by the veterinarian and the owner of the pet. These insurance companies and HMOs are extremely political and politically involved. They spend millions working the system to protect and increase their profits off the backs of patients, nurses, physicians, and other health care providers.
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I came here in 1997, January 1997, with probably some of the same naive views that a lot of other physicians had, but in the process of watching the lobbying that was carried out by the HMOs and the insurance industry during the negotiations on the health care portion of the Balanced Budget Act of 1997, I saw what to this day is still the most ruthless aggressive lobbying that bordered on being unethical that I have seen since I have been a Member of Congress. It was a rude awakening, but I have seen the way they work.
I am not here today to testify for a group of health care professionals, most of whom are too busy taking care of patients to participate in the political process. I am not here to ask for a huge advantage for health care providers and a disadvantage for insurers. I know that health care professionals are not infallible, and some will use an unfair power to their own self-advantage. But the health care professionals are merely asking for the right to equal negotiations with HMOs and insurance companies. These caregivers only want to be able to effectively act to protect their patients from practices that harm them.
Thank you, Mr. Chairman.
Mr. HYDE. Thank you very much, Representative Cooksey.
Mr. Campbell?
STATEMENT OF HON. TOM CAMPBELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
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Mr. CAMPBELL. Mr. Chairman, first of all, thank you so much for holding this hearing, and thank you for all your accommodation. You have been very kind and focused on the merits throughout, and I sure appreciate that courtesy.
As you mentioned at the start, I would like to waive any privilege I might have regarding not usually interrogating Members of Congress, and I would be very pleased if you would be so kind to pay me the honor of allowing my antitrust law professor Bob Pitofsky to come up, sit next to me, as well as Mr. Klein, if they wish. That way they can criticize anything I say and——
Mr. HYDE. It is a little unusual, but I have no objection if you want Mr. Pitofsky.
Mr. CAMPBELL. I would like to pay him that honor.
Mr. HYDE. I was going to say we ought to circulate them and see if they——
Mr. CAMPBELL. I only mean that they should not feel in the slightest——
Mr. HYDE. I think when you are finished with your statement, they will come up and they will do their statement, and then the three of you——
Mr. FRANK. This way they can sit behind him and make faces.
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Mr. HYDE. The faces we don't mind. It is the gestures.
Mr. CAMPBELL. Thank you. That will work out just fine.
Can I ask my assistant to distribute a chart which might be of some use, with the chairman's permission?
Mr. HYDE. Surely. Do we have a chart coming?
Mr. CAMPBELL. It is a handout rather than a large chart.
Here is one other word of thanks which is very much due, and that is to John Conyers. I thank my good friend, my colleague, for his energetic support of this effort and I have the highest regard for his concern for patients which I know motivates him and all of us on this side of the bill.
Here is the hypothetical that I would like to refer to. It is a hypothetical. I think you will find when we get to the testimony from the medical doctors that it has a lot of real-life validity, but the hypothetical is as follows. In my adopted hometown of San Jose, California, there are a dozen kidney specialists. Ten, ten have been signed up by one HMO. The HMO contract has a provision. The provision in the HMO's contract says you can order dialysis for a patient over 70 years old, but if you do, we will reimburse you at a lower rate than if you order dialysis for somebody under 70. That is your choice, but you get the message. That way we will keep costs down.
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HMO goes to Dr. Jones and says, we would like you to be part of us. He is one of the two who haven't yet signed up. Jones says, I am sorry, I want to practice medicine. If I decide some patient needs dialysis, I want to decide that. I don't want to have this perverse financial disincentive. And the HMO says, okay, take it or leave it.
Dr. Jones goes to Dr. Smith, who is the only other kidney specialist not signed up, and he says to Dr. Smith, you know, they just gave me a take it or leave it offer. I am saying no. If you say no, too, maybe they will listen to us. And Dr. Jones and Dr. Smith agree that they will both refuse the term that says if they give kidney dialysis to somebody over 70, they will get lower reimbursement.
At that point they have broken the Sherman Act. At that point they have violated Sherman Act section 1. And whereas I have no higher regard for any chairman of the Federal Trade Commission than Bob Pitofsky, and I know that he uses his prosecutorial discretion wisely, and my admiration for Mr. Klein is only a tad less because he wasn't my teacher, the fact is these are not decisions made by the prosecutors because the HMO itself can bring an antitrust lawsuit against Dr. Jones and Dr. Smith for violating Sherman section 1.
Not only can they hold that provision of the contract illegal if they sign it, but—catch this—it is remarkable—if Jones and Smith both agree and the HMO says, okay, the lower reimbursement rate won't apply to you, after a year, the HMO can sue Jones and Smith for triple damages for the difference between the reimbursement rate they would have had if they had been one of the other 10 doctors and the reimbursement rate they actually had. In other words, it becomes profitable for the HMO. They can sue for the difference multiplied by three; the HMO not only makes up the difference, but twice more.
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That is current law. It is per se against the antitrust laws for two competitors, Dr. Jones and Dr. Smith, to agree on a term affecting their reimbursement, which they just did when they said that both of them would refuse this lower reimbursement rate if they give dialysis to somebody over 70.
Well, I have one argument to anticipate, and that is what the chart is for. The big argument against this bill is that it would lead to higher prices for patients, and so I will be at pains to try to emphasize the difference between upstream and downstream, and that is what my chart attempts to illustrate.
On the top half we have got the HMO presenting terms on a take-it-or-leave-it basis to four doctors. That HMO again, by hypothesis, this is a hypothetical, then turns around and tells all the patients take it or leave it. Upstream and downstream. And I create a number, so I am just making it up, but I am making a number up that the HMO has a profit of 10 and the doctors have a profit of 2 in that kind of a world.
In the lower half of the illustration, the doctors have decided to present a united front to the HMO. Notice that the patient's relationship to the HMO is unchanged, and that is the key. What will happen is the division of profit between the HMO and doctors is going to change, and, more beneficially, the quality of care is going to change because the doctors are going to have a role to play in telling the HMO, no, we are not going to do it the way you want it just on the basis of finances. We are going to do it this way because we believe it is better for patient care. But there will be a profit difference, I am willing to concede, and it may be that the medical doctor gets more.
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The point is that as to the consumer, it is the same. I know the words ''price fixing'' will be thrown against this bill. All of you already heard it. But the bill deals with an upstream relationship as to who makes the profit, the HMO or the doctor, and who sets the terms of how patients are taken care of. Once that is settled, the ability of the HMO to charge a high price or a low price is determined by how many HMOs there are in San Jose, California, not the degree of organization on the doctors' side. I thank you.
Mr. HYDE. Thank you very much, Mr. Campbell.
[The information referred to follows:]
62446a.eps
Mr. HYDE. If you will remain at the witness table, I will now introduce the second panel. When they have finished their statements, all three of you can answer questions together.
Our second panel consists of the two Federal officials charged with enforcing the antitrust laws, Chairman Robert Pitofsky of the Federal Trade Commission, and Assistant Attorney General Joel Klein of the Department of Justice's Antitrust Division.
Chairman 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 the dean and a professor at Georgetown University Law School and of counsel to the Washington law firm of Arnold and Porter.
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Assistant Attorney General Klein is a graduate of Columbia University and Harvard Law School. After law school, he clerked for Supreme Court Justice Lewis Powell before going into private practice from 1976 to 1993. From 1993 to 1995, he served as deputy counsel to the President. In 1995, he moved to the Antitrust Division, and he became its head in July 1997.
We welcome both of you and look forward to your testimony. I would ask the usual ground rules that you try to confine your synthesis to 5 minutes. We won't be too persnickety about that, but that would help. And then we will question you. So whichever wishes to go first. Chairman Pitofsky or Mr. Klein.
STATEMENT OF ROBERT PITOFSKY, CHAIRMAN, FEDERAL TRADE COMMISSION
Mr. PITOFSKY. I would be glad to go first. Thank you, Mr. Chairman, and members of the committee. I am pleased once again to be before this committee discussing this important subject and to share a panel with my former student and good friend Tom Campbell.
I am not here to argue that there are no problems in health care distribution or to defend HMOs. What I will argue is that H.R. 1304, which would give doctors, dentists, and pharmacists an exemption from the antitrust laws, is an unprecedented departure from the economic policy that we pursued in this country for over 100 years, is a disproportionate response to whatever problems exist, and will create its own problems which dwarf those that it is designed to address.
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I would like to break my remarks down into two parts. First, this bill is designed to address questions of patient safety and quality of care. I would like to take on first the question of whether doctors can get together now and represent their patients when they believe HMOs have made a wrong decision about quality of care, and then the question of whether doctors can get together and negotiate jointly with HMOs in order to produce more income for the doctors.
On the quality of care question, it is just not so that doctors are helpless to represent their patients. They can certainly get together and advocate procedures to the HMO and try to persuade the HMO to come around to their view. If they want to go beyond advocacy, they can form joint ventures, efficient joint ventures, which are now permissible under our revised guidelines, and they can negotiate jointly.
In most communities in this country, there are five, six, seven, eight HMOs. In some cities there are 20 HMOs. If the doctors are unhappy with the way HMOs treat their patients, they can leave and go to another HMO.
Even if none of those things are true and they want to get together and bargain jointly, the question is: is that really an antitrust problem? The American Bar Association did a study of the last 20 years of antitrust enforcement and found that there is not a single case that challenged collective efforts to improve patient welfare. Every case that we have brought, and I am not aware of any private case either, related to doctor income and not directly to patient welfare.
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On the second issue, are doctors dealing with HMOs making enough money? Should they be paid more? I guess the argument in favor is two-fold: One, if they were paid more, there would be better quality of care. They would have more money, more time, and so forth. And second, the argument that we have heard so many times that it is not a level playing field. Individual fee-for-service doctors are small. HMOs are large. Health care professionals can't really negotiate very successfully.
Well, let me make a number of points. One, HMOs are not monopolists. It is hard to find a community in this country where there is only one or two HMOs. As I said, in 100 of 316 largest communities, there are eight or more insurance companies or HMOs. Over half of the communities have more than five. Also, it appears that there has been more entry than exit into this industry, so it is not impossible for new firms to become involved. Incidentally, I supplied that data to the committee at the committee's request a year ago.
What will happen as a result of this exemption is clear. Employers will pay more; patients will pay more through copayment arrangements. The number of uninsured are likely to increase. I have heard the argument that, well, the input price can go up but patients won't pay more, it will just come out of the profits of HMOs, I have never understood that. If the steel companies conspire and raise the price of steel to the auto companies, do we really think the price increase will only come out of the profits of General Motors and it won't increase the cost of cars? I can't believe that.
I said H.R. 1304 was unprecedented. If the committee or if Congress decides to enact a bill like this, can the lawyers, the accountants, and the architects be far behind? The argument might be, yeah, but they don't have to deal with large companies. Well, what about people who own gas stations? What about people who own auto dealerships? These small entrepreneurs must deal with Exxon. Should we be giving them an antitrust exemption? Can they be far behind?
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I remember last year when I was here on the same subject, several of you, Mr. Delahunt as I recall, looked down and said, what are you saying, that everything is just fine and nothing needs to be done? No, I am not saying that. Everything is not just fine, and there are things that need to be done.
We should protect and improve the quality of competition in this sector of the economy, and I think Mr. Klein is going to talk a bit about a case that was brought just yesterday challenging a merger that had an effect on patients in Texas. We should improve the quality of information that employers and patients have so they can make better choices. Most important to me, every formulation of the patients' bill of rights that I have seen, and there are many of these bills around, has a provision that says if doctors and patients disagree about the procedure that the HMO is permitting, if Dr. Jones and Dr. Smith aren't happy with this dialysis decision, the dispute should be referred to an independent objective third party for disposition. That is an arrangement that addresses the narrow problem, but doesn't give doctors an exemption from the antitrust laws, which we have given to no other group of professionals in over 100 years.
Thank you.
Mr. HYDE. Thank you, Chairman Pitofsky.
[The prepared statement of Mr. Pitofsky follows:]
PREPARED STATEMENT OF ROBERT PITOFSKY,(see footnote 1) chairman, Federal Trade Commission
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Mr. Chairman, the Federal Trade Commission thanks you and the members of the Committee for inviting us again this year to present the Commission's views on a proposed antitrust exemption to allow physicians and other health care professionals to engage in collective bargaining with health plans. The basic effect of this year's bill is the same as last year's proposal: to grant independent health care practitioners the right to agree on the fees and other terms that they will accept from insurers, employers, and other third party payers, and to boycott payers who refuse to accept their demands. This year's version, however, makes clear that the immunity would apply not just to doctors, but also to pharmacists and others who supply health care products or services. The Commission continues to believe that such an exemption would be bad medicine for consumers. The issues that have been raised regarding patient protection are vitally important, but this proposal is not the way to address them.
H.R. 1304 would create a broad antitrust exemption that would, for example, allow all of the physicians in a particular medical specialty in an area to demand a 20% increase in fees and to refuse to contract with any insurer who refused to pay those rates. The example mentioned above is not a mere hypothetical. The Commission's staff currently has an investigation into just such conduct. Nor is this an isolated case. The Commission has brought numerous actions challenging similar activities.(see footnote 2)
The bill, while appealing in its apparent simplicity, threatens to cause serious harm to consumers, to employers, and to federal, state, and local governments:
Doctors and other health care professionals could join together to demand substantially higher fees.
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Pharmacists could insist on higher payments for filling prescriptions. The bill apparently would permit even large chain pharmacies, such as CVS and Rite Aid, to get together and demand higher prices.
Consumers and employers, including government employers, would face higher insurance premiums.
Consumers would pay more out-of-pocket and could see their benefits reduced.
Medicaid programs that provide services through managed care plans could be forced to increase their budgets or reduce services.
The number of uninsured Americans, and the costs borne by state and local governments in providing for their care, could increase significantly.
Supporters of the bill argue that giving this kind of unrestrained power to private competitors is needed because of concerns about the changes taking place in our nation's health care system. That significant changes are occurring is beyond dispute. Efforts by private employers and government health care programs to address rapidly increasing health care costs have transformed health service markets. Many doctors are concerned about their ability to care for their patients in the way they believe is best. Many patients are dissatisfied with the services they have received from their health plans; others are worried about the availability and quality of services should they become seriously ill. Press reports of apparent abusive practices by some health plans abound. But even though there are serious problems concerning the relationship of HMOs and other health plans to doctors and patients that deserve to be addressed, this proposal is the wrong approach.
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What do we mean by this? An across-the-board antitrust exemption would allow all doctors in a community or all members of a particular specialty—for example, specialists already compensated at $150,000 to $200,000 a year, not to mention pharmacists who work for large corporate pharmacies—to band together and insist that they be paid an additional 10 or 20%. Although H.R. 1304 is presented as an extension of the antitrust immunity granted to labor organizations, the circumstances here are surely very different from the context in which the labor exemption was originally adopted by Congress.
The Commission's opposition to the proposed exemption is not based on any policy preference for HMOs over fee-for-service medicine, or on an assumption that the market, if left alone, will cure all problems. Nor does it reflect a lack of concern about the special characteristics of health care markets, or disregard for the strong sense of responsibility that medical practitioners feel for the welfare of their patients. Rather, our opposition is based on the Commission's experience investigating the impact on consumers of numerous instances of collective bargaining by independent health care practitioners.
The bill's stated purpose is to promote the quality of patient care. Collective bargaining by health care professionals, however, does not ensure better care for patients. Two broad-based commissions recently studied changes in the health care system and recommended numerous measures to protect consumers and promote quality. But neither suggested that antitrust immunity was appropriate or desirable.(see footnote 3) The Commission believes that measures designed to increase the power of consumer choice will serve patients, and our nation as a whole, far better than giving providers the collective power to dictate what choices—and, significantly, what prices—will be available in the marketplace. Government can play an important role in creating the conditions for effective competition in health care markets, and in addressing specific abuses through targeted regulation.
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I. THE BILL WOULD GRANT BROAD ANTITRUST IMMUNITY FOR PRICE FIXING, BOYCOTTS, AND OTHER ANTICOMPETITIVE CONDUCT
H.R. 1304, like the proposal before the Committee last year, would create a broad antitrust exemption for price fixing and boycotts by physicians, dentists, pharmacists, and other health care professionals. To understand the types of activity that this bill would legalize, one need only refer to the record of antitrust law enforcement over the past two decades. The Commission, the Department of Justice, and state attorneys general have brought numerous actions challenging price fixing and boycotts by health care professionals who sought to obtain higher fees or more favorable reimbursement terms from third party payers. For example, the Commission's early case against the Michigan State Medical Society(see footnote 4) challenged the Society's formation of a ''negotiating committee'' that orchestrated boycotts of the state Blue Shield plan and the state Medicaid program in order to promote the reimbursement policies that the Society preferred. Among other things, the Society opposed vision and hearing care benefits plans negotiated by the United Auto Workers union, because these programs provided for different reimbursement levels for participating and nonparticipating providers.(see footnote 5)
More recently, the Commission issued a consent order settling charges that a group of physicians in Danville, Virginia, agreed on reimbursement rates and other terms of dealing with third-party payers, agreed to boycott payers that did not meet those terms, and thereby succeeded in obstructing the entry of new health care plans into its area.(see footnote 6) One of the victims of the boycott was a health plan established by Virginia to cover state employees. The Commonwealth of Virginia jointly investigated the case with FTC staff, and collected $170,000 in penalties and damages for the increased costs it had to bear in providing health benefits to its employees.(see footnote 7)
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The Commission's most recent challenge to providers' collective negotiation with health plans involved a group of independent physicians that included between 70 and 80% of the doctors in the Lake Tahoe area. According to the complaint, the doctors negotiated collectively with all health plans in the area, and forced the plans to either accept rates much higher than those paid in other parts of California or Nevada, or abandon plans to contract with doctors in the area. The physicians asked Blue Shield of California to raise its premiums to fund increased payments to doctors, and concertedly terminated their participation agreements with Blue Shield when it did not comply with their demands.(see footnote 8)
These are just a few examples of actions antitrust enforcers have blocked—actions that meant higher prices for consumers without any guarantee of improved patient care. There are many more.(see footnote 9) The immediate effect of H.R. 1304 would be to allow such anticompetitive conduct to proceed unchallenged, and it may encourage health care professionals to undertake such actions.
The bill also could permit physicians to collectively demand terms from health plans that would disadvantage allied health care providers or other alternatives to prevailing modes of medical practice. The collective judgment of health care professionals concerning what patients should want can differ markedly from what patients themselves are asking for in the marketplace. The Commission has taken enforcement action in cases in which provider groups sought to impede practice by competing alternatives by, for example, denying, delaying, or limiting hospital privileges of non-physician providers(see footnote 10) or physicians providing services through innovative arrangements, such as the Cleveland Clinic's integrated multi-specialty group practice.(see footnote 11) Other cases illustrate how groups of professionals have attempted to secure health plan payment policies that disadvantage their competitors.(see footnote 12) Although it was suggested at last year's hearing that the legislation would not grant antitrust immunity to agreements between doctors and health plans that disadvantaged competing providers, but would protect only agreements among physicians on what terms they will accept from plans, it is not clear that the courts would interpret the law in that way.(see footnote 13)
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The differences between this year's bill and last year's do nothing to reduce the Commission's concerns about the potential harm to consumers. Indeed, the changes primarily broaden rather than limit the bill's scope. The current version includes an expansive definition of ''health care professional'' that appears designed to encompass a sweeping array of individuals who provide health care products or services. This year's bill also makes clear that state, as well as federal, antitrust enforcement would be displaced. In addition, although the current bill excludes the ''collective cessation of service to patients'' from its protections, this limitation takes virtually nothing away from the coercive power the bill grants to providers. The bill continues to permit physicians and others to collectively refuse to deal with a health plan that refuses their demands for higher fees. If a plan failed to accede to those demands, and the group refused to contract, the plan could be forced from the market,(see footnote 14) or patients would be left to pay their medical bills out of their own pockets.(see footnote 15) Thus, although providers could not collectively refuse to treat patients, their collective refusal to contract with a plan could impose formidable financial obstacles to patients seeking care.
Although styled as a labor exemption, the antitrust immunity that H.R. 1304 would confer has little to do with established labor law and policy. The labor exemption already applies to health care professionals under the same standards that apply in other sectors of the economy; that is, physicians who are employees (for example, of hospitals) are already covered by the labor exemption under current law. The labor exemption, however, is limited to the employer-employee context, and it does not protect combinations of independent business people.(see footnote 16) H.R. 1304 is designed to override the distinction Congress drew in the labor laws between employees and independent contractors, and to allow some independent contractors—doctors and other health care professionals operating as independent businesses—to collectively exert economic pressure on health plans to gain higher fees and other, more favorable, terms of dealing.(see footnote 17) In addition, it grants the exemption without providing for any oversight of the collective bargaining process by the National Labor Relations Board.
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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.
H.R. Rep. No. 245, 80th Cong., 1st Sess. 18 (1947). Just last month, the NLRB Regional Director in Philadelphia decided, after having held 14 days of hearings, that network doctors of a New Jersey HMO were independent contractors rather than employees within the meaning of the NLRA. AmeriHealth Inc./AmeriHealth HMO and United Food and Commercial Workers Union, Case 4–RC–19260 (NLRB 4th Region, May 24, 1999).
Moreover, this extension of the labor exemption is being offered as a way to remedy matters that collective bargaining was never intended to address. The stated goal of this bill is to promote the quality of patient care. The labor exemption, however, was not created to solve issues regarding the ultimate quality of products or services that consumers receive. Collective bargaining rights are designed to raise the incomes and improve working conditions of union members. The law protects the United Auto Workers' right to bargain for higher wages and better working conditions, but we do not rely on the UAW to bargain for safer cars. Congress addressed those concerns in other ways. The patient care issues raised by supporters of the bill deserve serious attention, but an ill-fitting labor exemption is the wrong approach.
II. THE EXEMPTION WOULD HARM CONSUMERS
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It is undisputed that the immediate effect of H.R. 1304 would be to permit all doctors in a community—indeed, all health care professionals—to bargain collectively with all health plans that contract with independent health practitioners. It would permit those practitioners to demand much higher fees for their services, and to refuse collectively to contract with plans that did not meet those demands. What is disputed is the impact the bill would have on consumers.
At last year's hearing, there was much discussion about hypotheticals and theoretically-possible results. The Commission believes, however, that past experience is a more reliable guide to what is likely to happen when health care practitioners collectively bargain with health plans. That experience suggests that the proposed exemption presents substantial risks of harm to consumers, private and governmental purchasers of health care, and taxpayers who ultimately foot the bill for government-sponsored health care programs.
A. The Exemption Would Raise Costs And Threatens To Reduce Access To Care
Without antitrust enforcement to block price fixing and boycotts designed to increase health plan payments to health care professionals, we can expect prices for health care services to rise substantially. Health plans would have few alternatives to accepting the collective demands of health care providers for higher fees. The effect of the bill, however, would not simply be on the health plans and employers that are forced to pay higher prices to health care practitioners, but can be expected to extend to various parties, and in various ways, throughout the health care system:
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Consumers and employers would face higher prices for health insurance coverage.
Consumers also would face higher out-of-pocket expenses as copayments and other unreimbursed expenses increased.
Consumers might face a reduction in benefits as costs increased.
Senior citizens participating in Medicare HMOs would face reduced benefits, because Medicare pays these HMOs a fixed amount per enrollee. Higher fees for professional services means health plans would have fewer dollars available to pay for prescription drug coverage and other benefits that are not available under traditional Medicare but currently are provided by many Medicare HMOs.
The federal government would pay more for health coverage for its employees through the Federal Employees Health Benefits Program and military health programs.
State and local governments would incur higher costs to provide health benefits to their employees.
State Medicaid programs attempting to use managed care strategies to serve their beneficiaries could have to increase their budgets, cut optional benefits, or reduce the number of beneficiaries covered.
State and local programs providing care for the uninsured would be further strained, because, by making health insurance coverage more costly, the bill threatens to increase the already sizable portion of the population that is uninsured.
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These widespread effects are not simply theoretical possibilities. The record of antitrust law enforcement sets forth the impact of collective ''negotiations'' on the public. For example, as described in the Commission's complaints, collective bargaining by anesthesiologists in Rochester, New York, and by obstetricians in Jacksonville, Florida, forced health plans to raise their reimbursement, and the result was increased premiums for the HMOs' subscribers.(see footnote 18) Other cases have challenged actions by associations of pharmacists who succeeded in forcing state and local governments to raise reimbursement levels paid under their employee prescription drug plans.(see footnote 19) In one such case, an administrative law judge found that the collective fee demands of pharmacists cost the State of New York an estimated $7 million.(see footnote 20)
By raising health care costs and making health insurance less affordable, the exemption threatens to increase the number of uninsured and thus reduce access to care. A 1997 report by the General Accounting Office concluded that a major reason for declining private health coverage is the rising cost of health insurance. Higher insurance costs affect employers' decisions whether to offer health benefits and employees' decisions whether to purchase coverage.(see footnote 21) In a country where 43.4 million people did not have health insurance in 1997 (1.7 million more than in 1996), any development that threatens to increase the proportion of the population that is uninsured is cause for serious concern.
B. There Is No Support For Claims That Consumer Costs Would Not Increase
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In last year's hearing there was acknowledgment that passage of the bill could result in higher payments to health professionals. There has been a suggestion that fee increases imposed on health plans might not be passed on to consumers, but could simply reduce health plan profits. Such a result is unlikely. Fees for professional services account for almost one-half of private insurance payments for health services and supplies.(see footnote 22) If these costs increase significantly, the most logical assumption is that costs to consumers would go up substantially. Relying on an assumption that higher costs will not be passed on to consumers puts consumers at risk of serious harm. Economic theory predicts that a significant industry-wide increase in input costs will ordinarily raise the price of the final product.(see footnote 23) Moreover, as noted above, our enforcement actions provide numerous examples in which health care professionals' collective demands for higher fees resulted in higher costs to consumers and to government purchasers.
Arguments that consumers would not be harmed by an antitrust exemption for collective bargaining by independent health care professionals appear to rest on assertions that the bill would balance the bargaining power between health care professionals and health plans. These assertions, however, are incorrect. The bill would permit doctors to create monopolies. On the health plan side of the ledger, the evidence does not support the suggestion that most (or even many) areas have only one or two health plans. A November 1998 letter to Chairman Hyde from Chairman Pitofsky discussed in greater length than is possible here the available information on the extent to which health plans have market power in individual geographic areas. That information indicates that health plan markets vary widely, and simply does not support suggestions that most markets have little or no health plan competition. For example, individual HMOs typically face considerable competition from other HMOs.(see footnote 24) Data on HMO penetration published in June 1998 show that areas in which HMOs as a group have the largest collective market share tend to have a larger number of individual HMOs in operation and more competitive HMO markets.(see footnote 25) Of course, HMOs also face competition from other types of health plans, such as preferred provider organizations (''PPOs'').(see footnote 26)
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Nor does the recent number of highly publicized mergers among commercial health plans suggest that most markets are likely to have only one or two health plans in the future. The Commission and the Department of Justice review these transactions, and we have investigated those that appeared to raise competitive concerns. The Commission is committed to preserving competition in the market for health plans, as in all markets, and if a proposed transaction appeared likely to create market power, we would challenge it.
Arguments about equalizing bargaining power also rest on unsupported assertions that the McCarran-Ferguson Act gives insurance companies leverage in bargaining with health care professionals. Although McCarran-Ferguson protects certain types of activities by insurers (to the extent that such activity is regulated by state law), the Supreme Court has held an insurance company's agreements with providers on the fees they will be paid are not ''the business of insurance'' and thus are not covered by the McCarran-Ferguson immunity.(see footnote 27) It seems clear, therefore, that collusion among insurers on such agreements likewise would not be protected by the Act. In fact, complaints about health plans wielding power over doctors appear to have nothing to do with McCarran-Ferguson or with any statutorily-protected collusion among insurers. We know of no evidence of insurers colluding in setting fees or other terms of dealing with providers, and the Commission does not believe that McCarran would protect such conduct. Rather, the complaints revolve around the size and power of individual insurers relative to individual health professionals.
There is undoubtedly a bargaining imbalance between an individual physician in solo practice and an insurance company. Bargaining imbalances between parties to a commercial transaction are not uncommon in our economy. But the suggestion that this bill would not impose higher costs on consumers and others—on the ground that the exemption would merely create a countervailing monopoly—is premised on theoretical arguments about market conditions that do not describe most health care markets. These speculative arguments provide no assurance that the bill's effect would not be a dramatic inflation in health care costs.
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C. No Antitrust Exemption Is Needed To Allow Professional Societies And Others To Discuss Their Concerns About Actions By Health Plans
In the debate over this proposed exemption, we frequently hear arguments that the antitrust laws prevent physicians from being effective advocates for their patients. Indeed, it is often suggested that any effort by physicians to talk among themselves or with plans about concerns regarding health plans' practices would violate the antitrust laws. That is simply not the case. Health care professionals can and do engage in collective advocacy, both to promote the interests of their patients and to express their opinions about other issues, such as payment delays, dispute resolution procedures, and other matters. Health care associations have traditionally played an active role in lobbying legislatures and regulatory bodies, such as state insurance commissions, and presenting issues to the media and the public.
Moreover, the antitrust laws do not prohibit medical societies and other groups from engaging in collective discussions with health plans regarding issues of patient care. Among other things, physicians may collectively explain to a health plan why they think a particular policy or practice is medically unsound, and may present medical or scientific data to support their views.(see footnote 28) In fact, physician groups have presented their views on a number of issues to payers. For example, the American Medical Association has issued a Model Medical Services Agreement that explains its views on appropriate contract terms and on why other contract terms are inappropriate or harmful. Recent press reports indicate that Aetna U.S. Healthcare has altered some of its contract terms in response to communications from the American Medical Association concerning physician dissatisfaction with the contracts.(see footnote 29)
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The Commission has never brought a case based on physicians' collective advocacy with a health plan on an issue involving patient care. Our cases have addressed instances in which physician groups (1) negotiated collectively on fee levels or other price-related issues, or (2) collectively refused to contract with plans, either to gain acceptance of their price-related demands or to prevent or delay market entry by managed care plans generally. In all such cases, the Commission has been very careful to make sure that its orders do not interfere with the legitimate exchange of information and views between health plans and health care practitioners. Indeed, in the Commission's first litigated case involving collective negotiations by physicians—Michigan State Medical Society—the opinion emphasized that the antitrust laws do not prohibit health care providers' collective provision of information and views to health plans.(see footnote 30) Specific language was inserted in that order, and in subsequent orders, to make it clear that bans on anticompetitive agreements among competing providers do not prohibit the provision of information and views to health plans concerning any issue, including reimbursement.(see footnote 31)
III. THERE ARE BETTER WAYS TO PROTECT CONSUMERS
For all the reasons set forth above, the Commission believes the proposed antitrust exemption is the wrong approach to solving concerns about patient care, and that it threatens serious harm to consumers. The Commission recognizes the serious concerns that have been raised regarding the current operation of health care markets. We do not suggest that the market is performing as well as it could, or that the market can or will cure all of the problems that concern this Committee. But recent efforts to examine health care markets, such as the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry, have produced a variety of concrete proposals for reform. As antitrust enforcers, we do not seek to endorse any specific proposal. We note, however, that these studies recommend a number of ways to improve quality and protect consumers, and they do not recommend antitrust immunity or collective bargaining rights for providers.
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Proposals for reform include:
Increasing Consumers' Ability To Choose Their Health Plan.
A fundamental concern expressed by health policymakers—and by members of this Committee at last year's hearing—is that many consumers lack a choice among different types of health plans. Most consumers obtain health care coverage as a benefit of employment, and many employers offer only one plan. Consumers have different views about many aspects of health care service delivery, including the types of settings in which they want to receive health care, the kinds of services and health practitioners to which they want access, how much they are willing to pay for health insurance, and the value they attach to broader choices among providers.(see footnote 32) Offering consumers a choice can help make health plans more responsive to consumer preferences. Consumer choice can be increased, for example, by regulatory changes making it easier for small employers to participate in purchasing pools that can offer individuals a choice of health plans.(see footnote 33)
Increased consumer choice among health plans also would be good for doctors. Patients who can choose among plans are less likely to have to switch doctors when the employer changes the health plan that is offered, with the result that doctors likely would feel less pressure to participate in a large number of plans in order to retain access to their patients.
Improving Consumer Information.
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Several proposals would require health plans to disclose various kinds of information, including limits on coverage, use of drug formularies, how procedures and drugs are deemed experimental, and the types and extent of dispute resolution procedures. In addition, work also is underway to develop ways of presenting consumers with comprehensive comparative quality and performance information about health plans, to better inform their decision-making.(see footnote 34)
The Commission's Bureau of Consumer Protection has been active in efforts to improve the information available to consumers through a federal interagency task force on health care quality (the Quality Interagency Coordinating Task Force). The consumer information committee of this group is working on ways to improve the information that federal health care plans disclose to consumers, and is considering the types of information that should be disclosed, the way the information should be communicated, and development of a common terminology.(see footnote 35) The Commission's staff is considering other ways that the Commission can help improve the quantity and quality of information about health plans available to consumers.
Regulation of Plan Behavior.
Targeted regulation of certain aspects of health plan behavior may be appropriate in some cases to protect consumers. Numerous bills addressing such things as patients' access to appeal and review mechanisms are under consideration at both the state and federal levels.
The Commission appreciates the desire to avoid detailed federal regulation of health plan behavior and to rely instead on the market. However, the proposed exemption would not let the market work. On the contrary, it would severely limit competition among health professionals and health plans, without any regulatory oversight or other mechanism to protect the public interest.
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CONCLUSION
There are no easy solutions to the problems inherent in the simultaneous pursuit of cost effectiveness, high quality, and wider access to health care services. But allowing doctors and other health care practitioners to fix prices and other contract terms is not the answer. The Commission continues to believe that competition among health care providers and among health plans is an important tool for controlling costs, providing consumer choice, and promoting innovation and high quality. We counsel strongly against abandonment of competition as a mechanism for promoting a better health care system, and we urge that every effort be made to address concerns about quality and patient care while preserving and strengthening the benefits that competition can provide. The Commission stands ready to help in any way it can.
APPENDIX
1. Association of Independent Dentists, 100 F.T.C. 5–18 (1982) (consent order). A dental association in Pueblo County, Colorado, agreed to a consent order settling complaint charges that association members had threatened to refuse to execute participating dentist agreements with third-party payers in order to pressure these payers to increase or maintain the level of reimbursement paid for dental services. The consent order prohibits the association from coercing third-party payers to accept its positions about reimbursement in dental care coverage plans.
2. Michigan State Medical Society, 101 F.T.C. 191 (1983). The Commission held that a medical society had illegally conspired to obstruct insurers' cost containment programs by orchestrating a group boycott of its members for the purpose of obtaining higher reimbursement. The society, through a proxy campaign, obtained its members' permission to collectively terminate participation in third-party payer and Medicaid insurance programs if these payers did not adopt reimbursement policies acceptable to the society. The Commission's order prohibits the society from orchestrating agreements among its members to affect the amount manner of calculating, or other terms of reimbursement and from agreeing with any third-party payer on terms or conditions of any participation agreement.
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3. North Carolina Orthopaedic Association, 108 F.T.C. 116 (1986) (consent order). An orthopaedic association agreed to a consent order settling complaint charges that the association had orchestrated an agreement among its members to exclude or unreasonably discriminate against podiatrists who sought hospital privileges or access to hospitals. The order prohibits the association from unreasonably restricting podiatrists from gaining surgical privileges or access to hospitals in North Carolina.
4. Preferred Physicians, Inc., 110 F.T.C. 157 (1988) (consent order). Two hundred fifty physicians in Tulsa, Oklahoma, who effectively controlled patient access to the leading hospital in the area, formed a stock corporation to conduct joint negotiations with third-party payers on the members' behalf. The corporation agreed to a consent order settling complaint charges that the corporation had been formed as an exclusive negotiating agent of the otherwise competing members for the purpose of resisting pressure to provide discounts to HN40s and other third-party payers who might seek contracts with members of the corporation. The order prohibits the corporation from entering into agreements with its members to deal with third-party payers on collectively determined terms and communicating to third-party payers that its members would not participate in plans on terms unacceptable to the corporation.
5. Rochester Anesthesiologists, 110 F.T.C. 175 (1988) (consent order). Thirty-one anesthesiologists in Rochester, New York, agreed to a consent order settling complaint charges that the anesthesiologists had conspired to increase their fees by negotiating collectively with third-party payers over reimbursement terms and by threatening not to participate in certain plans. It was further alleged that the anesthesiologists had jointly departicipated from Blue Shield when it refused to accede to their demand for higher reimbursement rates. The order prohibits the anesthesiologists from conspiring to deal with third-party payers on collectively determined terms or coercing third-party payers.
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6. Medical Staff of Memorial Medical Center, 110 F.T.C. 541 (1988) (consent order). A medical staff of a hospital in Savannah, Georgia, agreed to a consent order settling charges that the medical staff, acting through its credentials committee, had conspired to suppress competition by denying without a reasonable basis a certified nurse-midwife's application for hospital privileges. The order prohibits the staff from denying or restricting hospital privileges to certified nurse-midwives unless the staff has a reasonable basis for believing that the restriction would serve the interests of the hospital in providing for the efficient and competent delivery of health care services.
7. Patrick S. O'Halloran, M.D., 111 F.T.C. 35 (1988) (consent order). Five obstetricians in the Newport, Rhode Island, area agreed to a consent order settling complaint charges that the physicians conceitedly forced the state to raise Medicaid payments to obstetricians by threatening to refuse to accept new Medicaid patients if the state did not raise the payments. The order prohibits the doctors from conspiring to deal with any governmental health care program on collectively determined terms or coercing any governmental health care program.
8. New York State Chiropractic Association, 111 F.T.C. 331 (1988) (consent order). A chiropractic association agreed to a consent order settling complaint charges that the association had conspired with its members to increase the level of reimbursement paid for chiropractic services by collectively threatening not to participate in, and by departicipating from, a program of a third-party payer. The order prohibits the association from conspiring to deal with third-party payers on collectively determined terms, acting on behalf of its members to negotiate with third-party payers, or coercing third-party payers.
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9. Eugene M. Addison, M.D., 111 F.T.C. 339 (198–8) (consent order). Fourteen physicians in, the Huntsville, Texas, area agreed to a consent order settling complaint charges that the physicians collectively sought to obtain from HMOs more advantageous terms of participation and, when those efforts proved unsuccessful, collectively refused to deal with the HMOs and attempted to restrict the hospital privileges of physicians associated with the HMOs. The consent order prohibits the doctors from dealing collectively with HMOs or health plans, denying hospital staff privileges solely because the applicant was associated with an HMO or health plan, and changing the hospital's rules or medical staff bylaws in order to limit the participation of any physician in governance of the hospital or medical staff because of his or her affiliation with an HMO or health plan.
10. Pharmaceutical Society of the State of New York, Inc., 113 F.T.C. 661 (1990) (consent order). The consent order settled charges that the Pharmaceutical Society of the State of New York conspired to boycott the New York State Employees Prescription Plan, in order to force an increase in reimbursement rates for plan participants who provide prescription drugs to state employees. According to the complaint the society's actions reduced price competition, forced the state to pay substantial additional sums for prescription drugs, and coerced the state into raising the prices paid to pharmacies under the state plan. Under the consent agreement, the society agreed not to enter into any agreement between pharmacy firms to withdraw from or refuse to enter into any participation agreement.
11. Medical Staff of Broward General Medical Center, 114 F.T.C. 542 (1991) (consent order). Physicians and other health practitioners with privileges to practice at a Fort Lauderdale, Florida, hospital agreed to a consent order settling complaint charges that the medical staff had conspired with its members to threaten to boycott the hospital in order to coerce the hospital not to enter a business relationship with the Cleveland Clinic or grant privileges to Clinic physicians. The order, among other things, prohibits the staff from (1) refusing to deal or threatening to refuse to deal with the hospital or any other provider of health care services; (2) denying, impeding, or refusing to consider any application for hospital privileges or for changes in hospital privileges by any person solely because of his or her affiliation with the Cleveland Clinic; and (3) denying or recommending to deny, limit, or otherwise restrict hospital privileges for any Cleveland Clinic physician without a reasonable basis for concluding that the denial, limitation, or restriction serves the interests of the hospital in providing for the efficient and competent delivery of health care services.
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12. Medical Staff of Holy Cross Hospital, 114 F.T.C. 555 (1991) (consent order). Physicians and other health practitioners with privileges to practice at a Fort Lauderdale, Florida, hospital agreed to a consent order settling complaint charges that the medical staff had conspired with its members to threaten to boycott the hospital in order to coerce the hospital not to enter a business relationship with the Cleveland Clinic or grant privileges to Clinic physicians. The order, among other things, prohibits the staff from (1) refusing to deal or threatening to refuse to deal with the hospital or any other provider of health care services; (2) refusing or threatening to refuse to provide, or delaying unreasonably in providing, an application for medical staff privileges to an? Cleveland Clinic physician; (3) denying, impeding, or refusing to consider any application for hospital privileges or for changes in hospital privileges by any person solely because of his or her affiliation with the Cleveland Clinic; and (4) (i) denying or recommending to deny, limit or otherwise restrict hospital privileges for any Cleveland Clinic physician, or (ii) closing or recommending to close the medical staff, without a reasonable basis for concluding that the denial, limitation, or restriction serves the interests of the hospital in providing for the efficient and competent delivery of health care services.
13. Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order). Twenty-three obstetrician/gynecologists in Jacksonville, Florida, agreed to a consent order settling complaint charges that the physicians had illegally conspired to fix the fees they charged to third-party payers, to boycott or threaten to boycott third-party payers, and otherwise to restrain competition among obstetrician/gynecologists in the Jacksonville, Florida, area. The order prohibits the doctors from entering or attempting to enter into any agreement or understanding with any competing physician to fix, stabilize, or tamper with any fee, price, or any other aspect of the fees charged for any physician's services; and from dealing with any third-party payer on collectively-determined terms unless they are participating in an ''integrated'' joint venture as defined by the order, or in a partnership or professional corporation.
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14. Peterson Drug Company, Inc., 115 F.T.C. 492 (1992) (consent order). As a member firm of Chain Pharmacy Association, Peterson Drug Company was charged with conspiracy to restrain trade in its refusal to participate in the New York State Employees Prescription Plan. An order was entered prohibiting the company from entering into any agreement among pharmacy firms to withdraw from or refuse to enter into a third-party payer prescription plan. See also Chain Pharmacy Association of New York State, 114 F.T. C. 28 (1991) (consent order) (settled charges that the Chain Pharmacy Association and its members conspired to boycott the New York State Employees Prescription Plan in order to force an increase in reimbursement rates).
15. Southeast Colorado Pharmacal Association, 116 F.T.C. 51 (1993) (consent order). The complaint alleged that the Southeast Colorado Pharmacal Association illegally conspired to boycott a prescription drug program offered through a state-retirees health plan in an attempt to force the program to increase its reimbursement rate for prescriptions filled by its pharmacy members. The order prohibits the association from entering or threatening to enter into any agreement with pharmacies to withdraw from or refuse to participate in similar reimbursement programs in the future.
16. Baltimore Metropolitan Pharmaceutical Association, Inc. and Maryland Pharmacists Association, 117 F.T.C. 95 (1994) (consent order). The complaint alleged that the Maryland Pharmacists Association (MPhA) and the Baltimore Metropolitan Pharmaceutical Association (BMPA), in response to cost-containment measures initiated by the Baltimore city government employees prescription-drug plan, illegally conspired to boycott the plan in order to force higher reimbursement rates for prescriptions. According to the complaint the associations' actions increased the cost of obtaining drugs through prescription drug plans and reduced price competition among the firms providing these prescriptions. Under the consent order, MPhA and BMPA are prohibited from entering into, organizing, or encouraging any agreement between or among pharmacy firms to refuse to enter into, or to withdraw from, any participation agreement offered by a third-party payer.
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17. McLean County Chiropractic Association, 117 F.T.C. 396 (1994) (consent order). An association of chiropractors in McLean County, Illinois, agreed to a consent order settling charges that the association had set maximum fees for its members and had attempted to negotiate collectively on behalf of those members the terms and conditions of agreements with third-party payers. The order prohibited the association from organizing agreements among chiropractors to collectively determine fees or to deal with payers on collectively determined terms.
18. La Asociacion Medica de Puerto Rico, 119 F.T.C. 772 (1995) (consent order). The Medical Association of Puerto Rico, its Physiatry Section, and two of its physiatrist members agreed to a consent order settling complaint charges that the respondents illegally conspired to boycott a government insurance program in order to obtain exclusive referral powers from *insurers and to increase reimbursement rates. The doctors agreed not to boycott or refuse to deal with any third-party payer, or refuse to provide services to patients covered by any third-party payer.
19. Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order). Physicians Group Inc. and seven physicians on the board of directors of that organization settled complaint charges that they conspired to prevent or delay the entry of third-party payers into Pittsylvania County and Danville, Virginia. The complaint also charged that respondents fixed the terms on which they would deal with third-party payers, including not only price terms but also terms and conditions of cost containment. The order prohibits such conduct.
20. Montana Associated Physicians, Inc./ Billings Physician Hospital Alliance, Inc., 123 F.T.C. 62 (1997) (consent order). A physician association (MAPI) and a physician-hospital organization (BPHA) in Billings, Montana, signed a consent order settling complaint charges that MAPI blocked the entry of an HMO into Billings, obstructed a PPO that was seeking to enter, recommended physician fee increases, and later acted through BPHA to maintain fee levels. The order prohibits the respondents from: (1) boycotting or refusing to deal with third-party payers; (2) determining the terms upon which physicians deal with such payers; and (3) fixing the fees charged for any physician services. MAPI also is prohibited from advising physicians to raise, maintain, or adjust the fees charged for their medical services, or creating or encouraging adherence to any fee schedule. The order does not prevent these associations from entering into legitimate joint ventures that are non-exclusive and involve the sharing of substantial financial risk. Other types of joint ventures are subject to prior approval by the Commission.
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21. College of Physicians-Surgeons of Puerto Rico, FTC File No. 971–0011, Civil No. 97–2466–HL (District of Puerto Rico) (Oct. 2, 1997). The Federal Trade Commission and the Commonwealth of Puerto Rico filed a complaint charging that the College of Physicians-Surgeons of Puerto Rico (comprising 8,000 physicians in Puerto Rico) and three physician independent practice associations attempted to coerce the Puerto Rico government into recognizing the College as the exclusive agent for all physicians in Puerto Rico, for bargaining 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 an eight-day strike, during which they ceased providing non-emergency services to patients. A final order and stipulated permanent injunction filed in the U.S. District Court in Puerto Rico prohibited 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 order also required the College to pay $300,000 to the catastrophic fund administered by the Puerto Rico Department of Health. The order does not prevent the defendants from participating in joint ventures that involve financial risk-sharing or that receive the prior approval of the Commission, from petitioning the government, or from communicating purely factual information about health plans.
22. Institutional Pharmacy Network (IPN), Dkt. No. C–3822 (Aug. 11, 1998) (consent order). The complaint alleged that five institutional pharmacies unlawfully fixed prices and restrained competition among institutional pharmacies in. Oregon, leading to higher reimbursement levels for serving, Medicaid patients in Oregon long-term care institutions. The five pharmacies, which provide institutional pharmacy services for 80% of those patients in Oregon receiving such services, compete to provide prescription drugs and services to long-term care institutions. According to the complaint, the pharmacies formed IPN to offer their services collectively and maximize their leverage in bargaining, over reimbursement rates, but did not share risk or provide new or efficient services. The order prohibits IPN and the institutional pharmacy respondents from entering into similar price fixing arrangements. The order, however, allows the respondents to engage in any ''qualified clinically integrated joint arrangement'' (with prior notice to the Commission), and conduct that is reasonably necessary to operate any ''qualified risk-sharing joint arrangement'' as set forth in the 1996 DOJ/FTC Statements of Antitrust Enforcement Policy in Health Care.
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23. M.D. Physicians of Southwest Louisiana, Inc., Dkt. No. C–3824 (Aug. 31, 1998) (consent order). The consent order settled complaint charges that M.D. Physicians of Southwest Louisiana, Inc. (MDP), a physician group comprising a majority of the physicians in the Lake Charles area of Louisiana; fixed the prices and other terms on which it would deal with third-party payers, collectively refused to deal with third-party payers, and conspired to obstruct the entry of managed care. According to the complaint, the group was formed in 1987 as a vehicle for its members to deal concertedly with the entry of managed care, and until 1994, the members of MDP dealt with third-party payers only through the group. As a result of this conduct, the complaint alleged, MDP restrained competition among physicians, increased the prices that consumers pay for physician services and medical insurance coverage, and deprived consumers of the benefits of managed care. The order prohibits MDP from engaging in collective negotiations on behalf of its members, orchestrating concerted refusals to deal, fixing prices or terms on which its members deal, or encouraging or pressuring others to engage in any activities prohibited by the order. The order does allow MDP to operate any ''qualified risk-sharing joint arrangement'' or, upon prior notice to the Commission, any ''qualified clinically integrated joint arrangement'' as reflected in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care.
24. Ernesto L. Ramirez Torres, D.M.D., et al, Dkt. No. C–3851 (Feb. 5, 1999) (consent order). A group of dentists, comprising a majority of the dentists in Juana Diaz, Coamo, and Santa Isabel, Puerto Rico, agreed to a consent order settling complaint charges that the dentists threatened to boycott a government program to provide dental care for indigent patients if they were not reimbursed at certain prices, and then boycotted the program. After several months, the dentists' price demands were met and they agreed to participate in the program. The order prohibits the dentists from jointly boycotting or refusing to deal with third-party payers or collectively determining any terms or conditions for dealing with third-party payers. The order does allow the dentists to operate any ''qualified risk-sharing joint arrangement'' or, upon prior notice to the Commission, any ''qualified clinically integrated joint arrangement'' as reflected in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care.
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25. Asociacion de Farmacias Region de Arecibo, Dkt. No. C–3855 (Mar. 2,1999) (consent order). An association composed of approximately 125 pharmacies in northern Puerto Rico agreed to a consent order settling charges that it threatened to withhold services from a government program to provide health care services for indigent patients. According to the complaint the association was formed in 1994 as a vehicle to negotiate with health plans, and in January 1995 it refused to contract with Triple-S, the payer for the reform program in northern Puerto Rico, until Triple-S raised the fees paid to the association's members. Furthermore, in March 1996, the association threatened to withhold its members' services unless. Triple-S rescinded a new fee schedule calling for lower reimbursement fees for the pharmacies. Triple-S acceded to the association's demands and increased fees by 22%. The consent order prohibits the association from negotiating on behalf of any pharmacies with any payer or provider, jointly boycotting or refusing to deal with third-party payers, restricting the ability of pharmacies to deal with payers individually, or determining the terms or conditions for dealing with third-party payers. The order does allow the association to operate any ''qualified risk,:sharing joint arrangement'' or, upon prior notice to the Commission, any ''qualified clinically integrated joint arrangement,'' as reflected in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care.
26. North Lake Tahoe Medical Group, Inc., FTC File No. 981–0261, 64 Fed. Reg. 14730 (Mar. 26, 1999) (proposed consent order). North Lake Tahoe Medical Group, Inc. (''Tahoe IPA''), an independent physician association, agreed to a consent order settling Commission charges that from 1994 to 1998 the association restrained competition among physicians and delayed the entry of managed care in the Lake Tahoe Basin in California. Tahoe IPA, based in Truckee, California, is composed of 91 physicians comprising 70% of the physicians practicing in the Lake Tahoe area. The complaint alleges that the IPA conspired to fix prices, engaged in collective negotiations over prices with payers, and refused to deal with Blue Shield of California and other third-party payers when they did not comply with Tahoe IPA's plans. The proposed order prohibits the IPA from (1) engaging in collective negotiations on behalf of its members; (2) orchestrating concerted refusals to deal; (3) fixing prices, or any other terms, on which its members deal; and (4) restricting the ability of any physician to deal with any payer or provider individually or through any arrangement outside of Tahoe IPA. The proposed order also requires Tahoe IPA to terminate the membership of physicians who refused to deal (or gave notice of their intent to refuse to deal) with Blue Shield, unless the physicians make a good faith effort to reparticipate and continue to participate in Blue Shield for a period of six months. The order does allow the IPA to operate any ''qualified risk-sharing joint arrangement'' or, upon prior notice to the Commission, any ''qualified clinically integrated joint arrangement,'' as reflected in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care.
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27. Mesa County Physicians Independent Practice Association, Inc., Dkt. No. 9284 (May 4, 1999) (consent order), The complaint alleged that the Mesa County IPA, an organization whose members comprise 85% of all physicians and 90% of primary care physicians in Mesa County, Colorado, acted to restrain trade by combining to fix prices and other competitively significant term's of dealing with payers, and by collectively refusing to deal with third-party payers. According to the complaint the conduct of the Mesa County IPA hindered the development of alternative health care financing and delivery systems and resulted in higher prices for physician services in Mesa County. The complaint also alleged that the IPA's Contract Review Committee negotiated collectively on behalf of the IPA's members with several third-party payers, using an IPA Board-approved set of guidelines and fee schedule. The consent order prohibits the Mesa County IPA, among other things, from (1) engaging in collective negotiations on behalf of its members; (2) collectively refusing to contract with third-party payers; (3) acting as the exclusive bargaining agent for its members; (4) restricting its members from dealing with third-party payers through an entity other than the IPA; (5) coordinating the terms of contracts with third7party payers with other physician groups in Mesa County area; (6) exchanging information among physicians about the terms upon which physicians are willing to deal with third-party payers; and (7) encouraging other physicians to engage in activities prohibited by the order. The order, however, allows the respondents to engage in any ''qualified clinically integrated joint arrangement'' (with prior notice to the Commission) and in conduct that is reasonably necessary to operate any ''qualified risk-sharing joint arrangement'' as set forth in the 1996 DOJ/FTC Statements of Antitrust Enforcement Policy in Health Care.
Mr. HYDE. And now Assistant Attorney General Klein.
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STATEMENT OF JOEL KLEIN, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
Mr. KLEIN. Thank you, Mr. Chairman, Mr. Conyers, members of the committee.
Before turning to the statute, first let me say how much I appreciate the strong support of this committee in terms of the effective and appropriate enforcement of the antitrust laws. In that regard, I think you need to think long and hard before you cut an exemption from the antitrust laws for a significant portion of our economy.
The antitrust laws are rightly called the Magna Carta of our free-market economy. They have served us well, and if you look where America is at the turn of the 21st century in the global economy, you realize that our commitment to deregulation and antitrust enforcement has positioned us to be a true leader. We don't want to walk in a different direction. I have great respect both for teacher and for pupil, but I do think this well-intentioned piece of legislation is fundamentally misguided.
The antitrust laws work on both sides of the equation that this committee ought to be concerned about. Just yesterday we sued Aetna to prevent them from acquiring market power in Texas. We required substantial divestitures, some half million lives, patient lives, as part of the package. We looked at all the markets, and we did a thorough, complete analysis. We were concerned about doctors and their ability to bargain, and consumers and their ability to get choice. That is the way to go.
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On the other side of the equation, we have real cases. We have cases involving doctors that attempted to band together to use their leverage to raise prices; not issues about quality care, not issues about patient rights, but issues about naked price increases. We recently settled one in Tampa, Florida, with a group of surgeons. We are in court right now in Delaware with a sort of statewide boycott of a Blue Cross program aimed at raising money.
Now, think about it, because to me the crux of the problem comes down to this single fundamental issue which needs to be resolved before this legislation goes forward. Under this legislation, every single doctor in a State, indeed if you want in the United States, the AMA could pull every single doctor together or its local chapters and go to each and every HMO or managed care program and say, we will not work for you unless you pay us X. That is unprecedented, irrational economic power. Indeed, what would the argument be on the other side? Let everybody merge to a monopoly, and we will have a monopoly group of providers and a monopoly group of HMOs to see who can knuckle each other.
No, the right way to do it is to let competition reign. It will serve well. That is fundamentally protected. Make no mistake about it. That is protected by the statute. Every doctor in New York can get together on a statewide basis and say, these are our terms and conditions. You don't like them, we do not play. That is bad.
Now, there is an issue that Representative Campbell and others have mentioned, and it is a serious issue, and that is the issue of quality care and managed care. And there are some real problems out there, and there is a real solution to it. It is an aggressive patients' bill of rights, one that gives a physician a meaningful role, but it is not a solution through antitrust exemption, because competition is going to help keep health care costs where we as a Nation want them. And if you think by giving immunity from the antitrust laws to physicians to negotiate on a national or statewide basis is not going to substantially increase the health costs in this United States, I think that is a serious, serious misperception.
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So I suggest, Mr. Chairman, that the solution is let's roll up our sleeves and get to work on a patients' bill of rights that protects these kinds of issues. If dialysis patients should be properly dialysized and there are HMO abuses, there ought to be a patients' remedy, and doctors ought to be able to play. If there are people who are not getting adequate treatment because gatekeepers are insensitive or unwilling to approve medically necessary and medically appropriate treatment, there ought to be a patients' bill of rights, but the solution is not to allow the kind of boycott and price fixing that we are certain to see and that is absolutely permitted under the statute.
Thank you, Mr. Chairman.
Mr. HYDE. Thank you very much, Mr. Klein.
[The prepared statement of Mr. Klein follows:]
PREPARED STATEMENT OF JOE KLEIN, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
INTRODUCTION
Chairman Hyde, Ranking Member Conyers and members of the Committee, I am pleased to be invited here to present the views of the Antitrust Division on H.R. 1304, the Quality Health-Care Coalition Act of 1999. I would like to start by briefly summarizing the importance of competition to the economy. Then I will turn to the specifics of the bill. In brief, the Division strongly opposes H.R. 1304. We believe it takes the wrong approach to problems raised by managed care, an approach that will harm consumers of health care in the future.
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For over a century, the United States has committed itself to protecting competition in the vast majority of markets in the economy. Free-market competition is the engine that has made the American economy the envy of the world. The Sherman Act, passed in 1890, has been called the Magna Carta of free enterprise. In general, the United States operates a free-market economy that allows free and unfettered competition, subject to the antitrust laws. Time and again, relying on free-market competition has allowed consumers numerous benefits, including more innovation, more choice and lower prices than that of economies where free competition has been limited.
In particular, our nation's economic vitality depends upon the competitive structure of the health care industry. In 1997, the latest year for which data are available, annual revenues of health care professionals covered by the Sherman Act ranged between $300–400 billion, about 4–5% of the GDP.
H.R. 1304 would change, for the health-care industry, the competitive system applicable to the rest of the American economy. It would uniquely authorize health care professionals who are not employed by health insurance plans, and thus not exempt from antitrust scrutiny under existing law, to negotiate collectively with any health plan over fees and collectively to refuse to deal with any plan that did not accede to their demands. Current law already provides an exemption from the antitrust laws for doctors and other health care professionals in an employee-employer context. Like other employees, employed doctors and other health care professional employees may collectively bargain with their employer without antitrust scrutiny. But, like all who are not employees, independent-contractor doctors and other health care professionals in private practice must satisfy the antitrust laws when negotiating with those that purchase their services.
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This bill would allow non-employee, health care professionals collectively to raise their fees to health insurers without fear of antitrust liability and without regard to competitive market forces fostered by the antitrust laws. This increased cost ultimately will be borne by consumers. There is no justification to accord special status to health care professionals under the antitrust laws, differentiating them from other professionals and independent contractors such as architects, engineers, or lawyers. It would be both unwise and harmful to consumers to grant them a special exemption.
We want to be clear, however, that we have and will continue to enforce the antitrust laws in this area, and will rigorously pursue evidence of collusion regardless of whether providers or insurers are involved.
COMPETITION IN HEALTH CARE: BOTH HEALTH INSURANCE AND PROVIDER MARKETS NEED TO FUNCTION COMPETITIVELY
As in other markets, the goal for health care markets should be to ensure that consumers benefit from a competitive marketplace where neither the buyers nor sellers unlawfully exercise market power. Policy should focus on ensuring that there is a competitive marketplace where neither health insurance plans nor health care professionals are able to obtain or exercise market power to distort the competitive outcome. Any other result inevitably will lead to governmental regulation of the health care market—an outcome that is not likely to produce desirable results for consumers. We have learned this lesson over time from other industries and we should be sure we continue to apply it to health care markets as well. The injection of competition into health care markets over the past decade has helped hold down increases in health care costs.
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The preference for market competition over regulation, of course, is dependent on the assurance that the enforcement of the antitrust laws will prevent all participants in a market from obtaining or exercising market power through anticompetitive means. Thus, federal antitrust enforcement must ensure that neither health insurance plans nor health care professionals utilize anticompetitive means to distort the competitive outcome in the health care industry. The Antitrust Division has been active in pursuing that important role.
To keep health insurance markets competitive, the Division carefully scrutinizes mergers and other activities among health insurance plans that may harm consumers by raising prices or limiting the scope or quality of care. For example, last year the Division investigated the proposed acquisition of Humana by United Health Care. The parties abandoned the transaction during the course of the review. This week the Division concluded that Aetna's proposed acquisition of Prudential's health care business would violate the antitrust laws unless Aetna undertook substantial divestitures in Dallas and Houston to eliminate the market power it otherwise would have gained from the merger.
The Aetna case is an extremely important precedent in this regard. The Division, after a thorough investigation, determined that the merger of these health plans was anticompetitive in two separate ways. First, we believed the merger would lead to market power in the sale by Aetna of health maintenance organization services in certain markets. The combined market share which would have resulted from the merger in Houston and Dallas were over 63 percent and 42 percent, respectively. We believed this would give Aetna the ability in those markets to increase its price or lower its quality of service for its HMO customers. Second, we believed that the merger would lead to market power in the purchase of doctors' services by Aetna. The divestiture which we accepted addressed both of these concerns. This was the first merger case in which the Division was faced with a concern that a combination of health plans would give the resulting plan market power in the purchase of doctors' services. It clearly establishes the precedent that unacceptable aggregations of market power by health plans will not be allowed to the detriment of consumers and health care professionals.
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At the same time, we also have pursued anticompetitive actions by health care professionals, who have sought to use market power to demand anticompetitive concessions from health plans. In both our Federation of Physicians and Dentists and our Federation of Certified Surgeons and Specialists cases (discussed below), we established that competing doctors took joint action contrary to the antitrust laws to increase their reimbursement rates at the expense of consumers' pocketbooks.
Our ultimate goal is the preservation of competition at all levels of the health care industry. It has become clear over the years that consumer welfare and patient choice are best preserved by relying on antitrust principles to assure the proper operation of health care markets just as they are in other markets. Permitting providers to form bargaining groups in response to perceived bargaining leverage by insurers will not decrease the cost of health care or increase the quality of patient care.
THE RATIONALES FOR THE BILL SUPPORT NEITHER THE NEED NOR THE DESIRABILITY OF AN ANTITRUST EXEMPTION
There are various arguments that supporters of bills like this one have used to argue their case. On closer inspection, those arguments often are not aligned with the competitive realities of the marketplace and do not support the adoption of an antitrust exemption. Supporters often argue that the McCarran-Ferguson antitrust exemption lets insurers collude, so doctors should be allowed to collude as well; that health plans have all the bargaining power and tremendous market share; that doctors will only use their power to increase the quality of care; and that the bill will protect doctors and not increase costs to consumers, just affect the health plans' profits. Let me address each of these briefly.
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The McCarran-Ferguson Act Does Not Give Insurers Leverage
The bill's ''Findings'' assert that increasing concentration among health care plans, enhanced by the McCarran-Ferguson Act, gives insurance companies significant leverage over health care providers and patients and, therefore, warrants permitting health care professionals to negotiate collectively with health plans to create more equal negotiating power, which will promote competition and enhance the quality of patient care. The claim that the McCarran-Ferguson Act (''McCarran''), 15 U.S.C. §1011–1015, has given insurers significant market leverage over health care providers and patients appears to reflect a widely held misperception.
McCarran provides insurers with a limited exemption from the antitrust laws, but twenty years ago the Supreme Court in Group Life and Health Co. v. Royal Drug, 440 U.S. 205 (l979), clearly held that McCarran does not exempt insurers' dealings with health care providers from antitrust scrutiny. To the extent insurers' dealings with health care professionals are in violation of the antitrust laws, McCarran provides no obstacle to prosecution of such claims either by the affected providers or by state or federal enforcement agencies. When the Division learns about exclusionary or collusive activities among health plans, it carefully reviews them, and if necessary, takes appropriate action. In the past few years alone, the Division aggressively challenged contractual provisions imposed by payers on Rhode Island dentists, U.S. v. Delta Dental of Rhode Island, and Cleveland area hospitals, U.S. v. Medical Mutual of Ohio, Inc., when it determined that those provisions were resulting in higher costs and diminished choices for health care consumers.
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Thus, the claim that McCarran gives insurers leverage in their dealings with health care providers is illusory and should not support passage of this bill or increasing the bargaining leverage of health care providers.
Health Plan Bargaining Power
The relative bargaining power of plans and providers varies tremendously among markets. Although there have been several mergers of health plans over the last few years, in our view there still exists a significant number of competing health insurance plans, none of which dominates, and there has been new entry into various local markets. Between 1994 and 1997 over 150 new HMOs were licensed across the country. Moreover, over the last decade, as enrollment in managed care plans has grown, the market shares of many once-dominant Blue Cross and Blue Shield plans has eroded, resulting in decreasing, rather than increasing, concentration among health insurers in certain markets.
To the extent that there is a concern that mergers will increase the bargaining power of health insurance plans, our enforcement in the Aetna case should convincingly establish that antitrust enforcers will not allow anticompetitive mergers that will produce market power by health insurance plans in the market for purchasing provider services.
Quality Concerns Do Not Justify The Antitrust Exemption
The proposed bill makes no attempt to distinguish between joint negotiations by health care professionals that are designed to enhance efficiency, reduce costs and improve quality of care and those designed simply to increase the providers' income. The American Medical Association, in its written testimony submitted to this committee last year in support of the predecessor to H.R. 1304, acknowledged that ''[m]ost studies comparing the quality of care in managed care plans and traditional indemnity plans have found the quality of care to be comparable.'' This is not to say that there may not be problems concerning the quality or scope of services under managed care that require correction; just that problems of poor-quality care are not endemic to managed care.
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The concern relevant to this bill, however, is whether doctors will use the power granted them by an antitrust exemption to increase the quality of patient care. Our history of investigations, including our recent cases against two federations of competing doctors involving group boycotts and price-fixing conspiracies, leads us to have concerns because the proposed bill provides no assurance that health care professionals would direct their collective negotiating efforts to improving quality of care, rather than their own financial circumstances.
In our Federation of Certified Surgeons and Specialists case, twenty-nine otherwise competing surgeons who made up the vast majority of general and vascular surgeons with operating privileges at five hospitals in Tampa formed a corporation solely for the purpose of negotiating jointly with managed care plans to obtain higher fees. Their strategy was a success. Each of the twenty-nine surgeons gained, on average, over $14,000 in annual revenues in just the few months of joint negotiations before they learned that the Division was investigating the conduct. The participants in that scheme did not take any collective action that improved quality of care.
In the Federation of Physicians and Dentists case, we allege that most of the orthopedic surgeons in Delaware agreed among themselves to boycott Blue Cross Blue Shield of Delaware after Blue Cross announced it was going to reduce fees paid to orthopedic surgeons and other physicians. Blue Cross is one of four major private insurance plans operating in Delaware, and a number of smaller plans operate there also. Blue Cross's proposed fees, however, were still higher than those paid to orthopedic surgeons in Philadelphia, a nearby major medical center recognized for quality care, and in line with fees paid to other types of specialists in Delaware. Although the defendant organization claimed quality-of-care concerns in directing its member surgeons' collective opposition to Blue Cross's proposed fee reductions, the surgeons themselves conceded that they provide the same high quality of care to their patients regardless of the payment level. Indeed, there is no evidence that any of the orthopedic surgeons participating in the alleged conspiracy even sought to evaluate the impact that Blue Cross' proposed fee reduction would have on their cost structure or on their ability to provide quality care.
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Both of these cases, as well as many other cases brought by both the Division and FTC, illustrate the serious harm to consumers that would result from passage of the proposed bill, with very limited, if any, concomitant improvement in quality of patient care.
The Bill is Likely to Raise Costs Substantially to Consumers and Taxpayers
The bill's potential adverse economic impact on consumers is large. Our investigations reveal that when health care professionals jointly negotiate with health insurers, without regard to antitrust laws, they typically seek to significantly increase their fees, sometimes by as much as 20–40%. For example, in our recent Tampa case discussed above, the otherwise competing surgeons, through joint negotiations with health plans, had succeeded in raising their fees 20–30% prior to learning of our investigation. Exempting such joint activity through enactment of H.R. 1304 would permit health care professionals to negotiate and effectuate such increases in countless markets throughout the country. In view of the size of expenditures for health care services and the large number of patients receiving care, the potential anticompetitive costs that would be borne by consumers are large.
There appears to be no dispute that the bill will result in health plans paying higher fees to health care professionals. At a hearing of this Committee last year on a precursor bill, Representative Campbell acknowledged that the bill would enable health care professionals to obtain higher fees from health care insurers but maintained that such cost increases would be absorbed by managed care plans, rather than passed on to consumers. See Transcript of the July 29, 1998 Hearing before the U.S. House of Representatives Committee on the Judiciary on H.R. 4277 at 12, 27, 38–40. Conventional economic theory and business realities lead, however, to the opposite conclusion. Health insurers will pass on to consumers most, if not all, cost increases that they would incur in collective negotiations under H.R. 1304.
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Economic theory predicts that an increase in the cost of an input in nearly every instance translates into a higher output price. Only in those rare cases where a different input can be used as a perfect substitute will an increase in the cost of an input not give rise to a price increase to the consumer. But, because of both licensing requirements and the nature of services provided, there are no good substitutes for physicians, pharmacists, therapists, dentists, or other health professionals. Consequently, health insurers are virtually certain over time to pass through to consumers and taxpayers most, if not all, of the increase in costs for any covered services provided by health care professionals. See, e.g., Wholey, Feldman, and Christianson, ''The Effect of Market Structure on HMO Premiums,'' 14 J. Health Economics 81, 89, l00 (l995) (finding that increases in provider costs increase health plan premiums); M. Pauly, ''Managed Care, Market Power, and Monopsony,'' 33:5 Health Services Research 1439, 1450 (Dec. 1998, Part II) (''In virtually any model of profit-seeking firms, an increase in marginal cost of an input translates into a higher equilibrium output price.'').
The realities of the health insurance business also contribute to our conclusion that health insurers will pass on most of any cost increases for professional services resulting from H.R. 1304, services that ordinarily constitute about 40–50 percent of a health plan's total costs. For the last few years, premiums closely reflected insurers' costs, and a leading health care policy ''think-tank'' predicts that ''over the longer term, the underlying cost of health care remains the dominant influence on the direction of premium trends.'' See Center for Health System Change, ''Despite Fears, Costs Rise Modestly in l998,'' Data Bulletin No. 13 (Fall l998) at 2.
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Increases in the cost of services provided by health care professionals resulting from enactment of H.R. 1304 will undoubtedly have a direct and predictable effect on consumers and taxpayers, resulting in the transfer of funds to providers and making health care insurance coverage increasingly unaffordable for many. Medicare and Medicaid programs, for example, will incur substantial additional costs to meet increased premiums from managed care plans. Alternatively, managed care plans will cease serving Medicare and Medicaid beneficiaries in high-cost areas or reduce non-mandatory benefits.
Employers and employees in the private sector also will be confronted with increased costs of health insurance as a result of this bill. The inevitable increase in premiums would lead to more consumers either losing or foregoing their health care coverage and likely would increase the ranks of our nation's uninsured. Faced with substantial increases in premiums, more employers may stop offering their employees health insurance or will decrease benefits, and more workers who are eligible for employer-sponsored insurance may nevertheless reject coverage as their shared costs increase. Such trends also will translate into additional Medicare and Medicaid costs.
There Is a Better Approach to Deal with Problems Raised by Managed Care
The stated objective of the proposed bill is to ''enhance the quality of patient care'' and implicitly to resolve some of the problems attributed to managed care. One of the ways is to pass a Patients' Bill of Rights that provides critical patient protections, such as guaranteed access to needed health care specialists; access to emergency room services when and where the need arises; access to a fair, unbiased and timely internal and independent external appeals process to address health plan grievances; and an enforcement mechanism that ensures recourse for patients who have been harmed as a result of a health plan's actions. The Administration continues to urge the Congress to pass a strong, enforceable Patients' Bill of Rights in this legislative session. Some of these quality of care issues and other problems frequently associated with managed care, however, may be resolved without any legislation since there are already legitimate ways for physicians and other health care professionals jointly to influence or make recommendations on quality of care issues. See, e.g., United States Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care, issued August 28, l996, 4 Trade Reg. Rep. (CCH) 13,153, 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'').
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For example, the American College of Physicians-American Society of Internal Medicine and 21 other physician groups recently wrote letters to national managed care organizations urging them not to adopt mandatory hospitalist programs, that is, programs requiring primary-care physicians to turn over care of their patients to hospital-based physicians when a patient needs hospital care. In response, the health plans clarified that their hospitalist programs were voluntary.
Legislation should not, as would H.R. 1304, injure the public by eliminating competition in health care provider markets in the hope that it will indirectly solve the problems of managed care facing consumers. Providers have their own self interests, and our enforcement actions and other experience suggest that their actions may not be congruent with the interests of consumers.
CONCLUSION
We oppose this legislation which would immunize independent-contractor doctors and other health care professionals in private practice from antitrust prohibitions. This bill is the wrong way to deal with problems identified with managed care and will harm consumers of health care in the future. The bill would hurt consumers and taxpayers by raising the costs of both private health insurance and governmental programs with no assurance that quality of care would be improved. The better approach is to empower consumers by encouraging price competition, opening the flow of accurate, meaningful information to consumers, and ensuring effective antitrust enforcement both with regard to buyers (health insurance plans) and sellers (health care professionals) of provider services. Competitive issues are best dealt with in a manner which promotes competition, not retards competition, as this bill would do if enacted.
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Mr. HYDE. Well, I think we see the divisions here.
Mr. Conyers for questions.
Mr. CONYERS. I want to thank my friends, Chairman Pitofsky and from the Department of Justice, Mr. Klein. One of the problems we won't be able to get into today is the fact that notwithstanding the views testified to here today, we need much more resources in the Department of Justice Antitrust Division. That I know. To be able to bring the kinds of cases that are proliferating all over the country, let's face it, your resources and yours, too, Chairman Pitofsky, are enormously small for the cases that we have in front of us.
Now, this is not law school, gentlemen. This is the real world. If I were in a classroom listening to this, it would go down pretty well. The only problem is that I have medical doctors and people in the health field that come to me constantly telling me about the myriad problems that are going on, including racial discrimination. You would have to put just in Detroit an outpost of both your offices to just begin to process these matters.
Now, the reason in the past, and I am going to just run down these so that Tom Campbell can give me some kind of indication if my thinking is correct or not, but the reason in the past, Chairman Pitofsky, that there weren't studies that show of this need is because this is a new development. A hundred years ago you didn't have this situation. Most doctors were private practitioners that were not intruded upon by these kinds of demands. To turn this into whether doctors should be paid more, is to me to mischaracterize what we are trying to do. This isn't a higher pay for doctors bill, and to tell me that there are a lot of HMOs you can turn to, well, most of the agreements are about the same. I mean, there isn't any relief. So to say that there are five HMOs in the metropolitan area of Detroit misses the point. None of them are satisfactory in many respects.
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And what about the question of people that will be coming behind, the nose under the camel's tent argument. What about the auto deal, the gas station owners. Well, look, if they have as much trouble as doctors seem to be having, they are not going to be far behind. They are going to be a long way behind. I don't think that should scare us into not doing anything about this problem because there is something that may happen along the way. And the new efforts, I am not sure about them. We have been trying to find out what we have been doing about this problem for a long time. This is the third round of hearings, and the antitrust laws are great, but mergers are going on still more and more and more, and we get into a huge case, which I want to commend and compliment you on, but we have got some very, very big problems here.
Finally, Mr. Klein, you suggest that this is a horrible situation. We will not work for you unless you pay us X. That is what the competition in the American labor system is all about. I didn't know that the UAW was a suspect because their agreements come up and they say, you should pay us X, and we negotiate. But here the doctors don't have the strike provision. This is taken out by our law, and I don't know a lot of doctors that are anxious to join unions anyway, to be honest with you. They seem to be markedly reluctant about that.
So if I could ask for an additional couple minutes for Mr. Campbell to get a response in.
Mr. HYDE. Without objection.
Mr. CONYERS. Thank you.
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Mr. CAMPBELL. Thank you, Mr. Conyers. On your three points, first of all, the power of the HMO has to be measured by specialty, and that is why it is quite irrelevant to know how many HMOs there may be in general in a general geographic area. What matters is how many HMOs there are in ophthalmology, how many HMOs are there in heart specialists, how many HMOs are there to which a doctor can turn when he or she is told to take it or leave it.
I do not have the data concentration by specialty, but neither does Chairman Pitofsky and Mr. Klein. What we do have, and what this hearing evinces very strong evidence of, is abuse by HMOs of doctors in their specialties, and that is what the hearing is about, to take that evidence.
Secondly, as Mr. Conyers aptly pointed out, to use the word ''unprecedented'' (that was the word by my friend and colleague Chairman Pitofsky) is wrong. ''Unprecedented'' would suggest that there is no union exemption to antitrust. Indeed, if the ills that were described were true, then we should never have had the exemption for organized labor from antitrust. Indeed, that was an example that Mr. Pitofsky—Mr. Klein, I think—used regarding the effect of the steelworkers on cars. I forget which of you used it. It might have been you, Bob. So if, now, the administration and the independent Federal Trade Commission wishes to come out against the antitrust exemption for labor unions, I might have an interest in that intellectually, but that would be unprecedented. This exemption already exists for organized labor.
We have exactly this situation with the exemption provided against antitrust application for labor unions, with one big difference; and that is we don't permit medical professionals to form labor unions in this bill. The extent of their antitrust immunity is limited to their bargaining relationship, so whereas UAW can go to Ford, to Chrysler, to G.M., and the steelworkers can go from Inland to Republic to U.S. Steel, the only exemption being created here is exactly at the bargaining table. There is no broader exemption created. It is limited to the bargaining unit. The reason labor unions can go beyond a bargaining unit is because they form international unions, and under section 7 of the National Labor Relations Act, their rights to organize are broader than the bargaining unit. This antitrust exemption, by contrast, is only at the bargaining table.
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Lastly, will this result in an increase of prices? I don't know. All I can tell you is that there will be a different mix of quality and care, and that it is impossible to divide reimbursement from quality of care, and with this I conclude. This effort is not all one big subterfuge to get higher compensation for doctors. But if you tell a doctor you have a capitation rate that it is going to require you to see 15 patients per hour before you can clear your costs, you are affecting quality.
Mr. HYDE. Mr. Gekas.
Mr. GEKAS. Thank you, Mr. Chairman.
Tom, when you first stated that perhaps your vision of what could occur here would probably not apply if there were only one HMO in a particular region, because in that case there would be special circumstances, and your division of earnings would not remain the same; is that correct?
Mr. CAMPBELL. The ability to extract a higher price from a patient depends on how many choices the patient has. The ability to extract a profit from the HMO depends on the bargaining power the doctors have. So if there is one HMO in a region, and it is the only one patients face, they can rip the patients off maximally right now.
Mr. GEKAS. I understand that. But in most cases, you say, there is no region in the country where we can really say there is only one HMO for a large area. Is that what you are saying?
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Mr. CAMPBELL. No. I was conceding, and I think it is wise to recognize, that the way to measure market power is by specialty, and that whereas Chairman Pitofsky and Mr. Klein were arguing that there were many—that most parts of the country had more than eight HMOs, I believe that was the number they used, that that is quite irrelevant. What is relevant is how many alternatives does a doctor in a specialty face?
Mr. GEKAS. Are you willing to entertain an amendment to your bill that would guarantee that whatever arrangement is reached by the new coalition of doctors with the HMO, that those increases to the doctors would not result in higher fees for patients?
Mr. CAMPBELL. No, I cannot give you that assurance. The reason, George—Mr. Congressman Gekas——
Mr. GEKAS. George is——
Mr. CAMPBELL. George is cool—is because I don't know that the starting point is right. Hear me out on this one.
Suppose that the starting point is that the HMO has told every doctor in the region, take it or leave it, take it or leave it, take it or leave it. Fifteen patients per hour is what you have got to take if you are going to cover your costs. The right outcome in terms of patient care may be a higher compensation rate.
If I could, one last point on this. What do you do with an HMO that abuses its power? What do you do with an HMO that abuses its power? I can stand ready to be corrected if Chairman Pitofsky or Mr. Klein today can tell me, but I know of no case, no case, where FTC or Justice has ever sued an HMO for abusing its power vis-a-vis a medical professional. They will try to stop a merger, however.
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Mr. GEKAS. Excuse me. Regaining my time. Can't we deal with that in the whole issue of patients' bill of rights?
Mr. CAMPBELL. Sure.
Mr. GEKAS. And so your point is well taken, but perhaps there is another forum with which to deal with that particular issue.
The other point that Chairman Pitofsky made, which is a real concern, is that if this has a result unforeseen, or foreseeable, as the Chairman seems to believe it is, that there will be a lot more uninsured in our country, that is a heavy burden for you to overcome because that drives many of the attempts that this committee and the Congress as a whole tries to assert to prevent the further erosion of our insured population.
Mr. CAMPBELL. The quality of care, however, will improve. In other words, if the issue is I can only hurt consumers by the price charged, you ignore the entire issue of quality of care. If as a result of this bill the medical professional who is charged by profession and training with looking after the interests of the patient, admittedly who also has an interest in getting reimbursed, has more power, the outcome could indeed be a higher price, but it can also be, and I think will be, a much higher quality of care, so thus you cannot prove it is harmful to consumers.
Mr. GEKAS. I am not certain that would help us solve the problem that would emerge from this if the chairman is correct of increased numbers of uninsured. But I will give you an A minus for your response.
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Mr. CONYERS. Would the gentleman yield on that point?
Mr. GEKAS. Yes, and then I will ask for 2 more minutes, if I may. Would the gentleman yield 2 more minutes to the gentleman from Pennsylvania?
Mr. HYDE. Of course.
Mr. CONYERS. Thank you.
I just wanted to name the incredible concentration that is going on that has to be taken into consideration, and we have Prudential Health Care, Metropolitan Life, Travelers, New York Life, John Hancock; in 5 years a dozen companies have been scooped up by now only six survivors: Aetna, CIGNA, United Health Care, Foundation Health Systems, Pacific Care, and Well Point Health Network.
Mr. GEKAS. That is very helpful, I think.
Mr. CONYERS. What it does—what it tells us is that this concentration isn't helping the plight of the doctor.
Mr. GEKAS. One thing emerges from the testimony of all three excellent witnesses that we have here, and that is that our work is cut out for us on the framing of a proper patients' bill of rights. That may solve a lot of these problems by giving the give and take that is required between the HMO and the patient's right to proper care, the compensation for doctors being a secondary, but necessary portion of all of that, and to allow the principle of services for fee to return in some aspect to this whole picture. So if you have done nothing else, you have reemphasized our need, in my judgment, to return to the table on patients' bill of rights.
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I yield back the balance of my nontime.
Mr. HYDE. I thank the gentleman.
The gentleman from Massachusetts, Mr. Frank.
Mr. FRANK. Thank you, Mr. Chairman. I want to follow the pattern of disclosure and acknowledge that I am also a former student of Professor Pitofsky. I am older than Mr. Campbell, but I was delayed in going to law school. I also—were hoping—this is a very difficult issue, I believe, with conflicting values.
I want to be explicit about one premise I bring to this. I am not as worried as many others about increasing the cost of health care. I should say to my colleague, Mr. Campbell, that I do think the argument that this would be entirely a reallocation of costs as between the HMO and the doctor seems to me that is not something we can assume in the market, the notion that higher compensation isn't going to fall. I think free-market principles would suggest that some of it would. But that bothers me less than others.
Ten years ago we had convinced ourselves we had a terrible crisis in that health care was too expensive, and we argued, among other things, that this was hurting our competitiveness as a Nation. You don't hear that anymore because we are more—I guess you can't be more competitive if you are doing better than anybody else. Literally we suffer from cultural health care. There was an argument 10 and 15 years ago that we had to bring down medical costs as a percentage of the gross domestic product because it was injuring our competitiveness. That is clearly not the case. And that my own view is, yeah, I want to hold down medical costs. I want us to do everything we can that is sensible in the area of prevention. I want to clean the air. I want to improve people's nutrition. I want to take lead out of the gasoline, as we have done. I want to do other things that prevent people from getting sick. But to be honest, once I get sick, I am a lot less interested in cost control, and so are most of us.
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The way it works now, and I think this is really important for the setting here, in our economy, if I go bowling or I go to the movies, that is good for the gross domestic product. But if I pay my doctor a lot of money to make me better, that is considered by some to be a detraction. If I go on a vacation and stay in a very expensive hotel and pamper myself, that is good for the gross domestic product. If when I am very sick I go to a hospital and also pamper myself, people think this is a terrible thing because we are detracting.
Frankly, it is when I am sick that I want people to be really nice to me. And when I am feeling good, I stay in Motel 6. I am okay.
I think the fact is we are trying to do something very difficult. We are trying to impose—it is one of these ones where I think there is a mismatch in the minds of the average American. Everybody is for cost control until he or she gets sick or somebody who he or she cares about gets sick. I think we can afford more health care costs than we thought we could some time ago. It is very clear that the level of health care expenditures we are now putting out is not a problem. And, yes, I want to be efficient, but I reject the notion that somehow we have this overall crisis because health care costs too much.
We also know that health care costs a great deal, in part because we have health care available for people that simply wasn't available before. Part of the problem with prescription drugs for older people is that in 1965, when Medicare was passed, prescription drugs weren't that big a deal for people. We have come up with a whole lot of new drugs that do a lot of things for people, and they cost us some more money.
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So I start out by saying I am prepared to agree that this could increase the cost of health care some. I don't think it will all come out of the hides of the health insurers, but that is not, for me, fatal.
I do have a couple of questions. I think we have to look at this and write something very careful. To Chairman Pitofsky, you said there have been no cases of any prosecutions of efforts that were aimed at improving the quality of care, but I assume you would agree with Mr. Campbell that some of them would be technically prosecutable as antitrust violations. Is that the—the way you phrased it, I assume that is what you were saying.
Mr. PITOFSKY. People disagree about that. I am probably in the minority. I am not even sure that kind of conduct can or would be prosecuted.
Mr. FRANK. But you are in a minority?
Mr. PITOFSKY. But I am in a minority.
Mr. FRANK. Because here is the problem, the fact that things haven't yet been prosecuted—and obviously you understand this—we are in a changing world. I mean, look—the other basic point is you make, this is one more argument to me, I should say, why we need to change the whole health care system. This is one more acknowledgment now by the medical profession that the model of fee for service we have had is completely to be—may I ask for two more minutes, following your precedent.
Mr. GEKAS. Without objection.
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Mr. FRANK. For many us of who grew up and remember public policy debates 30 and 40 years ago—frankly, as a liberal Democrat, the notion of members of the medical profession coming before me and asking for the right to be a little more like unions has a certain attraction to it.
I am prepared to encourage that thinking. And I think it is further evidence that we need to do a whole new model of the delivery of medical care and in my judgment is one more argument why we ought to go toward a universal health care system.
I think what we are getting here to some extent, remembering my undergraduate days, it is when Copernicus and Galileo were coming forward replacing the old theory, and I guess it was Kepler who was trying to defend the old theory and he kept coming up with epicycles and loops and whirls. It seems to me we have got one more epicycle here one more effort to try and adjust to a system that is out of date. And that, I think, in the short term is necessary. But it is one more argument for me why we ought to be moving to a whole new system.
But the point I would say to this is to Mr. Pitofsky the fact there have been no prosecutions up till now obviously isn't very persuasive because we are in a new era, and the attitudes of practitioners have changed. I think medical practitioners have been driven by the practices of the insurers to change their attitudes; I am, on the whole, glad they have.
And if we believe that there are actions that practitioners take that have as a primary effect improving care, if they are currently illegal, even if they haven't previously been prosecuted, then I think it behooves us to change the law to give them some protection, and especially as Mr. Campbell mentions, there can be private suits brought and not just by the authorities and obviously they are less interested in that.
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So I would just say that I am persuaded that we should do something. I am not yet persuaded as to exactly what we should do, and obviously there are some things we want to kind of avoid. But I would urge people who don't like the idea of us doing anything to give some attention to making some specific proposals as to what we might do, because, as I said, I am prepared to acknowledge that this may increase overall costs; but I think that is a reasonable thing to do if we gain some significant increase in quality. And I am now grappling with exactly how to do that.
I thank you for the indulgence, Mr. Chairman, even though you weren't here to indulge me.
Mr. HYDE. [Presiding.] I was indulging you long distance.
Mr. PITOFSKY. Mr. Chairman, may I try to clarify a couple of points that have come up?
Mr. HYDE. Surely.
Mr. PITOFSKY. Two points: one is the suggestion that maybe H.R. 1304 isn't unprecedented, it is just like the exemption we give to laborers. Let us be clear about this. If doctors really are employees and they work for a hospital, they can join the union and they can negotiate jointly, the question is whether independent fee-for-service doctors can be treated as employees, just like the janitor in a hospital, for example.
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And the NLRB has faced that question—is facing it right now—and has decided time and again that doctors are not employees, they are contract people, and they are not entitled to the labor law exemption. It is that sense that this is unprecedented.
And as to Mr. Frank's comments about precedent, let me be clear, one, the fact that nobody has brought a case does suggest that maybe this isn't as much of a problem as has been suggested, a case against doctors getting together and bargaining on behalf of their patients on a quality-of-care issue. Second, there is a line of case law that noncommercial boycotts are not actionable under the Sherman Act.
You get together and boycott a restaurant because of its racial practices or you boycott a State because of its unwillingness to enact ERA, that has been found by the courts not to be an actionable under the Sherman Act.
So there is a pretty good argument that if the doctors got together and negotiated on behalf of their patients, not for themself, not for their own pocketbooks, for their patients, that would not be a violation of the law.
Mr. FRANK. Mr. Chairman, can I ask for 1 minute?
Mr. HYDE. Surely.
Mr. FRANK. Well, I appreciate you saying that, Mr. Chairman, and if you think that that shouldn't be, I assume you are not simply making a prediction, you are making an enormous statement that that should not be actionable?
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Mr. PITOFSKY. I would never vote for a case in which doctors were getting together solely to bargain on behalf of their patients.
Mr. FRANK. If that is the case, isn't it part of our job and the uncertainty? I mean, if we have an agreement that there is a pattern of activity that is not harmful, why and—you know we are talking about private citizens whose faith in the rationality of the law may not quite equal yours and may be chilled as we talk about other areas—if, in fact, there is a category of activity that we believe is beneficial and not harmful, and if you believe that the law probably already said that, why not complete that?
Mr. PITOFSKY. Let me just be clear that is not this bill.
Mr. FRANK. I understand that.
Mr. PITOFSKY. This bill goes vastly beyond——
Mr. FRANK. You also understand we are not in an either/or situation. We don't have to choose between column A and column B; we can write column C. And I am suggesting to you if that is the position, you might want to help us write a bill that validates and legitimizes those things that it ought to be.
Mr. PITOFSKY. I think there ought to be a bill. I am just worried about antitrust exemptions which tend to take on a life of their own. Most of these patient bill of rights do address this question.
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Mr. HYDE. I thank the gentleman.
If I may interrupt out of turn, it seems to me what we need is some effective arbitration where the doctors have someplace to go when the insurance company says go take a flying leap. They need to go somewhere and not always to court, because there is no standing in court on something like this.
But if there were an appeal mechanism from arbitrary decisions based only on the bottom line and not on the myriad considerations that impact a physician or his surgeon, that might be helpful.
I am not sure a patients' bill of rights gets to the doctors' bill of rights. So anyway, that is just my unhelpful comment. Mr. Coble.
Mr. COBLE. Thank you, Mr. Chairman.
Mr. Campbell, when you were a member of this committee, I once made the statement that we were blessed with having two of the most intelligent Members of the Congress on this committee, and I was referring to you and Mr. Frank from Massachusetts. Now I don't mean to diminish my colleagues. I am sure there are others. My friend from Pennsylvania took umbrage with that. The others are equally intelligent, I am sure; but you and Mr. Frank I meant are firmly planted on that corner, but you don't, perhaps, own the corner of the intelligence bracket.
Now, having said that, I will stipulate, Mr. Chairman, that I have not attained membership to the superior intellect category, and I will probably clearly illustrate that with this question.
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Mr. FRANK. Mr. Chairman, briefly, could I ask my colleague from California if this is making him as nervous as it is making me.
Mr. COBLE. No need to be nervous.
Mr. Campbell, your position, it is my belief, is that this bill would not lead to any rise in the overall costs of health care. Am I right so far?
Mr. CAMPBELL. No, sir.
Mr. COBLE. Well, let me go ahead and finish, and then you can get me back on course. I think that you argue that the total costs would probably remain about the same, but that more of that total costs would be shifted to the health care providers and less to insurers. Now, get me back on course.
Mr. CAMPBELL. That I do agree with. I do not maintain that there is no possibility of higher costs. I could not maintain that. But the purpose of my illustration in the chart I distributed was to say that whether or not there is an overall effect on the consumer depends on the conditions that the consumer, the patient, faces. It depends on how many HMOs are there so you can choose between them? Allowing the doctors to present a united front to the HMO, just to that one HMO, cannot change the competitive alternatives available to the patient.
Now, as between the doctors and the one HMO, there will be a new division of profit. Whether that new division of profit results in a higher cost to consumers depends upon whether every other HMO in that area is confronted with the same increase and what you call an input cost.
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And to use Chairman Pitofsky's example, the only reason that the UAW increase in the price of steel had an effect on the price of cars is because the identical contract was being offered by UAW to Ford and Chrysler and GM.
My example, however, and our bill, limits the antitrust exemption only to the one bargaining environment. It does not create the union; it doesn't create the opportunity, in other words, to go as UAW can accordingly. Does this increase the costs to consumers? It could. Will it result in a different share between the HMO and the doctors? It will.
The HMOs are against this bill for a good reason. This will result in lower profits for HMOs. But—and this is my truly most important point—the quality of care will improve. Why do I say that, Chairman Coble? Because the person at the bargaining table who has the most direct interest in taking care of the patient's quality of care is given more power at the bargaining table.
I don't think there is dispute on this. Whatever criticism you might have for doctors, they at least have a more direct concern about the quality of their patients' care regardless of the bottom financial line, than the HMO.
Mr. COBLE. I thank you. Mr. Chairman, I am still not certain that I have a firm grasp on this, but we will continue to try. Good to have you gentlemen with us as well. And I yield back, Mr. Chairman.
Mr. HYDE. Thank you. Mr. Berman.
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Mr. BERMAN. Thank you, Mr. Chairman.
I am wondering, Mr. Campbell, if I might yield to you in the future when Republicans assert in the face of a Democratic effort to either increase regulation or increase taxes that those costs are automatically passed on to the consumers, that maybe they are really not, maybe it is just a matter of—and the fact that the industry to be regulated or taxed opposes it doesn't mean that it will be passed on to the consumers.
They are opposing it because it will come out of their profits. It is an argument I would like to bring you along with when we hear it, as I am sure we will, over and over again.
Mr. CAMPBELL. I have been there with you.
Mr. BERMAN. Okay. I didn't get to hear, really, any of the testimony. And my recollection though is that the exemption, the antitrust exemption for collective activity by employees came before the passage of the National Labor Relations Act. Am I wrong about that?
Mr. PITOFSKY. No, that is correct. It came in 1914, the NLRA was in the early 30's.
Mr. BERMAN. 1936, 1935. So that in and of itself, the absence of a comprehensive regulatory scheme for conducting elections and determining the—creating an administrative remedy and setting forth unfair labor practices by either side followed many years after the—essentially the allowance of the exemption.
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Given that, can you spell out for me what you think the problems would be in granting this exemption without the regulatory process that you have, I gathered, that you have criticized is absent from this bill?
Mr. PITOFSKY. Well, you raise a question that I have mulled over a bit. I think what you are driving at is, this would be the only group that I am aware of that would be free of the antitrust laws and would not be regulated by the NLRB also. They would be totally outside any regulatory scheme.
Mr. BERMAN. They wouldn't be the first.
Mr. PITOFSKY. Well——
Mr. BERMAN. From 1914 to 1936 it was—this exemption existed, no National Labor Relations Act, no regulatory mechanism, no process for determining who the bargaining representative was through Federal legislation.
Mr. PITOFSKY. And, therefore, during that period doctors were not—or health care professionals were not covered by the labor laws, but they were covered by the antitrust laws.
Mr. BERMAN. No, they were exempt from the antitrust laws based on the——
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Mr. PITOFSKY. I am saying that doctors, not the labor of human beings which is covered by the Clayton Act in 1914. But these people who are covered by this statute were regulated by the antitrust laws during that period.
Mr. CAMPBELL. Teacher, teacher, no.
Mr. BERMAN. Yes.
Mr. CAMPBELL. No, that is not true. Professionals were thought to be exempt from the antitrust laws for many years. It was a later development, in the Goldfarb v. Bates case and the AMA case brought by the FTC that was considered novel at the time.
Mr. BERMAN. I have to say I am not aware between 1914 and 1936 there was a great deal of differentiation between who was an employee, who was a professional. I mean a lot of that law developed under labor law, and I guess perhaps in the antitrust law later, but I am not sure.
But in any event, I am curious. You passed this bill. Who does determine bargaining representatives? Who is the negotiator for the doctors? How do you solve problems of appropriate bargaining units? In some cases you have a nationwide managed care plan? Is the expense cost of living in the Silicon Valley allowed to be reflected by local bargaining for additional fees, or are you forced into a national system? What do you deal with if different people want to negotiate for different groups of people, and how do you solve that process without a little more of a framework in this legislation?
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And, finally, I guess one of the arguments made in favor of this bill is that the insurance companies are exempt from antitrust laws through, I guess, the McCarran-Ferguson; but I am told that the exemption they have is not to allow them to collaborate in the negotiating process. It is an exemption for different purposes and to essentially allow the supremacy of State regulatory mechanisms.
So if you would just deal with a few of those, Tom.
Mr. CAMPBELL. Thank you. On the question of the bargaining unit, the reason why I adopted this approach was to incorporate the settled the labor exemption for antitrust. What I did was to say that these bargaining relationships should have the antitrust status as though they were under the National Labor Relations Act. Accordingly, I pick up Allen Bradley, for example, and Pennington, these are the cases where the Supreme Court decided how the antitrust exemption for labor would be applied.
And in answering your question would it be the CPI of Silicon Valley, the CPI of Los Angeles, I reply the antitrust exemption would extend to the context of the bargaining; whatever the context of the bargaining is would be entitled to the antitrust exemption. The definition of a bargaining unit for NLRB purposes, in which you are certainly the expert, is important for union elections. You have to have an election in the bargaining unit. Once you have certified the unit and the bargaining commences, the antitrust exemption attaches to that bargaining, and that is what I am picking up.
Mr. BERMAN. Mr. Chairman, could I ask unanimous consent for an additional minute?
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Mr. HYDE. Yes. Without objection.
Mr. BERMAN. The appropriate bargaining unit is also a determination not simply for who votes on a bargaining representative but for the scope of the collective bargaining agreement for whom we are bargaining.
I just can see some situations where with one managed-care plan, you are going to have a lot of different people with different ideas about what the appropriate bargaining unit should be. And I don't understand how in this bill—and different people wanting to negotiate for the physicians in working with that managed-care plan. And I just don't see how this process allows those disputes to be sorted out.
Mr. CAMPBELL. The exemption applies as to those who are engaged in the bargaining. If bargaining is broader, the exemption is broader. If bargaining is narrower, the exemption is narrower. I don't dispute there is a virtue in the National Labor Relations Board defining bargaining unit, and it is true that it then confines the extent of the antitrust exemption.
But I note that it confines its outer boundaries. You can have bargaining on smaller units than the bargaining unit, as you know, for example within a master bargaining arrangement, but the antitrust exemption is applied under this bill only to the relationship between the two parties across the table. So in that sense, it is narrower.
You raise a point, would it not be clearer if there was an agency like the NLRB saying you are the bargaining unit. And, yes, it would be clearer. But I did not wish to establish an entire regulatory scheme solely to obtain the antitrust exemption.
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Mr. BERMAN. Thank you.
Mr. HYDE. Mr. Hutchinson.
Mr. HUTCHINSON. Thank you, Mr. Chairman and gentlemen for your testimony today.
I wanted to ask a couple of questions, and I guess the first would be addressed to Representative Campbell. Some concern has been expressed in reference to the rural areas, that a group of physicians or health care providers could negotiate with some health plans and refuse to negotiate with others that might be interested in entering into that rural market. Of course, competition in the rural market is important for the consumers.
Is there anything in the legislation to protect against a group of physicians refusing to negotiate with a new health plan attempting to enter a rural area?
Mr. CAMPBELL. No, there is not. The outcome is determined by bargaining. And let me just offer the following: if there is a risk to the patients in the rural area that they would be charged a high price for—or a higher price than competitive for particular medical service, that threat exists to the extent that the HMO is already there and there is no competition to the HMO.
In other words, if there were already many competitors to the HMO that threat could not be implemented. If the threat is real, it is only because the patients don't have alternatives; there is only one HMO or one insurer.
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Now what you posit is a reverse, whereby even though there is no present market power through an HMO, the doctors through the result of this bill would themselves create bargaining power which they did not previously have and then would implement it through bargaining by excluding any other HMO and, if you will, use the HMO to implement a new found degree of market power.
Mr. HUTCHINSON. That is the problem?
Mr. CAMPBELL. That is a theoretical possibility.
Mr. HUTCHINSON. In essence, are you not shifting from what you see as too much control and bargaining power by the HMO, and tilting to the other direction. Another illustration of this—and I will ask Mr. Klein and Mr. Pitofsky to respond as well—is in rural areas such as the one I represent, where there is some dependence upon optometrists, nonphysician providers, nurse midwives, nurse anesthetists, and nurse practitioners; and, of course, you know, many physicians believe that there is not an appropriate role perhaps there. The nursing groups argue that if the doctors are provided this antitrust exemption, then it would threaten their ability to negotiate with the health plans.
Is there anything in the legislation that would prevent the doctors from negotiating exclusionary provisions preventing the health care plan from utilizing nonphysician providers?
Mr. CAMPBELL. No. But there is nothing in existing law that would prevent the doctors from integrating and forming their own health care provider group and doing that now.
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And let me just take 20 seconds and tell you this is the best answer I have. When you equalize bargaining power, which is what this bill does, you have the risk, I confess it, that you are giving bargaining power to those who previously didn't have it, and it is possible when you confer bargaining power that abuses arise, but if you start here (thumb on top) and the other here (little finger on bottom), and the result is more equal, it is a little bit odd to say that my ring finger here is to be worried about when previously, at the little finger position, it had no bargaining power at all.
Lastly, and this is what I alluded to briefly, under existing law and regulations of the FTC and DOJ, that group of doctors—for the moment take your example of rural doctors who wish to exclude nurse midwives for the purpose of getting higher progresses for obstetricians—those doctors could do that by creating their own health care group right now, provided they were a business.
Mr. HUTCHINSON. I want Mr. Klein to respond. Do you see these as problem areas?
Mr. KLEIN. These are enormous problem areas, and I think you put your finger on the heart of the issue, and it is simply not a rural issue. Let us think about what this does. This is not about equalizing bargaining power, this is not about a highly complex system of labor management relations with multiemployer bargaining units where there is very complicated issues.
Just think about—suppose we were all physicians in New York City, why wouldn't we get together and say here it is, our rate schedule, period. Any HMO that wants it can take it; and if you don't take it, you are out of business.
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Why wouldn't we do that? You give people unfettered market power, they are going to use it, only people who are irrational wouldn't.
It is no different, Mr. Berman, from all the people who do highway work in the United States saying, look, the States are big behemoth organizations. They put these contracts out to bid; we have to bid them. It is very competitive. We don't have any negotiating power; we just bid them.
Why not let us get together and have countervailing power and set the rates? We would never contemplate that; it is a huge mistake. That is not to say there aren't abuses here. I don't want to get painted in a box. But the solution simply doesn't match the problem, and it will create huge problems of its own that are unanticipated.
And that is what my concern is today. I want to sail right at the heart of the problems of managed care, because I think they are real. And I don't think we ought to ignore them. But I think, Mr. Hutchinson, it is not a rural problem. I think it is a national problem.
Mr. HUTCHINSON. I thank the Chair.
Mr. PITOFSKY. May I say a word? Mr. Hutchinson, I think you put your finger on a critical issue here, and the response—well, theoretically that could happen—doesn't leave me entirely comfortable. We have an appendix to the testimony from the Federal Trade Commission showing that case after case after case that we filed involved local groups of doctors negotiating with the health care plan in order to exclude potential competitors or in order to exclude alternative forms of health care, like nurse midwives.
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We have seen this happen time and again. It is not theoretical. What is theoretical is the likelihood that the Government would challenge the doctors if all they were doing was negotiating on behalf of their patients to get better quality of care. What we have seen them do is negotiate on behalf of themselves to exclude competition.
Mr. HYDE. The Chair will yield himself a couple of minutes and ruminate. It seems to me we have got a real problem here, and Chairman Pitofsky and assistant Attorney General Klein recognize that. They just don't like the remedy proposed by Mr. Campbell because it is so far reaching and would be precedent setting et cetera, et cetera, and lend itself to abuse.
Doctors portray themselves as healing forces concerned only for the patient, true in many places, but potentially not true. The concentration of power can be abused by human beings, whether they are MDs or whether they are JDs or whether they are just human beings. So that is the problem.
On the other hand, it is inescapable that the doctors are at a tremendous disadvantage in dealing with the insurance companies who have take-it-or-leave-it power. So we need some forum that is neutral and is informed that can resolve the quarrels between the insurance company which wants to pay nothing and the doctor which wants to get a decent compensation for his services, the value of which he may exaggerate because he is a human being.
So why can't we develop an arbitration system? Baseball players do it and sometimes it works; sometimes it doesn't. Why can't we develop a board whose exclusive concern is to arbitrate mandatorily, accept the results, the quarrels between doctors and between HMOs, so that both parties get a fair shake and the patient gets a fair shake and we don't do damage to antitrust theory.
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What is wrong with a board in which both sides have confidence resolving these disputes? Won't that solve our problem, Tom?
Mr. CAMPBELL. It is remarkable. If it were crafted by Thomas Aquinas and administered by angels, yes; but otherwise, you would be creating a Federal Government agency that would have to review a contract that says, for example, anesthesia can only be administered with the presence of a doctor, an MD, not by a nurse anesthetist. And you would have some saying, well, that is just for safety; you know people die under anesthesia conditions.
And the other side would say well, you know, it is just to exclude nurse anesthetists because they are cheaper than anesthesiologists. If you had the wisdom of Aquinas, you could decide who was right.
Mr. HYDE. Well, either that is reasonable or it isn't, and you have to get the best people you can to make that decision in the most unbiased way possible. I can tell you could make that decision. I think I could make that decision.
Mr. CAMPBELL. I would tell you what, Mr. Chairman. I would rather that than the present system. In the early phase of this bill—very early I talked with Chairman Pitofsky. I talked with him a lot on this and with your staff. I proposed a much more complex regime at first. You might remember my first visit on this. I proposed the Federal Trade Commission doing this, because the original idea of the Federal Trade Commission in 1914 was it would bring in experts who would administer complex areas of the economy and make wise judgments.
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But the way we have gone in our country, the degree of Federal Government supervision of detail that that would require, I think it is fair to say, would strain the FTC and we would have to create something quite new. And I would be scared of that degree of intrusion that would be needed.
Mr. HYDE. Without that, then, you have muscle deciding these cases?
Mr. CAMPBELL. You do.
Mr. HYDE. And that isn't too desirable.
Mr. CAMPBELL. Well, what we have today is muscle. And I have got muscle on my right arm, and I am trying to put muscle on my left.
Mr. HYDE. We need help from you two gentlemen. You are critical of Mr. Campbell's solution. Help us. Give us some ideas.
Mr. PITOFSKY. I think the answer is in the direction that you indicate. Now, I don't know all the details. I mean, I haven't seen a bill or a proposal. I share Tom Campbell's concern about continuing supervision by a Government agency over issues like that. That is a problem.
Mr. HYDE. Not supervision, but adjudication—an adjudicatory body without clogging up the Federal courts composed of people who deal with this subject who know a little medicine who have seen Gray's Anatomy and who understand—you know, who understand, even can read doctors' prescriptions. That would be the highest level of intellect.
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Mr. PITOFSKY. A good deal of that is in the proposed patients' bill of rights bills that are floating around. Whether it goes far enough, whether there are other ways to put it, whether compulsory arbitration is the right answer, I am not prepared to say.
I believe the answer is in the direction that you indicate. I do not think the answer is in an across-the-board antitrust exemption for doctors in every market, regardless of who they face in that market, regardless of how powerful they are, regardless of how much they are already making, regardless of whether their claim is they are doing it for their patients and not for themselves. That, in my opinion, as I said last time I was here is overkill.
Mr. CONYERS. Would the gentleman yield?
Mr. HYDE. Of course.
Mr. CONYERS. First of all, there is no antitrust provision exemption in the patients' bill of rights. I mean to tell us—I am on that bill, so I am going to send you another long letter, Chairman Pitofsky, about this subject because I don't think that takes care of the problem at all. If it did, I wouldn't be working with Tom Campbell.
Secondly, Mr. Klein's characterization of highway contractors trying to get equal bargaining power really fails when you talk about doctors. The doctors are the ones now that are not in an equal position. They are told what they can and cannot do; and if you don't like it, then you can't accept it.
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So, you know, this whole discussion kind of slipped off the slope a little bit, because that highway-doctors analogy really doesn't stand up. The doctors now are being pressured and one HMO may not be any better than another. So to tell them that they are five in the area, so not to worry, is not going to get it. And I thank you for the intervention.
Mr. HYDE. The thought occurs to me that private arbitration as distinguished from a governmental agency might resolve some of the questions that people have. But what we are looking for is a way to equalize the bargaining power of the HMOs and the providers, the doctors. And if we can do that with the least amount of governmental muscle, to use an inelegant word, I think we might be on the way to solve the problem. There is a problem we are making that progress and—there is an imbalance in the negotiating leverage doctors and the insurance companies. Okay.
Mr. BERMAN. Mr. Chairman, could you yield for 1 second?
Mr. HYDE. I will yield.
Mr. BERMAN. The subway—the highway argument I think is analogous, but we have an antidownward spiral protection in that situation where the low bidder gets the deal. It is called the Davis Bacon Act. I am just wondering if Mr. Campbell would like to extend Davis Bacon prevailing wage laws to cover physicians.
Mr. CAMPBELL. No, that is a great response and I had it coming, since I said that these guys were going to get rid of the union exemption. You can whack me over the head on Davis Bacon. You win.
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Mr. KLEIN. You know, when I was in the private practice of law, I went to lots of clients. There was no Davis Bacon Act then, and if you want to know about extending the practice of law as well, I went to lots of clients and they said you can work for this amount; or if you don't like it, you can do your work for somebody else.
And that is not unique to physicians, nor do I think if you look at the brutal facts that there is some enormous erosion of physician well being. I mean, I think that we ought to deal with the issues of what I see is intrusion into medical care, the inability, if I need or somebody in my family needs an appropriate medical intervention, to have somebody intervene and say, no, no, that is not medically necessary. Those seem to me to be nontrivial issues, but I think to try to engraft one profession at a time or one nonprofession at a time, an argument that says basically we ought to allow people to bargain through collective bargaining without going through the NLRB process and the NLRA process is just fundamentally wrong.
Mr. HYDE. I agree with you.
Mr. KLEIN. I know you do.
Mr. HYDE. I agree with you. But we are looking for the—the mediating agency that will listen to doctors and will listen to HMOs and listen to patients and help resolve this situation without turning antitrust law on its head, and so we need your help in that.
Mr. CONYERS. Final intervention, there is a lot of humor and a lot of anecdotes flying now, but medical care is a commodity, is a need, the practice of law—look, that is not on the same level, there isn't a national interest in making sure that you don't get a take-it-or-a-leave-it proposition from your client. Providing medical health at its best level for the American people is a national purpose.
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So to use a lawyer analogy in your private practice doesn't quite get it for the service that doctors produce.
Mr. HYDE. We have waited long enough to hear from Mr. Nadler.
Mr. NADLER. Thank you, Mr. Chairman.
I must start by observing that the suggestion that legal services aren't as necessary to the human condition as medical services could be taken as a comment on the existence and purpose of this committee.
Let me start by saying that I have always distrusted unaccountable and untrammeled power. I believe it is always dangerous. It certainly is clear to me at least that the HMOs have attained unaccountable power and they must be reigned in. That means either you do it by the exercise of Government regulatory power, and the Bill of Rights is an approach to that, I think, not an adequate approach but an approach to it; or you do it by creating countervailing power or perhaps by both.
And this bill, which I am a cosponsor of and I commend Mr. Campbell for offering it, is an approach to offer countervailing power, which to some extent would lessen the necessity if the bill were to be adopted of a regulatory authority.
Let me say also that antitrust enforcement is well and good. But having read the testimony of Mr. Klein, I don't believe that the world you are inhabiting is the world I am inhabiting because I don't see antitrust enforcement as having done anything at all to reign in the power of HMOs to ruin peoples health care or to dictate to the medical profession as they wish.
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And I also must say that I think, no aspersion on any current occupants to the Department of Justice, but antitrust enforcement the last 20 or 30 years has been a fraction of what it ought to be. And when we see in many different fields the kind of mergers and accusations and concentrations of power, I think that the antitrust laws interpreted by the courts and the Department of Justice in the last few decades is a very weak read to lean on to protect anybody.
Let me ask Congressman Campbell. There have been some criticisms or warnings about this bill such as that it could lead to pharmacy chains, Rite-Aid, getting together with Duane Reed and giving an edict on pharmacy privacy to HMOs as one warning.
There is another question regarding the ability of physician groups to exclude other groups such as the nurse anesthetists.
And to what extent would you be interested in amending the bill to fine-tune it for those kinds of examples? Now, let me just say before you answer that, in terms of excluding other groups, it is a danger; but on the one hand, I don't think that I think State practice laws ought to dictate what nurse anesthetists can do and what nurse practitioners can do and not the doctors—and the legislation I fought in those battles, in New York—and I know what a lot of other States have done.
But on the other hand, I personally wouldn't want a nurse
Anesthetist instead of an anesthesiologist in the operating room if you were undergoing an operation.
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How do you balance this? Do you think that this bill might be useful to be amending in some of these respects?
Mr. CAMPBELL. Congressman Nadler, we are on the same track. I would be very happy to take and work with you in any way to make the provisions more responsive to specifics that you think and others think we should on the two you suggest, but to the point, you bet I am open.
Indeed, a couple of suggestions have already been made that I am going to try to put forward should we have the opportunity to do so in a markup sometime, regarding right to strike, which was an issue that a number of people raised.
On the issue of a right to exclude, sure, I can understand how that might be a concern. Indeed, other antitrust provisions including McCarran-Ferguson, the antitrust exemption for insurance, make exceptions for boycott. And so right in there you have an exemption within the exemption. I think that is a distinct possibility.
As to pharmacy, I don't see it as necessary, but you know as we play this out if we get the chance, I would be more than open to that. But the example that you give at least at first blush would not trouble me; remember, the exemption is to the professional, the State-licensed professional, so there wouldn't be an exemption for Rite-Aid. There would be an exemption for the pharmacist, State-licensed person.
So that is one of the many hypotheticals that are simply not created by this bill, we do not create an exemption for Rite-Aid.
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Mr. NADLER. I appreciate your answer. And I would look forward, hopefully, to a markup on this bill and to send amendments. Mr. Chairman, can I have an additional minute?
Mr. HYDE. I am sorry. What did you say?
Mr. NADLER. I said could I have an additional minute, sir——
Mr. HYDE. Yes, you may.
Mr. NADLER [continuing]. Since I noticed the red light.
Let me make one observation and then ask something. I mean—let me representative—again, Congressman Campbell, given, not the current patients' rights bills that we had, but let us assume we had a stronger patients' rights bill—and by the way, perhaps the best way of dealing with the danger of the—of not a qualified medical anesthetist, there is to a tort law, but it is a separate question I won't raise here, because that raises questions in this committee—would you—why would you not think that a better or a more stringent patients' bill of rights would take care of the problems that we have?
Mr. CAMPBELL. It is a fundamental disagreement on philosophy of Government. How is that?
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Mr. NADLER. In that——
Mr. CAMPBELL. If we could anticipate all the problems that might occur in a contract relationship and specify them in advance in Federal law, then I would have more optimism about a patients' bill of rights. I thought you were right on the money when you said at the start, it is going to either be regulation or countervailing power.
My approach is countervailing power because it involves less Government specification of the precise details of the contract.
Mr. NADLER. Thank you. Let me ask either Chairman Pitofsky or Attorney General Klein. I have read the testimony of both of you—I wasn't here to hear it—and essentially what you said is essentially this will result in higher costs and will give the power to physicians to get higher costs.
Granted, I think that is undeniable, it probably will, and some of those costs will be passed on to the consumer, some of it will be eaten by the HMO, by what percentages who knows.
It was alluded to before by Representative Campbell what I thought was a very good example. He said that when an HMO comes in and says that you have to see 15 patients an hour or 7 or whatever, that has to impact on quality of care. And I think anybody who has really looked at what is going on knows exactly that is what happened, is HMOs say you have got to see X number.
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They set it up in such a way in order for the physician to break even or make a reasonable living, he has got to see more patients per unit of time than he probably should in many cases or then—or then can be handled—to give it proper examination and care to.
If we don't have a bill like this, how would you deal with that situation? How would you make sure that aside from the fact of malpractice lawsuits that physicians just aren't forced to deal with cases too rapidly, in too much haste?
Mr. KLEIN. Well, I think to some extent it is going to be a variety of ways to deal with it. One thing, this happens now and physicians tell their patients that this is not a workable system, and patients switch insurance programs. You can't just simply——
Mr. NADLER. Excuse me. Do you think most patients can switch insurance plans, or are they forced by the employers—they have a choice, one or two or three, which have the same problem?
Mr. KLEIN. I think it will depend on the circumstance, Mr. Nadler. But I will tell you that their employers are not simply going to buy programs that don't work. It is not in their interests; it is not in their patients' interests.
Mr. NADLER. Please.
Mr. KLEIN. You see this happen. I have investigated these things. I understand your skepticism, and I have a certain amount of skepticism myself. And we have done intensive investigations.
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Mr. NADLER. Excuse me. So your answer is, in effect, that the workings of a free market that employers' choice of health insurance will solve this problem?
Mr. KLEIN. It is one piece. I do think you need a strong patients' bill of rights; I think that is true, too. But, you know, the free market in general with effective antitrust enforcement—Mr. Campbell has said have we brought any cases involving abuses by HMO and so forth. We have.
There are most-favored nations clause cases where HMOs have tried to lock in with their providers, and we have not let them affiliate with their other plans because we were worried about that. We brought a case in Michigan, and we brought the Aetna case—we prevailed just yesterday. We sued on that case and secured a large divesture in that regard.
And I think the AMA itself—the AMA announced that what we did was good for patients in America, because we sent the signal that we are going to watch these concentrations. And I am concerned about the amount of concentration in the area and that is why we took the case.
Now, I don't think that necessarily the free market solves all problems. And I think at the beginning both Chairman Pitofsky and I said there are issues here that deserve scrutiny; however, you don't want to find a solution that is going to make the problem much, much worse, increase health care costs, allow every physician in the State to form a single bargaining unit and say take it or leave it to——
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Mr. NADLER. Wait a minute. I thought this bill does not permit every physician in the State to form a single bargaining unit; it specifically limits it within an existing HMO?
Mr. KLEIN. Even if it was in a city, there is no limit on anything. In other words, suppose all the people in New York City, all the doctors in New York City got together with the New York City Medical Association and said here are our rates, take it or leave it.
Mr. NADLER. Representative Campbell, could they do that under this bill?
Mr. CAMPBELL. No, they could not. The antitrust exemption is limited to the bargaining relationship. New York City does not have an HMO.
Mr. NADLER. Mr. Klein, why is that not a good answer to what you just said?
Mr. KLEIN. I don't understand the—in other words, all the doctors talk to each other and say here is our rate. You have to hire somebody, and they go and they say——
Mr. NADLER. Wait a minute. If it is limited to the bargaining—to the specific bargaining unit, and the Aetna physicians decide they want to charge X and that is what their talking to Aetna about and the PruCare physicians decide they want to charge Y, and they charge that—you know, they talk to PruCare about that—that is this bill.
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If the two of them get together and talk to each other and decide they are both going to offer Z, that is an antitrust bill under this bill, no?
Mr. PITOFSKY. May I ask a question? Let us assume all the doctors in an area get together. They don't have any problem with the antitrust laws, and they say we are entitled to 10 percent more. They go to the first HMO and they say we want 10 percent more, the second and the third and the fourth. Can that happen?
Mr. CAMPBELL. No. I am happy to yield.
Mr. NADLER. I yield to the gentleman.
Mr. CAMPBELL. In other words, make it happen so I can talk directly to Bob. No. Two answers: the antitrust exemption is limited to the bargaining unit, and in your hypothetical, just literally your hypothetical, the doctors agreed first that this is what they would do, and then they sought it in the individual contract. Secondly, the reason I made this bill pick up the antitrust exemption of labor is to pick up with it all the case law, and part of that case law deals with the use of the bargaining relationship, the phrase from Allen Bradley is ''cat's paw''—as the cat's paw to effectuate a price fix beyond the scope of just the bargaining relationship. And the antitrust exemption for labor is well developed in that field not to permit that.
So two answers, one, the words of the statute that I have drafted explicitly limit it to the bargaining relationship. And two, the case law that I import by reason of using that reference to the antitrust exemption for labor also restricts that case.
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Mr. KLEIN. Let me, if I can, respond to that because if I understand it, I don't see how it solves the problem. There are now in New York City all of these doctors that belonged to Aetna, that belonged to United, that belonged to five or six or seven or different HMOs. They all do. All right? They all call each other and, as I understand it, they say our price for pediatric care or for cardiac surgery is 20 percent higher, so they then—that is all the people——
Mr. NADLER. I am sorry. Whose price, the price that I charge to Aetna is 20 percent higher than the price I charge to PruCare?
Mr. KLEIN. No, Aetna says we will offer you X; they say we want 20 percent higher, or we won't work for Aetna. Aetna says, okay, either, yes, we will give you your 20 percent or no. If they say no, all of these doctors now leave Aetna. They then call whoever the next one is, United, and then they do the same deal, and then they do the same deal. They either get a uniform 20 percent raise or they don't. It is not as if a group of doctors——
Mr. NADLER. Wouldn't that be, even under Mr. Campbell's bill, a violation of antitrust bill?
Mr. KLEIN. I don't believe so.
Mr. NADLER. He is saying it would.
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Mr. KLEIN. How would it be? They are each in the same bargaining unit.
Mr. NADLER. Because their exemption from the antitrust law is limited to the one unit.
Mr. Campbell, Congressman Campbell, let me ask you the following: I think what the Attorney General is driving at is that if I am a doctor, if Mr. Scott and I are doctors affiliated with Aetna and we are also affiliated with PruCare, and even though it is limited to the same bargaining unit so the two of us along with our friends decide we want 20 percent higher at Aetna, we also want 20 percent higher at PruCare, so we can say it to both, and we are both in the bargaining unit, so in effect we can say it to everybody and therefore your protection breaks down.
Mr. CAMPBELL. No, because the identity of the two groups is not the same. You have an antitrust exemption only insofar as you are negotiating with Aetna. You have an antitrust exemption only insofar as you are negotiating with PruCare. But Assistant Attorney General Klein's example tries to draw upon the opportunity available in organized labor where you have a union broader than the individual bargaining unit, and where the union engages in what is called pattern bargaining and that is what the UAW does to auto and the steelworkers to big steel.
Mr. NADLER. And as a practical matter, I note—I am affiliated—I am a cardiologist. I never wanted to be, but I am a cardiologist for the moment, and I am affiliated with five different HMOs, and I am affiliated with five different bargaining units, the PruCare Association, Aetna Association, so forth; and I go to all meetings, and at each meeting I say we demand a 20 percent increase. There is nothing wrong with that under your bill? Second of all, do you think there isn't anything wrong with that, period?
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Mr. CAMPBELL. There is nothing wrong with it under the bill, and there is nothing wrong with it as long as it is you, individual Dr. Nadler.
Mr. HYDE. The gentlemen's time has long since expired.
Mr. NADLER. Thank you.
Mr. HYDE. Mr. Rogan.
Mr. ROGAN. Mr. Chairman, thank you. I thank you for calling this hearing. I especially want to thank and commend my colleague from California, Congressman Campbell, for continuing his tradition for offering totally noncontroversial legislation. [Laughter.] Let me apologize to all of the parties for having missed part of the questioning. I had a bevy of constituents come to visit with me, and all of you know that priorities do exist. I did try to listen to all of the opening statements and as much of the questioning as I could.
My apology is offered in the event that one of these questions was asked previously, and, if so, please let me know and I will refer to the record, rather than make you answer it twice.
First, to my friend, Congressman Campbell, some of the testimony indicates that physicians are currently free to band together in group practices and negotiate directly with employers if they are unsatisfied with the insurers' offer. If that is the case, why are the current guidelines from the FTC and the Department of Justice insufficient?
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Mr. CAMPBELL. Because they require the integration of those medical professionals into a business. And face it, some doctors are good businesswomen and businessmen and some are not, but most of them decided to be doctors, not business people. The antitrust exemption allowed by Justice and FTC guidelines apply only if the doctors integrate and offer themselves as though they were an HMO.
Second, and last response, the Justice and FTC's exemption is by their exercise a prosecutorial discretion. They cannot immunize from a private lawsuit. So even if you fit into the guidelines of Justice and FTC, if the bargainer on the other side of the table thinks that you are violating the Sherman Act, you are at risk.
Mr. ROGAN. As I was listening to the questioning from the gentleman from New York, it appeared that the difference of opinion between Assistant Attorney General Klein and Congressman Campbell had to do with how the gentlemen were interpreting or defining this idea of one unit.
Congressman Campbell, will you elaborate as to why you felt it would be a violation of antitrust? And then I would like to ask Assistant Attorney General Klein why his interpretation is different.
Mr. CAMPBELL. The exemption applies only to the bargaining relationship. It does not extend beyond the bargaining relationship. And if I have failed in not making that clear in my draft, that is something we will certainly make clear and can make clear. But I do think that the draft is clear. The bargaining relationship is where the antitrust exemption exists.
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Of course, I understand and respect my colleagues' differing points of view, and I think it is fair to say that I know their argument. And I think their argument is nevertheless, if I can make it—Mr. Klein can make it better than I for his own side—but I would think he would say, nevertheless, ''look out because if all the doctors in Manhattan choose to have an identical set of terms and then go to each of several bargaining relationships, the results will be the same.''
And my answer is, you violate the antitrust laws the moment all of you doctors in Manhattan make this agreement, make this plan of action; that that is not exempt from the antitrust laws; and that is the predicate necessary for his hypothetical.
Mr. ROGAN. So as I understand it, your limitation would only apply as those doctors are negotiating with one particular——
Mr. CAMPBELL. That is correct.
Mr. ROGAN [continuing]. Insurer?
Mr. CAMPBELL. That is right. It is only at that bargaining relationship.
Mr. ROGAN. Mr. Klein, does that explanation satisfy you?
Mr. KLEIN. It doesn't, but it may just reflect my denseness. As I understand the problem, let us just say that there are five managed-care organizations in Manhattan, and let us say I am in four and Chairman Pitofsky is in three and you are in three or something like that. I take it all of us who were dealing with the first group can get together and agree how to fix our price with them, and let us just say we all were cardiac surgeons, we all say we want $2,000 an operation.
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Now we go on to managed care two, a separate plan. It may not be the exact same docs, but it would be mostly the same people, if it is a large managed-care plan; and in any event, they say the last guys got $2,000 a pop; we would like $2,000 a pop. Then you do it on number three and number four.
Now, I don't see how that would be an antitrust violation under this statute, because each, quote, bargaining unit could set its own price, but it would—since I would be in more than one HMO, I would know exactly the price we set for the last one and the last one. So I think what you will see is price standardization.
Mr. ROGAN. Mr. Chairman, may I ask unanimous consent for 1 additional minute to ask questions.
Mr. HYDE. You may. And without objection, so ordered.
Mr. ROGAN. Thank you, Mr. Chairman.
Congressman Campbell, does it become really a question of form over substance if that—if that is the case? If in fact there are only a few HMOs within a geographic area, if the doctors specify that we are only going to get together as we talk to each HMO individually, it doesn't sound like it would be an antitrust exemption. But if they, in fact, were planning on just taking this to all three of the HMOs in the area as Attorney General—Assistant Attorney General Klein is positing, then it would be—does that just essentially inoculate a group by just picking the proper words of the agreement before they proceed?
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Mr. CAMPBELL. No. The HMO, you can be sure, will sue the bejeebers, a technical term of antitrust law——
Mr. ROGAN. Latin, I believe.
Mr. CAMPBELL. Latin, indeed. Res ipsa loquitur. The HMO will sue the bejeebers out of any doctors that do that and the threat of them doing that should, I think, be quite adequate to deter it. The reason for the confusion or the good faith disagreement, which is perhaps a more fair description, is that in the bill that I provide there is no creation of an international labor union.
And so the pattern bargaining, which, again, I repeat is the example that Assistant Attorney General Klein is suggesting, is drawn from organized labor. They have a broader exemption than I am providing in this bill. So when UAW goes from Ford to Chrysler to G.M., and steelworkers go to the other three equivalently, they are exercising rights protected under the National Labor Relations Act which are not created for doctors.
What I am doing is narrower. It does not permit the pattern bargaining. It creates an antitrust exemption only in the context of this bargaining relationship. As to—I am glad I have elicited such response, but before I hear it—and the fundamental difference, the fundamental difference is that the HMO on the other side you can be very sure is going to be suing, threatening a Sherman section 1 action against any example of such pattern bargaining.
Mr. KLEIN. Let me just make one point why I think the analogy is flawed. It is not a question of international versus local unions. It is a question of one doctor being in multiple plans, and when this doctor, this cardiac surgeon, is in plan one, and she negotiates with her colleagues in plan one a $2,000 rate, she cannot forget what that rate is when she is in plan two. So it is the multiplicity of plans that each doctor is in which will drive the uniformity of rate. If you had hermetically sealed plans, closed panels, pure and simple, and then you proved that the doctors were communicating with each other outside of the plans, that might raise a section 1 issue. But that is not the appropriate model given the huge dominance of open-panel plans in the area. So you can't avoid this problem, I think.
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Mr. ROGAN. Thank you, Mr. Chairman.
Mr. HYDE. The gentleman from Virginia, Mr. Scott.
Mr. SCOTT. Thank you, Mr. Chairman.
I would like to ask Mr. Campbell a question. We have heard questions asked about how certain groups can be excluded, how minority physician groups have traditionally been excluded from participation sometimes in an HMO, sometimes in hospitals. This concern is somewhat exacerbated by the fact that you also introduced legislation last year which undermined affirmative action programs.
What can you say to minority physicians to satisfy them that this will not be used as a tool to further exclude them from participation?
Mr. CAMPBELL. The bill is patterned on the antitrust exemption for labor. It is not as broad as the antitrust exemption for labor, and no labor union—and there is settled case law—under their antitrust exemption and under their labor act exemption can exclude on the basis of race.
Mr. SCOTT. Should we assume the exclusion by race will be the same as in labor unions because there are some unions that have been very troubling in their willingness to accept minorities?
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Mr. CAMPBELL. We can assume that nothing in this law creates an opportunity for racial discrimination. And we can also assume that the labor unions as to whom you and I may have suspicion of racial discrimination are not doing so under color of their antitrust exemption. In other words, there is nothing in this bill that would create that.
Mr. SCOTT. Would this bill give them an extra tool to discriminate if they want to discriminate?
Mr. CAMPBELL. No. Truly no more than to say that they would be facilitated in this bill in a criminal conspiracy, for example, of fraud or a criminal conspiracy of income tax evasion or a criminal conspiracy of any other nature.
I also might draw your attention to the fact that I introduced a bill to criminalize intentional title 7 violations. In other words, I think that people who violate title 7 intentionally should be treated as criminals.
Mr. SCOTT. Did that pass?
Mr. CAMPBELL. No, sir, it did not pass.
Mr. SCOTT. Mr. Pitofsky, your analysis has focused on the fact that physicians are running businesses. We have information that about 56 percent of physicians now are actually employees of one insurance company or another, and with the HMOs developing an increasing market share and the economics of sole practices becoming more difficult, we would expect the number of employees to go up. In some areas only one or two HMOs can so dominate the market that their contract, which may be pervasive, and fees, conditions, and terms of practice, that they actually become essentially employees. Would that change—if you considered the physicians as employees rather than businesses, would that change your analysis?
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Mr. PITOFSKY. Yes, if under the criteria that have been applied consistently to all over the years the physicians were employees, for example, employees of hospitals, then they don't need this antitrust exemption. They already have a labor exemption.
Mr. SCOTT. If there are—if their offices are out—they are actually in private practices, but the terms and conditions of these contracts are such that they are de facto employees, would that make a difference?
Mr. PITOFSKY. I would like to get some statistics for you on the percentage of individual doctors that are with insurance plans. Most of these doctors, you could characterize them as employees of HMOs. But I think that would account for perhaps 20 percent of their business. The other 80 percent of their business is done fee for service, or is done in other contexts. So I do not think that individual doctors in their own practice can be called employees of an HMO. I think it is a stretch, and it is a stretch that we have not applied to anybody else in our economy.
Mr. SCOTT. Thank you. Mr. Campbell, on your—what you have passed out, there is one little troubling aspect of this. You see what happens to the HMO. You see what happens to the physician. What is in this for the patient?
Mr. CAMPBELL. The purpose of the illustration was that the patient in this context where there is only one HMO remains the same, that the conditions as to the patient are always going to be determined by the competition alternative that patient has. If not this HMO, who else is going to offer you the provisions of health care insurance that you are looking for? And if the answer is already an HMO as a monopoly, the fact that that monopoly HMO is facing—is in a monopoly position regarding the doctors or a competitive position regarding the doctors makes no difference to their treatment of the patients.
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Mr. SCOTT. Mr. Chairman, I would like to set a new precedence out of consideration of my colleagues and not ask for additional time.
Mr. HYDE. Well, I don't think the Chair is going to permit that. The gentleman's additional time is thrust upon him.
The gentleman from North Carolina, Mr. Watt.
Mr. WATT. He said since you insist.
Mr. HYDE. Time is up.
Mr. WATT. Thank you, Mr. Chairman. I thank Mr. Scott for being cognizant of the other people on the committee who still haven't taken a shot at this. Unlike some of my colleagues on the committee who come to this hearing today as cosponsors of this bill and, therefore, obviously have already made up their minds about it, whether it is a good idea, my jury is still out. I am not yet a cosponsor, although a number of people have asked me to consider cosponsorship. Today's hearing is especially important because it gives me an opportunity to evaluate the arguments.
I have to say, Representative Campbell, you are losing at this point with me. I am concerned about some of the provisions. Let me talk about what I hear from physicians, and before I came to Congress, I had a very active legal practice where I represented a number of physicians, primarily minority physicians, so they would have a good entree to really push me on this bill if they so chose to do that. What I hear them saying is that they have a number of concerns with where we have evolved to. One is that they—the profit that they used to get out of the practice of medicine is now being taken by the management people, the HMOs of the world, and they have been squeezed, and they can't make as much money as they used to make.
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I see how your bill addresses that issue. I see it very well. I see it in the illustration that you handed out as between physicians and HMOs, the distribution of the profits or the monies that come out of the provision of medical care under this bill would be shifted and rearranged.
The second complaint I hear from physicians is one on behalf of patients, and that is that they don't have the power in consultation with their patients to decide what medical care is necessary anymore because they are constricted by all of these contractual arrangements and limitations and peer reviews and the gatekeepers of the world, and I don't see anything in this bill that addresses that issue. Now, maybe—I am not saying that is bad or good. I just want to give you an opportunity to tell me what it is here that addresses that particular issue, and if that issue is addressed, how that is not going to drive up the cost of medical care as opposed to effect some redistribution of how it was already in the payment system as being distributed between management and labor so to speak, HMOs and physicians. Can you—if you can kind of set me at ease about that, I might get back to a level playing field here in my decision about whether this is a good idea or not.
Mr. CAMPBELL. I take your words very candidly. I will start with a word of thanks. If all of my colleagues told me exactly where they were, I would be a whole lot better off. I think the system would, too, so thank you.
Here is the answer that I best can give you. You are right, compensation of doctors is part of this, but also, and I——
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Mr. WATT. I should say I like that part of it. I would rather the doctors get it than the HMOs if I could be assured that it wasn't going to ultimately increase the price to patients, and that both doctors and HMOs are getting more out of the hides of the patients.
Mr. CAMPBELL. I am going to urge you—I am going to stay around, although I understand that there is a lot of expertise at this table. I have never claimed to know anything specific in the medical field except what I have learned in preparation for this, and I think the same is true for my colleagues on this panel. If we listen to the next panel, here is what I believe we will hear, but the evidence will tell—if it is not there, it is not there—but I believe the evidence will show that there is an intimate unavoidable relationship between compensation and quality of care, and the bill itself doesn't say anything about compensation. It just says bargaining. It says you are allowed to have an antitrust exemption to bargain. You, Doctor, have an antitrust exemption for bargaining on the terms and conditions of your relationship with the HMO.
Mr. WATT. I would have to say that is not very persuasive to me. I don't know many labor unions in their bargaining process———
Mr. CAMPBELL. I wasn't quite done.
Mr. WATT [continuing]. That bargain about the quality of the product that is being produced and sold to the public as opposed to bargaining about the quality of what goes into their pockets at the end of the day.
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Mr. CAMPBELL. Let me try. Again, I think the best thing to do is to hear the experts and ask exactly that question of the medical doctors and other health care professionals. But the example I started with is a classic one. The HMO says, we are going to give you a lower compensation if you offer kidney dialysis to patients over 70. Now, that is a term of compensation. Hence, if two doctors were to agree about it, they would be in violation of Sherman Act, section 1, and yet it directly relates to quality of health care. Or here is your capitation rate, take it or leave it. And I know that I can't pay my rent if I don't take 15 patients an hour at that capitation rate.
So that is why I consider them inextricable, and maybe it is true that this is a little unlike many other conditions of bargaining. Maybe General Motors cars would be the same if they sped up the line or slowed down the line, but I wouldn't push that too far. I bet that you will find the terms and conditions of how a good is made affect the quality of that good, and it is certainly true in this case.
Mr. HYDE. The gentlelady from Texas.
Mr. WATT. Thank you, Mr. Chairman.
Mr. HYDE. Thank you.
Ms. JACKSON LEE. Thank you very much, Mr. Chairman. I thank the panel very much for its presentation this morning, and I am delighted that I was able to hear some of the very poignant questioning of my colleagues which would help me overcome not hearing your provided testimony this morning. I apologize for being in another meeting.
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But I do want to offer some thoughts, and I happen to be someone who is inclined to be supportive of this legislation, but with qualifiers, if I might.
My view of the science of health care and medicine today is that it is excellent. My view of the quality of service of health care is that it stinks. I come from a district that edges on the Texas Medical Center, of which I am extremely proud, and therefore encounter a number of physicians both in private practice and those in public service or governmental health institutions. But what I encounter most of all are senior citizens who cannot get appointments, individuals who are either without health care or minimal HMO care of which they are denied service, tragic stories of turnarounds or turnaways from emergency rooms. And of course, I may be now describing why I am in support of the patients' bill of rights.
But I think there is something else that runs through this theme is that power abuses. First it is the HMOs, and the question becomes are we setting up another power entity that may be abusive. I remember some years ago talking to the medical profession in Texas, and we were, if you will—were priding ourselves that we had not yet been captured by the scent of HMOs, and I don't say this to be offensive. We had watched our eastern sister New York being almost—well, let me just say it—swallowed up literally with seemingly very talented physicians being almost denied their expertise because they were swallowed up by HMOs. We see that that is now in the past, and HMOs are fast consuming Texas. I am delighted that the Department of Justice has awakened to that and will hopefully be assisting us in addressing that concern.
So I raise these questions, Mr. Campbell, and to the Chair of the FTC and as well to the Assistant Attorney General. First of all, help me understand—and you may have said this earlier—why two or three doctors could not set fees that would then be the basis of a whole group of them accepting, and that these fees could not be enormous fees. Let me share these questions, if you might, and then I would appreciate your answers to them. And I say that with the utmost respect for our physicians and as well being very sympathetic to what many have been said in my offices both in Houston and here about what is hindering them from performing at their best. And I want them to perform at their best because I know the miracles that they can do along with other support systems. And I want them to be able to have more than 15 1/2 minutes per patient. I want them to be paid for the quality of work that they do, albeit that may be a different approach from the universal access. I want people to have good care.
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The other thing is a certain constituency base of which my district has a huge number, seniors, what does that do to people on fixed income if their physicians are in this body of group that may set prices that detrimentally affect seniors? What does this do to hospitals in terms of their ability to provide care, because if they serve a certain base of people—and you may be answering this to say it does not relate, but a certain base of people, fees are at a certain rate, these folks have no way of meeting that, so they lose doctors. Care in hospitals is already enormously costly, and they have some problems that they have to address. And then the overall impact that it may have ultimately on the quality of care. I would greatly appreciate if you could respond to those series of questions that bear a lot on how this legislation would translate into good health care.
Mr. PITOFSKY. I will just respond to one point. First of all, I agree with your concern about quality of care, about seniors. I think we are all in the same place there. The only issue is whether this bill is the right way to address those concerns.
On the issue that has sort of come into play and then moved out of play several times, if doctors can negotiate and get more money, is it likely that employers and patients will pay more? Is it likely that there will be more uninsured people in this country? I think the answer is you have got to assume if the doctors are going to get more money, the money is going to have to come from somewhere. The argument that it comes from the HMO profits seems to me odd since in 1997 the HMOs as an industry lost money. In 1998 they only broke even. Just think of this parallel. Doctors make more money in New York than they do in southern Texas, and therefore insurance costs more in New York than it does in southern Texas. If we raised the income of doctors throughout the country, will we not raise the cost of insurance throughout the country, and as a result will we not find that more people are uninsured, or if they remain insured, they or their employers will pay more?
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Mr. HYDE. The gentlelady's time has expired.
Ms. JACKSON LEE. Mr. Chairman, I really would like an answer from Mr. Campbell and the Attorney General. It really is important to me, and I would appreciate your indulgence.
Mr. HYDE. Very well.
Ms. JACKSON LEE. Thank you, Mr. Chairman.
Mr. CAMPBELL. Thank you.
Ms. JACKSON LEE. Congressman Campbell, thank you.
Mr. CAMPBELL. You bet, my colleague and friend.
You asked about seniors, you asked about hospitals, you asked about higher fees. On hospitals, already hospitals are subject to labor law, so medical professionals can already organize and bargain, and they have the applicability of the antitrust exemption; thus there should be no change as to hospitals on this bill.
As to seniors, one of the greatest complaints you will hear from seniors, and I know you listen attentively to the seniors in your constituency, is that they do not get access anymore, that they are in and out very quickly or they are not seen by the doctor, that there is a tremendous flaw in the present delivery of health care by HMOs.
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Lastly, my answer to your question about fees is that fees and quality are inextricably related. If the HMO is not providing the service to the senior right now because the doctor cannot make ends meet seeing a senior because it takes too long, then quality of health care is suffering, and the premise that we must accept any change in the fees to doctors as a negative implies that fees are just perfect right now, and they reimburse doctors sufficiently that they can take care of seniors and other particularly vulnerable groups, and that simply is not the case. They are not.
Ms. JACKSON LEE. Attorney General, can you just deal with the hospital question and the question why would the HMO have to pass the cost on to the consumer? Why can't they just pay these doctors?
Mr. KLEIN. The reason, as I think Chairman Pitofsky mentioned, Ms. Jackson Lee, is right now these HMOs, we studied this, are not making monopoly profits or any huge profits. Last year as an industry they broke even. The year before they lost several hundred millions of dollars.
Ms. JACKSON LEE. They could fool me.
Mr. KLEIN. It fooled me, too.
Ms. JACKSON LEE. I appreciate that data, too. Thank you.
Mr. KLEIN. These are data that are available from Best Aggregates and Averages, which is industrywide——
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Mr. HYDE. The Chair wishes to announce that we are going to have to secure this hearing at a quarter to 1. We have a lot more witnesses to go, and I don't want to shut anybody off from asking questions, but I just want you to be guided by the time constraints we have. I have been overly generous with everybody. Use up the 5 minutes asking the questions, then get another 5 while they are answered, but that really impinges on our ability to hear from everybody. So I just make that prayer.
Ms. JACKSON LEE. Thank you.
Can you wrap up?
Mr. KLEIN. I think what would happen is the lion's share of these additional fees would be passed on to employers and consumers. That is why it would drive people into uninsured positions and really exacerbate the problem of the least fortunate, I believe.
Mr. HYDE. Ms. Waters.
Ms. WATERS. Thank you very much, Mr. Chairman. If I may, the criticism of H.R. 1304 is that it may lead to a group of medical doctors or to fix prices, thus the patient would be forced to choose between expensive HMOs or expensive private doctors. I would like to kind of get some response to that allegation.
As I understand it, before we got into the HMOs, there were some questions about practices of doctors and their billing, and it led to this proliferation of HMOs, and now we have got HMOs who in the interest of saving every nickel is denying services and forcing doctors to respond to accountants. So would you please respond to this criticism of possible price fixing?
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Mr. CAMPBELL. The ability of an HMO to extract a profit depends on competition that the HMO faces in providing the care to the patient. And where there is a single HMO, they are going to rip off the consumer maximally. Where there is a competitive number of HMOs, they can't. The criticism of the bill is that it will empower medical professionals. It does—but only in their dealings with the HMO.
I distributed this as a graph hoping to demonstrate my point. The medical professional deals with the HMO. The HMO's ability to affect the patient is in the downstream market. The HMO's relationship as to the doctor is the upstream market. What this bill does is allow the doctors and the HMOs to bargain with equal bargaining power. The consumer relationship to the HMO is unchanged. Now, whether the HMO is able to pass along any higher cost to the patient or whether it will have to eat it in terms of lower dividends to their shareholders, depends entirely on how many HMOs there are and what their terms of competition are. And lastly, the relevant measurement is quality per dollar. All of us agree with that.
Ms. WATERS. Just let me, if I may. I understand that. If the doctors are dissatisfied, if they can't reach agreements, what do they do?
Mr. CAMPBELL. They——
Ms. WATERS. What can they do?
Mr. CAMPBELL. They refuse to sign the HMO's take-it-or-leave-it contract. Under existing law, they then will be told to leave it because that is the only game in town in many instances. Under my bill, they will be able to say not only, I say no to your take-it-or-leave-it deal, but so does the other ophthalmologist in the town.
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Ms. WATERS. So if there is no agreement, if they don't sign agreements, what does that mean?
Mr. CAMPBELL. They can care for patients directly. There were doctors before there were HMOs.
Ms. WATERS. That is what some of us like, fee for service. We like fee for service. Some of us like it better than HMOs, but if doctors are in this HMO situation that does not work out, how do they return to fee for service when they are saying they can't make it?
Mr. CAMPBELL. The patient and the doctor still can strike their own deal. The situation arises because the HMO is offering a deal that the doctors wish to sign. If they don't wish to sign, they can still deal with patients.
Ms. WATERS. Well, that does not really answer the question for me. Maybe we can talk about it a little bit later on.
Let me just say this before I complete, that most of us like fee for service, and we like people having choices, and we wish that we could be in an environment where doctors could provide services. We don't like being forced into the HMOs. We don't like even the way doctors and others may be treated in the HMOs. But what I don't understand is how the doctors are going to provide fee for service when they can't make it. They can't make their offices work. The patients don't have the source of revenue to be able to do this. I don't understand how they go back if, in fact, the reason they are with the HMO is because they can't run these practices. And you are going to have to help me with that. You can do it a little bit later on.
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Mr. CAMPBELL. It will just take a second, if you will give it to me. Under the existing law the HMO tells them take it or leave it, so they are generally beaten into submission. What I am trying to do is to change that. What I think is going to happen is not that people are going to walk away, but there will be a new contract reached with the HMO, and it will be one that will allow the doctor to have more opportunity to practice medicine on behalf of the patient than doctors presently get to because of the terms of the HMO.
Ms. WATERS. Thank you.
Mr. CONYERS. [Presiding.] I am pleased now to recognize the gentleman from Massachusetts for 5 minutes.
Mr. DELAHUNT. Well, thank you, Mr. Chairman.
Mr. CONYERS. You are more than welcome. I like that term.
Mr. DELAHUNT. This is the way it ought to be.
Mr. CAMPBELL. I am troubled about this development.
Mr. DELAHUNT. It is interesting today, and I think it was Chairman Pitofsky who said we are all concerned about quality care, and we are talking about antitrust in this context, which obviously goes to the issue of competitiveness and economic efficiency. And this vehicle that has been proposed by my friend from California, I think what the proposal does say is that we have a pie, if you will, full of health care dollars, and because our paramount concern ought to be quality of health care and not economic efficiency in the area of health care, we would prefer to have physicians making medical decisions as opposed to HMOs or insurance health carriers. Is that—am I kind of there?
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Mr. CAMPBELL. Yes, at risk of reading me out of the Chicago school. This is a serious embarrassment for me.
Mr. DELAHUNT. I didn't mean to embarrass you.
Mr. CAMPBELL. Only if they would ever take my degree away. Yes, I think you are right. Health care is not the same thing as steel and autos. I think that is right, even though there is a lot we can learn from the free market.
Mr. DELAHUNT. Of course, the Chairman and Mr. Klein would suggest that the answer is the patients' bill of rights; or something that is crafted, that is thoughtful, that allows the remedies or the, if you will, the insurance policy, no pun intended, of a well-designed patient bill of rights.
Mr. PITOFSKY. Exactly so.
Mr. DELAHUNT. And I concur with that. You know what I believe the real problem is is that the pie isn't big enough. I mean, back in 1997, we reduced the projected spending for health care in this country, and let's face it, let's be really candid. It is Medicare funding that drives reimbursement rates, and that is the role of Government. So it is the role of Government that in many respects dictates the marketplace, and here we are now. We are seeing the consequences of what we did in 1997. I voted against that budget because I knew that someday, I would have hoped later than sooner, the quality of health care in America would decline. I haven't seen any data. I am not sure, but anecdotally from what I am hearing, and from what I am feeling, and from what I am experiencing, the reality is that the quality of health care in America is declining because this institution, this Congress, made a decision that we were going to spend less on health care.
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Well, we can't be talking about the quality of health care and spending less money. You can't buy it on the cheap. And that is why, in my opinion, we find ourselves in this conundrum, and now we are talking about a budget resolution that makes an additional 800 billion in tax cuts over the next 5 years. I mean, we are going to have more and more of these discussions. I have got to tell you, my district is losing community hospital after community hospital. It is not economically efficient, but the people in the city of Quincy are on the verge of losing their community hospital today because we are spending less money, and what I suggest is that our national priorities need to be reviewed. I appreciate what you are trying to do, Tom, but I think the pie is just too darn small.
Mr. HYDE. [Presiding.] I thank the gentleman and I thank this panel for their contribution and their endurance and persistence. We will be back in touch. I know you fear that, but we will.
Our third panel consists of eight witnesses with various perspectives on this bill and the health care industry. First we have Dr. Edgar Anderson, the executive vice president and chief executive officer of the American Medical Association. Dr. Anderson is a graduate of Louisiana State University and its medical school. During his distinguished career he has been Surgeon General of the Air Force, dean of the University of Missouri at Kansas City Medical School, and chief executive officer of the Truman Health Center in Kansas City. He is board-certified in family practice, preventive medicine, and dermatology, and he continues his practice while serving with the AMA.
Next, Dr. Gary Dennis, president of the National Medical Association. He is a graduate of Boston University and the Howard University Medical School. He is currently an associate professor of neurological surgery at Howard Medical School and chief of the division of neurosurgery at Howard's hospital. Dr. Dennis is active on numerous professional boards and committees, has published articles and spoken on many medical and public policy topics.
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Next we have Dr. Robert Weinmann, president of the Union of American Physicians and Dentists. Dr. Weinmann is a graduate of Yale University, Stanford Medical School, and San Jose State University Business School. After serving in the Army, Dr. Weinmann practiced neurology in California for many years. He has written and spoken extensively on medical issues as well as related public policy issues.
Next we have Ms. Holly Henry, the legislative chairperson of the National Community Pharmacists Association. She is a graduate of the Washington State University College of Pharmacy. She served 5 years as the executive assistant director of the Washington State Pharmacists Association before entering the business herself. She is now the co-owner of Medicine Ladies, which operates four pharmacies in the Seattle, Washington, area. She has been active in a number of public policy issues on behalf of NCPA.
Next, Dr. Donald Young, chief operating officer and medical director of the Health Insurance Association of America. Dr. Young is a graduate of the University of California at San Francisco Medical School. He is board-certified in internal and pulmonary medicine, has had a distinguished career serving as the deputy director of the Policy Bureau of the Health Care Financing Administration, medical director for the American Lung Association, executive director of the Prospective Payment Collection Commission, and senior vice president of the American Assessment Commission and senior vice president of the American Association of Health Plans.
Next we have Mr. Bill Jones, president and chief executive officer of Materials Transportation Company in Temple, Texas. Mr. Jones is a graduate of Mary Hardin-Baylor University and the University of Texas Business School. After a tour in the Army, Mr. Jones joined MTC, a steel fabrication firm, and has been with the company ever since. Mr. Jones is active in a number of civic and charitable affairs and is fresh from the battle over similar legislation in the Texas Legislature. He appears here today on behalf of the United States Chamber of Commerce and the Antitrust Coalition for Consumer Choice in Health Care.
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Next we have Ms. Jan Stewart, the president-elect of the American Association of Nurse Anesthetists. Ms. Stewart is a graduate of Seattle Pacific University. She is a registered nurse and advanced registered nurse practitioner and a certified registered nurse anesthetist. She has had a distinguished career in nursing and is currently the lead CRNA at the Group Health Cooperative in Redmond, Washington. She has been active in many public policy issues through the association which she represents today.
Finally we have Mr. Stuart Bascomb, the executive vice president of Express Scripts, Inc. Mr. Bascomb is a graduate of William Jewell College; has a master's degree in accounting from the University of Missouri at Columbia. During his career, he has worked at Haskins and Sells; Pet, Incorporated; and Medicare-Glaser. He has been with Express Scripts, a pharmaceutical benefits manager, since 1986.
We welcome all of you and look forward to your testimony, and we will try to take 5 minutes, thank you, each.
Mr. HYDE. Dr. Anderson.
STATEMENT OF E. RATCLIFFE ANDERSON, JR., M.D., EXECUTIVE VICE PRESIDENT AND CEO, AMERICAN MEDICAL ASSOCIATION, CHICAGO, IL
Mr. ANDERSON. Mr. Chairman and members of the committee, my name is E. Ratcliffe Anderson, Jr. I am the executive vice president of the American Medical Association, and on behalf of its nearly 300,000 members, I want to thank you for the opportunity to testify today.
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Mr. Chairman, as you know well, physicians feel powerless in their dealing with health plans. The role of the physician as patient advocate has never been more important than it is now. Ironically, the antitrust laws which were intended to protect the Davids of the world against the Goliaths are having the opposite effect in the health care marketplace today. In many markets, physicians have virtually no bargaining power with dominant health plans that refuse to negotiate any terms of their contracts, including terms which directly affect patient care.
Let me ask you this: Would you want your physician to sign a contract that restricts his ability to discuss potential treatment options with you? That hinders her ability to protect your private discussions or your medical records? That prevents him from referring you to a specialist that he thinks you need? That prevents her from prescribing medicine that she believes is the most effective to treat your condition? Of course you wouldn't, and neither would we.
Then why are so many physicians doing exactly this today? Simply because they have no choice. We believe that Representative Campbell's bill would give physicians that choice by creating a level playing field so that physicians can negotiate contracts that are in the best interest of their patients. In the last 5 years, as has been pointed out, the 18 leading health care plans have consolidated into just 6. In the past 2 years, Aetna has acquired U.S. Health Care, New York Life, and is now acquiring Prudential. The new plan is estimated to control over 50 percent of the market in several areas. The Blues plans have even greater share of certain markets. Where there may have been six or seven managed care players in a community, there may now be two or three.
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When physicians sign a contract with a health plan, they have no power to negotiate over its terms. Physicians' only alternative is to swear off any involvement with a plan, which is economic suicide when the plan covers many of their patients. But even when they don't, physicians simply do not want to abandon their patients.
It is estimated now that over 180 million Americans are in managed care plans. The fundamental problem here is that many health plans are more concerned about cost control than about quality care. They are in business to return a profit to their investors. Now, don't get me wrong. I am not saying for a minute that health plans don't care about quality, but their primary interest is in cost. There must be a counterbalance that emphasizes quality care, and physicians need to serve as that counterbalance.
The high degree of pressure to cut back on expenses leads to new ways of denying more and more needed care. For example, health plans want to tie the definition of medical necessity to the lowest-cost treatment. The bottom line is always boosted by determination of noncoverage of medical services. This trade-off is well illustrated by a statement in one major health plan's recent annual report to shareholders. The CEO reported that in 1997, and I quote, earnings were hampered by higher medical costs. When a CEO apologizes to shareholders because earnings are hampered by expenditures on medical care, something is profoundly wrong. It is inevitable then that given their leverage over physicians and shareholder pressure, some health plan managers will simply go too far.
In stark contrast, physicians have both an ethical and a legal obligation to their patients. Clinical decisions are made in the course of the patient-physician relationship, yet the role of physician as patient advocate can easily be undermined when a physician has no leverage in the face of a large health plan.
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The Supreme Court has noted that Congress designed the Sherman Act as a consumer welfare prescription. However, application of the Sherman Act to physician negotiation with health plans has simply not served this objective. At the AMA we know when one prescription is not working, a change is called for.
H.R. 1304 is new medicine designed to promote consumer welfare, the basic intent of antitrust laws. It will allow the parties of interest to come together to resolve issues among themselves. It would ensure that patient concerns remain primary by forbidding work stoppages or strikes. Equally important, it would reduce the need for State legislatures and the Congress to regulate the minutiae of health plan operations. It is a practical, market-based approach to addressing these very complex issues.
Thank you again for the opportunity to testify on this issue of importance to every American patient.
Mr. HYDE. Thank you, Dr. Anderson.
[The prepared statement of Dr. Anderson follows:]
PREPARED STATEMENT OF E. RATCLIFFE ANDERSON, JR., M.D., EXECUTIVE VICE PRESIDENT AND CEO, AMERICAN MEDICAL ASSOCIATION, CHICAGO, IL
Mr. Chairman and members of the Committee, my name is E. Ratcliffe Anderson, Jr., MD. I am the Executive Vice President and Chief Executive Officer of the American Medical Association (AMA). On behalf of the AMA, I appreciate the opportunity to testify regarding our support for ''The Quality Health-Care Coalition Act of 1999'' (H.R. 1304), sponsored by Representative Tom Campbell (R–CA). This bill and the issue of physicians' ability to jointly negotiate with health plans are of the highest priority to the three hundred thousand physician and medical student members of the AMA.
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INTRODUCTION—THE CRITICAL NEED FOR H.R. 1304
The AMA addressed this Committee last year regarding this bill's predecessor, H.R. 4277. Since then, the bill has changed and so has the health care industry. The intense consolidation of the health plan marketplace by plans that increasingly seek to undercut physicians' ability to effectively advocate for their patients' health care needs has accelerated. In many markets, physicians have virtually no bargaining power with dominant health plans that refuse to negotiate any terms of their contracts—including terms with important patient care implications. As a result, plans present physicians with non-negotiable contract terms that no businessperson with any bargaining power would agree to. Consequently, the power of health plans alone to determine the kind of health care that patients receive is virtually unchecked.
The AMA believes it is not healthy for any group to have virtually unlimited power over a matter as significant and sensitive as the kind of medical treatment needed by an individual with an illness or injury. When that unlimited power exists, it is inevitable that distortions will occur, and they are occurring. The proposed acquisition of Prudential Healthcare by Aetna/US Healthcare to create a giant plan that would provide health care for one in ten privately insured Americans is just the latest in the consolidation frenzy that has characterized the health care marketplace in the past five years. Observers expect other large plans to continue to consolidate as well.
Americans are deeply concerned about this transformation of our health care system into one where health plans have virtually unlimited power over patient care issues. The staggering number of state legislative initiatives in this area as well as the present debate in Congress over federal patient protection legislation highlights the groundswell of public concern over the direction of our health care system. Patients feel powerless against large health plan bureaucracies that control and restrict their access to treatment, discussions with their physicians, and their ability to pursue appeals of denials of care.
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The role of physician as patient advocate has never been more critical than in the current environment. Ironically, the antitrust laws—which were intended to protect the Davids of the world against the Goliaths—are having the opposite effect in the health care market, and are making it virtually impossible for many physicians to have any leverage with health plans over important patient care issues. While the AMA believes that there have been positive changes in the health care delivery system over the past decade to provide health care in more economically efficient ways, the pendulum has swung too far. Health plans now have a degree of leverage and influence over medical decisionmaking which is not offset by any countervailing force because of the antitrust limitations applied to physicians.
The AMA, numerous national medical specialty organizations, Representative Campbell, and over 115 House co-sponsors of ''The Quality Health-Care Coalition Act of 1999'' believe that the antitrust laws must be reformed to correct the dangerous imbalance in the health care market place by returning professional medical decisionmaking to physicians. H.R. 1304 would accomplish this by removing restrictions on independent physicians' ability to jointly negotiate with health plans and allowing them to effectively advocate on behalf of their patients and their profession.
If physicians are not allowed to provide some balance to the existing and growing power of insurers, we will continue to see patients receiving less than optimal care with increased efforts to resolve these problems through increased legislation and regulation—resulting in increased micro-management of the health care system by government at all levels. Allowing physicians to be an effective counterbalance to health plans in negotiations over contractual terms that directly affect patient care will better serve the health care needs of the American public. We are not saying that physicians are always right and health plans are always wrong. But establishing an effective approach to negotiations is a good way to help assure that the tension between cost and quality considerations is ultimately resolved to the benefit of patients.
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HEALTH PLAN CONSOLIDATION
Health Plans Are Growing And Consolidating To The Detriment Of Patients And Physicians
The health care industry has been undergoing intense consolidation over the past five years. Since 1994, the 18 largest health plans in the country have, through mergers and acquisitions, thinned down to just six—Aetna, Cigna, United Healthcare, Foundation Health Systems, Pacificare, and Wellpoint Health Networks. In a January 13, 1999, article entitled, ''Concern Rising About Health Plan Mergers,'' the New York Times noted that the health care industry is ''rapidly whittling itself down to a few giant companies that dominate the health systems of some of the country's biggest cities.''
The leader of the pack is Aetna with the 1996 purchase of U.S. Healthcare, the 1998 purchase of NYL Care, and its announcement of intent to purchase Prudential Health Care. The Aetna/U.S. Healthcare merger with Prudential is of a magnitude not seen before in the health care industry. According to Aetna's own statistics, the proposed acquisition would result in 22.4 million covered lives for health and dental care. Aetna will become one of the top three insurers in nine states: Georgia, Florida, Maryland, New York, New Jersey, Ohio, Pennsylvania, Virginia and Texas. The enrollment data reveals dangerous levels of control at local levels in these states post-merger. For example, Aetna/Prudential would control:
Houston, Texas—over 50 percent of the market: 46 % combined HMO and PPO markets, 53 percent within the HMO market, and 66 percent of the fully-funded commercial HMO market with the closest competitor in that market, United Healthcare, at nine percent market share.
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Dallas, Texas—nearly 40 percent of the HMO market, with the closest competitor at 24 percent and all others below nine percent.
Atlanta, Georgia—30 percent of the HMO market
Orlando, Florida—33 percent of the HMO market
New Jersey—59 percent of the HMO market in Bergen County, 55 percent in Camden County, 59 percent in Hunterdon County, 48 percent in Mercer County
The Aetna merger deeply concerns the AMA for a number of reasons beyond the raw numbers. Aetna's extremely aggressive and anti-patient business practices (as outlined below) actually work to significantly increase its market power. Aetna's growth and profitability is not about popularity and success as a result of high quality health care, it is about aggressively purchasing market share.
There is substantial evidence that quality is being compromised as the company gets larger and places profit above patient care. The AMA believes that Aetna seeks to both maximize profits and dominate markets. In pursuing this strategy, Aetna has developed a reputation among physicians for heavy-handed contracting practices that have very real and negative patient implications. Aetna has had extremely low ratings by physicians, patients and health industry experts.(see footnote 36) Aetna has also been openly criticized for unfair and unlawful conduct in several states(see footnote 37) and has been confronted with several private legal battles for its unpopular conduct.(see footnote 38)
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Equally troubling is that fact that because Aetna is a market leader, other plans are beginning to adopt some of Aetna's most egregious practices—matters the AMA believes are bad for patients and physicians. Moreover, as in other industries, there is a ''domino effect'' whereby the remaining competitors adopt similar strategies of consolidation to avoid being taken over. In early 1999, for example, Cigna announced that it was selling its property and casualty business to concentrate resources in the health care industry. On Feb. 1, 1999, Crains Communications noted that ''speculation on (Cigna's future strategy) is largely focusing on the purchase of a major regional company.'' Observers expect Cigna to follow Aetna's expansion strategy.
Health Plan Consolidation Results In Market Concentration That Hurts Patients
Consolidation pervades the current health care marketplace. Even before the Aetna/Prudential merger was announced, a review of market shares of health plans in 25 states 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%.(see footnote 39) Also, the Herfindahl/Hirschman index of market concentration, an index used by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) as an indication of when they should try to bar a merger, is greater than 1800 for health plans in 11 of the 25 states reviewed. According to the agencies' Horizontal Merger Guidelines, 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. A merger in a market that is already highly concentrated can lead to the exercise of market power that is detrimental to consumer welfare.
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But the industry consolidation issues go far beyond the ''big six'' national health plans. In many markets, a more ''local'' health plan has achieved market dominance through the same strategy of acquiring or merging with other health plans. For example, in Philadelphia, Independence Blue Cross has a market share of 57 percent. In the Pittsburgh area, Highmark (formed as a result of the 1997 merger of Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield) has a market share of 66.4 percent (96 percent of the HMO market).(see footnote 40) In Rhode Island, Blue Cross Blue Shield controls approximately 50 percent of the market.
Market Consolidation Creates Reduced Competition And Choice—And The Patient Loses
Once a particular market becomes dominated by a few large health plans, there are significant barriers which deter entry of new plans and new choices. The U.S. General Accounting Office (GAO) released a study last month regarding recent Medicare managed care withdrawals that supports this conclusion. It noted that ''[a] plan was more likely to withdraw from a county if it faced larger competitors. Specifically, a plan was more likely to withdraw from a county if its Medicare market share in that county was small relative to the market share of the plan with the highest Medicare enrollment in the county. The bigger the difference in market shares, the more likely the smaller plan was to withdraw from the county. Moreover, the smaller plan was more likely to withdraw if the rest of the market was dominated by a few firms rather than divided up among many.''
The state statutory and regulatory requirements alone can easily be prohibitive for a new regional organization trying to establish a presence in a market. Managed care organizations must adhere to strict capitalization requirements. For example, states often require new HMOs to demonstrate net worth of one to two million dollars and to deposit with the state cash or securities amounting to several hundred thousand dollars. States can also require an additional sum of money to cover anticipated losses for initial years of operation. Data indicates that $25,000,000 of premiums is a critical threshold in the degree of risk of a managed care plan. In addition to solvency requirements, initial financial outlay for administrative overhead and information systems is substantial. The result could well be continued consolidation so that only a few national plans are left in many markets.
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Moreover, in areas where one or two managed care organizations already cover a large percentage of a market's population, it could take several years for a new plan to demonstrate its attributes to purchasers and convince them to disrupt their current relationships with existing health plans. For example, large health plans spend millions of dollars on prime time television and print ads every year. Consequently, new health plans are likely to incur prohibitively high initial costs as they try to compete with plans that are already operating in the area.
Starting up and operating a provider-owned and operated health plan, or PSO, can be even more difficult, if not prohibitive, especially for physicians and other non-institutional providers. Physicians do not have at their disposal the vast amounts of capital required. Only the largest and most sophisticated PSOs will have the ability to start up and successfully operate in the commercial market. The newspapers have recently been reporting financial failures of numerous physician networks, groups and other joint ventures that were formed to compete with HMOs. For example, a physician owned HMO in Sacramento just announced that it will fold at the end of the year. The CEO reported that ''for a small regional player, it's more complicated and difficult to compete.''(see footnote 41)
In a market dominated with a few large health plans and stifled by significant barriers to entry, the result is reduced competition and reduced choice for patients, employers and physicians. It is estimated that 60 percent of Americans have no choice at all as to which health plan they may choose and that another 20 percent have a choice between only two health plans. In some circumstances this is, in part, due to the fact that employers may choose only one or two plans, but it is undoubtedly the case that health plan mergers will only exacerbate this problem. Princeton Economist, Uwe Reinhardt recently stated that the Aetna/Prudential merger would create a conglomerate that would control about one-third of the New York health care market, ''effectively eliminating any real competition.''(see footnote 42)
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Most Americans are enrolled in managed care plans. HMOs and PPOs are by far the most prevalent health plans in the United States. According to the American Association of Health Plans, HMO enrollment was estimated to be 81 million as of the end of 1997, and PPO enrollment was about 98 million at the end 1996, for a total of 179 million. The enrollment is higher now, and it is estimated that HMO enrollment will be over 101 million by 2002.(see footnote 43) There simply are not enough patients outside of managed care to provide most physicians in the market with enough patient volume to have a financially viable practice.
In past years when patients had more choice among health plans, physicians could choose the kind of health plan in which they participated. Physicians did not have to contract with health plans that enforced medical policies that they did not agree with. However, when health plans become significant in terms of size, the stakes become too high for physicians to refuse to sign a contract. Health plans openly state that as they merge and control a larger volume of patients, they gain greater leverage over physicians and other providers and subject them to a higher degree of control. While it is unclear at precisely what point physicians cannot afford to ''just say no'' to onerous contract terms, if a plan represents as little as 20% of a physicians practice, it is extremely difficult to walk away from a contract. Refusing the contract has serious implications. In addition to losing a portion of income that a small business cannot afford to forgo, more importantly, it means disrupting or severing patient relationships.
A Lack Of Federal Enforcement Activity Against Health Plans—The Poor Track Record Of The FTC And DOJ
Despite the tremendous consolidation of health plans, there has been no significant enforcement action taken by the Federal Trade Commission (FTC) or the Department of Justice (DOJ) against any health care payer or managed care company. In January, Robert F. Liebenluft, former assistant director for health care in the FTC's Bureau of Competition, admitted that the federal agencies ''had rarely, if ever, challenged an HMO merger.''(see footnote 44)
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In stark contrast, the DOJ and FTC have aggressively pursued physicians and other providers under the antitrust laws and have recently reaffirmed that they plan to continue this strategy. Physicians rightfully fear an antitrust investigation. It is difficult for physicians to understand that a casual conversation with colleagues about a proposed health plan contract that they find onerous could subject them to a potential antitrust investigation, when the authorities do not blink at health plans amassing in some markets, over 50% of the market. Although the AMA is encouraged by the recent review of the proposed Aetna/US Healthcare-Prudential merger, until now, the FTC and DOJ have done little more than merely rubber stamp health plan mergers
The antitrust laws are extremely complex and the penalties for violation are severe—including potential prison terms. Many physicians and physician ventures that have been subject to antitrust investigations had ongoing legal counsel reviewing their activities and believed they were in compliance with the law. In 1992, a small group of dentists was investigated and prosecuted for violations of the antitrust laws after they met informally to discuss the possibility of lowering fees. A federal judge threw out the jury conviction—but they had to go through a lengthy appeal. Ultimately, they spent seven figures in legal fees and endured psychological and professional damage.(see footnote 45) We cannot stress enough that this message is not lost on physicians.
In fact, the agencies' 1996 Statements of Antitrust Enforcement Policy in Health Care reflect a bias against physicians and in favor of payers. None of the statements address market power of managed care companies, collusion among managed care companies, or anti-competitive mergers among managed care companies. All nine Statements address alleged potential anti-competitive activities of physicians and other health care providers. The overriding assumption of the policy statements is that payers are stand-ins for the health care consumer—patients—while physicians are prone to anti-competitive behavior. For reasons explained in detail below, nothing could be further from the truth; health plans are not stand-ins for patients, they are stand-ins for shareholders.
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RESULTS OF HEALTH PLAN CONSOLIDATION ON PHYSICIANS AND PATIENTS—THE HARM IS EVIDENT
Health Plan Contract Terms Can Be Unreasonable And Threaten To Harm Patients
Evidence of the high degree of leverage that health plans have over physicians is found in contracts—that physicians must sign with managed care plans—that are clearly unreasonable on their face. These contracts are one-sided in favor of the health plan. The health plans allow physicians no leverage in contract negotiations. In fact, there rarely are contract negotiations. The contracts are often 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 them.
Typical examples of such egregious contract terms are as follows:
definition of ''medically necessary services'':
''Medical necessity means the SHORTEST, LEAST EXPENSIVE, OR LEAST INTENSE LEVEL of treatment, care or service rendered, or supply provided, as determined by us [health plan], to the extent REQUIRED TO DIAGNOSE OR TREAT AN INJURY OR SICKNESS. The service or supply must be consistent with the insured person's medical condition at the time the service is rendered, and is not provided primarily for the convenience of the injured person or doctor'' [emphasis added].
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This contract clause uses ''lowest cost'' language in defining medical necessity. This is typical in definitions of medical necessity found in many health plan contracts. It clearly raises an issue of whether some health plans are basing their medical necessity determinations on an arbitrary standard that affords patients a low and arbitrary level of care. Furthermore, it restricts the care to that which is required for diagnosis or treatment as opposed to treatment that may be beneficial or effective, but not necessarily required. Make no mistake about it; the AMA does not advocate covering every conceivable medical service for every patient in every instance. On the contrary, some health plans are attempting to manipulate the definition of medical necessity to deny patient care that is appropriate under the circumstances, by arbitrarily linking it to lowest cost measures and not to the individual patient's medical needs.
Consequently, as managed care organizations become more active in ''managing'' patient care and controlling or influencing medical treatment decisions, the distinction between treatment decisions made by physicians and other health care providers, and benefit determinations made by health plans, has been blurred. Coverage denial decisions equate to access denial of those services if a patient cannot afford to pay for them. More significantly, improper coverage denials based on a lack of ''medical necessity'' as determined by the plan, mean that patients are not receiving the medical treatment to which they are ethically and legally entitled under the terms of their agreed-upon health coverage.
The AMA believes that health plans should not be allowed to unfairly deny medical care based on the application of such unfair and arbitrary medical necessity definitions. If health plans are able to define medical necessity in a review, the appeals process will be seriously undermined, if not rendered meaningless. Treatment decisions for individual patients belong with medical professionals, who see and know the patient, not with health insurer actuaries.
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''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.''
This provision clearly operates as a ''gag clause'' that bars physicians from telling patients about treatment alternatives that they recommend for their patients but that would not be deemed medically necessary by the plan purely because of cost issues. This is not a meaningless contract term. The AMA is aware of physicians being threatened by plans for precisely this type of communication. This provision remains in the standard contract for this health plan as it continues to deny that it is a ''gag clause.'' However, two state insurance departments—Texas and Florida—have determined that it is, in fact, a gag clause in violation of state law, and required removal in those states.
''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 person attempting to appropriately manage a business would agree to such terms unless they had absolutely no leverage in their business dealings. The contract requires physicians to agree to participate in all products, even those that do not exist at the time of signing the contract, but the health plan may decide to offer in the future. The physician 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.
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These ''all-products'' policies are often non-negotiable and are objectionable for a number of important reasons. Health plan products differ substantially in operation. For example, a physician may feel comfortable participating in a PPO product, but may have valid reasons for not wanting to participate in an HMO product, which is a dramatically different product that requires physicians to assume insurance risk. A risk contract may not be a viable option for smaller practices with smaller patient bases because of practice size, patient mix, or other valid actuarial or business concerns. Physicians may have valid concerns that the plan does not have the computer systems to provide the data needed to manage insurance risk. The ''all products'' policies essentially coerce physicians into participating in products about which they have legitimate reservations. And, as discussed later, patients have legitimate reservations about them as well.
Only a health plan with significant leverage can implement tactics like a non-negotiable ''all-products'' clause. The behavior of Aetna in its dispute with an IPA in Dallas illustrates the pernicious nature of the ''all products policy.'' When the IPA sought to terminate its HMO contract with Aetna for what it perceived as a breach of the contract, Aetna used the ''all products'' policy as a sword, and terminated the physicians from its PPO network, which resulted in serious disruption for patients despite physicians' best efforts to ensure continuity of care. The IPA had 68,000 covered lives in its HMO plan, but over 300,000 in its PPO. Displacing 368,000 patients is a lot more dramatic than displacing 68,000, not to mention the loss to the physicians' practice.
''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 in effect as applicable to such Member's Plans; EITHER OF WHICH MAY BE MODIFIED FROM TIME TO TIME BY COMPANY.'' [Emphasis added.]
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The contract provides 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 and thus, cannot adequately anticipate business risk, especially when they must take ''all products'' the company may offer in the future. What business person with any negotiating power would agree to a contract for services which allowed the buyer of that service to change the amount paid at any time?
''Provider shall be solely responsible for the quality of Covered Services rendered to beneficiaries.''
This clause allocates liability arising out of patient care decisions to the physician, even though the contract also requires the physician to comply with the health plan's utilization management decisions as determined by a definition of medical necessity that requires the ''least costly alternative.'' This represents 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 responsible party to the person accepting the contract.
''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.'' [emphasis added]
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This provision refers to a section of the contract that requires that physicians release information to the health plan necessary for utilization management, practitioner profiling, quality improvement review, and peer review. This involves the release of information pertaining to actual or proposed care which may be confidential. So in effect, the contract requires physicians to turn over any or all sensitive patient information to the plan and then to indemnify the plan for any legal claims brought against the company for how the company uses the information. This not only places responsibility on physicians for actions taken by the company—which are completely beyond their control—it also hinders physicians' ability to adequately protect sensitive patient information.
These contract terms directly affect the care rendered to patients. They restrict physicians' ability to freely discuss potential treatment options with their patients. They hinder physicians' ability to protect the confidentiality of their patient communications to the detriment of the physician-patient relationship. They place physicians' practices at risk by hindering their ability to appropriately manage their financial and administrative affairs. They place all liability for the care rendered on the physician regardless of who is the responsible party. They prevent physicians from exercising real choice in the type of plans in which they practice.
The harm to patients comes not only from the terms that are in the contract, but also from the terms that are not in the contract. Just as physicians are unable to negotiate the terms that are insisted upon by the health plan, physicians are unable to insist upon their own contract terms that would protect patients. For example, some plans require the physicians to prescribe only those drugs in the plan's formulary. If the physician reasonably believes that the formulary is inadequate because it does not include a certain drug that would benefit a certain patient, the patient must pay out of pocket in order to receive it. If a physician could negotiate for flexibility in certain instances, patients would not have to incur extra costs. Another example the AMA recently learned about involved a requirement that the health plan would only cover the cost of blood tests taken at a certain facility. However, the pediatrician's patients were inconvenienced by having to go to a different facility at a different time and the parents felt that the facility was not patient friendly. When the pediatrician offered to draw blood in her office, she was instructed by the health plan to cease this practice.
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Physicians across the country are becoming more and more frustrated, as are patients, with managed care companies. Because the contract is the critical document governing the relationship between the plan and the physician, as well as the patient and the physician, the inability of many physicians to negotiate these onerous provisions is the most significant obstacle to providing high quality patient care. Until physicians are able to effectively negotiate with health plans, patient care will remain compromised.
Unfortunately, there is every reason to believe that the situation will worsen if nothing is done to correct the gross imbalance in the marketplace. Plans appear to be intent on finding the next contracting twist that will further wrest control from physicians over clinical decision making and leave them with few rights under the contract. It is perplexing that health plans claim to be committed to patient care, while aggressively pursuing strategies that bully physicians—the essential component to the system—and undermine their clinical autonomy in order to maximize profits.
Health Plan Medical Decisions Are Driven By The Financial Bottom-Line, Not The Best Interests Of The Patient
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 plans grow, and as 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.
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The result is today's extraordinary transformation of the way health care decisions are made in America. 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.
Managed care plans come under financial pressure, especially if they are for-profit. Plans 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 needed care. At the same time, health plans avoid accountability for negligent decisions to deny care under ERISA. Because their primary legal obligation is to shareholders and they escape accountability to patients, their bottom line is always boosted by a determination of non-coverage of medical services. This trade-off is well-illustrated in Aetna's recent Annual Report to Shareholders, where Aetna President Richard Huber noted that in 1997 ''earnings were hampered by higher medical costs.'' Clearly, the health plan cannot be viewed as a patient advocate. It is inevitable that, given their leverage and shareholder pressure, some health plan managers will simply go too far.
In contrast, physicians have an ethical and legal obligation to their patients regardless of the health plan. In addition, clinical decisions are made in the course of the patient-physician relationship, not the insurer/insured relationship. Consequently, physicians will always play a critical role as patient advocate in an increasingly financially driven health care system. Yet, this role can be easily undermined when a physician has no leverage in the face of a large health plan.
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In addition, the pressure to improve the financial bottom-line leads to substantial fee concessions from physicians and attempts to change practice patterns too quickly. When managed care companies unilaterally drive down physician payments, physicians must struggle to find efficiencies without having the tools necessary to effectively do so. The result could well be further cutbacks that compromise quality. Physicians are already being forced to spend less time with patients than they would often like to. Additional payment reductions could result in delays of new equipment purchases, further cut backs on support staff, and other cuts that could affect quality.
THE ''QUALITY HEALTH CARE COALITION ACT OF 1999'' IS NEEDED NOW TO PROTECT PATIENTS
Antitrust Laws Restrict Physicians' Ability To Respond To Health Plan Leverage
Under current antitrust law and enforcement policy, physicians are often deterred from engaging in conduct that is procompetitive and are restricted in their ability to stand up to health plans. As a result, the antitrust laws provide independent physicians with no practical remedy.
The most obvious way in which physicians can join together and present a united front in their dealings with health plans is to form a large multispecialty group practice such as Mayo Clinic and Cleveland Clinic. This type of group practice often owns the assets for the broad delivery of health care such as hospitals, outpatient facilities and physician offices. They are very difficult to form and require significant amounts of capital and infrastructure which takes years to establish. Although this represents one form of practice, physicians should not be forced to aggregate into a small number of large group practices in any market. Patients should have a choice of physicians in diverse practice settings.
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In 1994 and 1996 the DOJ and FTC issued revised Statements of Antitrust Enforcement Policy in Health Care, with an eye to providing some flexibility to physicians and other providers by allowing physicians in certain joint ventures to negotiate with health plans. The purpose of the Statements is to provide guidance as to how agencies have interpreted what is legal or illegal under the antitrust laws, and thus, what type of conduct they will or will not prosecute. Although the Statements were an important step in recognizing the realities of the health care market place, in practical terms their usefulness has proven limited. To fully understand the need for the Quality Health Care Coalition Act of 1999, it is important to briefly explore the limits of the Guidelines.
The Current Statements of Antitrust Enforcement Policy Are Too Restrictive
The Statements describe three ways in which physicians can join together and present a united front in their dealings with health plans other than forming a large group practice. These three types of arrangements for physicians to join together are referred to as ''provider networks.'' These networks must share substantial financial risk, substantially merge their clinical practice, or use the messenger model. All three types of arrangements fall short of realistic, practical remedies for many physicians.
As stated previously, the Statements assume erroneously that the health plans are stand-ins for patients and they seem to imply that patients will only benefit from lower costs generated as a result of efficiencies, without regard to potential quality issues that may arise. Furthermore, the statements assume that only those efficiencies created by substantial integration of physicians' practices outweigh the threat of harm to competition. However, this is merely an assumption, as opposed to a proven proposition.
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Substantial Financial Risk
According to the Statements, independent physicians may form a network where the physicians share substantial financial risk, such as accepting payment by capitation or a percent of the premium, or by accepting substantial fee withholds or bonuses. The network may then negotiate its contracts with health plans. However, there are limits placed on how large such a group can be. If the network is non-exclusive—for example, physicians in the network are free to contract with other plans on an individual basis—then it can include up to 30% of physicians in the market and fall within a ''safety zone.'' If the networks are exclusive—meaning physicians must contract exclusively through the network—then they can include just 20% of physicians in the market. However, it is not always clear cut whether a network is exclusive or non-exclusive.
There are significant barriers to forming these networks. Formation of a network capable of assuming substantial financial risk is a major undertaking, and requires hundreds of thousands of dollars to pay for the legal counsel and the infrastructure necessary to manage risk. To do so simply as a means of compliance with the Statements for purposes of the ability to negotiate contracts involves a major commitment of resources that may not be necessary for the delivery of high quality, efficient medical care. Moreover, the size limits place physician networks at a disadvantage against other networks formed by non-physicians. For example, a health plan can form a non-exclusive PPO with 70% of physicians in the market.
To make matters worse, health plans have used the threat of the antitrust laws to their advantage to blunt the leverage of these networks. For example, in Dallas, Texas, Aetna sent a lengthy ''cease and desist'' letter from a former head of the Department of Justice antitrust division to a physician-directed independent practice association during a contracting dispute. Aetna was unhappy that many of the physicians had chosen not to participate in the Aetna plans on an individual basis and used the antitrust laws as a blatant scare tactic. Aetna has effectively undercut the negotiating effectiveness of these legitimate entities by insisting on a new two-tiered contracting process with physician groups and networks. Under this process the group or network must also require each of its physician members to enter into an individual contract with Aetna.
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Furthermore, in addition to the financial concerns involved with taking on insurance risk, some physicians have ethical concerns as well. These types of arrangements inevitably involve incentives to reduce or limit care. Even though the idea is to reduce care that is not necessary, if the capitated payment levels are too low or the withholds/bonuses significant, for example, a physician is placed in an awkward position and his or her practice could be placed in jeopardy. There has also been a heightened level of consumer suspicion surrounding these arrangements based on perceived abuses. Patients have turned against the idea of financial incentives offered to physicians to reduce or limit care.(see footnote 46)
Other physicians have attempted to achieve market leverage by selling their practices to physician practice management companies (PPMCs). However many of these organizations have recently failed. A few years ago, PPMCs were touted as an ideal solution to provide physicians with some market power while relieving them of administrative burdens and were the darling of Wall Street. However, FPA Management Company, the second largest PPMC in the country, has declared bankruptcy and other PPMCs are in serious financial trouble. These physicians and their patients have been left out in the cold, and many physicians will undoubtedly move back into small group and solo practices.
Substantial Clinical Integration
Physicians who do not share substantial financial risk may be able to negotiate with health plans if they coordinate their practices to such an extent that they demonstrate that the joint venture will create significant efficiencies and will not be anticompetitive on balance. The network would only be able to negotiate terms of agreements that are related to and necessary for the realization of significant potential efficiencies. In addition, the overall impact of the network on competition in the market must be evaluated. This requires an analysis of factors such as the relevant product and geographic markets in which the network will operate, the proportion of providers in the network, the types of providers in the network, the competitive significance of other actual or potential competitors, and the effects of the network on possible entry by new competitors and on buyers and consumers.
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The uncertainty involved in this case by case analysis makes it very difficult to draw bright lines between permissible conduct and conduct that violates the law. In the nearly three years since the clinical integration concept was introduced, the agencies have done very little to flesh out its meaning. There have been no speeches or advisory letters issued that shed light on the subject. Experienced antitrust attorneys even differ as to whether the concept actually extends the options available to physician networks.
In addition, many physicians are not able to engage in that degree of coordination. This level of clinical integration also requires a substantial level of investment, management and infrastructure that is simply out of reach for many physicians. If physicians wish to undertake such costs, they would likely be advised to first obtain an attorney's opinion or an advisory letter from the FTC on the potential legality of the proposed arrangement. This would involve additional costs in legal fees. If approved, it would be for a very specific set of circumstances and would involve substantial additional legal fees to organize in addition to the investment in the entity. Once any circumstances change—as is expected in such a volatile industry—there is no guarantee that the joint venture would still pass muster under the guidelines and physicians would risk exposure to an antitrust violation.
Messenger Model
A third option available under the guidelines is the so-called ''messenger model,'' which is a model for independent physicians to jointly market their services to payers through a third-party messenger without violating the antitrust laws. The messenger model may be superficially appealing because does it not require independent physicians to share substantial risk. However, it has serious shortfalls as well and does little to offset the imbalance in market power. By its terms it does not permit actual negotiations. Instead, it requires each physician in the group to act independently without discussing contract proposals with other physicians or sharing information with them. Physicians are strictly not permitted to join forces to efficiently share information concerning the financial consequences of the health plan's proposals.
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The messenger model is a process whereby each of the physicians in the network arrives at an individual agreement with a health plan through a common messenger. The messenger communicates with each physician individually about what fee schedule the physician is willing to accept as well as other terms. The messenger may aggregate the information from the physicians and may develop a fee schedule to show the plan what percentage of physicians in the network would accept various fee levels. However, the messenger may not share this information with the physicians. The plan then makes an offer to the physicians in the network. The messenger may accept the offer on behalf of any physician who has given the messenger authority to accept offers within the fee range offered by the plan. If the offer is not within the fee range authorized by an individual physician, it must be forwarded to the physician for acceptance or rejection.
This process is extremely cumbersome, difficult to administer, and time consuming. As such, it is purely a device for maintaining antitrust compliance with no independent business justification to recommend it. It has proven to be of little use in most cases. In a perhaps unintended twist, the model also can give the plan an additional bargaining advantage over physicians by providing them with full information on physicians fees' both on an individual and aggregate basis—while physicians remain in the dark. The plan can clearly game this information in determining what fee range it will offer. Overall, the messenger model does not address the need for physicians to join together to achieve bargaining strength.
CONCLUSION
H.R. 1304 would modify the antirust laws to allow individual physicians to engage in joint negotiations with health plans. The need to level the playing field in health care contract negotiations is not about restoring some market power to physicians. It is about restoring the balance in favor of adequate representation and appropriate treatment of patients. The physician is the natural ally of the patient. Health plans simply have too many motives to subordinate the interests of patients to those of shareholders. The harm to patient care is inevitable.
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Modifications to the antitrust laws are not unusual when an industry does not fit the usual mold. Modifications and limited exemptions have been extended to other industries and activities deemed to be different from most other industries or business activities in some respect. There are exemptions for labor union activities, farm cooperatives, public utilities, the securities and commodities industry, and there are altered antitrust standards for banks and other financial institutions. The already highly regulated nature of the health care industry is a prime indicator that it is substantially different from other industries.
The legislative proposals before Congress and state legislatures are more evidence that Americans are extremely concerned about the developments in the marketplace that have placed extraordinary power in the hands of health plans, without any offsetting power on the part of physicians to represent the interests of their patients and their profession. The 1996 Statements, while a commendable start, have done very little to alter the dynamic, and plans have proven adept at developing strategies to undermine physicians who legally acquire leverage.
HR 1304 would address this in a very straightforward manner by modifying the antirust laws to allow individual physicians to engage in joint negotiations with health plans. It would allow the parties at interest to come together and negotiate to resolve issues of concern. It would ensure that patient concerns remain primary by forbidding work stoppages or strikes. Equally important, it would eliminate for state legislatures and the Congress the burden of dealing with the minutia of health plan operations. We urge you to move this important legislation which provides a practical market-based approach to addressing these complex issues.
Mr. HYDE. Dr. Dennis.
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STATEMENT OF GARY DENNIS, M.D., PRESIDENT, NATIONAL MEDICAL ASSOCIATION, WASHINGTON, DC
Mr. DENNIS. Good afternoon, Mr. Chair. Thank you for this opportunity, and a special thank you to Congressman Conyers and other members of the committee.
The National Medical Association represents the interests of over 20,000 African American patients, physicians and the patients we treat.
Since its inception, it has been dedicated to medical education and the protection of public health. As the leading force for parity and justice in medicine and the elimination of disparities in health, the National Medical Association is very supportive of H.R. 1304. This is landmark legislation which has significant implications for improving the delivery of health care services across the Nation, and, of course, the issue is that managed care and insurance companies have an unfair advantage over physicians and patients and, as a consequence, exert their power and influence to reduce the quality of care and access for our physicians. Now, there are some health plans which are quality plans that don't do that, but unfortunately, the majority put their profits first and the quality of patients last.
Now, the bargaining power of individual physicians is often completely overwhelmed by the take-it-or-leave-it, heavy-handed tactics that managed care plans use. They have a history of coercing doctors into signing often exclusionary contracts. H.R. 1304 is needed to shift medical decision-making power away from health plans and back to physicians and patients where it belongs. Let's shift the paradigm of health care back to saving lives, not corporate ties.
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Our Nation's health care system has grown into an industry that is increasingly driven by the profit-making motives of managed care organizations and health insurance companies, again always putting business before quality. With the consolidations and dropping profits, very few choices do health plans have except to continue to reduce health care quality, and this is even extended into the Medicare and Medicaid populations, all of which is supported by the public and the most vulnerable of our patients. For the overwhelming numbers of African American physicians who have historically cared for those patients who are the sickest and poorest among us, the current system of managed care is not serving our practices, nor our patients, well at all.
Every day minority doctors encounter insurmountable barriers that hinder our ability to participate in managed care networks. Whenever we bring these issues up, we are threatened by the overwhelming power of the corporate CEO and intimidated by threats of antitrust violations, leaving us with absolutely no recourse, and, of course, our patients no protection at all. Our doctors don't have the resources, many are in solo practice, to fight these companies, so as a consequence they just lose. They lose their practices, and their patients lose their doctors.
Since our practices are likely to be established in minority and underserved communities and serve predominantly low-income, poor, and severely ill patients, we have been victimized by corporate interests, resulting in an expulsion of doctors and red-lining of our patients to save money. Physicians who treat poorer patients tend to be excluded or deselected from those panels because the increased services provided to sicker patients unable to pay for their care reduces the cost-effectiveness of our practices. Excluding those doctors who treat patients who are disproportionately ill and poor, health plans save money and reduce medical risk loss. Minority doctors don't have the resources to fight back, nor do our patients.
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Yet the exclusion and deselection of black doctors from health plans has critical implications for access to health care delivery services to our communities and the underserved. With African Americans comprising 12 percent of the population, yet only a little over 3 percent of the Nation's medical professionals, the health care status of our community is largely contingent upon our access to quality and affordable health care service. Factors that threaten the full participation of all doctors in our Nation's health care system reduce the number of physicians that serve minority and underserved patients and threaten the health care quality of our communities.
Health insurers benefit from a special exemption from the antitrust laws that enable them to engage without recourse in anticompetitive practices of patient care. These contracts often permit managed care organizations to impose substandard health care services, deny care, or poorly compensate physicians for the services; therefore they can't keep their practices open. Doctors and patients are entangled in a web of bureaucracy that leaves the doctor frustrated and the patient exhausted. Allowing physicians to engage in joint negotiations with insurers will insure that the best terms for contractual agreements with health plans would put doctors in a position to protect patients' best interests and guarantee their access to optimal health care services.
Mr. Chairman, physicians across the Nation are looking for solutions to permit them to solve this problem. The participation of physicians in health plans is dependent upon the will of the insurer, as are the terms of our contracts. H.R. 1304 would put physicians on solid ground and ensure the provision of quality health care to patients in the future. The National Medical Association strongly urges rapid bipartisan support and passage of this critical legislation. The Quality Health-Care Coalition Act of 1999 is good for both patients and doctors and would help to ensure that all Americans have access to quality health care services. Thank you, Mr. Chairman.
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Mr. HYDE. Thank you, Dr. Dennis.
[The prepared statement of Dr. Dennis follows:]
PREPARED STATEMENT OF GARY DENNIS, M.D., PRESIDENT, NATIONAL MEDICAL ASSOCIATION, WASHINGTON, DC
Mr. Chairman and members of the Committee, thank you for the opportunity to present the views of the National Medical Association (NMA). I am Dr. Gary C. Dennis, President of the NMA and Chief of the Division of Neurosurgery at Howard University College of Medicine, in Washington, D.C. I would like to commend you for convening this important hearing. H.R. 1304 is a critical bill that has tremendous implications for the delivery of health care services across the Nation.
Established in 1895, the NMA is the Nation's largest and oldest professional, educational and scientific organization representing the interests of more than 20,000 predominantly African American physicians and the patients they serve, as well as 100 state and local societies.
As the leading force for parity and justice in medicine and the elimination of disparities in health, the National Medical Association is pleased to support H.R. 1304, the ''Quality Health-Care Coalition Act of 1999,'' which was introduced by Congressman Tom Campbell (R–CA) and Congressman John Conyers (D–MI) in March. This landmark legislation allows physicians and other health care professionals, who contract independently with health insurance and managed care plans, to collectively join together when negotiating the terms of a contract with an insurer. This is critical, as the bargaining power of individual physicians is often completely overwhelmed by the take-it-or-leave-it, heavy-handed bargaining tactics of managed care plans which have a history of coercing doctors into signing (often exclusionary) contracts. These contracts are notorious for being laden with clauses that restrict what doctors can tell patients about treatment options and other constraints that determine how health care services are to be delivered to plan enrollees. H.R. 1304 is an important step in shifting medical decision making power away from health plans and back to physicians and patients where it belongs.
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Over the years, our Nation's health care system has grown into an industry that is increasingly driven by the profit making motives of managed care organizations and health insurance companies. In fact, over the last 10 years, there have been more than 162 health plan mergers. And, according to recent data, 92 percent of the Nation's doctors have contracted with at least one managed care plan, while 80 percent of Americans are enrolled in HMOs. In addition, as states seek to expand health care coverage of the uninsured, the numbers of Medicare and Medicaid beneficiaries being forced into managed care plans continues to escalate.
It was once thought that managed care would provide increased coverage, expand access to health care services and lower the cost of care. However, concern is mounting over accounts of physicians being de-selected, without just cause, from managed care plans and of patients being denied the health care services they need, from the withholding of medication to being prematurely released from the hospital. More and more, physicians are being excluded from the medical decision making process. This has left many patients in the hands of corporations primarily concerned with cutting costs and increasing profits. It has also placed doctors at the mercy of insurers who have such a large market share that they, as providers, cannot afford to walk away; or risk expulsion if they do not comply with the corporate will.
For the overwhelming numbers of African American physicians, who have historically cared for those individuals who are the sickest and poorest among us, the current system of managed care is not serving our practices nor our patients well at all. Daily, Black doctors encounter incredible barriers that hinder our inclusion in managed care networks. Because our practices are more likely to be established in minority and underserved communities and to serve predominantly low-income, poor and severely ill patients, African American physicians have been excluded and even expelled from participation in many managed care plans. Physicians who treat poorer patients tend to be excluded from these panels because the increased services provided to sicker patients, unable to pay for their care, reduces the cost effectiveness of our practices. By excluding those doctors who treat patients who are disproportionately ill and poor, health plans effectively redline patients so they can save money and reduce medical risk loss.
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However, the exclusion and de-selection of Black doctors from health panels has critical implications for the access to and delivery of health care services to African Americans and the underserved. With African Americans comprising 12 percent of the population, yet only approximately 3 percent of the Nation's medical professionals, the health status of our community is largely contingent upon our access to quality and affordable health care services. Factors that threaten the full participation of Black doctors in our Nation's health care system reduce the number of physicians that serve minority and underserved patients and threaten the health of these communities. Leveling the playing field to permit physicians to collectively bargain with health insurers would enable us to work with health plans to address these and other issues that threaten the health of our patients.
As you know, health insurers benefit from a special exemption from the antitrust laws. This puts them in a position to engage, without recourse, in anti-competitive practices to patient care. These contracts often permit managed care organizations to impose substandard health care services, deny care and/or unfairly compensate physicians for their services. As mergers within the health insurance industry continue to go unchecked, and the managed care industry gains leverage, physicians and consumers have an increasingly limited choice of health plans. As a result of this utter lack of true competition, physicians across the United States have even less ability to negotiate on behalf of the medical needs of patients.
When patients are denied necessary health care, physicians must go through an unreasonably bureaucratic process that is often quite exhausting and that tends to result in health plans getting what they want at the expense of our patients' needs. In addition, insurers tend to adopt health care policies without consulting practice physicians or patients. This leaves physicians few options to block policies that ultimately hurt the quality of patient care. If physicians are to serve as advocates for the best interests of our patients' health, we must be able to redress the problems associated with ''monopolistic health plan behavior.'' Only then will we be in a position to guarantee that medically necessary treatments are provided to patients by experienced, qualified and well-trained physicians who are concerned about providing patients with optimal health care services.
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Allowing physicians to engage in joint negotiations with insurers would ensure the best terms for contractual agreements with health plans and would enable market forces to determine the parameters of the relationship established between the insurer and the medical professional. The benefit of collective bargaining for patients is that doctors could insist on better care and protection for their patients. Without the authority to engage in collective negotiations with insurers, physicians have no option but to agree to the terms of the insurer regarding the delivery of care, the ability to make medically based decisions for their patients and payment for services rendered. The only other option for physicians without bargaining power is to refuse to serve patients enrolled in certain insurance plans. This reduces patients' options to choose health care providers and causes physician practices to lose money.
Mr. Chairman, the physician union is not a new idea. Such entities have been in existence since the 1960s, when New York City hospitals' staff negotiated fair wages for residents and interns who were earning only $50 to $100 per month. More recently, efforts have surfaced, in Washington State, Texas and Pennsylvania, to address the imbalance of power that exists between physicians and health plans and to enable physicians in these states to negotiate favorable contract terms with insurers. Physicians across the Nation are looking for solutions that will permit them to negotiate with insurers, on fair terms. Under the current structure, physicians and patients stand at the mercy of health insurance and managed care plans. These plans have entirely too much power over the manner in which medicine is practiced. The participation of physicians in health plans is dependent upon the will of the insurer, as are the terms of our contracts. Permitting doctors to collectively bargain with health insurers and managed care companies would put physicians on solid ground and ensure the provision of quality health care to patients in the future.
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The ''Quality Health Care Coalition Act of 1999'' creates a fair environment for physicians to collectively negotiate the terms under which they practice their profession, without violating antitrust laws. Physicians and patients, not corporate administrators, should be the ones making medical decisions. This legislation will help to ensure that this happens. The NMA strongly urges rapid bipartisan support and passage of this critical legislation. Its passage will be a victory for patients, a victory for doctors and a victory for quality health care for all Americans.
Mr. HYDE. Dr. Weinmann.
STATEMENT OF ROBERT WEINMANN, M.D., PRESIDENT, UNION OF AMERICAN PHYSICIANS AND DENTISTS, AFSCME, AFL-CIO, OAKLAND, CA
Mr. WEINMANN. Mr. Chairman and members of the committee, I thank you for the opportunity to appear here today. I am Robert Weinmann. I am a physician with a private practice in San Jose, California. I am president of the Union of American Physicians and Dentists, which is an AFSCME affiliate, and a final credential, Chairman Hyde, is that you can read my legible prescriptions.
I applaud you, Chairman Hyde and Representative Conyers and the Judiciary Committee for holding this hearing. I also want to thank Representatives Campbell and Conyers for introducing the Quality Health-Care Coalition Act.
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The shift to managed care has been accompanied by another trend, the consolidation of the industry into the hands of a few large insurers. These fundamental changes in the industry require that the laws regulating the way physicians function within it be revised to reflect today's realities. With enormous market power, insurers have bargaining leverage which dwarfs that of individual or small group practices. Typically there is no negotiation over the terms of contracts between physicians and managed care organizations. Instead, doctors are presented contracts on a take-it-or-leave-it basis, strong-armed into signing agreements which often violate professional and ethical standards.
Medical sweatshops have been created because of the unbridled power the insurance industry wields over how and what kind of medical care is to be provided. The inability of private practice physicians to negotiate collectively with insurers is an anachronism. Unfortunately for patients, it has a detrimental effect on the quality of care.
Families are increasingly insecure about whether quality care will be there when they face a crisis. Congress, reflecting the unease among Americans, has been conducting a vigorous debate over how to reform managed care. An important tool for protecting patients is giving physicians the ability to negotiate collectively the terms of patient care.
Physicians and other health care professionals are the patient's best advocate, but their hands are tied by contracts which force them to abide by medical practices that are not in the best interest of the patient. This profit-based policy is equivalent to a medical lockout. Doctors are frustrated that care is dictated by insurers who are more concerned with profits than patients. We are incensed when the CEOs of major insurers boast to shareholders that their medical loss ratios are only a fraction of what is actually spent on health care services, sometimes not more than 65 or 70 percent. And how are such medical loss ratios accomplished? Care is delayed. Care is denied. Doctors and patients are forced to surmount administrative and procedural obstacles erected to dissuade them from pursuing treatment.
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Many contracts explicitly grant the insurer absolute veto power over the medical judgments made by physicians. Insurance company accountants are able to deny a recommended treatment solely because of cost despite medical research, best practices, and clinical experience. Physicians who advocate too strenuously for patients become persona non grata within their HMOs, independent practice associations, and other managed care organizations. These courageous physicians risk losing their livelihood. Physicians who strenuously advocate for their patients lose referrals, risk getting fired by the managed care organization and being told that they weren't fired, rather, they were only decredentialed.
Well, you may ask yourself, why do these physicians belong to these organizations then, and the answer is because that is currently where the patients are. Antitrust laws were written to promote competition, and that is what we are asking you to do with H.R. 1304, which is to promote competition, which the reality of current practice denies. You have the ability to set that straight, and the UAPD–AFSCME thanks you very much for taking this under consideration and for giving me the opportunity to speak, and I will be happy to answer some, but probably not all, of the questions you can think of.
Mr. HYDE. Thank you, Doctor.
[The prepared statement of Dr. Weinmann follows:]
PREPARED STATEMENT OF ROBERT WEINMANN, M.D., PRESIDENT, UNION OF AMERICAN PHYSICIANS AND DENTISTS, AFSCME, AFL-CIO, OAKLAND, CA
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Mr. Chairman and members of the Committee, I want to thank you for the opportunity to appear before you today. My name is Robert Weinmann. I am a physician with a private practice in San Jose, California and am president of the Union of American Physicians and Dentists, an affiliate of the American Federation of State, County and Municipal Employees (AFSCME). I have served as editor of a medical journal and on the editorial board of two others. For some years I was a clinical instructor in Stanford University Medical Center's teaching program.
I applaud Chairman Hyde, Representative Conyers and the Judiciary Committee for holding this hearing. I also want to thank Representatives Campbell and Conyers for introducing ''The Quality Health-Care Coalition Act.''
The dramatic growth of enrollment in HMOs and other forms of managed care plans has transformed the health care industry, changing how health care services are paid for and delivered. In 1980, 90 percent of Americans were covered by traditional fee-for- service plans. Today, at least 75 percent of Americans with employer-based health insurance are enrolled in an HMO, preferred provider organization or some other form of managed care.
The shift to managed care has been accompanied by another trend—the consolidation of the industry into the hands of a few large insurers. These fundamental changes in the industry require that the laws regulating the way physicians function within it be revised to reflect today's realities.
With enormous market power, insurers have bargaining leverage which dwarfs that of individual or small group practices. Typically, there is no negotiation over the terms of contracts between physicians and managed care organizations. Instead, doctors are presented contracts on a take-it or leave-it basis, strong-armed into signing agreements which often violate professional and ethical standards.
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Medical sweatshops have been created because of the unbridled power the insurance industry wields over how and what kind of medical care is to be provided.
The inability of private practice physicians to collectively negotiate with insurers is an anachronism. Unfortunately for patients, it has a detrimental effect on the quality of care. Families are increasingly insecure about whether quality care will be there when they face a crisis.
Congress, reflecting the unease among Americans, has been conducting a vigorous debate over how to reform managed care. An important tool for protecting patients is giving physicians the ability to collectively negotiate the terms of patient care. Physicians and other health care professionals are the patient's best advocate, but their hands are tied by contracts which force them to abide by medical practices that are not in the best interest of the patient. This profits-based policy is equivalent to a medical lockout.
Doctors are frustrated that care is dictated by insurers who are more concerned with profits than patients. We are incensed when the CEOs of major insurers boast to shareholders about low medical loss ratios, where only 65 or 70 percent of premiums paid are actually spent on health care services.
And how are such low medical loss ratios accomplished? Care is denied, care is delayed and doctors and patients are forced to surmount administrative and procedural obstacles erected to dissuade them from pursuing treatment.
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Here is a personal experience. A recent patient of mine needed prompt hospitalization. Her HMO initially allowed her to check into a nearby hospital which was outside of the HMO's network. I stayed with the patient until she was checked into her room and safely ensconced in a hospital bed. A short time later, I got a call from the hospital telling me that the patient had left because her HMO changed its mind and required her to travel to a network hospital 50 miles away. At the second hospital, the HMO then refused to approve her admittance despite the fact that the emergency room doctor recommended admission. The HMO said that admission could only be approved by the patient's primary care physician who was not available to see her. So she was turned away again.
Many contracts explicitly grant the insurer absolute veto power over the medical judgments made by physicians. Insurance company accountants are able to deny a recommended treatment solely because of cost, despite medical research, best practices and clinical experience.
A surgical colleague of mine has recently been in a protracted struggle with an insurer over reimbursement for an assistant surgeon in a complicated case for which the American College of Surgeons recommends an assistant surgeon. The insurer adamantly insisted that the assistant surgeon was not necessary.
Insurers also use a more subtle approach to deny or limit care by employing administrative and procedural obstacles. Doctors are forced to expend enormous time, energy and resources fighting to obtain required approval for tests, consultations, referrals and treatments. Patients are forced to wait for authorization for treatments while their conditions may worsen.
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Physicians who advocate too strenously for their patients become persona non grata within their HMOs, Independent Physician Associations (IPAs), and other managed care organizations.
These courageous physicians risk losing their livelihood. Physicians who strenously advocate for their patients lose referrals and risk getting fired by the managed care organization. In the trade, it is called being ''decredentialed.''
Another surgical colleague of mine was recently told by his managed care organization that his IPA did not want to pay him for surgery he had done, although it had been approved as ''medically necessary.'' The surgeon acquiesced. Later, the same managed care organization sought to disallow physical therapy the doctor prescribed for the patient. Now the doctor was enraged, not to mention the patient. The upshot? Our union has agreed to represent both the doctor and his patient! Meanwhile, the managed care organization is actively discouraging other doctors from referring to this surgeon. The word is out that this doctor is not sufficiently cooperative with managed care.
Managed care plans often make treatment decisions under the guise of deciding what is a covered benefit. When patients are harmed by delayed or denied treatment, the managed care plan seeks to indemnify itself from the consequences of its decision. This trick is accomplished by including clauses in the contract which hold the companies harmless from their decisions and shift liability from the plan to the treating physician.
Insurers frequently make unilateral changes in contract terms. Insurers reserve the right to change fee schedules depending upon the profitability of the company. Delays or denials of treatment are also made on this basis. Contracts have been issued which provide monthly changes in reimbursements for some procedures.
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Insurers frequently require physicians to participate in each of their plans, rather than just selected ones, even if doctors find the terms of some of the plans to be especially harmful to patients. This allows insurers to market inferior plans to employers who may not recognize, or may not care, how bad the plan is.
An employer who is a patient in my own practice pays cash rather than have anything to do with his own employer-sponsored health plan. One state senator in California mused in a Senate Judiciary Committee hearing earlier this year about possible lawsuits against employers who knowingly choose health plans that cost less but that are also known to have inadequate resources, such as too few physicians for the number of enrollees.
You may now be asking yourselves why individual doctors would agree to these one-sided contracts which require low quality care? Physicians have little choice—it is where the patients are. It is not uncommon for 20 percent or more of a physician's patient base to be covered by the same insurance company. Failure to sign up may mean the loss of a significant share of your patients and your livelihood.
Antitrust laws were written to promote competition. But the relationship between insurers and physicians is anticompetitive, allowing insurers to dictate contract terms to physicians without negotiation. Antitrust laws were written to ensure quality. But forcing physicians to participate in low quality plans has degraded health care and put many patients at risk. The fact is that today's antitrust laws are protecting insurers who are cheating consumers out of their premium dollars and are forcing doctors to provide low quality care.
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UAPD and AFSCME strongly support the ''Quality Health Care-Coalition Act'' as an appropriate reaction to the changes in the health care market. If the antitrust laws are allowed to remain in effect, the insurers will continue to dominate health care at the expense of patients and doctors alike.
Mr. HYDE. Ms. Henry.
STATEMENT OF HOLLY HENRY, LEGISLATIVE CHAIRPERSON, NATIONAL COMMUNITY PHARMACISTS ASSOCIATION, SEATTLE, WA
Ms. HENRY. Mr. Chairman, members of the committee, I am Holly Whitcomb Henry, and I am serving as the chair of the National Legislation and Government Affairs Committee of the National Community Pharmacists Association, formerly NARD. I co-own Medicine Ladies, Inc., in Seattle, and we operate four pharmacies. Thank you for inviting us to testify on the Campbell-Conyers bill, H.R. 1304, the Quality Health-Care Coalition Act of 1999.
NCPA represents the 35,000 independent community pharmacies in this country and the 75,000 pharmacists that work in those pharmacies providing pharmacy services and medication to about 18 million people every day. NCPA enthusiastically endorses H.R. 1304. It is our top legislative priority for 1999.
A cartel currently operates in the health care industry, fueled by the antitrust exemptions enjoyed by the health insurance industry. H.R. 1304 will balance the market and will enable pharmacists to secure contracts of a more fair and equitable nature. As a result, we will be better able to serve our patients.
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I am a small business person. I am also a health care provider. As an employer, I purchase health care insurance for my employees. Those premiums increased 12 to 20 percent each year over the past 3 years. On the other hand, I am offered provider contracts by the exact same health insurance plans. I am offered take-it-or-leave-it contracts. I have never been offered a contract in all of my experience that increased my compensation so that I can cover the rising costs of doing business, such as increased rent or increased health insurance premiums. In fact, in my daily practice, it seems as if a third to—a third of my time perhaps is occupied working as a paid employee, or actually an unpaid employee, of the insurance industry. I explain benefits to patients and make sure they understand how their pharmacy coverage works. I do data entry for the insurance industry. I also perform many, many services that I am contractually bound to do.
Some claim this bill is only about fee increases for health professionals, but that is one of just dozens of contract concerns that we have. We believe that giving pharmacists and other providers the right to negotiate contract provisions will help us better care for our patients and control costs.
Let me give you just one example. One of the practices of health plans is to develop a list of preferred drugs or a formulary. In order to utilize their prescription drug benefit, patients are switched from one drug to another to another, depending on what drug happens to be this month on the health insurance plan's preferred drug list. Recently one of my patients came in to get a prescription filled for a medication she takes to control severe chronic heartburn and acid reflux. Nothing had changed with this prescription. Nothing had changed at all. She had the same insurance, same insurance plan, the same employer, the same doctor, she was the same patient, and it was the same prescription. However, when I went to fill the prescription and transmit the claim to her insurance company, the claim was denied. Well, without informing the patient, the physician, or the pharmacy, this plan had decided to institute a formulary, a preferred drug list, and suddenly her drug wasn't covered.
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In this particular case, there are only two competing similar drug agents on the market to treat the condition. This patient had actually tried the other drug and was switched by her physician because she failed on the first drug—it didn't work for her—and so she was taking the drug that was right for her.
My job as a pharmacist is to get the right drug to the right patient. The insurance industry made it difficult for me to do that. In a lot of situations, this patient simply would have been out of luck. She either would have had to go without her prescription or she would have to pay for it out of pocket. Because of our strong relationship with the patient, we did everything we could to get that drug approved as an exception so it would be covered by her health insurance. That takes time, and that costs me lots of money.
Opponents say that the costs would go up as a result of this bill, but high costs are already being borne by health care providers obligated by take-it-or-leave-it contracts to make needless drug switches.
The health insurance industry enjoys an antitrust exemption. It is the position of HIAA that health competition and antitrust exemptions are not incompatible and are good public policy. We agree.
This bill is unique in that it will restore fair market balance, but it doesn't require appropriations. It doesn't micromanage the health care delivery or the health care insurers. There are no mandates. No bureaucracy is created. Please return decision-making to patients, their physicians and pharmacists and other providers where decision-making belongs. Community pharmacists throughout the country endorse and support this act and this landmark piece of legislation.
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On behalf of the members of NCPA, we thank the committee for the opportunity to participate in the assessment of this procompetitive, proconsumer legislation. We urge the committee to report the bill to the House and give them an opportunity to vote.
Mr. HYDE. Thank you very much.
[The prepared statement of Ms. Henry follows:]
PREPARED STATEMENT OF HOLLY HENRY, LEGISLATIVE CHAIRPERSON, NATIONAL COMMUNITY PHARMACISTS ASSOCIATION, SEATTLE, WA
Mr. Chairman, Members of the Committee
I am Holly Whitcomb Henry. I serve as Chair of the National Legislation and Government Affairs Committee and as third Vice President of the National Community Pharmacists Association (NCPA), formerly the National Association of Retail Druggists. I am co-owner of Medicine Ladies, Inc. in Seattle, Washington, which operates four community pharmacies [See Exhibit A]. I am accompanied today by John M. Rector, Sr. Vice President Government Affairs and General Counsel for NCPA.
I want to thank you for inviting us to testify on the Campbell/Conyers bill, H.R.1304, the Quality Health Care Coalition Act of 1999.
The National Community Pharmacists Association (NCPA) represents more than 35,000 independent pharmacies, where over 75,000 pharmacists dispense most 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. For decades we have been the only national pharmacy association with universal state association membership, including those of the Committee s members.
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Our members function in the market in a variety of forms. They do business as single stores ranging from apothecaries to full line high volume pharmacies; as independent chains (e.g., 100 pharmacies) and as franchisees such as NCPA members involved with the Medicine Shoppes franchise. Whatever the form of business entity, however, independent pharmacists are the decision makers for this wide variety of NCPA member companies.
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 assessing H.R.1304, the Quality Health Care Coalition Act of 1999.
We have endorsed H.R.1304 [See Exhibit B] and agree with Representatives Campbell and Conyers, and their more than 115 bipartisan cosponsors that its enactment will enable pharmacists to secure contracts of a more fair and equitable nature and that the patients will be better served. This is our top legislative priority for the 106th Congress [See Exhibit C].
For the community retail pharmacist, H.R.1304 will help put an end to the present ability of the insurance industry and its intermediaries to arbitrarily fix prices for prescription drugs and to deny payment for pharmacist professional services; and put an end to the tying of health insurance to the mandatory or coercive use of mail order pharmacy, which denies consumers equal access to neighborhood pharmacies.
Another notable untoward outcome of the unlevel playing field spawned by the exempt health insurance practices has been the devaluation of pharmacist professional services. The non-negotiable health insurance contracts typically depict coverage as for ''drugs'' with at best minimal, if any, recognition of cost effective pharmacist professional services.
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The health plans nearly uniform denial of payment for pharmacist professional services has lead to unnecessary and inappropriate prescriptions; to uncounseled prescription drug usage; and to reduce 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 and more cost in the long run.
The dominance of the insured prescription coverage now called ''managed care'' without the ability for independent pharmacists to negotiate has served to create additional barriers to competition, not to enhance 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. [See Exhibit D for extensive examples of ''managed care'' contract provisions and related documents].
Not only are independent pharmacists forced to accept whatever payment the insurance industry and its ''co-conspirators'' demand, but industry associations and companies characterize such payment as discounts ''given'' by pharmacists.
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.1304 is enacted and pharmacists are authorized to negotiate and offset the current market imbalance then, the notion of ''given'' will have a more traditional meaning.
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Although our concerns about the imbalance created by the exemption which health insurers and health plans enjoy are now critical, these issues are not new to the Committee.
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.''
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To achieve a similar balance we also 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 6 years ago by the Justice Department s Antitrust Division and by the Clinton Administration. H.R.9, which was reported by the Committee, also was a key provision in the Gephardt Health Care Reform Legislation, H.R. 3600. H.R.3600 also had provisions enabling providers to negotiate with insurers and payors, which we supported. The Senate bill also contained both the exemption and negotiation provisions.
If you listen carefully to the health insurance critics of H.R.1304., they curiously claim that antitrust exemption parity for providers would yield anti-competitive conduct. On the other hand, in spite of their exemption, they claim that their health insurance market is very competitive. In fact, in 1991 when the Committee was reviewing the McCarran Act, which established their exemption, HIAA told the Committee that ''contrary to what industry critics are saying, the McCarran Act promotes competition and is essential for a health competitive market.''. Recently HIAA has expressed a similar assessment of their marketplace.
So in essence, it appears to be HIAA s position that healthy competition and antitrust exemptions are not incompatible and are sound public policy. We agree. What is good for the goose is good for the gander and in this case good for the patient.
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.1304 is based on virtually identical reasoning.
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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 1999 to 70%. The typical NCPA member is now losing at least $5.50 on every insured prescription that is dispensed. (See Evaluating Third Party Prescription Program—Sixth Edition, page 10).
Independent pharmacists are understandably seeking relief. Since the Committee's hearing last July on similar legislation, H.R.4277, the consensus amongst independent pharmacists has been formalized. At our centennial convention in St. Louis, Missouri in October 1998, the NCPA Third Party Contract Negotiation Task Force presented its Final Report. This distinguished group of experts on our marketplace, after a thorough investigation including hearings and town hall meetings made several key recommendations. First, among the recommendations was that NCPA undertake a full scale campaign to enact the Campbell bill, which will permit independent pharmacists to collectively negotiate 3rd party contracts.'' [See Exhibit E].
Subsequently, the NCPA House of Delegates unanimously approved a resolution endorsing the Quality Health Care Coalition Act [See Exhibit F].
Independent pharmacy is pleased that the Committee is addressing this landmark legislation. We are especially appreciative of the cosponsors of H.R.1304 serving on this Committee and throughout the House of Representatives. We urge all members to support this bipartisan legislation [See Exhibit G].
In contrast to many bills attempting to address your constituents overwhelming concerns about the unchecked power of health insurers and health plans, H.R.1304 is unique. Through empowering providers to negotiate, it addresses the imbalance of power through the marketplace: there is NO appropriations required; there is NO micromanagement of health care delivery and health insurers; there are NO mandates and NO bureaucracy is created.
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While avoiding each of these possible drawbacks, the Quality Health Care Coalition Act of 1999 will help return decision making from insurance bureaucrats and clerks to individual health care providers including pharmacists, and their patients, where the decision making belongs.
Additionally, the bill s clear intent is to equally enfranchise through negotiations, all health care providers, physician and non-physician alike. Perhaps this intent can be more specifically addressed through a provision that would assure that the scope of practice of each of the professions is fully respected in all negotiations.
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 10th 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, who like his father, was 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/Conyers bill.
The market imbalance created in part by the insurance industry s antitrust exemption has denied consumers access to independent pharmacies and their professional services, and in turn, has denied access of retail pharmacies access to the insured prescription business. These anti-competitive consequences have been amplified by the unique and radical price discrimination engaged in by the prescription drug manufacturers. If left unabated, these anti-competitive forces have the potential for eliminating the life blood our members businesses; and for assuring that consumers, your constituents, are denied quality pharmacist services to which they are entitled.
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On behalf of the members of the National Community Pharmacists Association, we thank the Committee for the opportunity participate in the assessment of this landmark pro-competitive, pro-consumer legislation. We look forward to assisting the Committee in the enactment of the Health Care Coalition Act, H.R.1304.
EXHIBIT A
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EXHIBIT B
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EXHIBIT C
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EXHIBIT D
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EXHIBIT E
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EXHIBIT F
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EXHIBIT G
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Mr. HYDE. Dr. Young.
STATEMENT OF DON YOUNG, M.D., CHIEF OPERATING OFFICER AND MEDICAL DIRECTOR, HEALTH INSURANCE ASSOCIATION OF AMERICA, WASHINGTON, DC
Mr. YOUNG. Mr. Chairman, members of the committee. I am Dr. Don Young, chief operating officer and medical director of the Health Insurance Association of America. HIA represents 269 member companies providing health, long-term care, disability income and supplemental insurance coverage to over 115 million Americans. I am pleased to testify on H.R. 1304, the Quality Health Care Coalition Act of 1999.
Today, I want to focus on three specific issues that relate to granting of antitrust immunity to physicians and other health care providers. First, after many years of high costs and little competition, we finally have a health care system that is intensely competitive but with a good balance between provider and managed care organizations.
Second, this balance would be destroyed by granting the proposed antitrust waiver and allowing physicians to effectively unionize.
And third, costs to health care consumers, American businesses and taxpayers would increase if H.R. 1304 were to be enacted and the current market balance is destroyed.
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During the late 1960's, 1970's, and 1980's, the rate of inflation in health care costs far outpace general inflation. These cost increases were passed along to employers, Government payers, and consumers in the form of higher insurance premiums and to the taxpayers of the United States.
During this time, policy analysts repeatedly noted the need to instill real competition and the discipline of the marketplace into reimbursement policies. The changes of the past decade have brought a balance to the relationship between managed care organizations and physicians.
Prior to this time, insurers and the employers and consumers who paid the bills had little or no bargaining power, and there were no incentives to increase efficiency and improve standards of care. More recently, health plans brought new forms of competition to the health marketplace in an attempt to address this spending spiral.
This movement became known as managed care. And it has been successful in curtailing health care costs and in improving the quality of care. Without the savings brought by managed care, some employers would not have been able to afford to provide private insurance and would have been forced to discontinue coverage for their employees. Lower premiums resulting from managed care have reduced the number of uninsured by between 3 and 5 million people.
Physicians also are among the Nation's highest paid professionals; and over the past decade, as managed care has grown, their incomes have increased 77 percent, with a median net income in 1996 of $166,000. During the same period, the median income of the average worker increased by only 43 percent to $28,000.
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Providers have alleged that they need this legislation to level the playing field. In fact, health professionals may and do form competing delivery systems, provided that these organizations create value for their customers and do not pose a substantial threat to competition.
Consolidation has ranged from direct mergers to joint ventures among providers and/or hospitals. These types of successful alliances are increasing. Physicians and health care professionals have enhanced their bargaining leverage by various means of aggregation, including increasing the size of group practices, forming independent practice associations, provider hospital organizations and service organizations.
HIAA recently released a study, ''Antitrust Waivers For Physicians: Costs and Consequences.'' The study found that passage of H.R. 1304 could result in an annual increase of up to $80 billion in our Nation's health bill. Giving physician an antitrust exemption could increase private health care premiums 6 to 11 percent on top of currently projected medical inflation.
Annual Medicare and Medicaid and other Government health care costs could rise by $24 billion annually, and as a result, two more—2 million more Americans could be added to the role——
Mr. NADLER. Did you say 24 million or billion?
Mr. YOUNG. Billion.
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In conclusion, the proposed legislation would tax the very persons it claims to help, American consumers, with a price tag of enormous proportions. It would truly serve to benefit the few at the expense of the American consumers and taxpayers. It would level a devastating blow to our nation's health care system and the success that finally has been achieved in limiting health care inflation.
The added costs would come without a shred of evidence that quality of care would improve; and, in fact, past experience tells us that the quality could well decline. Perhaps most significantly, the increased costs of the proposed legislation would push in excess of 2 million Americans into the growing ranks of the uninsured.
Mr. Chairman, that concludes my testimony. I would be happy to answer questions.
[The prepared statement of Dr. Young follows:]
PREPARED STATEMENT OF DON YOUNG, M.D., CHIEF OPERATING OFFICER AND MEDICAL DIRECTOR, HEALTH INSURANCE ASSOCIATION OF AMERICA, WASHINGTON, DC
INTRODUCTION
Good morning. Mr. Chairman, members of the committee, I am Don Young, chief operating officer and medical director of the Health Insurance Association of America. HIAA represents 269 member companies providing health, long-term care, disability income, and supplemental insurance coverage to over 115 million Americans. I am pleased to testify on H.R. 1304, the ''Quality Health-Care Coalition Act of 1999.''
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Today, I want to focus on three specific issues that relate to the proposed granting of antitrust waivers to physicians and other health care providers under the provisions of H.R. 1304:
we have a health care system that is in balance and intensely competitive but with a good balance between provider and managed care organization;
this balance would be destroyed by granting the proposed antitrust waiver;
costs to health care consumers and taxpayers would increase if the current market balance is destroyed, as it will be, if H.R. 1304 were to be enacted.
THE PRIVATE HEALTH CARE SYSTEM IS BALANCED AND EXTREMELY COMPETITIVE
Today, we are finally operating under a health care system that is extremely competitive and becoming more efficient every day. During the late 1960s and 1970s, the rate of inflation for the cost of health care services far outpaced the general inflation rate. These cost increases were passed along to employers, government payers, and consumers in the form of higher insurance premiums and to taxpayers in the form of taxes. By the early 1980s, there were serious concerns over the escalating costs of health care insurance and the growing number of people who were uninsured.
Much of the cost increase stemmed from the nature of unrestricted fee-for-service (FFS) payment systems that rewarded physicians for providing more services, regardless of the impact on patient outcomes and the quality of care. The FFS system paid physician fees based on reasonable and customary charges, paid for in large part by health insurance plans. During this time, policy analysts repeatedly noted the need to instill competition and the discipline of the market place into reimbursement policies.
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In the past decade, employers, who are the major purchasers of private health care coverage, began to bring competition to the health marketplace. The result was a movement to address this spending spiral, which became known as managed care, which has been successful in curtailing costs and improving quality. Double-digit inflation in excess of 20 percent in the late 1980s dropped dramatically to low single digit rates in the late 1990s, more in line with general consumer price index trends. For example, while insurance premiums increased by 10.9 percent between 1991 and 1992, the annualized rate of increase by 1996 was only one half of one percent.(see footnote 47)
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Source: For 1989–1991, HIAA Employer Survey; for 1992–1997, KPMG Employer Survey
The decline in premium growth during the 1990s coincides with dramatic increases in market penetration of managed care. Enrollment in PPOs, HMOs, and other forms of managed care tripled during the past 10 years from 29 percent in 1988 to 86 percent in 1998.
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Source: KPMG Health Benefits Survey for years: 1992–1998; HIAA for years: 1988–1990
Managed care stimulated healthy competition that not only held down the rate of inflation, but increased access and frequently improved the quality of care. It is estimated that the impact of lower insurance price increases attributable to this trend saved consumers somewhere between $24 billion and $37 billion in 1996. These savings are projected to grow to between $125 billion and $200 billion by the year 2000. In fact, without these savings, some employers would not have been able to afford to provide private insurance and would have been forced to discontinue coverage for their employees. Lower premiums resulting from managed care has reduced the number of uninsured by between three and five million people.(see footnote 48)
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THE COSTS AND CONSEQUENCES OF ANTITRUST WAIVERS FOR PHYSICIANS AND OTHER HEALTH CARE PROVIDERS
To date, as managed care plans have enrolled an increasing proportion of private and publicly insured individuals, the positive effect on overall health care cost, access, and quality has become stronger. In reality, despite the name of the legislation (the ''Quality Health-Care Coalition Act''), it is not about the quality of patient care, but rather it is largely about economics. Physicians do not need an exemption from the antitrust laws to collectively discuss issues concerning legitimate quality of care concerns with health plans. In fact, federal antitrust guidelines issued jointly by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) specify that such discussions are lawful, so long as they do not involve boycotts or other collective actions that would harm consumers and patients.
PHYSICIAN INCOME CONTINUES TO RISE UNDER MANAGED CARE
Physicians are among the nation's highest paid professions, and, over the last decade as managed care has grown, their incomes have increased 77 percent, with a median net income in 1996 of $166,000. During this same period, the median income of the average worker increased by only 43 percent to $28,480 during the same period.(see footnote 49) Data based on an American Medical Association study reveals that in 1997, the average physician net income reached a record high of $199,600, up slightly from 1996.(see footnote 50) H.R. 1304 would effectively allow physicians to further increase their salaries using the threat of boycotting or by collectively refusing to provide any service to beneficiaries until their demands are met. These additional costs would be paid for by employers and consumers.
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THE EFFECT OF ANTITRUST WAIVERS FOR PHYSICIANS
The ''Quality Health-Care Coalition Act of 1999'' would ''cause the antitrust laws [to] apply to negotiations between groups of health care professionals,(see footnote 51) health plans, and health insurance issuers in the same manner as such laws apply to collective bargaining by labor organizations under the National Labor Relations Act.''(see footnote 52) It would grant physicians and other health care professionals immunity from both state and federal antitrust laws that generally prohibit collective negotiation by independent competitors over fees and other contract terms, such as work rules, which the case of health care providers would encompass utilization review and other management procedures.
H.R. 1304 would destroy this competition at the expense of American businesses, consumers, and taxpayers. The changes of the past decade have brought a balance to the relationship between managed care organizations, health insurers, and physicians. Prior to this time, physician incomes were directly related to the amount of services they provided and the fees they charged. Insurers and the employers and consumers they represented had little or no bargaining power, and there were no incentives to increase efficiency. To disrupt the healthy balance that has finally been achieved between health care providers and those who pay the bills for health care by enacting H.R. 1304 would constitute a rollback of the progress made by managed care on behalf of businesses and consumers. It would serve not only to increase costs, but also, the number of Americans without health insurance. Lessons from the past also suggest that quality of care would decline, rather than improve.
FEW BARRIERS TO PHYSICIAN CONSOLIDATION EXIST UNDER CURRENT LAW
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H.R. 1304 is based on the premise that ''permitting health care professionals to negotiate collectively with health plans will create a more equal balance of negotiating power, will promote competition, and will enhance the quality of patient care.''(see footnote 53) Advocates of this antitrust waiver for physician collective bargaining contend that health plans, as a result of consolidation, have secured such significant market power that they can negotiate payment rates that are so low that providers cannot deliver high quality services. Providers have alleged that they need this legislation to ''level the playing field.''
In fact, current law provides physicians legitimate procedures to discuss clinical and quality of care issues, or other concerns they may have regarding the impact of managed care on the quality of care. Professionals may and do form competing delivery systems, provided that these organizations create value for their customers and do not pose a substantial threat to competition.
Approximately 60 percent of physicians belong to groups with three or more physicians, while many practice groups include several hundred members. Consolidation has ranged from direct mergers to joint ventures among providers or with hospitals. Although consolidation among health plans varies by geographic area and concentration of population, physicians and health care professionals have enhanced their bargaining leverage by various means of aggregation. These include increasing the size of group practices, forming independent practice associations, provider hospital organizations (PHOs), and provider service organizations (PSOs), as growth through mergers and acquisitions.
These types of successful alliances by providers are increasing. For example, it would be hard to suggest that groups such as the Hill Physicians Medical Group located in Oakland California—with 700 primary care physicians, over 1,800 specialists, and 325,000 enrollees—is at a competitive disadvantage when negotiating with health plans in the area. By purchasing Physician Reliance Network in 1998, American Oncology Resources increased its size to 700 physicians and over 325 oncologists in 44 cancer treatment centers in 24 states. Following the merger, this organization will treat approximately 13 percent of all new cancer cases and enjoy revenues in excess of $850 million.(see footnote 54) As an entity operating in many states, the federal oversight currently provided by the FTC would not be replaced if H.R. 1304 were to be enacted.
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H.R. 1304 WOULD LEGITIMIZE ANTICOMPETITIVE ACTIVITY THAT WOULD BE HARMFUL TO CONSUMERS
One of the problems with the proposed legislation is that it fails to distinguish between different types of markets. The proposed collective bargaining power that would be allowed to groups of otherwise unrelated physicians under H.R. 1304 could dramatically increase physician income and virtually eliminate all competition in many markets. Theoretically, providers in a geographic area could form a single unit and demand huge salary increases without fear of antitrust challenge. Or, all of the cardiac surgeons or eye surgeons, for example, could band together and refuse to provide services to enrollees of managed care organizations unless the MCOs agreed to meet their income demands.
H.R. 1304 would truly serve to benefit the few, at the expense of the American consumers and taxpayers. It would level a devastating blow to our nation's health care system and the success that finally has been achieved in limiting health care inflation.
Many of these organizations are large and sophisticated, enjoying leverage over prices and terms due to their size, reputation, and connection to their consumers. In fact, some physician groups have been scrutinized and prosecuted for boycotting and price-fixing that would be legal should this proposed legislation be enacted. This year, the DOJ alleged that a group of Florida surgeons were guilty of price-fixing, and joint negotiations resulting in average annual income increases exceeding $14,000 per surgeon. The DOJ eventually entered into a consent decree with the 29 surgeons that performed 87 percent of the vascular and general surgeries in five Tampa, Florida, hospitals.(see footnote 55) Yet, under H.R. 1304, these actions would be legal, and could well become a standard practice in many areas of the country.
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The assertion that physicians must be permitted to form unions to negotiate on more equal footing does not fit with basic economic theory or current market practice. In fact, one of the reasons that a number of health plans curtailed their service areas or withdrew from the Medicare+Choice program last year was their inability to convince physicians to participate in their networks. Assuming it was even possible that health plans could have monopsony power over physicians, there is absolutely no reason to believe that permitting physicians to form a bargaining unit without any safeguards would lead to a better outcome for their patients, either clinically or financially. In fact, a strong case could be made for substantial adverse effects on patients.
FEDERAL TRADE COMMISSION AND DEPARTMENT OF JUSTICE OVERSIGHT
The FTC and the DOJ have issued guidelines in their ''Statements of Antitrust Enforcement Policy in Health Care,'' updated in 1996, which describe the types of physician networks under which collective negotiation by physicians would not generally be challenged. These federal antitrust statements explain that ''[t]he collective provision of non-fee-related information by competing health care providers to a purchaser in an effort to influence the terms upon which the purchaser deals with the provider does not necessarily raise antitrust concerns.''(see footnote 56) Moreover, the DOJ and FTC continue to issue guideline interpretations in the form of ''business review letters'' and ''advisory opinions'' to further reduce uncertainty surrounding the legality of these types of formations. Generally speaking, enforcement actions have only been brought against organizations whose conduct indicated that they posed a substantial threat to competition without any significant offsetting efficiency.
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As an example, the FTC took action against Montana Associated Physicians, Inc. (MAPI), an organization of approximately 115 physician-shareholders that comprised 43 percent of all physicians in Billings, Montana, and over 80 percent of all independent physicians. MAPI agreed to settle allegations that it had acted as a group to delay the entry of managed care into Billings. Additionally, the group agreed to settle charges that, in response to a PPO request for fee information, they encouraged their members to submit prices higher than current prices with the goal of inflating the fee schedule.
THE IMPETUS FOR H.R. 1304 IS PRIMARILY ECONOMIC
It is clear that patient care is not the driving force behind this legislation. Under current law, physicians and health care professionals are not restricted from collaborating and sharing information with each other and the public regarding patient care issues. It is only where physician networks have acted as little more than cartel devices that continued antitrust enforcement in this area has been, and will continue to be, necessary.
Federal Trade Commission Chairman Robert Pitofsky has testified before this committee that legislation of this type simply goes too far. He has clarified that conferring a labor exemption on physicians ''would merely grant [physicians] broad immunity to present a 'unified 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.''(see footnote 57) Organizations that are designed exclusively to raise prices—and hold little potential of efficiency—are not now shielded with antitrust protection and should not be in the future. H.R. 1304 would effectively do away with the prime objective of antitrust law: to promote consumer welfare by preserving and promoting competition.
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NLRB REJECTS PHYSICIANS' PETITION TO BE GRANTED EMPLOYEE STATUS
A clear example of the fact that physicians are operating as independent contractors, and are not contemplated, nor do they fit within the intent of the current collective bargaining labor exemption, is the case heard in May by the National Labor Relations Board, (NLRB). The NLRB in this case rejected a petition on behalf of 650 New Jersey doctors to grant them status as ''employees'' for antitrust purposes, concluding they were independent contractors and could not form a union. The NLRB's regional director was persuaded in part by the fact that the physicians ran their own practices, could contract with other health plans, and worked in their own facilities.
ECONOMIC EFFECTS OF ANTITRUST WAIVERS
HIAA recently commissioned a study, ''Antitrust Waivers For Physicians: Costs and Consequences,'' which is the first to examine in detail both the quantitative and qualitative impact of this type of legislation. According to the study's author, Dr. Monica G. Noether, vice president of Charles River Associates and former staff economist of the Federal Trade Commission's Antitrust Division, passage of H.R. 1304 could result in up to an annual $80 billion increase to the nation's health care bill.(see footnote 58) Giving physicians an antitrust exemption could increase private health care premiums from 6 to 11 percent, on top of currently projected medical inflation. Annual government health costs could rise by up to $24 billion. As a result of these increases, using the Congressional Budget Office assumptions, over two million more Americans could be added to the rolls of the uninsured each year.
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Special treatment for physicians under the antitrust laws would raise the cost of our health care significantly. Legislation that immunizes physicians from antitrust scrutiny has the potential to raise costs by reducing providers' incentives to offer competitive prices and comply with utilization management processes. H.R. 1304 would protect price fixing, group boycotts, and conduct that would otherwise be per se illegal under the antitrust laws. Significantly, although physicians seek the same protections available under the labor exemptions for collective bargaining, the proposed legislation would not also concomitantly require physicians to be employees of a common employer, nor would these physician ''bargaining units'' be subject to the requirements of federal labor law.
Physicians would not have to achieve any of the efficiencies of integrating their practices, nor would they be subject to the jurisdiction of the NLRB. The physician exemption would cover more than wages and would include any matter that is subject to health plan negotiation. Yet, despite the expansion of the scope of the exemption, all regulatory oversight that applies to current labor bargaining would be removed at both the state and federal levels.
In addition to seeking collective bargaining power on price terms, H.R. 1304 would allow physicians and heath care professionals to collectively negotiate utilization management and other quality and administrative processes of managed care organizations. Curtailing the effectiveness of utilization management poses broader implications than the fee impact of an antitrust exemption for physicians. In addition to its indirect but real impact on costs, to the extent that H.R. 1304 would reduce managed care plans' ability to maintain health plan utilization management policies, (e.g., prior authorization for hospitalization, health plan guidelines, and protocols based on nationally recognized scientific evidence), its impact on the quality and utilization of all services could be substantial.
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The study clearly demonstrates that antitrust waivers for physicians would increase costs for health care consumers and taxpayers. It examined the effect of the increase in physician and other health care provider fees if providers no longer have to be competitive and control fees. Historically, savings in physician fees achieved by the use of managed care have ranged from 6 to 25 percent. Estimates suggest that one-half to all of these savings would disappear if the proposed legislation were to take effect. Ultimately, employers and consumers, as well as Medicare, Medicaid, and other government programs would pay the added costs. Annually, the costs of antitrust immunity in terms of higher provider fees would range from $16.6 to $25.6 billion. These figures indicate that total expenditures on health provider services will increase by 4.2 to 6.5 percent of total expenditures on health professionals, and by 1.5 to 2.3 percent of total health care expenditures and without any reason to expect that quality of care will improve.
Moreover, the study reveals that managed care plans are not the only entities to be affected by a physician antitrust exemption. Although managed care plans will absorb the majority of the impact, a spillover effect will occur as changes in fees and managed care practices are reflected in a rise in costs for indemnity plans and public fee-for-service programs. To the extent that physicians' utilization management and practice patterns change, the effects will permeate into fee-for-service. Projections of these increases range from $1.2 to $1.8 billion. Such increases would hurt government programs such as Medicare, Medicaid, and the Federal Employees Health Benefits Program that are increasingly relying upon managed care to contain costs and address quality issues. Out-of-pocket spending for the beneficiaries of these programs will also increase. Combining the effects in the managed care and FFS markets, estimated annual increases in expenditures for health care providers could range from $17.8 to $27.4 billion.
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Overall, current antitrust policy grants significant latitude to physicians to form organizations that do not significantly jeopardize competition. Unfortunately, H.R. 1304 would provide no added value to consumers and would raise prices up to $80 billion a year.
FEDERAL AND STATE SCRUTINY OF HEALTH PLAN CONSOLIDATION
Consolidation among health plans and insurers has been subject to rigorous antitrust scrutiny at both the state and federal levels, despite the fact that under the McCarran-Ferguson Act the regulation of the ''business of insurance'' was delegated to the states. In fact, McCarran-Ferguson did not waive federal antitrust oversight for health plans. Recent health plan consolidations have received careful scrutiny from antitrust agencies to ensure that healthy competition would be maintained. A good example of this oversight would be the agreement by Aetna and U.S. Healthcare to accede to the concerns of the federal regulators regarding the effect of its acquisition of Prudential's health care business in Dallas, Texas. The health insurance industry continues to remain very competitive, making it improbable—if not impossible—for plans to be able to exercise significant market power in its negotiations with health care providers.
ANTITRUST LAW STIMULATES COMPETITION IN HEALTH CARE
Antitrust laws are intended to encourage innovation and flexibility in health care and promote competition in the marketplace. Such protections increase consumer choice by making sure that providers cannot collude to restrict the range of prices and services available and to ensure that providers compete for patients by offering a range of services at reasonable prices. Giving physicians an antitrust waiver would deny consumers choice, quality, and affordability. The justification for the proposed antitrust immunity overlooks three critical factors:
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this legislation would raise health care costs, financed by both the public and private sectors;
legitimate antitrust mechanisms already exist under which providers can and do collaborate and negotiate with health plans; and
consolidation among health plans is subject to rigorous antitrust scrutiny, at both the state and federal levels.
CONCLUSION
The proposed legislation would tax the very persons it claims to help—American consumers—with a price tag of enormous proportion. H.R. 1304 would truly serve to benefit the few, at the expense of the American consumers and taxpayers. It would level a devastating blow to our nation's health care system and the success that finally has been achieved in limiting health care inflation. Health care premiums would increase by 6 to 11 percent, and total health expenditures in public entitlement programs would rise by as much as $24 billion. These added costs would be paid for by consumers, employers, and taxpayers, without any improvement in the quality of care. Perhaps most significantly, due to increased costs, the proposed legislation would push in excess of two million Americans a year into the growing ranks of the uninsured.
Mr. Chairman, that concludes my testimony. I would be happy to answer any questions that you may have.
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SUMMARY
In reality, despite its name, the ''Quality Health-Care Coalition Act of 1999'' is not about the quality of patient care but is largely about economics. It would raise the cost of health care, financed by both the public and private sectors—Medicare, Medicaid, FEHBP and other government programs as well as employer-sponsored plans.
The private health care system today is intensely competitive but with a good balance between medical professionals and managed care organizations. Managed care has stimulated healthy competition that has not only held down the rate of health care inflation (which had far outpaced the general rate of inflation with increases in the double digits in the 1980s), but also increased access and has worked to improve the quality of health care. The impact of lower insurance price increases attributable to this trend is projected to grow to between $125 billion and $200 billion by the year 2000. H.R. 1304 would destroy the results of competition at the expense of American consumers, businesses, and taxpayers.
Legitimate antitrust mechanisms already exist under which physicians and other health care providers who have formed legitimate legal entities can and do collaborate and negotiate with health plans. They do not need an exemption from the antitrust laws to collectively discuss quality of care issues with health plans. Union-like organizations designed exclusively to raise prices—but that hold little potential of efficiency—are not now shielded from antitrust scrutiny and should not be in the future. Health plans are subject to rigorous antitrust oversight, and provider organizations should be subject to the same type of review in order to protect American consumers, businesses, and taxpayers.
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Physicians, among the nation's highest paid professionals, are least likely in America to need unionization. Over the last decade as managed care has grown, physician incomes have increased 77 percent, with a median net income in 1996 of $166,000. During this same period, the median income of the average worker increased by only 43 percent to $28,480. H.R. 1304 would effectively allow physicians to further increase their salaries using the threat of boycott, with additional costs paid for by consumers, employers, and taxpayers.
Enactment of H.R. 1304 would raise the cost of health care significantly and result in cost increases of up to $80 billion a year. Private health care premiums could increase from 6 to 11 percent, on top of currently projected inflation. Annual Medicare, Medicaid and other government health costs could rise by up to $24 billion. As a result, using Congressional Budget Office assumptions, over 2 million more Americans could be added to the rolls of the uninsured each year.
Mr. HUTCHINSON. [Presiding.] Thank you, Mr. Chairman.
Mr. HUTCHINSON. Mr. Jones.
STATEMENT OF BILL JONES, PRESIDENT, MATERIALS TRANSPORTATION COMPANY, TEMPLE, TX, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE AND THE ANTITRUST COALITION FOR CONSUMER CHOICE IN HEALTH CARE
Mr. JONES. Thank you, Mr. Chairman. Mr. Chairman and members of the committee, my name is Bill Jones. I am president of Materials Transportation Company, a medium-sized business in Temple, Texas. I am pleased to testify on behalf of the U.S. Chamber of Commerce, representing 3 million businesses of every size, sector, and region and the Antitrust Coalition for Consumer Choice and Health Care. I am also speaking here today in my capacity as chairman of the Health Care Partners Task Force of the Texas Association of Business and Chambers of Commerce.
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The task force actively opposes recent State legislation similar to the Quality Health Care Coalition Act of 1999, H.R. 1304, along with Citizens for a Sound Economy, the Texas office of AARP, and Small Business United. Unfortunately, that bill was passed by the Texas legislature.
I request that the committee enter both my oral remarks and the coalition's written testimony into the record, please, Mr. Chairman. Before I explain why H.R. 1304 is bad for businesses like mine, I want to take a minute and describe the coalition that I am representing today.
The coalition is a unique group of 48 organizations and growing, representing employers like me as well as national and local business associations and coalitions, nonphysician providers, pharmacy benefit management companies, and health plans.
As those of us in Congress are well aware, the groups that compromise this—comprise this coalition do not always agree with one another on the issues involving health policy; however, we have put aside the differences when it comes to this bill and are in complete agreement that the sweeping antitrust exemption in H.R. 1304 will increase health care costs for employers, undermine the ability of nonphysician providers to compete on equal terms with physicians, and force hundreds of thousands of consumers to join the ranks of the uninsured, putting the costs of the health care insurance beyond their means.
My specific concern about H.R. 1304 is focused on the effect the bill would have on my employees. As I mentioned, I am president of a medium-sized business in Texas that has been in operation since 1946. My company employs 144 hard-working men and women who, like most of us, strive to make ends meet at the end of the month. I am extremely proud that my company is able to offer our employees health insurance that covers their needs.
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My company is self-insured, which means that we are in essence our own health care plan. It also means that we are very sensitive to the increase in the costs of health care. I realize that my business alone cannot control the cost of health care; however, I have found that the growth of managed care in my area of the country has helped me and many other medium and small businesses keep the cost of health care from rising as fast as it once did. That is because managed care exercises a discipline on the costs of health care that no single company or group of companies alone could achieve.
Managed care has benefited from my company and my employees, even though we don't offer a traditional managed-care plan as part of our health insurance programs. However, thanks in significant part to the principles of managed care, today most of my employees are covered under the company's health plan and can afford the costs of health insurance and health care services.
I am extremely concerned that H.R. 1304 will change all of that. The bill provides health care providers with a blanket exemption from fair competition laws similar to that available to members of labor unions. The exemption will enable both doctors and pharmacists to bargain collectively to increase their fees by any amount they so choose.
A recent study concluded that antitrust exemption could increase the cost of health care by up to about $80 billion a year. For me and my company, this blanket antitrust exemption and the price hikes that will surely result mean that fewer employees will be able to afford the cost of health care and health insurance.
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Currently, my employees pay 20 to 30 percent of the total costs of their insurance premiums, as well as certain copays and deductibles. An increase in those costs is sure to mean there will be health insurance dropouts, which is painful for me personally and ultimately destructive to my business. But I am sure that I will not be alone. Currently, 25 percent of working Texans do not have health insurance.
Estimates are that a 1 percent increase in the costs of health insurance can result in a 300,000 person increase in the uninsured population. This bill will swell those ranks significantly. The statement was made that when we are sick, we do not care about costs. I do not think that is true for the uninsured.
This proposal is particularly vexing to me because I don't believe that managed care has created a problem for doctors, patients, or employers that requires a sweeping exemption from our Nation's competition laws. The experience in my community has been that the antitrust laws do not prevent doctors from forming joint ventures and compete successfully against other health plans including managed-care plans.
The Scott and White clinic, which is located in my community of Temple, Texas, is a perfect example of physicians working together to provide integrated health care services in their own managed-care plan. The clinic is a multispecialty group that combines a 515-doctor health clinic with a 486-bed hospital and nonprofit health plan. It offers an HMO that its members, according to its own promotional materials, was rated in a national survey of HMOs as number one in patient satisfaction.
This clinic is well known and respected throughout Texas and the rest of the country. And it is tangible proof that doctors do not need an antitrust exemption to work together in ways that benefit themselves and their patients to offer a competitive health plan that employers in the community will support.
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As a medium-sized business and a competitive market, I understand why doctors and pharmacists would support an antitrust exemption for themselves. I, too, deal with large buyers, such as WalMart, that require me to work harder and sharpen my competitive skills. It would certainly make life easier if I could collude with my competitors to resist the pressure that large buyers put on me to cut costs and improve efficiencies. But I know such an easy fix would not be good for my business or the economy, so I continue to strive to become a better, sharper competitor every day.
In summary, I urge the members of the subcommittee to reject this proposed exemption from antitrust laws. H.R. 1304 undermines our Nation's competition laws by permitting doctors, pharmacists, and other health care professionals to collude on prices and thereby increase the cost of health care for the rest of us.
The results of this collusion will be bad for employers and consumers and even those health care professionals like the physicians at Scott and White clinic who currently compete so successfully in the health care market. Affordable health care coverage should be one of our Nation's highest priorities. The antitrust laws are an important tool to achieve that end, and we should not sacrifice them because the demands of a relative few in the health care market who would rather collude than compete.
Thank you, Mr. Chairman and committee members for hearing our testimony.
Mr. HUTCHINSON. Thank you, Mr. Jones.
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[The prepared statement of Mr. Jones follows:]
PREPARED STATEMENT OF BILL JONES, PRESIDENT, MATERIALS TRANSPORTATION COMPANY, TEMPLE, TX, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE AND THE ANTITRUST COALITION FOR CONSUMER CHOICE IN HEALTH CARE
Mr. Chairman and members of the Committee, my name is Bill Jones and I am the President of the Materials Transportation Company, a medium-sized business located in Temple, Texas. I am pleased to testify on behalf of the U.S. Chamber of Commerce. The Chamber is the world's largest business federation representing more than three million businesses and organizations of every size, sector and region. I am also Chairman of the Health Partners Task Force of the Texas Association of Businesses and Chamber of Commerce. The Task Force actively opposed legislation before the Texas Legislature similar to the Quality Health-Care Coalition Act of 1999.
Before I explain why H.R. 1304 is bad for businesses like mine, I want to take a minute and describe the Antitrust Coalition for Consumer Choice in Health Care that I am representing today in addition to the U.S. Chamber. The Coalition is a unique group of more than 45 organizations representing employers like me, as well as national and local business associations and coalitions, non-physician providers, pharmacy benefit management companies and health plans. As those of you in Congress are well aware, the groups that comprise this Coalition do not always agree with one another on issues involving health policy. However, they have put aside their differences when it comes to this bill and are in complete agreement that the sweeping antitrust exemption in H.R. 304 will:
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increase health care costs for employers and put the cost of health coverage beyond workers' means;
decrease choice and flexibility for health care consumers;
roll back the efforts of health care purchasers to incorporate nationwide standard-of-care guidelines and quality assurance programs; and
undermine the ability of non-physician providers to compete on equal terms with physicians.
As an employer and purchaser of health care, my specific concern about H.R. 1304 is focused on the effect the bill would have on my employees. As I mentioned, I am president of a medium-sized business in Temple, Texas, that has been in operation since 1946. My company employs 144 hard-working men and women who, like most of us, strive to make ends meet at the end of the month. I am extremely proud of the fact that my company is able to offer our employees health insurance that covers their needs. We are self-insured, which means that we are in essence our own health care plan. It also means that we are very sensitive to any increase in the cost of health care.
I realize that my business alone cannot control health care spending. However, I have found that the impact of managed care in my part of the country has helped my company and many other similarly sized and smaller businesses keep the cost of health care from rising as fast as it once did. This is because managed care exercises a discipline on health care utilization that no single company or group of companies alone could achieve. Thus, managed care has benefited our workers and their families even though we don't offer a traditional managed care plan as part of our health insurance program. Thanks in significant part to the principles of managed care, today most of our employees and their dependents are covered under the company's health plan and can afford the cost of health insurance and health care services.
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I am extremely concerned that H.R. 1304 will change all that. Specifically, the decreased competition among providers that will result from this bill will inflate health care costs and lessen consumer choice. A recent study concluded that this antitrust exemption could increase the cost of health care spending nationwide by $35 to $80 billion per year. Federal spending will also increase because the managed care components of public programs like Medicare, Medicaid and the Federal Employees Health Benefits Plan will face higher costs as physicians band together to force these payers to increase their reimbursements.
For my company, this blanket antitrust exemption and the price hikes that will surely result mean that fewer employees will be able to afford the cost of health insurance. Currently, our employees pay 20 to 30 percent of the total cost of their insurance premiums, as well as certain co-pays and deductibles. An increase in these costs is sure to mean that there will be health insurance dropouts, which is painful for me personally and ultimately destructive to my business. But I am sure that I will not be alone. Currently, 25 percent of working Texans do not have health insurance. Estimates are that a one percent increase in the cost of health care results in a 300,000 person increase in the uninsured population. This bill will swell those ranks significantly.
Apart from being able to collude on fees, H.R. 1304 would allow physicians to negotiate contract terms that clearly benefit their self-interests. For example, a newly formed cartel could dictate contract terms with a health plan which exclude non-physician health providers from the network, or require doctor supervision of non-physician delivery of health services despite state licensure laws permitting the autonomy of these allied health professionals. Physicians would benefit monetarily from such an arrangement while patients' choice of providers under the health plan are curtailed, and less populated areas that rely on these medical professionals would lose access to medical services. Physicians could also set limits on the plan's use of evidence-based national guidelines, rather than the local custom of medical practice, in determining plan coverage of recommended courses of treatment.
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Moreover, this legislation is not needed because antitrust laws already allow, and even encourage, health care professionals to collaborate in many ways. Providers can express their concerns about patient and quality of care issues without fear of an antitrust challenge. Employers and other purchasers of health services encourage the sharing of information and data among medical professionals in a community which relate to patient outcomes and treatment protocols. Identifying utilization patterns in a locality is essential to understanding variations from the norm and imparting this information among colleagues. And when physicians form a joint venture to become market competitors with health plans, communities can benefit greatly.
The Scott and White Clinic, which is located in my community of Temple, Texas, is a perfect example of physicians working together to provide integrated health care services and their own managed care plan. The Clinic is a multi-specialty group practice that combines a 515-doctor health clinic with a 486-bed hospital and a nonprofit health plan. It offers an HMO to its members that, according to its promotional materials, was rated in a national survey of HMOs as number one in patient satisfaction. The Clinic is well-known and respected throughout Texas and the rest of the country. And, it is tangible proof that doctors do not need an antitrust exemption to work together—in ways that benefit themselves and their patients—to offer a competitive health plan that employers in the community will support.
As a medium-sized business in a competitive market, I understand why doctors and pharmacists would support an antitrust exemption for themselves. 1, too, deal with large buyers that require me to work harder and sharpen my competitive skills. It would certainly make my life easier if I could collude with my competitors to resist the pressure that large buyers put on me to cut costs and improve efficiency. But I know such an easy fix would not be good for my business or the economy, and so I continue to strive to become a better, sharper competitor every day.
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In summary, I urge the members of the Committee to reject this proposed exemption from antitrust laws. H.R. 1304 undermines our nation's competition laws by permitting doctors, pharmacists and other health care professionals to collude on prices and thereby increase the cost of health care for the rest of us. The results of this collusion will be bad for employers and consumers and even those health professionals, like the physicians at the Scott and White Clinic, who currently compete so successfully in the health care market. Affordable health coverage should be one of our nation's highest priorities. The antitrust laws are an important tool to achieve that end, and we should not sacrifice them because of the demands of a relative few in the health care market who would rather collude than compete.
EXECUTIVE SUMMARY
The Antitrust Coalition for Consumer Choice in Health Care (''the Coalition'') is a diverse group of employers, health plans, providers, and others involved in the purchase, management, and delivery of health care services. While Coalition members are not traditional legislative allies on some important health care policy issues, they have come together to oppose H.R. 1304 because of the serious threat it poses to health care cost containment, quality, and access.
I. H.R. 1304 would dramatically increase health care costs.
Competition has reduced health care costs, improved quality, and expanded access. Reliance on competition in recent years has paid off in dramatically curtailing health care cost increases that once threatened to overwhelm both the public and private sectors. Importantly, these cost savings are not associated with a negative effect on the quality of care. In fact, competition and increased managed care enrollment has led to improvements in quality. For example, managed care enrollees are more likely to receive preventive screening services than those in fee-for-service plans, and care for patients with chronic illnesses is more likely to be coordinated.
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Competition also has been important in controlling costs and expanding access in the Medicare and Medicaid programs. For example, 6.2 million, or 16.4% of all Medicare beneficiaries, are currently enrolled in a managed care plan. Medicaid relies even more on managed care arrangements to control costs and expand access. In 1998, 16.6 million, or 53.6%, of all Medicaid beneficiaries were enrolled in managed care plans.
Antitrust enforcement is needed to protect competition and ensure consumer choice. As early as 1943, the Supreme Court concluded that the American Medical Association (''AMA'') had violated the antitrust laws by coercing its members to refuse employment with a group health plan. Since then, federal and state enforcement agencies have challenged numerous efforts by otherwise independent health care providers to use collective action to increase (or resist reductions) in their fees or reimbursement levels, or to restrict competition from non-physician providers. Examples include:
Puerto Rico physician boycott to increase reimbursement under a program to provide health care to the indigent. This effort culminated in an eight-day strike in 1996 during which many physicians closed their offices and refused to provide nonemergency services.
Joint negotiations and price-fixing by Florida surgeons that raised their average annual revenues by more than $14,000.
Boycott of New York State Employees Prescription Plan by retail druggists. The Federal Trade Commission (''FTC'') obtained a consent decree against five pharmacy chains for conspiring to refuse to participate in the state's reduced-rate reimbursement initiative, costing the state an estimated $7 million.
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Conspiracy by a hospital medical staff to reduce competition by denying hospital privileges to certified nurse-midwives.
Boycott by the AMA to prevent medical physicians from referring patients to or accepting patients from chiropractors.
Conspiracy by anesthesiologists to eliminate competition by certified registered nurse anesthetists.
Charles River Associates has estimated that the annual total dollar impact of H.R. 1304 would range from $35–$80 billion in increased expenditures for personal health care services financed by the public and private sectors.
II. The antitrust laws allow health care professionals to collaborate in many ways.
The FTC and Department of Justice (''DOJ'') have issued Health Care Antitrust Guidelines that make it clear that:
Providers can express their concerns about patient and quality of care issues. Providers need not fear an antitrust challenge based on communications or discussions concerning quality of care, patient care, or other non-fee issues. And, indeed, the agencies have never brought an enforcement action involving such conduct.
Providers can communicate with each other, and to health plans, about health plan contract terms and fee-related issues. Thus, for example, providers seeking higher reimbursement rates may jointly furnish health plans information about their historic costs, charges, or reimbursement amounts. They also can present views about prospective fee-related issues as long as they make independent decisions concerning their participation with health plans.
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Providers can share information with each other so they can better understand the terms and conditions of health care contracts. Thus, for example, providers can employ an agent who gives them objective information by comparing the reimbursement rates and other terms offered by health plans in their community. Providers also can share information that helps them interpret health plan contracts.
Providers also can join together in many ways that enable them to become more efficient and negotiate more favorable terms. These include:
Forming larger practice groups that enable physicians to achieve economies of scale and other efficiencies.
Collaborating with each other without merging their practices, for example, by forming independent practice associations (''IPAs''). The Health Care Antitrust Guidelines were revised in 1996 to respond to concerns raised by some providers that previous guidelines were too restrictive with respect to the types of ventures that the agencies were willing to approve. The revised guidelines were widely hailed for making it clear that the antitrust laws do not pose an impediment to provider joint ventures that allow providers to negotiate collectively with health plans.
III. Instead of ''leveling the playing field,'' an antitrust exemption will tip it in favor of high-cost providers.
There is no foundation to the core assumption underlying H.R. 1304 that a fundamental change is needed to ''level the playing field'' so that health care providers will have sufficient leverage to negotiate with health plans.
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Health plans do not have ''monopsony power'' over providers. Economists use the term ''monopsony'' to describe a situation in which a buyer has the market power to depress the prices at which it buys goods or services to a level that is below what would prevail in a competitive market—this requires at least a 60%–70% market share. It is unlikely that a health plan in any market has a share that even remotely approaches this level. For example, a review of the 20 largest MSAs showed that, with two exceptions, the share of the largest HMO in each MSA fell below 20% of the area's population, and in many cases below 10%.
The average physician earns only a minority of his or her revenue from all managed care contracts combined, and far less from any single health plan. This not surprising given the importance of Medicare, which remains predominantly a fee-for-service payer, to most physicians' practices.
The shares of health plans vary dramatically from one area of the country to the next, and can change significantly over time. While there has been consolidation of health plans in some markets, others have been marked by growing competition and new entry. Physicians, hospitals, and other health care providers have started numerous health maintenance organizations (''HMOs''), preferred provider organizations (''PPOs''), and other arrangements. Employers in some areas have explored direct contracting with providers, bypassing health plans altogether. Nationwide, the number of HMOs and PPOs has grown from 566 in 1990 to 651 in 1998. The number of PPOs has grown from 571 in 1990 to 1,035 in 1997.
In some markets, health care providers have considerable leverage. In many geographic areas, providers have obtained superior negotiating leverage through growth and acquisitions. Some IPAs and multispecialty groups include hundreds and even thousands of physicians. Much smaller provider groups also can exert considerable negotiating leverage. For example, a health plan may find it virtually essential to contract with a group with only a couple dozen physicians who are all in a single specialty for which there are few substitutes.
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Physician income has continued to rise under managed care. In general, physician income has continued to rise at a healthy pace, even as managed care arrangements have grown. For example, between 1985 and 1996, median physician net income increased 77% to $166,000. This compares to the average median full-time worker income that increased only 43% to $25,480. Moreover, despite claims that managed care is forcing physicians to accept unreasonably low reimbursement schedules, average HMO reimbursement rates in almost all large markets remain substantially higher than those of Medicare.
H.R. 1304 is not needed to balance the McCarran-Ferguson exemption for insurers. This argument is a red herring. The McCarran-Ferguson Act does not exempt from antitrust scrutiny agreements among health plans regarding their contracts with providers, nor does it shield health plan mergers from antitrust review.
IV. The real losers under H.R. 1304 would be the employers, government programs, and consumers on whose behalf health plans provide care.
The health plan market is extremely competitive and is constantly evolving to meet the demands of customers. Purchasers of health plans are very price sensitive, and plans that do not pass along savings to their customers (who include employers as well as individuals who typically must share in the cost of premiums and deductibles) will quickly lose market share.
As a result of this competitive environment, health plans and have not been a particularly profitable sector of the economy. During the early- to mid-1990s, the median profit margin for HMOs was between 2%–3%, substantially lower than the average Fortune 500 company. This slipped to less than 1% in 1995, and was negative in 1996 and 1997.
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If health plans are faced with higher costs, they will have no choice but to pass such costs directly on to their customers. In the case of H.R 1304, those affected by cost increases will include private and public employers (who pay the largest share, by far, of health care costs), Medicare and Medicaid (whose managed care plans are specifically targeted by H.R. 1304), and consumers (who would be forced to pay higher premiums and larger deductibles and copayments).
In addition, H.R. 1304 would severely affect access to health care coverage. Both employers and government programs, when faced with higher costs, will likely have little choice but to respond by limiting the availability of health care coverage to the working poor and others who cannot afford health care insurance.
V. H.R. 1304 has little to do with the traditional antitrust labor exemption.
H.R. 1304 would give health care professionals special treatment available to no other workers. Other workers, if they wish to engage in collective bargaining, must establish that they are subject to the supervision and control of their employers. If health care providers were truly under the supervision and control of health plans, as those criteria are applied to all other workers, then they, too, would be eligible for the existing labor antitrust exemption. But the claim that independent physicians are employees of health plans is difficult to sustain. And that is the reason why they seek passage of H.R. 1304—to obtain a ''backdoor'' exemption that is unavailable to any other type of worker.
H.R. 1304 would give health care professionals the benefits of a labor exemption without any of the NLRA safeguards or oversight that apply to other workers. The National Labor Relations Act (''NLRA'') establishes a substantive and procedural framework that governs all aspects of the collective bargaining process between employees and their employers. None of this would apply to negotiations between health care professionals and health plans under H.R. 1304. Moreover, under H.R. 1304, health plans and insurers could not negotiate jointly as a multiemployer group as they could under the NLRA.
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VI. Conclusion
Competition is crucial to keeping health care costs under control in the private sector, as well as in the Medicare and Medicaid programs. And it is through such cost-control efforts that broader health care access can be given to lower income families and individuals. Competition also is prompting innovative means of improving and measuring quality.
H.R. 1304 would jettison competition among health care providers by allowing them to engage in price-fixing, boycotts, and market allocation agreements that otherwise would be per se illegal under the antitrust laws. It would allow them to collectively seek to raise their fees to plans targeted at the working poor, and to resist efforts that would control costs to such patients. In short, H.R. 1304 would eliminate any meaningful attempt to use competition to control health care costs, improve quality, and expand access. It should be soundly defeated.
I. INTRODUCTION.
The Antitrust Coalition for Consumer Choice in Health Care (''the Coalition'') is a diverse group of employers, health plans, providers, and others involved in the purchase, management, and delivery of health care services. Its employer members include the U.S. Chamber of Commerce, the National Association of Manufacturers, and the National Business Coalitions on Health. Health plan members include the American Association of Health Plans, the Health Insurance Association of America, the Blue Cross Blue Shield Association, and a number of individual health plans. Provider groups include the American Nurses Association, the American Association of Nurse Anesthetists, the American College of Nurse Midwives, the American Optometric Association, the Healthcare Leadership Council, and Premier, Inc. Attachment A is a list of members of the Coalition.
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Members of the Coalition span a very broad spectrum of entities with a keen interest in the nation's health care delivery system. They have diverse views and are not traditional legislative allies on some important health care policy issues. Yet they have come together to form this Coalition to oppose H.R. 1304 because they share common concerns about the serious threat it poses to health care cost containment, quality, and access.
II. H.R. 1304 WOULD DRAMATICALLY INCREASE HEALTH CARE COSTS FOR PUBLIC AND PRIVATE PAYERS BY ELIMINATING COMPETITION AMONG HEALTH CARE PROFESSIONALS.
H.R. 1304 is a deceptively simple bill. To ''level the playing field'' between health care professionals and health plans, the bill would grant health care providers in their negotiations with health plans a special exemption to the antitrust laws. This would allow providers to fix prices, boycott plans, and divide markets—conduct that would be per se illegal (i.e., illegal on its face) if undertaken by virtually any other competitors in our economy.
The bill would be a radical departure from the nation's fundamental approach of using competition and market forces to control health care costs, assure quality, and expand access to health care by lower income families and individuals. Health care markets are in a period of rapid evolution. But it already is apparent that reliance on competition in recent years has paid off in dramatically curtailing health care cost increases that were threatening to overwhelm both the public and private sectors.
The far-reaching nature of H.R. 1304 cannot be exaggerated. In a single stroke, it would jettison the use of competition as a force in promoting efficiency in the delivery of medical care. The result would be increased costs and devastating setbacks to efforts to improve quality and expand access to health care by the uninsured.(see footnote 59)
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A. Competition has reduced health care costs, improved quality, and expanded access.
Historically, a number of factors, including legal and professional barriers, the role of third-party insurance, government regulation, and the nature of prevailing reimbursement systems, insulated much of the health care delivery system from vigorous competition. Lacking few incentives for efficiency, the nation's health care costs skyrocketed, from 7.1% in 1970 to more than 13% of our gross domestic product by the early 1990s.
The private sector took the lead in exploring ways in which a more competitive health care system could address cost, quality, and access issues. In response to the needs of employers, health plans developed various ''managed care'' strategies to create incentives for health care providers to furnish care more efficiently. Some of the first efforts built on earlier models involving prepaid group practices, such as Kaiser Permanente and the Group Health Association, which furnished care through closed panels of staff physicians. More recently, many health plans developed new organizational structures that respond to consumer demand for broader provider panels. Generally, health plans have employed an array of mechanisms to control costs and assure quality, including negotiated fee structures, selective contracting, innovative compensation and reimbursement systems, and expanded utilization review. Employers in many communities also have joined together to share ideas on how to control health care costs, measure the quality of care offered by providers, and expand access for the health care services they buy on behalf of their employees.
Managed care arrangements have taken numerous forms, including health maintenance organizations (''HMOs''), preferred provider organizations (''PPOs''), and point-of-service (''POS'') plans, and these forms are constantly evolving to meet the needs of employers and their employees.(see footnote 60) By 1998, they accounted for 86% of all the enrollment in employer-sponsored health insurance, up from 29% in 1988.(see footnote 61) While the nature of managed care arrangements varies, they all rely on a competitive marketplace for both health care and health plans. Competition in health care creates incentives for health care providers to increase their efficiency, lower their costs, and improve quality. Competition among health plans spurs them on to be innovative and efficient, and assures that the savings they obtain through their arrangements with health care providers will be passed on to consumers—through lower prices to employers and their employees and customers.
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A competitive market also creates an opportunity for new or alternative forms of health care to offer additional choices for consumers. For example, nonphysician providers, such as nurse anesthetists, nurse midwives, optometrists and chiropractors, may provide less expensive services or alternative approaches to delivering care. Through their presence, they also create a poweful incentive to physician providers to be more efficient, less costly, and more innovative.
Reliance on competition and managed care arrangements has been so widespread because they have been successful in controlling health care costs. Numerous studies have shown that increased levels of managed care are associated with lower average health care costs.(see footnote 62) Moreover, the efficiencies resulting from increased competition due to managed care also help control the average expenditures for patients in traditional indemnity or fee-for-service plans. For example, in a study of 95 traditional indemnity insurance groups, researchers determined that insurance premiums for indemnity plans increased less rapidly from 1985 to 1992 in markets with greater HMO penetration.(see footnote 63) This so-called spill-over effect means that an increase in competition, as measured by the increase in managed care penetration, translates directly into more affordable health care for all consumers.
The bottom line is that in recent years, as a result of increased reliance on managed care and competition in the marketplace, the nation has been able to curtail dramatically the rate of increase in health care costs borne by employers, consumers, and the government. For example, as Figure 1 shows, the annual rate of increase for health insurance premiums, which had been as high as 15% to 20% 10 years ago, has been well below 5% since 1994.
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Similarly, largely because managed care plans tend to require more limited copayments and smaller deductibles than indemnity insurance, the proportion of national health expenditures paid out-of-pocket by consumers has declined steadily from 23.4% in 1986 to 17% in 1997, as shown by Figure 2.
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The overall cost savings impact of competition and managed care on the nation's health care costs is perhaps best reflected in the percentage of gross domestic product (''GDP'') accounted for by national health expenditures. As shown in Figure 3, after rising dramatically for 30 years, from 5.1% in 1960 to 13.0% in 1991, this share has remained essentially flat since 1993. This accomplishment is all the more remarkable given increasing costs attributable to new medical technology and the gradual aging of the population.
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6\ For the first time since the late 1980s, out-of-pocket spending (premiums, coinsurance, and copayments) grew faster than private health insurance, reaching $187.6 billion (5.3% rate of growth) in 1997. In the period 1986–1996, the share of national health spending from consumer out-of-pocket sources declined, reaching a low of 16.6% in 1996. According to a HCFA analysis, this slowdown has paralleled the growth of managed care, which generally has smaller copayments and deductibles than indemnity insurance. HCFA expects the rate of increase to be in the 6% per year range between 2001 and 2007, a figure well below the 9% per year increases of the 1980s and early 1990s. (Health Affairs, Jan./Feb. 1998; also Health Affairs, Sept./Oct. 1998; (Health Care Financing Administration, Highlights: National Health Expenditures, 1997 (Nov. 11, 1998).
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Importantly, these cost savings are not associated with a negative effect on the quality of care. In fact, competition and the increase in managed care enrollment has led to improvements in quality. For example, managed care enrollees are more likely to receive preventive screening services than those in fee-for-service plans, and care for patients with chronic illnesses is more likely to be coordinated.(see footnote 64)
Finally, the vast majority of consumers who are enrolled in managed care plans are generally satisfied with the care they are receiving. This finding applies to Medicare and Medicaid HMO enrollees, patients with chronic health conditions, federal employees, and employees covered by health plans in the private sector.(see footnote 65)
B. Competition also has been important in controlling costs and expanding access in the Medicare and Medicaid programs.
By the mid-1990s, the Medicare and Medicaid programs also began to rely heavily on competition and managed care to control costs and expand access. For example, 6.2 million Medicare beneficiaries, or 16.4% of all Medicare beneficiaries, are currently enrolled in a managed care plan.(see footnote 66) The Congressional Budget Office (''CBO'') expects this percentage to increase to 19% of all Medicare beneficiaries by 2002 and 28% by 2007.(see footnote 67) Medicaid plans rely even more on managed care arrangements to control costs and expand access. In 1998, 16.6 million, or 53.6%, of all Medicaid beneficiaries were enrolled in managed care plans.(see footnote 68)
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Studies have shown that, like the private sector, these public programs have benefited from competition and the increased use of managed care. Research conducted at Stanford University, the Urban Institute, and Price Waterhouse have estimated that the Medicare program receives an indirect cost-savings when more Medicare beneficiaries enroll in HMOs. For example, a study by Price Waterhouse found that for every 10% increase in Medicare prepaid HMO enrollment, traditional Medicare program costs in a given county are 2.8%–7.6% lower.(see footnote 69) State Medicaid programs also have incurred savings from increased managed care enrollment. For example, one study estimated that the state of California, by enrolling Medicaid beneficiaries into managed care plans, achieved savings of $8.6 billion in 1996.(see footnote 70) New York saved an estimated $3.7 billion, and Massachusetts $2.3 billion. These savings make it possible for states, by relying on managed care approaches, to expand their Medicaid programs to provide access to more of the uninsured.
Moreover, the ''spillover effect'' described above means that the benefits of competition and managed care also can result in savings to those substantial parts of Medicare and Medicaid that are still based on a traditional fee-for-service structure. For example:
A 1999 study published in the Journal of the American Medical Association found that an increase in systemwide HMO market share from 10% to 20% is associated with a 2.0% decrease in Medicare Part A fee-for-service expenditures and a 1.5% decrease in Part B fee-for-service expenditures.(see footnote 71)
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Another researcher concluded that an expansion in Medicare managed care within a metropolitan statistical area corresponded with a drop in expenditures in overall Medicare costs in that area. The study estimated that a 10% increase in Medicare managed care enrollment lowers Medicare costs per beneficiary by 1.2%.(see footnote 72)
C. Antitrust enforcement is needed to protect competition and ensure consumer choice.
Over the years, antitrust enforcement has been crucial in ensuring that health care markets are competitive so that consumers can reap the benefits of competition discussed above and have a wide range of choices of health providers and plans. In fact, as early as 1943, the Supreme Court concluded that the American Medical Association (''AMA'') violated the antitrust laws by coercing its members and practicing physicians not to accept employment under a group health membership corporation that paid providers on a risk-sharing prepayment basis.(see footnote 73)
Federal and state enforcement agencies have challenged numerous efforts by otherwise independent health care providers to use collective action to increase (or resist reductions) in their fees or reimbursement levels.(see footnote 74) Examples include:
Puerto Rico physician boycott to increase reimbursement under program to provide health care to the indigent. This effort culminated in an eight-day strike in 1996 during which many physicians closed their offices and refused to provide non-emergency services. The Federal Trade Commission (''FTC'') and the Commonwealth of Puerto Rico obtained a consent decree with the doctors in which they agreed to pay $300,000 in restitution and agreed not to engage in future boycotts.(see footnote 75)
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Joint negotiations and price-fixing by Florida surgeons that raised their average annual revenues by more than $14,000. Earlier this year, the Department of Justice (''DOJ'') entered into a consent decree with 29 surgeons who accounted for 87% of the general and vascular surgeries performed in five Tampa, Florida, hospitals. DOJ alleged that the surgeons engaged in illegal joint negotiations and price-fixing that, by the surgeons' own estimate, resulted in an average annual gain of $14,097 in projected revenues for each surgeon.(see footnote 76)
Boycott by emergency room physicians. In 1994, the FTC obtained a consent decree from a group of trauma surgeons in Florida. The ten surgeons were charged with illegally conspiring to fix fees for their services at two area hospitals. The surgeons refused to deal individually with the hospitals, threatened to cease providing trauma services if their price terms were not met, and to back up that threat, walked out of one trauma center, forcing it to close.(see footnote 77)
Boycott of New York State Employees Prescription Plan by retail druggists. The FTC obtained a consent decree against five pharmacy chains, an executive of one of the chains, a trade association, and other unnamed pharmacy firms in New York for conspiring to refuse to participate in the state's reduced-rate reimbursement initiative. The FTC charged that actions by the defendents cost the state an estimated $7 million.(see footnote 78)
Physicians also have acted collectively to restrict competition from nonphysician providers. Examples include:
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Conspiracy by a hospital medical staff to reduce competition by denying hospital privileges to certified nurse-midwives. The medical staff at Memorial Medical Center (''MMC''), which represented a majority of the practicing physicians in Savannah Georgia, protested the hospital's credentialing committee's decision to grant hospital privileges to a state certified nurse-midwife. In addition, several obstetricians affiliated with MMC threatened to shift their patient admissions to another hospital based on the vote. The FTC alleged that as a result of these threats, the committee reversed itself and denied hospital privileges to the nurse-midwife without a reasonable basis. The FTC secured a consent order that prohibited the medical staff from restricting or recommending denial of hospital privileges for any certified nurse-midwife without adequate grounds.(see footnote 79)
Boycott by the American Medical Association to prevent medical physicians from referring patients to or accepting patients from chiropractors. The goal in these efforts, which were declared by the Seventh Circuit Court of Appeals to be an unlawful boycott under the antitrust laws, was to deny chiropractors access to hospital diagnostic services and membership on hospital medical staffs, to prevent medical physicians from teaching at chiropractic colleges or engaging in any joint research, and to prevent any cooperation between the two groups in the delivery of health care services.(see footnote 80)
Conspiracy by anesthesiologists to eliminate competition by certified registered nurse anesthetists (''CRNAs''). Despite the fact that nurse anesthetists are clinically qualified to provide certain anesthesia services under the supervision of a physician, M.D. anesthetists have long viewed CRNAs as competitors and have attempted to eliminate this competition through illegal exclusive dealing contracts with hospitals.(see footnote 81)
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Strict enforcement of the antitrust laws has been crucial in ensuring that health care providers do not engage in these kinds of anticompetitive actions that can only serve to raise the costs and limit the choices of consumers. But as is discussed in Section III below, the antitrust laws permit a wide range of collaborative activities among health care providers. Thus the actual number of antitrust challenges mounted by the FTC and DOJ has been few (less than half a dozen a year for both agencies combined), and none of these have involved legitimate efforts on the part of providers concerning quality of care issues. Instead, enforcement agency activity is targeted at those cases of egregious provider conduct that most seriously threatens to raise costs and reduce choice.
III. THE ANTITRUST LAWS ALLOW HEALTH CARE PROFESSIONALS TO COLLABORATE IN WAYS THAT BENEFIT CONSUMERS.
Some physicians have suggested that the antitrust laws make it impossible for them to communicate with each other concerning various aspects of managed care arrangements. This is simply not true. The antitrust laws prohibit agreements among otherwise competing health care providers where their collective action is aimed only at increasing market power, at the expense of consumers. But as described in further detail below, as long as their conduct does not involve agreements on a collective course of action, the antitrust laws allow providers to share information with each other or with health plans and the public. Indeed, such communications often are procompetitive since they can facilitate more informed decision making. The antitrust laws also permit providers to form joint ventures or networks that can negotiate with health plans on their behalf, and in many areas of the country such provider groups have attained considerable size.
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The FTC and DOJ issued guidelines in 1993, and then revised them in 1994 and again in 1996, aimed specifically at health care providers to help them understand how they can lawfully collaborate under the antitrust laws.(see footnote 82) This section briefly discusses this guidance and describes how providers throughout the country are collaborating in many different ways without the need for any antitrust exemption.
A. The antitrust laws allow providers to express their concerns about patient and quality of care issues.
The federal antitrust agencies in Section 4 of their Health Care Antitrust Guidelines specifically addressed joint action by health care providers to furnish information to health plans about non-fee issues. The section begins by noting that
[t]he collective provision of non-fee-related information by competing health care providers to a purchaser [i.e., health plan] in an effort to influence the terms upon which the purchaser deals with the providers does not necessarily raise antitrust concerns. Generally, providers' collective provision of certain types of information to a purchaser is likely either to raise little risk of anticompetitive effects or to provide procompetitive benefits.(see footnote 83)
The section goes on to establish a ''safety zone'' for the collective provision by provider groups of medical data or suggested practice parameters involving the mode, quality, or efficiency of treatment. Such conduct will not be challenged absent ''extraordinary circumstances.''(see footnote 84) Under this safety zone, for example, the collection of data by the cardiologists in a community concerning the medical necessity of a certain form of treatment, and their joint recommendation to a health plan that it be covered, would not raise antitrust concerns.
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Thus the agencies are clearly on record that providers need not fear an antitrust challenge based on communications or discussions they may have—with each other, with health plans, or with the public—concerning quality of care, patient care, or other non-fee issues. And, indeed, the agencies have never brought an enforcement action involving such conduct.
B. The antitrust laws allow providers to communicate with each other, and to health plans, about health plan contract terms and fee-related issues.
In a separate section of the Health Care Antitrust Guidelines, the antitrust agencies also have established another ''safety zone'' for the collective provision of fee-related information, such as historical fees or other aspects of reimbursement. This safety zone applies so long as the data is submitted to a neutral third party, and is disseminated in aggregate (anonymous) form that does not reflect pricing or related information that is less than three months old.(see footnote 85) Thus, for example, providers seeking higher reimbursement rates may jointly furnish health plans information about their historic costs, charges, or reimbursement amounts. In addition, the agencies note that the collective provision of information or views concerning prospective fee-related matters also will not raise antitrust concerns, as long as providers make independent decisions concerning their participation with health plans.
The antitrust laws, and the guidelines that interpret them, also allow providers to share information with each other so they can better understand the terms and conditions of health care contracts and make more well-informed decisions concerning which contracts they wish to sign. Thus, for example, providers can employ an agent who gives them objective information comparing the reimbursement rates and other terms offered by health plans in their community. Providers also can share information that will help them interpret health plan contracts. Many medical societies, including the American Medical Association, furnish their members with detailed information on reviewing health care contracts.(see footnote 86) They also provide assistance to their members in interpreting and advocating for changes in contract provisions. For example, the AMA's Division of Physician and Patient Advocacy has staff that is ''available to consult with and assist state and county societies in representing individual physicians and groups before health plans.''(see footnote 87)
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Clearly, H.R. 1304 is not needed to enable providers to communicate with each other, or with health plans, about patient care issues raised by managed care contracts. Nor is it needed to allow providers to share information that would allow them to make more informed decisions about contracts, or to express their views or provide information to health plans about contractual terms. The antitrust laws already permit such conduct, because such activities do not restrict competition, and in fact, often help make the market work better.
What H.R. 1304 would change is that it would remove the antitrust prohibition against boycotts and price-fixing, thereby allowing providers not just to communicate with each other and plans, but to coerce plans to accept their views. Such conduct does not make the market work better, it displaces it. It substitutes a provider cartel for competition and consumer choice.
C. The antitrust laws allow health care providers to join together in many ways that enable them to become more efficient and negotiate more favorable terms.
The antitrust laws also recognize that there are numerous ways that health care providers can join together to provide more efficient health care and that also may enable them to negotiate more effectively with health plans.
One alternative is to form larger practice groups that enable physicians to achieve economies of scale and other efficiencies, an approach adopted by many physicians in recent years. Thus the number of group practices has grown by 362%, from 4,289 in 1965 to 19,820 in 1996, and about one-third of all non-federal physicians now practice in groups.(see footnote 88) Moreover, some of these groups are quite large: of those physicians in group practices in 1996, 28.7% were in groups of 100 or more physicians.(see footnote 89)
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Physicians who wish to remain in solo or small group practices also can collaborate with each other without merging their practices, for example, by forming independent practice associations (''IPAs''). Indeed, the American Medical Association has observed that such arrangements are likely the reason that the percentage of physicians in group practices has not grown even more in the 1990s, as some had predicted:
[S]everal alternatives to group practices are now widely available. Physicians may choose more loosely-organized structures, like physician organizations or independent practice associations, over the more tightly integrated practice model that the medical groups represent. These other models offer physicians the advantage of practicing independently while being part of a larger organization able to attract managed care contracts.(see footnote 90)
The arrangements to which the AMA is referring allow physicians and other health care providers who remain in independent practice to collaborate by forming network joint ventures through which they can work together to provide health care services more efficiently. The FTC and DOJ have made it absolutely clear that through such arrangements, providers can lawfully negotiate collectively with health plans. Thus, for example, the FTC and DOJ Health Care Antitrust Guidelines devote two separate sections explaining how providers can form physician and multiprovider networks to contract with managed care organizations. These guidelines were revised in 1996 to respond to concerns raised by some providers that previous guidelines were too restrictive with respect to the types of ventures that the agencies were willing to approve. The revised guidelines were widely hailed for making it clear that the antitrust laws do not pose an impediment to provider joint ventures that can offer new alternatives to consumers.(see footnote 91)
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D. The antitrust laws only prohibit health care providers from engaging in conduct that will harm consumers.
As the preceding discussion has explained, health care providers have tremendous latitude under the antitrust laws to communicate with each other about various aspects of managed care arrangements, and to jointly communicate their views to health plans and the public. Health providers are also free to collaborate with each other to form networks that can jointly contract with plans. And, of course, they are free to contract directly with employers, or to create their own alternatives to health plans. All of these kinds of conduct are lawful under the antitrust laws because they do not restrict, and indeed may expand, the choices available to consumers. The only conduct that the antitrust laws prohibit is conduct by providers—such as would be possible under H.R. 1304—to supplant the market altogether and impose their will on and limit the choices available to consumers.
IV. INSTEAD OF ''LEVELING THE PLAYING FIELD,'' AN ANTITRUST EXEMPTION WILL TIP IT IN FAVOR OF HIGH COST PROVIDERS.
The preceding sections have described the importance of competition in controlling health care costs and assuring quality and access, and how the antitrust laws do not preclude health care providers from communicating and collaborating in ways that benefit consumers. This section addresses the core assumption underlying H.R. 1304—that a fundamental change is needed to ''level the playing field'' so that health care providers will have sufficient leverage to negotiate with ''heavy-handed'' health plan bureaucracies.
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Section IV.A first describes how health care markets are much more diverse, complex, and dynamic than proponents of H.R. 1304 suggest. In many areas of the country, it is providers, not health plans, who occupy a dominant position. And even in areas where there are only a few large health plans, none has the market share that is associated with ''monopsony power'' (i.e., the power of a buyer to depress prices to a level lower than would be present in a competitive market). Moreover, as Section IV.B explains, H.R. 1304 would not simply shift bargaining power from managed care companies to health care providers. Rather, the real losers if H.R. 1304 passes would be the employers, consumers, and government programs on whose behalf the health plans provide care. Finally, Section IV.C addresses the ''red-herring'' argument that providers need a new antitrust exemption to balance the limited McCarran-Ferguson exemption that applies to the ''business of insurance.''
A. Health plans do not have ''monopsony power'' over providers.
H.R. 1304 is based on the deceptively simple proposition that a special exemption to the antitrust laws is needed to offset the overwhelming dominance that health plans exert over health care providers. Because of this dominance, it is claimed, providers are faced with ''take it or leave it'' contracts that they have no choice but to accept. The reality, however, is much more complex. A closer examination shows that not only do health care markets vary tremendously across the country, and are in a state of rapid change, it is unlikely that a health plan in any market has a share that even remotely approaches the market share that is associated with monopsony power. Furthermore, in many markets, health care providers have combined to amass significant leverage of their own.
The average physician earns only a minority of his or her revenue from all managed care contracts combined, and far less from any single health plan. To consider whether a health plan has leverage over physicians, the focus of the inquiry must be on the share of the average physician's revenue that is attributable to the plan. Thus, the fact that there may be only a few large HMOs in an area, or that various HMOs have merged, tells us little if HMO revenue accounts for only a small percentage of the typical physician's income. For example, even if a ''dominant'' health plan accounts for 65% of the HMO-covered lives in an area, that plan will have little leverage if only 15% of all patient revenues is derived from HMO patients. The plan would account for less than 10% of the average physician's income (65% x 15%)—amounting to an important payer, but hardly one that could unilaterally dictate prices and other terms.
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And, in fact, as reported in the AMA's most recent survey, managed care, of all varieties, and in the aggregate, accounts for only 48.7% of nonfederal physician revenue.(see footnote 92) Of this amount, 29.9% is from private managed care, 11.1% from Medicare managed care, and 6.7% from Medicaid managed care. It must be emphasized, moreover, that this figure includes income from HMOs, PPOs and POS arrangements, and covers all health plans combined. Obviously, the revenue share from HMOs would be much less, as would the share from any single plan.(see footnote 93) That managed care accounts for only a minority of physician revenue is not surprising given the importance of Medicare, which remains predominantly a fee-for-service payer to most physicians' practices.
It is unlikely that the share of any single health plan even remotely approaches that of a monopsony in any area of the country. A monopolist is a seller that has sufficient market power to raise prices over that which would prevail in a competitive market. Economists use the term ''monopsony'' to describe a comparable situation with respect to a buyer who has the market power to depress the prices at which it buys goods or services to a level that is below what would prevail in a competitive market. Generally, courts consider it unlikely that a seller could exercise monopoly power (and conversely a buyer exercise monopsony power) unless it accounts for 60%–70% or more of a relevant market.(see footnote 94)
Unfortunately, data are not available that shows by geographic area the shares of the average physician's revenue accounted for by various health plans. It is virtually impossible, however, that any single plan accounts for 70% or more of the revenues of physicians in even the most highly concentrated market. This is because the average physician derives his or her income from numerous sources, of which private insurance and managed care are only a small portion. Reference already has been made to the fact that managed care accounts for only a minority of nonfederal physician income. The AMA also has compiled data by source of payer. For 1998, only 42.8% of nonfederal physician income was accounted for by private insurance. The balance came from Medicaid (12%), Medicare (28.6%), and patients themselves (12.2%).(see footnote 95) Given that the private insurance component includes all types of arrangements, such as indemnity, managed care, workers' compensation, auto and disability insurance, and CHAMPUS, and that there are typically numerous competitors offering each type of arrangement, it would appear virtually inconceivable that any single payer in even the most concentrated market could account for a share even remotely approaching monopsony levels.
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While data by geographic area showing the share of physician revenue accounted for by HMOs is not available, there are data that shows the number of enrollees in HMOs in various market areas. Not surprisingly, the enrollment in any HMO accounts for only a small minority of the population in each area. This is illustrated in Figure 4, which shows for each of the nation's 20 largest MSAs the percentage of enrollees in the largest HMO compared to the MSA population. With two exceptions, this share is below 20%, and in many cases below 10%.(see footnote 96)
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Moreover, these shares likely underestimate the amount of revenue from the largest HMO because most (about 84%) Medicare beneficiaries are not enrolled in HMOs, and Medicare beneficiaries typically account for about three times as much health care services as the average population.
The shares of health plans vary dramatically from one area of the country to the next, and can change significantly over time. Reports regarding the merger of a number of health plans in recent years shed little light on competitive conditions in any specific area because health plan markets are extremely varied and dynamic. While there has been consolidation of health plans in some markets, others have been marked by growing competition and new entry from health plans from other parts of the country. In some geographic areas, for-profit plans may be prevalent; in others, nonprofit or staff model HMOs are the major competitors. Physicians, hospitals, and other health care providers have started numerous HMOs, PPOs, and other arrangements over the last decade. Employers in some areas have explored direct contracting with providers, bypassing health plans altogether. Nationwide, the number of HMOs and PPOs has grown from 566 in 1990 to 651 in 1998.(see footnote 97) The number of PPOs has grown from 571 in 1990 to 1,035 in 1997(see footnote 98)
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In short, the health plan market is highly competitive, dynamic, and varied. As discussed above, in even the most highly concentrated areas, the most dominant health plan is not likely to have anything approaching monopsony power. Moreover, even such dominant plans face the threat of competition from numerous directions. And finally, many markets remain very unconcentrated, with no single plan having a significant market share.
In some markets, health care providers have considerable leverage. Proponents of H.R. 1304 also ignore the fact that in many geographic areas, providers have obtained superior negotiating leverage through growth and acquisitions. Moreover, such leverage is not difficult to exercise given the loyalty many patients have for their physicians. Patients often are more willing to switch their health plan than a longtime health care provider. Substantial leverage can be exercised by large, as well as relatively small, groups. Some of the former include IPAs and multispecialty groups that include hundreds, and even thousands, of physicians. Examples include:
Healthcare Partners Medical Group was started in 1975 as California Primary Physicians by a group of physicians in the emergency room at California Hospital in Los Angeles, California. In 1982, it employed 52 physicians, had 4 offices, and 10,000 pre-paid patients. By 1998, the group employed more than 300 physicians, with another 600 affiliated IPA physicians, had 30 clinic sites, and an enrollment of more than 250,000. Its revenue in 1997 totaled $300 million.(see footnote 99)
Hill Physicians Medical Group was founded in 1982 in Oakland, California. It expanded through mergers with and acquisitions of other IPAs. By 1997, it had 700 primary care physicians, 1,800 specialists, and 325,000 enrollees.(see footnote 100)
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Brown & Toland began in 1992 with a 692-physician IPA called ''California Pacific Medical Group'' in San Francisco, California. In 1997, it had 1,250 physicians tending 172,000 patients.(see footnote 101) Brown & Toland was the first California IPA to obtain a state license to accept global capitation for all medical services, including hospitalization.
Wisconsin Independent Physicians Group was founded in 1984 in Milwaukee, and now has 1,050 physicians. Forty-five thousand Medicaid patients represent one third of its patient base.(see footnote 102)
The Nalle Clinic was established in 1929 in Charlotte, N.C. as a center for specialty referrals. It grew from 56 to 129 physicians during the 1990s. When Prudential terminated its contract with the Nalle Clinic in 1992, the Clinic retained almost all of its Prudential enrollees by encouraging its patients to change plans instead of changing doctors.(see footnote 103)
American Oncology Resources purchased Physician Reliance Network, increasing the size of its organization to more than 700 physicians, including more than 325 oncologists, in 44 cancer treatment centers in 24 states. After the merger, American Oncology Resources will treat approximately 13% of all new cancer cases nationwide and will have annual revenues exceeding $850 million.(see footnote 104)
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Depending on the size of the community and the composition of the group, much smaller provider groups can exert considerable negotiating leverage. For example, a health plan may find it virtually essential in many communities to contract with a practice group or IPA that may have only a couple dozen physicians if all of the physicians are in a single specialty for which there are few substitutes.
Physician income has continued to rise under managed care. As health care markets have become more competitive during the past 10–15 years, it is not surprising that many health care providers have felt increased pressure to practice more efficiently and price their services more competitively. In general, however, physician income has continued to rise at a healthy pace, even as managed care arrangements have grown. For example, as Figure 5 shows, between 1985 and 1996, median physician net income increased 77% to $166,000. This compares to the average median full-time worker income that increased only 43% to $25,480. During this time, the gap between the income of the average physician and that of the average worker also increased. In 1985, the average physician earned 5.27 times as much as the average American worker. By 1996, the average physician earned 6.51 times as much as the average American worker.(see footnote 105)
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Moreover, despite claims that managed care is forcing physicians to accept unreasonably low reimbursement schedules, average HMO reimbursement rates in almost all large markets remain substantially higher than those of Medicare.(see footnote 106)
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H.R. 1304 is based on the clearly erroneous assumption that health care markets everywhere are dominated by health plans. The above discussion is not intended to suggest that physicians everywhere have the upper hand when they negotiate with managed care plans. But certainly the opposite assumption, on which the rationale for H.R. 1304 is based, is not true. In some geographic areas, health plans may be particularly strong; but in other areas, physicians may dominate; and in most areas, where there is healthy competition, neither health plans nor physicians will have significant market power. Moreover, within each market, there will be tremendous variation in the negotiating strength across health plans, and across health care providers. In the case of both health plans and providers, this will vary depending on such factors as local reputation, length of time in the community, number of patients (or covered lives), and the nature of the arrangements they are willing to enter. And over time, the relative negotiating strength of both plans and providers will change, largely due to their success or failure in meeting the needs of their customers.
Illustrative of these changes is the fact that 15 years ago federal legislation was introduced that would have given insurers certain exemptions from the antitrust laws to allow them to negotiate jointly with health care providers.(see footnote 107) Ironically, one of the rationales of that bill was that it was needed to combat the market power of providers. The bill was not passed by Congress, and insurers do not have the benefit of such an exemption. But it illustrates the dynamic nature of health care markets, how the perception of who may have the ''upper hand'' can quickly change over time, and why legislation providing an exemption (no matter how well intended) is shortsighted.
Of course, none of this is unique to health care. It is in fact how competition works throughout the rest of the economy. H.R. 1304, however, is based on the clearly erroneous assumption that health plans throughout the country are dominant, and a ''one size fits all'' solution is needed everywhere to tip the scales in favor of providers.
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B. In a misguided attempt to ''level the playing field,'' the real losers under H.R. 1304 would be the employers, consumers and government programs on whose behalf health plans provide care.
Proponents of H.R. 1304 portray the current health care environment as one in which health care providers are battling health plans, and they suggest that given a choice between the two, consumers would be better off by ''tilting the playing field'' in favor of providers. This portrayal, however, fundamentally misconstrues the role that health plans play in today's health care system, and the impact that the bill would have on consumers, employers, and government programs.
Health plans have evolved to meet the needs of those who purchase health care services on their own behalf or on behalf of others. As observed above, the health plan market is extremely competitive and is constantly evolving to meet the demands of customers. For example, many plans during the past few years have begun offering ''point of service'' options and broader provider panels in response to customer demand that patients be given access to a wide choice of providers. Purchasers of health plans also are very price-sensitive, and plans that do not pass along savings to their customers (who include employers as well as individuals who typically must share in the cost of premiums and deductibles) will quickly lose market share.
Two consequences flow from the competitive nature of the health plan environment. First, health plans have not been a particularly profitable sector of the economy. As Figure5 shows, during the early- to mid-1990s, the median profit margin for HMOs was between 2%–3%, substantially lower than the Fortune 500 median. This slipped to less than 1% in 1995, and was negative in 1996 and 1997.
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Second, if health plans are faced with higher costs, they will have no choice but to pass such costs directly on to their customers. In the case of H.R. 1304, those affected by cost increases will include the following:
Private employers. By far, the biggest purchasers of health care services through health plans are employers. H.R. 1304 would affect both employers who purchase care through HMOs and insurers, as well as employers who are self-insured and cover their employees through arrangements administered by health plans. The higher costs imposed on employers inevitably will be passed on in the form of either reduced benefits to their employees and/or higher prices to their customers.
Public employers. Federal, state, and local governments also rely on health plans to provide health care for their employees. Arrangements such as the Federal Employee Health Benefit Plan (''FEHPB'') for federal employees and the California Public Employees' Retirement System (''CalPERS'') are viewed as models for the way they have used competition among health plans to lower costs and expand choice.
Medicare. H.R. 1304 specifically covers Medicare+Choice health plans. Recently, a number of health plans have decided not to offer Medicare+Choice products in various parts of the country because they believe Medicare rates are insufficient in light of the costs of the care they must provide. Additional cost increases due to H.R. 1304 would likely cause the number of plans offering Medicare+Choice options to shrink further. The result would be fewer options for Medicare beneficiaries and/or increases in federal outlays to cover the higher plan costs. Health plans that continue to offer Medicare+Choice arrangements, when faced with higher costs, would also likely need to reduce the scope of their benefit packages. This will directly impact those Medicare beneficiaries who now rely on the broader benefit package available through Medicare+Choice plans (such as coverage for prescription drugs), and will reduce the attractiveness of the Medicare+Choice option as an alternative to the traditional Medicare fee-for-service benefit.
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Medicaid. H.R. 1304 also specifically targets Medicaid managed care plans, which now account for more than half of all Medicaid enrollees nationwide. Such approaches have been an essential tool in enabling states to control the cost of Medicaid budgets, as well as in some cases to broaden access to the uninsured. Cost increases to Medicaid managed care plans inevitably will result in fewer plans offering such programs, or the need for more federal and state outlays to cover the increased costs.
Consumers. Higher costs also will directly affect consumers who obtain their health care through health plans. They would be forced to pay higher premiums and larger deductibles and copayments.
In addition to the above, H.R. 1304 also would severely affect access to health care coverage. Both employers and government programs, when faced with higher costs, will likely have little choice but to respond by limiting the options and availability of health care coverage to the working poor and others who cannot afford health care insurance.
In short, the impact of H.R. 1304 will be to raise costs, and those costs inevitably will be borne by employers, consumers, and those government programs designed to serve the needy and elderly.
C. H.R. 1304 is not needed to balance the McCarran-Ferguson exemption for insurers.
Some proponents of H.R. 1304 have suggested that health plans have been able to exercise market power or engage in anticompetitive conduct because they benefit from an exemption to the antitrust laws under the McCarran-Ferguson Act. On the contrary, the McCarran-Ferguson Act does not exempt from antitrust scrutiny agreements among health plans regarding their contracts with providers, nor does it shield health plan mergers from antitrust review.
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The McCarran-Ferguson Act reserves to the states the power to regulate and tax the business of insurance. But the antitrust statutes continue to apply to the extent such business is not regulated by state law. The Supreme Court has held that the business of insurance is distinguished by two elements: (1) the spreading and underwriting of a policyholder's risk; and (2) a direct connection to the contractual relationship between the insurer and the insured.(see footnote 108) Only this type of business comes within the McCarran-Ferguson exemption.
In contrast, activity that does not involve the ''business of insurance'' as defined above, even if undertaken by insurance companies, remains subject to the antitrust laws. This includes, for example, conduct involving the relationship between health insurers and participating providers.(see footnote 109) Agreements to boycott, coerce, or intimidate are specifically excluded from the McCarran-Ferguson exemption and remain subject to the Sherman Act. Furthermore, mergers among insurance companies remain subject to antitrust scrutiny under the Hart-Scott-Rodino, Federal Trade Commission, and Clayton Acts, as evidenced by the Department of Justice's current review of the proposed Aetna-Prudential merger.
In short, the argument that health care providers need an antitrust exemption to balance the McCarran-Ferguson exemption that applies to insurers is simply a red herring. Health plans do not have an exemption of the sort that H.R. 1304 would give health care providers that would allow them to jointly set prices, refuse to deal, or allocate markets. Health plans are not exempted from review under the antitrust laws when they seek to merge or form joint ventures. And a health plan would not be exempt from scrutiny under Section 2 of the Sherman Act if it sought to unlawfully achieve or maintain a monopoly in any market.
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V. H.R. 1304 HAS LITTLE TO DO WITH THE TRADITIONAL ANTITRUST LABOR EXEMPTION.
Under existing law, agreements in connection with negotiations between employees and employers concerning the terms of their employment are exempt from antitrust challenge. This antitrust labor exemption seeks to carefully balance our national policy of using competition to enhance consumer welfare with our national policy of allowing collective action among laborers in their attempts to raise wages and improve working conditions. H.R. 1304, however, departs dramatically from this balancing approach in two important ways: (1) it would give health care professionals the special treatment afforded employees under the antitrust laws even where they are neither employees nor subject to the kind of supervision or control typically exercised over employees; and (2) it would give health care professionals special antitrust treatment without imposing any of the obligations and safeguards that apply under federal labor law to employees in all other sectors of the economy.
A. H.R. 1304 would give health care professionals special treatment available to no other workers—the ability to remain an independent contractor while claiming an exemption otherwise available only to employees.
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, and which extends the statutory exemption to agreements that labor unions may enter into with others, including employers.(see footnote 110)
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Both the statutory exemption and the nonstatutory exemption require that the activity in question arise out of a ''labor dispute''—i.e., a dispute involving: (1) a bona fide labor organizations of employees, as opposed to an association of independent contractors;(see footnote 111) and (2) the promotion of legitimate labor interests rather than entrepreneurial or other nonlabor interests unrelated to the employer-employee relationship. Thus, when independent business people combine, even in the form of a labor organization, to enhance their entrepreneurial interests rather than to affect some employer-employee relationship, the labor exemption is inapplicable.(see footnote 112)
[W]hen Congress passed the Labor Act, it intended words it used to have the meanings that they had when Congress passed the act, not new meanings that, 9 years later, the Labor Board might think up. . . . ''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, . . . 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.
H.R. Rep. No. 245, 80th Cong., 1st Sess. 18 (1947).
The National Labor Relations Board (''NLRB''), in considering certification petitions, and the courts, whether in reviewing NLRB certification decisions or considering the antitrust labor exemption, utilize the same legal test to determine the existence of an employment relationship. That test—the ''right to control'' test—is based on common law standards for determining master-servant and agency relationships.(see footnote 113) In determining whether an employer-employee relationship exists, the total circumstances involved in the relationship are considered. These include:
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how payment for services is determined (e.g., by job or by time);
the extent to which the worker bears risk of loss and opportunity to profit;
what benefits the employer provides, if any;
who owns and/or provides the tools to do the work;
how the contract characterizes the relationship;
who designates where the work is done;
degree of skill the job requires;
whether workers retain the right to hire their own employees;
whether workers may perform jobs for anyone else; and
whether the relationship is temporary or permanent.
Although these and similar factors are important in assessing the nature of the relationship between a worker and a company, no single factor is dispositive.
Physicians and other health care professionals, to the extent they are employees and are subject to the type of control and supervision that is exercised by employers, are covered by the existing antitrust labor exemption. Some physicians in independent practice have argued that HMOs exert so much control over how they practice that they are essentially ''employees,'' and that they, too, should be entitled to that status under the labor and antitrust laws. If this is true, however, they should be eligible under existing law, and there is no need for the exemption in H.R. 1304.
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Obviously, the extent to which physicians may be subject to the control and supervision of an HMO will vary depending upon the particular circumstances. Significantly, until recently no independent physicians who claimed that their relationship with an HMO made them employees were willing to subject themselves to scrutiny under the rubric of the NLRA to determine if they indeed met the accepted definition of ''employee.'' Such an adjudication was recently made, however, involving physicians in southern New Jersey with respect to their relationship with AmeriHealth HMO. In this important test case, decided in mid-May, the NLRB Regional Office concluded that the facts ''weighed heavily in favor of finding that the physicians were independent contractors,'' and, therefore, not entitled to be certified as employees under the NLRA.(see footnote 114)
The AmeriHealth decision illustrates an important point—H.R. 1304 would grant to health care professionals special treatment that is not available to any other workers in our economy. Other workers, if they wish to engage in collective bargaining, must establish that they are subject to the supervision and control of their employers. If health care providers were truly under the supervision and control of health plans, as those criteria are applied to all other workers, then they, too, would be eligible for the existing labor antitrust exemption. But as AmeriHealth demonstrates, the claim that independent physicians are employees of health plans is difficult to sustain. And that is the reason why they seek passage of H.R. 1304—to obtain a ''backdoor'' exemption that is unavailable to any other type of worker.
B. H.R. 1304 would give health care professionals the benefits of a labor exemption without any of the NLRA safeguards or oversight that apply to other workers.
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The NLRA establishes a substantive and procedural framework that governs all aspects of the collective bargaining process between employees and their employers. For example, the NLRB, under the authority of the NLRA, uses secret-ballot elections to determine whether employees wish to be represented by a union. The Board also ensures that employers and employee representatives engage in good-faith bargaining with respect to wages, hours, and other terms and conditions of employment. When two or more employers band together as a multiemployer group for purposes of bargaining with employees, the Board ensures that the process is fair and that certain rules are followed. Further, the NLRB works to prevent and remedy unfair labor practices by either employers or unions. When an unfair labor practice charge is filed, an NLRB field office conducts an investigation to determine whether reasonable cause exists to warrant a charge that the NLRA has been violated. If a violation has occurred, the NLRB seeks a voluntary settlement with the employer on behalf of the employees.
None of this framework would apply to negotiations between health care professionals and health plans under H.R. 1304. Such negotiations could cover much more than simply wages and similar terms, and could extend to anything that might be the subject of health plan negotiations. Moreover, under H.R. 1304, health plans and insurers could not negotiate jointly as a multiemployer group as they could under the NLRA.
VI. THERE ARE BETTER WAYS TO ADDRESS CONCERNS OF HEALTH CARE PROVIDERS THAT WOULD NOT HARM CONSUMERS BY LIMITING CHOICES AND INCREASING COSTS.
Currently there are many ways in which health care providers can organize to address any legitimate concerns they may have concerning managed care and other aspects of the health care system. These include:
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Collaborating with each other so they can be more informed about managed care contracts. The antitrust laws permit such collaboration, and the enforcement agencies have issued specific guidance to advise health care providers on this issue. In addition, many providers have contracted with management services organizations (''MSOs'') and other similar entities that can assist them on the financial management of their practices and in dealing with health plans and other third-party payers.
Collaborating with each other to form integrated entities through which providers can negotiate with managed care. During the past decade, health care providers have created thousands of larger group practices, independent practice associations (IPAs), physician organizations, physician hospital organizations, and other arrangements to enable them to realize economies of scale, become more efficient, and develop innovative ways to manage care. These arrangements also put providers in a better position to negotiate with health plans. The antitrust agencies have given extensive guidance to providers on this subject and have revised their guidelines to ensure providers that they have the maximum degree of flexibility in structuring their arrangements in ways that are consistent with the antitrust laws.
Collaborating with each other to form their own health plans or to contract directly with employers and other purchasers. Of course, if providers believe there are better ways to deliver and finance health care services, they can develop their own alternatives to health plans and contract directly with employers and purchasers. The Medicare law was recently revised to provide this option to providers through ''provider sponsored organizations'' or ''PSOs.''(see footnote 115) Many providers have started these arrangements—some have been very successful, others have found the tasks that health plans perform to be formidable. Their success or failure, however, has been determined just as it is with more traditional health plans—on whether or not they meet the needs and demands of their customers.
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Provide information to health plans and the public in an effort to obtain a change in health plan policies. Again, the antitrust laws do not prohibit providers from collectively communicating with others concerning their views about health plans or other aspects of the health care delivery system. And because of the trust that patients typically have in their health care providers, the expression of such views to health plan customers can be a potent force in shaping health plan policies.
Develop better information to enable consumers and employers to evaluate health plans. Health plans differ from each other along many dimensions, including their medical policies, scope of coverage, nature of their arrangements with providers, and patient satisfaction. In recent years, much effort has been devoted to improve and expand the amount of information about health plans so that consumers and employers can make more informed decisions when they choose plans. Several accrediting organizations now subject health plans to rigorous reviews that address virtually every aspect of their services.(see footnote 116) Through such efforts, health plans that are most responsive to consumer needs will survive and prosper.
What all of the above alternatives have in common is that they allow for the continued evolution of the health care system in a way that promotes innovation and responsiveness to consumer needs. In this respect, they differ dramatically from H.R. 1304, which would give to a cartel of providers the sole power to determine the form, scope, and cost of health care delivery in their community.
VII. CONCLUSION
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Competition is crucial to keeping health care costs under control in the private sector, as well as in the Medicare and Medicaid programs. And it is through such cost-control efforts that broader health care access can be given to lower income families and individuals. Competition also is prompting innovative means of improving and measuring quality.
H.R. 1304 would jettison competition among health care providers by allowing them to engage in price-fixing, boycotts, and market allocation agreements that otherwise would be per se illegal under the antitrust laws. It would allow them to collectively seek to raise their fees to plans targeted at the working poor, and to resist efforts that would control costs to such patients. In short, H.R. 1304 would eliminate any meaningful attempt to use competition to control health care costs, improve quality, and expand access. It should be soundly defeated.
ATTACHMENT A
MEMBERS OF THE ANTITRUST COALITION FOR CONSUMER CHOICE IN HEALTH CARE
Aetna
Academy of Nurse Practitioners
American Association of Health Plans
American Association of Nurse Anesthetists
American College of Nurse Midwives
American Occupational Therapy Association
American Optometric Association
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American Physical Therapy Association
American Nurses Association
Association of Private Pension and Welfare Plans
Blue Cross Blue Shield Association
Cigna
Employers Health Care Coalition of Los Angeles
Express Scripts, Inc.
First Health
Health Care Network of Wisconsin
Health Insurance Association of America
HealthCare 21 Business Coalition
Healthcare Leadership Council
Heartland Healthcare Coalition (IL)
Humana, Inc.
Kansas Employer Coalition on Health
Louisiana Business Group on Health
National Association of Health Underwriters
National Association of Manufacturers
National Association of Rehabilitation Agencies
National Business Coalitions on Health
National Childbearing Centers
National Federation of Independent Business
NE Pennsylvania Regional Health Care Coalition
Pharmaceutical Care Management Association
Piedmont Health Coalition, Inc.
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Premier, Inc.
Principal Financial Group
Private Practice Section of the American Physical Therapy Association
Savannah Business Group on Health
Southeast Missouri Business Group on Health
St. Louis Area Business Health Coalition
Texas Business Group on Health
The Alliance
The Community Healthcare Coalition, Inc. (Ohio)
The ERISA Industry Committee
Trihealth: Tri-Cities Health Alliance (TN)
Tri-State Business Group on Health (Southern IN)
United HealthCare
United States Chamber of Commerce
WellPoint Health Networks
Mr. HUTCHINSON. Ms. Stewart.
STATEMENT OF JAN STEWART, C.R.N.A., A.R.N.P., PRESIDENT-ELECT, AMERICAN ASSOCIATION OF NURSE ANESTHETISTS, SEATTLE, WA
Ms. STEWART. Thank you, Mr. Chairman, and members of the committee. Good afternoon, my name is Jan Stewart. I am a certified registered nurse anesthetist, a CRNA and president-elect of the American Association of Nurse Anesthetists, the AANA. I am pleased to be testifying today regarding potential changes to the Federal antitrust laws.
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In the administration of anesthesia, CRNAs compete directly with anesthesiologists and perform the full range of anesthesia services. Today, CNRAs administer more than 65 percent of anesthetics given to patients each year in the U.S.
We are the sole anesthesia providers in 65 percent of rural hospitals and are also front-line anesthesia providers in underserved rural areas and urban areas, providing services for major trauma cases as well as the full range of other anesthesia services.
AANA is extremely concerned about any weakening of the antitrust laws. We strongly believe that creating new antitrust exemption for physicians could have severe unintended consequences. Specifically, we believe that the bill would allow anesthesiologists to form cartels that discriminate against or exclude nurse anesthetists.
We believe that sanction attempts by anesthesiologists to eliminate competition between themselves and nurse anesthetists using spurious claims would be made by anesthesiologists regarding health of patients and safety otherwise known as quality of care issues—and it would drive up the costs of health care coverage for all Americans without any concomitant increase in the quality or availability of health care.
We believe that strong antitrust laws and robust enforcement are crucial to protect competition and consumer choice in the health care system. AANA opposes H.R. 1304 because it would first eliminate opportunities for CRNAs to compete. We believe that this legislation would make it more difficult for CRNAs to compete with anesthesiologists for contracts with health care plans.
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Under the bill, otherwise per se illegal conduct that occurs in the course of negotiations with health plans such as price fixing, group boycotts, tying arrangements and customer or market allocations would be entitled to immunity under the antitrust laws. Specifically, for CRNAs the bill's immunity would remove any legal barriers to demands by anesthesiologists that CRNAs be excluded from health plans.
Secondly, we believe that if enacted, this bill would eliminate legal incentives to compete. The current antitrust laws are an essential tool for CRNAs and other nonphysician providers to counteract the innate influence of physicians.
The bill eliminates any incentive that anesthesiologists have under the antitrust laws to compete with CRNAs on a fair or equitable basis and replaces it with an irresistible opportunity to collude on restrictive and exclusionary bargaining demands aimed squarely at excluding CRNAs access to health plans.
Lastly, we believe that the Campbell bill would increase the cost of health care and therefore potentially harm patients. This legislation will evidently increase the cost of health care by permitting high-cost providers such as anesthesiologists to use their market power to increase their own reimbursement at the expense of more economic and efficient providers such as CRNAs.
The American Medical Association, the AMA, specifically has attempted to orchestrate a concerted campaign to restrict practice opportunities for CRNAs. In December of '98, its house of delegates adopted a resolution calling for the AMAs support of legislative and regulatory proposals, defining anesthesia as the practice of medicine.
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Specifically, the resolution 216 states that, number one, anesthesiology is the practice of medicine; and, number two, that the American Medical Association seek legislation to establish the principle in Federal and in State law and regulation that anesthesia care requires the personal performance or supervision by an appropriately licensed and credentialed doctor of medicine, osteopathy, or dentistry.
The apparent intent of the AMA resolution is to limit the administration of anesthesia exclusively to anesthesiologists or to ensure that CRNAs, when they were permitted to practice at all, are supervised by anesthesiologists at all times and in all settings. Such an interpretation would seriously restrict the ability of CRNAs to practice in settings such as office-based or freestanding surgical centers where the only physician available is likely to be the operating surgeon.
It would also restrict the ability to provide anesthesia services in rural areas where there may be no anesthesiologist available. Under H.R. 1304, nothing would prevent AMA members from insisting that health plans adopt a restrictive interpretation of administration of anesthesia that would exclude CRNAs from their plan or severely limit their participation.
Such a restriction would penalize CRNAs and increase health care costs by eliminating healthy competition between CRNAs and anesthesiologists and reduce the options now available to patients, payers, and physicians.
Mr. Chairman, as you will see from our written testimony, we have had a long history of antitrust issues with the anesthesiologists and organized medicine in general. If this legislation were to pass, it would not only be to the detriment of CRNAs, it would also undermine access for anesthesia services we currently provide our patients.
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I would be pleased to respond to any questions that you might have. Thank you.
Mr. HUTCHINSON. Thank you, Ms. Stewart.
[The prepared statement of Ms. Stewart follows:]
PREPARED STATEMENT OF JAN STEWART, C.R.N.A., A.R.N.P., PRESIDENT-ELECT, AMERICAN ASSOCIATION OF NURSE ANESTHETISTS, SEATTLE, WA
Chairman Hyde, members of the Judiciary Committee, good morning. My name is Jan Stewart and I am a certified registered nurse anesthetist and President-elect of the American Association of Nurse Anesthetists (''AANA''). I am pleased to be testifying today regarding potential changes to the federal antitrust laws.
INTRODUCTION
The AANA is the professional association that represents over 27,000 certified registered nurse anesthetists (''CRNAs''), or 94 percent of the practicing nurse anesthetists in the United States. AANA appreciates the opportunity to provide our experience with respect to the need for vigorous enforcement of the antitrust laws.
As a leader in the advanced practice nursing community, we applaud your attention to the promotion of competition in the health care market place. However, AANA is extremely concerned about any weakening of the antitrust laws. We strongly believe that creating new antitrust exemptions for physicians could have severe unintended consequences and seriously undermine the larger goal of increasing competition in our health care system and providing affordable high quality care. Specifically, we believe that antitrust exemptions such as those currently being considered by the Committee would put nurse anesthetists at a serious and permanent competitive disadvantage with respect to contracting with health plans because it would
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1. Allow anesthesiologists to form cartels that discriminate against or exclude nurse anesthetists;
2. Sanction attempts by anesthesiologists to eliminate competition between themselves and nurse anesthetists using spurious claims regarding patient health and safety;
3. Drive up the cost of health care coverage for all Americans without any concomitant increase in the quality or availability of health care.
We believe that strong antitrust laws and robust enforcement are crucial to protect competition and consumer choice in the health care system.
Part I of our testimony will provide important background about CRNAs and put their current antitrust disputes with physicians into a useful historical context. Part II will provide an analysis of H.R. 1304 and the reasons that AANA opposes it. Part III will discuss the recent history of anticompetitive conduct directed at CRNAs, focusing particularly on a recent American Medical Association Resolution directed against CRNAs and an ongoing antitrust action against anesthesiologists in Minnesota, where many CRNAs were dismissed from their positions with local hospitals as a result of what the Minnesota Association of Nurse Anesthetists alleges was an illegal conspiracy to exclude them from the market.
I. BACKGROUND INFORMATION ABOUT CRNAS
In the administration of anesthesia, CRNAs perform many of the same functions as physician anesthetists (''anesthesiologists'') and work in every setting in which anesthesia is delivered including hospital surgical suites and obstetrical delivery rooms, ambulatory surgical centers, health maintenance organizations, and the offices of dentists, podiatrists, ophthalmologists, and plastic surgeons. Today, CRNAs administer more than 65% of the anesthetics given to patients each year in the United States. CRNAs are the sole anesthesia provider in 65% of rural hospitals which translates into anesthesia services for millions of rural Americans. CRNAs are also front line anesthesia providers in underserved urban areas, providing services for major trauma cases, for example.
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CRNAs provide high quality care at a fraction of the cost of anesthesiologists. According to a study conducted by the Medical Group Management Association and published in the October, 1995 issue of Anesthesiology News, in calendar year 1994 the median annual income for nurse anesthetists was $72,001 but the median annual income for an anesthesiologist was $244,600.
CRNAs have been a part of the surgical team since the advent of anesthesia in the 1800s. Until the 1920s, anesthesia was almost exclusively administered by nurses. Though CRNAs are not medical doctors, no studies to date have demonstrated a difference between CRNAs and anesthesiologists in the quality of care provided, which is the reason no federal or state statute requires that CRNAs be supervised by an anesthesiologist. Anesthesia outcomes are affected by such factors as the provider's attention, concentration, and organization, and not whether the provider is a CRNA or an anesthesiologist. That is why the Harvard Medical School Standards in Anesthesia focus on monitoring the patient; the standards are based upon data that indicate that anesthesia incidents are usually caused by lack of attention to detail and insufficient monitoring of the patient.
The most substantial difference between CRNAs and anesthesiologists is that prior to anesthesia education, anesthesiologists receive a medical education while CRNAs receive nursing education. However, once they enter the work force, both professionals perform roughly the same services: (1) preanesthetic preparation and evaluation; (2) anesthesia induction, maintenance and emergence; (3) postanesthesia care; and (4) peri-anesthetic and clinical support functions, such as resuscitation services, acute and chronic pain management, respiratory care, and the establishment of arterial lines.
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There are currently 87 accredited nurse anesthesia education programs in the United States lasting between 24–36 months, depending upon the university. As of 1998, all programs offer a master's degree level for advance practice nurses, and these programs are accredited by the Council of Accreditation of Nurse Anesthesia Educational Programs which is recognized by the U.S. Department of Education.
CRNAs as Anesthesia Competitors
By the end of the nineteenth century, two developments—the discovery and utilization of anesthesia and the discovery and development of asepsis—resulted in an enormous expansion of the numbers and types of surgeries performed. Consequently, hospital construction flourished as the need grew for operating rooms to accommodate aseptic surgery. Simultaneously, demand grew for anesthesia specialists to focus their attention on the anesthesia care of patients while a physician performed surgery.
Nurses, whose hallmark is monitoring vital signs and administering medications, were a natural choice to provide anesthesia. Physicians turned increasingly to sisters in Catholic hospitals, as well as to other registered nurses from a growing number of nurse training programs, to administer anesthesia with wide acceptance. World War I accelerated the demand for qualified CRNAs. Advances made in medications and equipment and nurse anesthesia education during the war contributed to the nurse anesthetists' dominant position in the anesthesia services field.
Even before World War I, however, the growth and acceptance of the nurse anesthesia profession and its training programs provoked anticompetitive reactions from anesthesiologists. As early as 1911, in a harbinger of future anti-nurse anesthetist activity, counsel for the New York State Medical Society declared that the administration of an anesthetic by a nurse violated the law of the State of New York. The following year, the Ohio State Medical Board passed a resolution stating that only registered physicians could administer anesthesia.
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Early efforts to crush the nurse anesthesia profession gained momentum as anesthesiologists organized in their opposition to nurse anesthetists. In 1915, anesthesiologists founded the Interstate Association of Anesthetists (''IAA'') which successfully petitioned the Ohio State Medical Board to withdraw recognition of Cleveland's Lakeside Hospital as an acceptable training school for nurses on the grounds that Lakeside's use of nurse anesthetists violated the Ohio Medical Board Act. Nurses and prominent surgeons alike protested the board's decision, and succeeded in having it reversed.
Similarly, in 1917, the Kentucky State Medical Association, with prompting from organized anesthesiologists, passed a resolution prohibiting members from employing nurse anesthetists. In a test lawsuit brought by a nurse anesthetist, the Kentucky Court of Appeals ultimately rejected the proposition that the administration of anesthesia by a nurse constituted the unauthorized practice of medicine.
In 1921, another anesthesiologist group, the American Association of Anesthetists, commenced a boycott by adopting a resolution prohibiting its members from teaching nurse anesthetists. Anesthesiologists also moved into the political arena, supporting legislation which would prohibit qualified nurse anesthetists from administering anesthesia.
Unlike anesthesiologists, the American College of Surgeons, comprised of physicians who utilized nurse anesthetists, opposed legislative prohibitions of nurse-administered anesthesia. In a 1923 resolution, they opposed all legislative enactments which would prohibit qualified nurses from administering anesthesia.
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Surgeon support of nurse anesthetists, however, did not stop the anesthesiologists' efforts to keep nurse anesthetists from practicing their profession. In 1933, anesthesiologists associated with the Los Angeles County Medical Association brought a lawsuit against a nurse anesthetist claiming that nurse anesthetists' administration of anesthesia constituted the illegal practice of medicine. As had other courts, the California court found that the administration of anesthesia by nurse anesthetists was not the practice of medicine.
In 1937, the American Society of Anesthesiologists (''ASA'') was formed. (The American Association of Nurse Anesthetists had been founded in 1931). Immediately after its inception, the ASA presented a master plan for the eventual elimination of nurse anesthesia to the American College of Surgeons. The plan specified that nurses should not be permitted to continue to provide anesthesia. It also provided, inter alia, that a provision should be included in the Minimum Standards of Hospitals (the forerunners of the Joint Commission on Accreditation of Hospitals' standards) directing that the department of anesthesia in each hospital shall be under the direction and responsibility of a well-trained physician anesthetist. The plan cautioned, however, ''that no legislation should be forced until physician anesthetists can take over the work in a competent way.''
World War II increased the number of anesthesiologists. See the discussion in United States of America v. The American Society of Anesthesiologists, 435 F. Supp. 147, 150 (SDNY, 1979). After the war, the anesthesiologists, as they sought to establish themselves in a civilian economy, renewed their activities against CRNAs. Between 1946 and 1948, the ASA conducted a campaign to discredit CRNAs in the eyes of the public. The campaign was successful in reducing the numbers of nurses attending nurse anesthesia training programs. The campaign was halted when the American Medical Association, the American College of Surgeons, and the Southern Surgical Society expressed their opposition to the ASA's negative publicity, and expressed their support of, and continued intention to utilize, CRNAs.
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Attempts to eliminate CRNAs have often been more subtle. For example, in 1947 the ASA adopted an ''ethical principle'' prohibiting members in good standing from participating in nurse anesthesia programs and from employing or utilizing CRNAs. Measures to enforce the ethical guidelines included the threat to revoke the American Board of Anesthesiology certificates of physicians training nurse anesthetists.
The Need for Vigorous Antitrust Enforcement
Based on historical and recent experience, the AANA believes that strong antitrust laws and enforcement serve to protect competition between anesthesiologists and CRNAs. CRNAs provide the same services as anesthesiologists with the same high degree of care. In the market for health services, a market which is widely considered complex and imperfect by economists, this sort of direct competition between rival professional groups should be vigorously defended. While many CRNAs practice in an anesthesia team which includes anesthesiologists and other ancillary support staff, CRNAs also practice as independent providers and receive direct reimbursement from multiple payors, as allowed by federal law. Independent CRNAs may function as independent contractors—negotiating the best price for the service with different health entities. Therefore, many CRNAs compete directly with their physician colleagues—anesthesiologists. Because of the prevalence of insurance in the health care field, recipients of anesthesia services are seldom the direct payors while physicians benefit from tremendous influence with insurance companies and others who actually pay for health care services. For this reason, the threat of swift and vigorous enforcement of the federal antitrust laws and the deterrent effect that those laws have on anticompetitive conduct are the most important protections that CRNAs have against anticompetitive conduct by physicians who may seek to exclude them from the market because they are lower cost competitors. In light of the power and influence of the medical community on staffing decisions, weakening the antitrust laws by new and sweeping immunity for negotiations between health care professionals and health care plans could undermine the ability of CRNAs to compete with anesthesiologists, or any other similarly positioned health professional.
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Further, the current antitrust laws serve to protect the ability of other types of established health professionals to offer competitive health services. These groups include the nurse-midwives who provide obstetrical care to women in need; optometrists who provide post-op cataract eye care; occupational therapists who diagnose and provide rehabilitation care; and speech-language pathologists. It is no exaggeration to say that the antitrust laws have been a major force enabling nonphysician health professionals to compete with physicians when they provide comparable services. Such competition has been an enormous boon to consumers and third party payors who benefit from having a wider choice of highly qualified providers.
II. AANA'S OPPOSITION TO THE ANTITRUST EXEMPTIONS IN H.R.1304
Representative Tom Campbell (R–CA) has introduced the Quality Health-Care Coalition Act of 1999 (H.R. 1304), a bill that would weaken the current antitrust laws when applied to health care providers. AANA is OPPOSED to H.R. 1304, as well as any legislative effort that would interfere with competition between health care providers, and threaten the ability of CRNAs to compete on fair and equitable terms with anesthesiologists.
If enacted H.R. 1304 would provide new and sweeping antitrust immunity for negotiations between health care professionals and health care plans. The bill's stated goal is to level the playing field between managed care plans and health care providers with respect to reimbursement and the terms and conditions of employment. In pursuit of that goal, the bill exempts negotiations between health care providers and plans from the reach of federal and state antitrust laws, regardless of whether such negotiations include exclusionary or unreasonable demands by rival providers, such as anesthesiologists.
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The bill has two main provisions. The first provision immunizes negotiations between groups of health care professionals (of any size or composition) and a health plan regarding the terms of a contract to provide health care items or services covered by the plan. It does so by extending the same antitrust protections to those negotiations as currently apply to bargaining units recognized under the National Labor Relations Act (''NLRA''). Such protections are generally referred to as the labor antitrust exemptions.
The second provision exempts actions taken in good faith reliance on the first provision from antitrust criminal sanctions, civil damages, fees, and penalties beyond actual damages incurred. It also provides that the first provision shall not confer any right to participate in any collective cessation of services to patients not otherwise permitted by law. Although the language on ''cessation of services,'' i.e. group boycott, is not entirely clear, it does suggest that health care providers could collectively take measures that would affect patients access to care, such as refusing to accept a plan's reimbursement.
AANA Opposes H.R. 1304 because enactment of the bill would:
Eliminate Opportunities for CRNAs to Compete: The bill would have the effect of making it more difficult for CRNAs to compete with anesthesiologists for contracts with health care plans. That is because the bill would provide blanket antitrust immunity for bargaining demands by anesthesiologists that health plans impose significant limitations on practice opportunities for CRNAs or exclude them from the plans entirely.
Under the bill, otherwise per se illegal conduct that occurs in the course of negotiations with health plans, such as price fixing, group boycotts, tying arrangements and customer or market allocation, would be entitled to immunity under the antitrust laws. The bill's wide ranging immunity would, for example, permit health care professionals to make concerted demands about how much they should be paid for their services, who should be permitted to provide designated services and the terms and conditions under which designated services should be reimbursed.
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Specifically, for CRNAs the bill's immunity would remove any legal bar to demands by anesthesiologists that CRNAs be excluded from a health plan because, for example, they fail to meet arbitrary licensing criteria, or that CRNAs be permitted to provide services for a health plan only on restrictive terms and conditions, such as costly and unnecessary supervision requirements.
Eliminate Legal Incentives to Compete: The antitrust laws are an essential tool for CRNAs and other nonphysician providers to counteract the influence of physicians. For CRNAs, the antitrust laws not only deter anticompetitive conduct by rival providers and health plans, they also provide a powerful tool to combat anticompetitive conduct that threatens marketplace competition.
The Act removes the antitrust laws as a deterrent to anticompetitive conduct when such conduct occurs in the course of negotiations with a health plan. In so doing, it eliminates any incentive that anesthesiologists have, under the antitrust laws, to compete with CRNAs on a fair or equitable basis and replaces it with an irresistible opportunity to collude on restrictive and exclusionary bargaining demands aimed squarely at excluding CRNAs' access to health plans.
Undermine Nondiscrimination Requirements: The Balanced Budget Act of 1997 (''BBA'') included important nondiscrimination requirements for nonphysician providers. Specifically, the BBA prohibited Medicare+Choice plans from discriminating against CRNAs solely on the basis of their state license or certification with respect to participation, reimbursement or indemnification. However, the BBA also stated that such nondiscrimination requirements did not prohibit Medicare+Choice plans from including providers only to the extent needed to meet the requirements of its patients or from establishing quality and cost control measures consistent with its responsibilities.
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Under the bill, anesthesiologists would be permitted to make concerted negotiating demands to Medicare+Choice plans that could effectively circumvent the nondiscrimination requirements. For example, they could negotiate restrictive educational or other professional criteria as a condition of participation, such as a residency in anesthesiology, which would have the effect of excluding CRNAs from the plan.
Increase the Cost of Health Care and Harm Patients. The bill will inevitably increase the cost of health care by permitting high cost providers, such as anesthesiologists, to use their market power to increase their own reimbursement rates at the expense of more economic and efficient providers, such as CRNAs. Eliminating competition in this manner will also harm patients. Our nation's health care system operates on the promise that patients will benefit most in terms of quality, cost and access to care when there is vigorous competition between providers, such as CRNAs and anesthesiologists. The bill will effectively undermine that competition by eliminating the antitrust laws as a deterrent to even the most egregious anticompetitive negotiating demands by providers bent on excluding or limiting the scope of practice for CRNAs.
There is no level playing field for many CRNAs. The fact is that physicians still wield much greater power and influence with their fellow physicians and in the marketplace. And, based on past experience CRNAs can expect them to use that power to protect their jobs and their incomes as the industry downsizes to become more efficient.
The antitrust laws are an essential tool for CRNAs and other nonphysician providers to counteract the power and influence of physicians and hospitals. That is why AANA has grave concerns about the antitrust exemptions for health care professionals in H.R. 1304.
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III. NURSE ANESTHETISTS HAVE FREQUENTLY BEEN VICTIMIZED BY ANTICOMPETITIVE CONDUCT ON THE PART OF PHYSICIAN COMPETITORS
Current practices in the field of anesthesia do not reflect the normal workings of the marketplace. Economics alone would suggest that hospitals would be anxious to use lower cost providers, such as nurse anesthetists, in order to reduce their costs, and thus their prices to patients and third-party payors. However, that it not always the case. Anesthesiologists have repeatedly used their influence to keep prices high by, for example, convincing hospitals to terminate nurse anesthetists so that the anesthesiologists would not face price competition. This is not the way the market should work or that our health care system should work. However, unless those most immediately affected by anticompetitive conduct—nurse anesthetists—are able to bring suit successfully under the antitrust laws, consumers will be forced to pay higher prices and, in some cases, have fewer choice of services, such as not being able to receive an epidural block during childbirth.
There are many examples of anticompetitive conduct that affects the ability of nurse anesthetists to compete for patients. Passage of H.R. 1304 would refocus much of this conduct to negotiations with health care plans, where discriminatory and anticompetitive restrictions could become part of the terms and conditions of participation and would act as an insuperable barrier to entry for CRNAs.
Anticompetitive Conduct Directed Toward CRNAs
Attempts have been made to keep CRNAs from competing with anesthesiologists by creating various barriers to practice. Examples of barriers to practice include: (1) hospital medical staff bylaws that deny CRNAs clinical practice privileges, (2) restrictions on CRNAs clinical practice privileges, (3) the promulgation of inaccurate information about a surgeon's liability for CRNAs, (4) the formation of large anesthesiologist groups that use their increased control or influence with hospitals and health plans to limit or eliminate competition from CRNAs, and (5) exclusive contracting by powerful providers, such as hospitals. Whether specific barriers to CRNA practice constitute anticompetitive behavior under the antitrust laws obviously depend on the facts of each case. However, CRNAs need to be able to use the antitrust laws to the fullest when practice barriers result from attempts to price-fix, monopolize, or boycott. H.R. 1304 would eliminate the antitrust laws as an effective deterrent when anticompetitive conduct occurs during the negotiation process with health plans.
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1. Hospital Medical Staff Bylaws Which Deny CRNAs Clinical Practice Privileges
Some physicians have created hospital medical staff bylaws that effectively eliminate the opportunity for independent CRNA practice. In one such case, the hospital, upon recommendation of a group of anesthesiologists, changed its bylaws to state that ''nurse anesthetists could only practice in the institution if they were employees of the physician anesthesiologists.'' This bylaw effectively restricts an independent CRNA from applying for medical staff clinical practice privileges. Without the opportunity to obtain medical staff clinical practice privileges at a hospital, independent CRNAs do not have the ability to administer anesthesia to patients in that facility—regardless of permission by state law—and would have to become employees of an anesthesiologist group or some other entity in order to provide anesthesia services.
This kind of practice restriction would have costly consequences for consumers and third-party payors. That is because hospitals will almost certainly have to pay more for CRNAs who are employees of anesthesiologists than for independent CRNAs.
2. Restrictions on Clinical Practice Privileges of CRNAs
Even where CRNAs have the right to practice, in many institutions there have been situations where anesthesiologists, through the medical staff, have artificially restricted their scope of practice. If their scope of practice is limited, then CRNAs cannot compete with unlimited, ''full service'' anesthesiologists. Restrictions on scope of practice have included refusals to grant clinical practice privileges for regional anesthesia, insertion of invasive monitoring lines, postoperative pain management of patients, and refusal to allow administration of an epidural injection. Other CRNAs experience unnecessary limitations on which types of patients they may treat. These restrictions on clinical practice privileges are not related to education, ability or to what state law permits, but rather to an attempt to limit competition.
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3. Promulgation of Inaccurate Information about a Surgeon's Liability for CRNAs
It is difficult for CRNAs to compete in the market when anesthesiologists use inaccurate information to persuade surgeons not to utilize CRNA services. In one such situation in Southern California, an anesthesiologist sent promotional and marketing letters to plastic surgeons, ophthalmologists and other physicians stating that the surgeons had increased liability if they used a CRNA rather than an anesthesiologist. It is important to understand that typically in cosmetic plastic surgery, the patient pays for the procedures, as insurance does not cover such operations. Thus, plastic surgery is one of the few areas of health care where the market is sensitive to price. Plastic surgeons, recognizing the competitive pricing and high quality of care provided by CRNAs, have utilized CRNAs as practitioners for many years. However, inaccurate information regarding liability of the surgeons for care provided by CRNAs could have had a significant adverse influence on a surgeons' use of nurse anesthetists.
Anesthesiologists have also raised the specter of an increase in liability risk if CRNAs are not supervised by anesthesiologists. The law governing the liability of a surgeon for the negligence of a nurse anesthetist is precisely the same as the law which governs the liability of a surgeon for the negligence of an anesthesiologist. Liability depends on the facts of each case. Nonetheless, anesthesiologists continue to make such statements to discourage surgeons from working directly with CRNAs.
In this regard, the American Association of Nurse Anesthetists (AANA) has been engaged in a decade long battle to persuade the Health Care Financing Administration (HCFA) to remove the physician supervision requirement in the Medicare Conditions of Participation for Hospitals and Ambulatory Surgical Centers (ASCs). Given the anesthesiologists misuse of supervision requirements to create false perceptions about physician liability, HCFA was asked to remove the supervision requirement. HCFA proposed to do so in December, 1997. The proposed rule is still pending, in part due to the strong opposition generated by the American Society of Anesthesiologists (ASA). AANA has had to seek legislative relief so that the federal government will defer to the states on the issue of physician supervision of CRNAs (S. 866/H.R. 804) as it does in virtually every other area of health care.
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4. Formation of Large Anesthesiologist Groups
Formation of anesthesiologist groups that have the potential to control a large share of the market also pose a threat to competition. Such groups are likely to have enough market power to force hospitals and other facilities to boycott low cost providers, such as CRNAs. As in any monopoly or near monopoly situation, the result is that consumers pay higher prices and have fewer choices of services.
Large anesthesiology groups have been able to monopolize anesthesia services in hospitals in a few major metropolitan areas. In those situations, competitors are likely to be prohibited from gaining access to the hospital, which eliminates competition altogether.
In 1994, there was a merger of two anesthesiologist groups (Middle Tennessee Anesthesiology, P.C. and Anesthesiology Consultants of Nashville, P.C.), both of which served metropolitan Nashville, Tennessee and surrounding Davidson County. The new group, called Anesthesia Medical Group (''Group''), includes nearly 50% of the non-teaching anesthesiologists serving the metropolitan Nashville area. The Group also employs 105 of the 175 CRNAs practicing in the same area.
In the Nashville area there are 3,906 staffed hospital beds distributed among 12 hospitals. The Group is the sole anesthesia provider in two hospitals comprising one third of the available staffed hospital beds in Nashville. In a third hospital, with 571 staffed beds, the group does not have an exclusive arrangement, but provides approximately 65 percent of the anesthesia.
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In total, the Group has approximately 50% of the practicing anesthesiologists in the area, controls 60% of the CRNAs in the area, and has exclusive or nonexclusive access to nearly one half of the areas staffed hospital beds. The market power of the Group appears to be well beyond the safety zones established in the Antitrust Division's and the FTC's Policy Statements for physician joint ventures, and because of that may have the ability to increase prices and reduce services for patients in the area.
Exclusive Contracting by Powerful Providers
Texoma Medical Center, Inc. (''TMC''), a non-profit corporation that operates a hospital in Denison, Texas, provides an example of how exclusive contracting by a powerful provider can undermine competition from CRNAs. It is estimated that TMC provides medical care and treatment and surgical facilities for approximately 95 percent of the residents of Denison, Texas. TMC has approximately 15 to 20 surgeons on staff and has extended clinical privileges to four anesthesiologists and four CRNAs.
In January 1994, TMC's hospital administrator and CEO announced the hospital's intention to enter into an exclusive provider agreement ''with a single source for all anesthesia care required by surgeons and patients of TMC.'' In conjunction with this announcement, certain physicians were requested to submit a proposal to the hospital for an exclusive provider agreement. No request for proposal was made to any of the CRNAs at the hospital with staff privileges, even though CRNAs charge less for anesthesia services than anesthesiologists. Presumably, CRNAs would have been allowed to continue providing services at the hospital only if they were employed by the exclusive provider group.
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In order to keep the market competitive, three CRNAs and one anesthesiologist practicing at the hospital announced their intention to bring an antitrust suit against the hospital for exclusive dealing. The hospital subsequently dropped its exclusionary plan, but it might not have done so if the CRNAs had been hamstrung in their ability to bring an antitrust suit.
Attempts by the American Medical Association to Restrict Practice Opportunities for CRNAs
The American Medical Association (AMA) has attempted to orchestrate a concerted campaign to restrict practice opportunities for CRNAs. In December 1998, its House of Delegates adopted a resolution calling for the AMA's support of legislative and regulatory proposals defining anesthesia as the practice of medicine. (AMA) Resolution 216. Specifically, the AMA Resolution 216 states:
1. ''That anesthesiology is the practice of medicine.''
2. ''That the American Medical Association seek legislation to establish the principle in federal and state law and regulation that anesthesia care requires the personal performance or supervision by an appropriately licensed and credentialed doctor of medicine, osteopathy, or dentistry.''
What the AMA meant to accomplish by stating that ''anesthesiology is the practice of medicine,'' is to limit the administration of anesthesia exclusively to anesthesiologists and to ensure that CRNAs—when they are permitted to practice at all—are supervised by anesthesiologists at all times and in all settings. Such an interpretation would seriously restrict the ability of CRNAs to practice independently in settings, such as office-based or free-standings surgical centers, where the only physician available is likely to be the operating surgeon. It would also restrict their ability to provide anesthesia services in rural areas where no physician may be available.
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Currently, the AMA has no way to put its unfair and discriminatory resolution into effect, except to call upon lawmakers to adopt such restrictions. However, under H.R. 1304, nothing would prevent AMA members from insisting that health plans adopt such a restrictive interpretation of the administration of anesthesia in order to exclude CRNAs from their plan or severely limit their participation. Such a restriction would penalize CRNAs and increase health care costs by eliminating healthy competition between anesthesiologists and nurse anesthetists and reducing the options now available to patients, payers and physicians to choose, if they desire, to obtain anesthesia services from independent CRNAs.
Attempts at the State Level to Restrict the Scope of Practice for CRNAs
In addition to the AMA Resolution, there has been an increase in activity at the state level to circumscribe the practice opportunities of CRNAs. Many of these restrictions which are being hard fought in state legislatures, medical board and the like. Such restrictions could, however, be put into effect under H.R. 1304 through negotiations with health plans. These proposed restrictions include:
Requiring CRNAs to be physician supervised in states that do not currently require such supervision.
Requiring that anesthesiologists supervise CRNAs in states that already require physician supervision by requiring anesthesiologist supervision of CRNAs when anesthesiologists are ''available;'' by discouraging surgeons from working with CRNAs by requiring that physicians who supervise CRNAs meet criteria possessed only by anesthesiologists such as advanced education and training in anesthesia or hold ''appropriate credentials.''
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Requiring CRNA practice to be jointly regulated by the board of medicine and the board of nursing, rather than the board of nursing alone, and
Reducing CRNAs' scope of practice, e.g., limiting the types of anesthesia that a CRNA can perform.
Antitrust Actions Brought by CRNAs
CRNAs have brought actions against anesthesiologists for restricting competition. Although the antitrust exemption proposed in H.R. 1304 would not immunize all the types of exclusionary conduct catalogued below, these cases illustrate the fact that anesthesiologists have attempted to exclude CRNAs from the health care market using unfair and anticompetitive tactics. H.R. 1304 would immunize those same tactics when anesthesiologists employed them in connection with their negotiations with health care plans.
In Oltz v. St. Peter's Community Hospital, 861 F.2d 1440 (5th Cir. 1988), Oltz, a nurse anesthetist, sued four anesthesiologists and the hospital that gave them an exclusive contract to provide anesthesia services, under the antitrust laws. Oltz charged the anesthesiologists and the hospital with a group boycott, which can be a per se violation of the antitrust laws. The anesthesiologists settled before going to trial.
In affirming the district court's finding that the hospital joined the anesthesiologists' conspiracy to terminate Oltz's billing contract, the Ninth Circuit noted that the anesthesiologists had ''pressured the hospital at St. Peter's to eliminate Oltz as a direct competitor.'' The court found that the anesthesiologists had threatened to boycott St. Peter's unless Oltz's independent billing status was terminated and that the anesthesiologists annual earnings at the hospital increased by forty to fifty percent after Oltz was terminated.
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In Bhan v. NME Hospitals, Inc. 929 F. 2d 1404 (USCA Ninth Cir., 1991) a nurse anesthetist and an anesthesiologist were anesthesia providers in a small hospital in Manteca, California. Surgeons at the hospital decided to attract another anesthesiologist. When the third provider arrived the nurse anesthetist alleged that the anesthesiologist who was to be replaced tried to save his job by suggesting to the hospital administration an all-physician anesthesia policy and the elimination of the CRNA. The CRNA brought suit under the antitrust laws arguing that a physician only anesthesia policy was a coercive boycott. The Ninth Circuit ruled that nurse anesthetists and anesthesiologists directly compete for purposes of the antitrust laws but the trial court held that the Hospital's conduct had to be evaluated under the rule of reason and the case was dismissed.
In Anesthesia Advantage, Inc. v. Metz, 708 F. Supp. 1171, 1175 (10th Cir. 1990), four nurse anesthetists in the Denver, Colorado area and their professional corporation, The Anesthesia Advantage, Inc. (''TAA''), brought suit against several anesthesiologists and Humana Hospital. The nurse anesthetists alleged per se violations of the antitrust laws, including price fixing, market allocation and a group boycott. The charges were based on (1) a hospital-instituted ''call schedule'' for anesthesiologists and the anesthesiology staff's recommendation to adopt guidelines for supervising nurse anesthetists; (2) a conspiracy to induce another hospital to reject a fee-for-service proposal by TAA to provide out-patient ambulatory surgery anesthesia on pre-arranged days; and (3) an attempt to persuade a third hospital to reject a proposal that the hospital use TAA for an obstetric epidural anesthesia program.
The nurse anesthetists alleged that they were ''illegally squeezed out of business by anesthesiologists because the presence of CRNAs forced down the market price for anesthesiologist services.''
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The Tenth Circuit Court of Appeals reversed the trial court's dismissal of the case, and some of the defendants eventually settled the case, by among other things, agreeing that they would not interfere in the future with CRNAs' right to practice anesthesia.
The Current Case in Minnesota
A recent case that illustrates the unfair and anticompetitive tactics employed by anesthesiologists to exclude CRNAs is that brought by the Minnesota Association of Nurse Anesthetists (MANA). MANA has alleged that a group of anesthesiologists sought to eliminate CRNAs as lower cost competitors and to seize unfettered control over the market in the pricing of anesthesia services; as a result of this scheme many CRNAs at three of the largest Minnesota hospitals were fired from their jobs.
MANA is currently engaged in a lawsuit which seeks to bring this unlawful conduct to an end and to restore competition to the marketplace. MANA is currently appealing the dismissal of its complaint.
Minnesota nurse anesthetists, in their suit, have alleged that for years, anesthesiologists have allocated territories between themselves and engaged in organized boycotts of both individual CRNAs and CRNA groups. MANA alleges that beginning ten years ago and lasting until very recently, there had been virtually no competition between any of the anesthesiology groups in the state and that groups had allocated the various hospitals among themselves and entered into de facto or actual exclusive agreements with those hospitals.
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CRNAs are natural competitors with anesthesiologists for the provision of anesthesia services. Despite this fact, in Minnesota and many other states, anesthesiologists make over four times as much money as CRNAs. The reason for this, at least in part, is that in Minnesota anesthesiologists have established and maintained substantial market power through a number of organized efforts which have successfully put them in a position to control anesthesia pricing and the method in which anesthesia is provided.
Unfortunately, the result in many hospitals is that the method by which anesthesia is provided is based largely upon the reimbursement potential and the profitability to the anesthesiologist. The allegations in the Minnesota suit exemplify how this power works against competition. The annual average income of an anesthesiologist in the Twins Cities area is believed to exceed the average in every other state, going as high in some cases as one-half million dollars or more.
It is our understanding that in some cases, and possibly many cases, the cost of the anesthesia services provided in connection with a surgery may exceed the cost of the surgery itself by a substantial amount. This is because the anesthesiologists have created barriers to entry and foreclosed the market for anesthesia not only to CRNAs but to competing anesthesiologists who might seek to enter the Minnesota market and compete on pricing. The allegations and evidence in the law suit suggest that:
1. Anesthesiologists have misrepresented government requirements for reimbursement as quality of care requirements. In other words, through the smoke screen of patient quality of care, they have imposed requirements that anesthesiologists be involved in, or at least get paid for, virtually every aspect of the anesthesia procedure, even though many of these aspects of the anesthesia procedure can be performed and are performed by CRNAs alone. In particular, federal and state laws, as well as AANA's certification requirements, permit CRNAs a wide scope of practice to provide virtually any anesthesia service. As stated earlier, CRNAs are the sole anesthesia provider in 75% of rural hospitals and therefore, provide all the services.
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Nevertheless, under the guise of patient safety, anesthesiologists have introduced limitations on CRNAs' scope of practice. These limitations appear in hospital by-laws, written hospital procedures or in some cases, in unwritten hospital policies. For example, anesthesiologists have restricted CRNAs' ability to (1) perform regional anesthesia, (2) place arterial lines, and (3) place epidurals. AANA believes it is not a coincidence that Medicare and other third party payors pay substantial amounts of money for these procedures. Anesthesiologists who attempt to allow CRNAs to perform such procedures have been threatened by other anesthesiologists and often their state associations. Interestingly, procedures such as intubation and extubation, which are equally challenging but do not have a corresponding high rate of reimbursement, are routinely performed by CRNAs without objection by anesthesiologists.
2. Anesthesiologists have engaged in conspiracies with hospital personnel to prevent CRNAs from practicing on an independent basis in hospitals, downgrading CRNA status as health care providers, and other restrictive practices which impede the CRNAs' ability to independently provide anesthesia services. Anesthesiologists have also limited CRNAs' scope of practice.
Anesthesiologists' control of the market has extended to attempts to eliminate a supply of CRNAs in the Minnesota market. Anesthesiologists have recently refused to assist the school for CRNAs which provides new graduate CRNAs—again under the guise of quality of care concerns. Also, the anesthesiologists' refusal to permit education in other aspects of anesthesia has threatened student ability to meet requirements to become ''certified'' as certified registered nurse anesthetists (CRNAs). AANA requires advanced clinical experience in these areas before it will extend certification.
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Perhaps the most egregious example of the anesthesiologists' attempt to obtain a stranglehold on the market for anesthesia has occurred in the past two years during which the anesthesiologists have entered into a conspiracy to eliminate CRNAs altogether in Minnesota as economic competitors and to force them to work directly for the anesthesiologists. In this way, they can ensure that while CRNAs are still performing the work for them, CRNAs will be unable to affect or compete in the areas of pricing and other quality of service concerns.
The law suit also alleges that through a campaign which included: (1) the use of improper and fraudulent billing to Medicare and other third party payers, (2) widespread dissemination of inaccurate and misleading statements disparaging CRNAs and their abilities to practice anesthesia, and (3) the limitations on scope of practice referred to above, anesthesiologists have coerced four of the major hospitals in the state of Minnesota including Unity Hospital, Mercy Hospital, St. Cloud Hospital, and Abbott-Northwestern Hospital, to terminate all of their CRNA employees and to compel them to work for the anesthesiologists. Because the anesthesiologists control the market for anesthesia, CRNAs were left with the choice of leaving their families, selling their houses and seeking employment outside the state.
Had it not been for the lawsuit brought by MANA, it would not be an exaggeration to state that by now competition in the area of anesthesia services between the CRNAs and the anesthesiologists would be non-existent.
JUST A TURF BATTLE?
No doubt there will be some who believe that our concerns are unjustified, simply the problems of a turf battle between health care professionals. To a large degree, this is a turf battle, but an important one in which today's consumer has a major stake. If the antitrust laws are weakened, it is not just nurse anesthetists who will be pushed out of the health care market, it is yet another consumer choice which falls by the wayside and a good possibility that anesthesia prices could needlessly rise.
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Consider the comments of ASA President John B. Neeld, Jr., M.D. In his article ''Market Factors Demand the Evolution of the Care Team'', in the Georgia Society of Anesthesiology Newsletter (date uncertain). He clearly sets out his ideas about the role of anesthesiologists and nurse anesthetists in the health care system. He said in part:
''In addition to the reduction in demand for services and the reduction in reimbursement for those services, the supply side of Anesthesia personnel has also changed. There is now an excess number of Physician and Anesthetists competing for the same positions. An excess supply has brought the compensation levels that new Anesthesiologists are willing to accept close in the salary levels enjoyed by Anesthetists that the differential is negligible, particularly when one places a reasonable value on the greater skills, education, and professionalism that the physicians bring to a practice. Replacement of Anesthetists by Anesthesiologists is by no means a death knell for these personnel; most practices will always have a need for a certain number of non-physician practitioners to provide economically viable coverage for underutilized anesthetizing locations. Doing the right thing is frequently unpopular; doing the wrong thing in this case will deprive patients of the opportunity for improved care and deprive our specialty of the opportunity for continued improvements in our knowledge base and technology that are dependent upon the maintenance of our Educational and Research Institutions and upon the continued attraction of the best and brightest medical students into Anesthesiology. Each of us must step forward and do the proper thing for our patient population, our Specialty, and for Anesthesiologists and Anesthetists. Anesthetists who add value to practices and are loyal to the true concept of a Care-Team should be retained and rewarded; those who do not should be replaced by our Young Physician Colleagues.'' (Emphasis added)
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We think Dr. Neeld clearly states the agenda of the American Society of Anesthesiologists (ASA) which appears to be: CRNAs who cooperate with us have their place but those who don't should be replaced by anesthesiologists. We don't know what other conclusion you could reasonably draw from Dr. Neeld's comments. Bottom line: play ball or be replaced.
That agenda, reinforced by the ASA's request to the AMA to issue a resolution that ''anesthesia is the practice of medicine'', continues to make the puzzle even more clear. And if this legislation were to be enacted, it would give the anesthesiologists the legal green light to move ahead and boycott, price-fix or engage in other illegal activities in order to push nurse anesthetists out of the market. This resolution has caused some organizations to contact AANA to inquire whether this requires them to employ only anesthesiologists.
But these issues are raised not only by CRNAs but in fact others as well.
In his book, Not What the Doctor Ordered, How to End the Medical Monopoly in Pursuit of Managed Care, (McGraw Hill, 1998) Jeffery C. Bauer, Ph.D., explains at length and in specifics, how organized medicine has, over the years, sought to constrain nonphysician providers from gaining a foothold in the healthcare delivery system. His chapter on nurse anesthetists and anesthesiologists provides an interesting perspective from a health care futurist and medical economist. I offer some excerpts to explain his position. He states in part:
''In the context of this chapter's main theme, I have saved the best example for last. (To be clear and fair, it is the example, not the professional group, that is best. Nurse practitioners, nurse midwives, and nurse anesthetists are all excellent in their different areas of practice). The CRNA story illustrates perfectly the benefits of competition from qualified nonphysician practitioners and the harmful effects of doctors' anticompetitive efforts to control the market. In particular, it shows why persistent enforcement of antitrust law, something very different from health reform, is needed to protect consumers' welfare from doctors' monopoly when acceptable substitutes are available . . .''.
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''My reason for featuring the market for anesthesia services is actually quite strong from the economic perspective. Physicians may have been unsuccessful in their ongoing attempts to eliminate nurse anesthetists as an alternative, but they have been remarkably successful in depriving American consumers of the potential economic benefits of potential competition. In other words, doctors have controlled the market to their own economic benefit, which means consumers have been paying uncompetitive prices for anesthesia services. How else could one explain the fact that anesthesiologists have consistently earned more than twice as much as nurse anesthetists while providing the same service?''
''The principal measure of economic harm has been the fee that anesthesiologist receive for 'supervising' nurse anesthetists. Unable to prevent state legislatures from licensing CRNAs, anesthesiologists have used their influence with health insurance plans (often as owners or directors) to make sure that payment flowed through the doctor's account. For years, many private health plans have had various schemes that allowed anesthesiologists to charge their full fee for services provided by CRNAs operating under their supervision. (The term is 'medical direction' in the arcane language of Medicare reimbursement. This technicality allows an anesthesiologist to be partially reimbursed for 'medically directing' up to four CRNAs at a time. It is nice work if you can get it . . . and having monopoly power helps.''
''You can easily guess the rest of the story: the doctor they pays the nurse anesthetist a lower amount for performing the service, and he pockets the often substantial difference. This difference between an anesthesiologist's fee and the cost of the CRNA who actually provided the service might be justifiable if supervision were necessary, but it isn't. This practice is a textbook example of economic exploitation. It is a sign of unwarranted economic power which makes consumers pay more than what is necessary or fair. It reminds me of featherbedding, the discredited labor practice of using more workers than are necessary. Thanks to modern technology and excellent training, CRNAs do not need medical 'supervisors' any more than railroads need superfluous brakemen and conductors riding in a caboose''.
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''Finally doctors have used their economic power to deny or restrict hospital privileges for nurse anesthetists. Even in states were CRNAs have full rights to independent practice and direct reimbursement, anesthesiologists have regularly prevented their nonphysician counterparts from having equal access to operating rooms, the site where most anesthesia is administered. This practice constitutes a significant barrier to entry, one of the key indicators of monopoly power in economic theory and antitrust law.
This brief look at the market for anesthesia services shows that medical monopolists have many ways to suppress competition, even when qualified nonphysician practitioners receive licenses for independent practice. CRNAs have achieved much of the recognition sought by other advanced practice nurses, but consumers are still denied a free, fully informed choice in the marketplace because doctors continue to defend 'captain of the ship' authority with the outdated argument that they are unique (i.e., better). The many successes of CRNAs in a still imperfect market remind us that the medical monopoly must be fought on many fronts.
To armchair economists, the story might seem to have a happy ending. Anesthesiologists' incomes have fallen dramatically in the past few years, which might be interpreted as a sign that competition has finally prevailed in this market. More than one force could be at work here, however, so do not jump to simple conclusions. Managed care has certainly exerted some downward pressure on money paid to hospital-based physicians. An oversupply of anesthesiologists is also believed to be a major explanatory factor. Anesthesiologists' professional associations are already working on plans to reduce the number of training positions and to restrict the entry of foreign medical graduates into residency programs.
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These efforts must not become red herring that divert our attention from the market's long-term problems, unjustifiable restrictions on consumer choice and related barriers to entry. Believe me, anesthesiologists have not lost interest in this issue just because they have realized they are too numerous. They are pushing like never before to control CRNAs. Monopolists do not go down easily when their incomes are threatened. Intensive, anesthesiologist-led efforts to place restrictions on nurse anesthetists have been initiated within the past two years in several areas of the country, including the bellwether states (in terms of health policy) like Ohio, Minnesota, New York, New Jersey, Pennsylvania, and Oregon.''
''A proposal made by the Oregon delegation to the 1997 mid-year meeting of the AMA House of Delegates serves as fitting proof that doctors are still fighting all advanced practice nurses to retain their monopoly power:
Whereas, Increasing pressure by special interest groups has persuaded state legislators to introduce legislation unjustifiably expanding scopes of practice of alternative and allied health workers; and Whereas, Many healthcare workers seek to legislate their ability to practice medicine, rather than obtain a high level of expertise and competence through medical school education and training; and Whereas, Medical decisions for patients are best made by medical doctors; and Whereas, There is considerable confusion on the part of the public and some legislators regarding the qualifications and training of healthcare workers versus medical doctors; and Whereas Education of the public and legislature needs to occur to replace confusion and ignorance with facts; therefore be it RESOLVED, That is the it is the policy of the American Medical Association to protect the public by supporting medical doctors against efforts advanced by alternative providers seeking increased medical control of patients by legislatively expanding their scopes of practice without physician directions and state boards of medical examiners oversight.''
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Dr. Bauer concludes that the resolution was reaffirmed by the Delegates as a statement of existing AMA policy.
CONCLUSION
In conclusion, providing antitrust exemptions for physicians will harm nonphysician providers and their patients. That is because antitrust exemptions can and likely will be misused by physicians to discriminate against nonphysician providers with whom they compete for patients and for health care dollars.
Despite the fact that plain economics would suggest otherwise, many nonphysician providers are experiencing difficulty contracting with health plans because most, if not all, are controlled by physicians. Permitting physicians to obtain blanket antitrust immunity for their negotiations with health plans will make that situation worse and quite possibly foreclose those opportunities for CRNAs and other nonphysician providers completely. Many of the arguments made in the guise of ''quality of care'' are merely nothing more than a veiled attempt to grab greater control of the health care market and to enhance physician incomes.
Recent activity by the AMA and in state legislatures has made it clear to AANA that physicians are searching for ways to limit competition from nonphysician providers and will use any means at their disposal to accomplish those ends. The Congress and this Committee should not assist them by abolishing the antitrust laws that protect nonphysician providers from exclusionary and discriminatory treatment by physicians and health plans. To do so would undermine the health care system itself and penalize nonphysician providers and their patients by tipping an already unlevel playing field on its head in favor of physicians.
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Thank you for your consideration of our views. I look forward to responding to your questions.
Mr. HUTCHINSON. And Mr. Bascomb.
STATEMENT OF STUART BASCOMB, EXECUTIVE VICE PRESIDENT, EXPRESS SCRIPTS, INC., MARYLAND HEIGHTS, MO
Mr. BASCOMB. Thank you. Mr. Chairman and members of the committee, my name is Stuart Bascomb. I am executive vice president of Express Scripts, the Nation's largest independent pharmacy benefit manager. As a PBM, Express Scripts manages pharmacy benefits of patients who are covered by a health plan whether through an employer, union, insurance company or health maintenance organization, collectively referring to our clients as plan sponsors. We provide better, affordable drug therapy to over 47 million individuals.
I request the committee both enter my oral remarks and written testimony in the record. Drug costs have increased dramatically over the last 2 decades and currently are one of the fastest growing components of medical care. Express Scripts believe that H.R. 1304 would constrain our ability to fight the rising—fight rising pharmacy care costs and expand access to drugs for patients across the country.
First, let me briefly describe what a PBM is. Plan sponsors contract with PBMs to issue I.D. Cards to their members so their members can take the cards into the pharmacies with their prescriptions to have them dispensed and compares to a comparatively small copayment. At that point, the PBM will bill the plan sponsor for the difference between the copayment and the price of the prescription.
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Through sophisticated computer systems, PBMs have evolved into a more complex role of managing and controlling these costs by reducing the costs of the drug product itself, the related pharmaceutical services, and fostering the use of appropriate drugs. Due to efficiencies and cost advances of client cash flow, the average pharmacy dispensing fee has fallen 33 percent over the past 10 years.
These reductions ultimately have been passed on to the consumer in the form of more stable health insurance premiums and lower copayments or out-of-pocket pharmaceutical costs for consumers. Moreover, PBM-driven efficiencies improved the quality of drug therapy. The PBM-driven automation of pharmacies now provides the pharmacists with information to enable him or her to immediately determine whether newly prescribed medication conflicts with an existing prescription. Plus we identify for pharmacists and physicians more cost-effective therapy for their consideration.
More importantly, PBMs enable broad consumer access to drug coverage including break-through pharmaceuticals. By bringing down the costs of pharmacy benefits, PBMs have enabled more insurance plans and employers to provide drug coverage to consumers for comparatively low copayments.
The number of those who have access to drug insurance has risen significantly. In 1986, the 30 percent of all prescriptions dispensed at retail were a third-party paid, by third-party payer, through third-party payers.
By 1998, this number is up to 68 percent. Consequently, drug therapy has become more affordable for people covered by our services. Once high-priced, out-of-reach drugs are now accessible for everyday treatments. The single prescription for a post-1992 new drug cost—costs an average of $72 in 1998. In 1998, the average copayment was approximately 20 percent.
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The low out-of-pocket share by the member makes prescription drugs much more accessible. Even if retroactively reimbursed, many working people and their families could not afford a 30-day supply of common drugs. For example, the average retail price of a common cholesterol-lowering drug is $100 a month or $1,200 annually.
Next, let me say I have a great deal of respect for the important role that our community pharmacists play in our health delivery system. The key here is that H.R. 1304 fosters curtailed behavior. In our written testimony we have provided five examples of pharmacists that have boycotted PBMs, resulting in higher-priced health care. H.R. 1304 would only facilitate this type of behavior and consequently facilitate higher prices.
I also believe that H.R. 1304 could provide pharmacists in many areas of the country with the ability to deny access to their service, unless very high fees were paid. Pharmacists do not need H.R. 1304. Existing laws allow pharmacists to work together in many ways that can benefit patients, making special treatment they receive under H.R. 1304 unnecessary.
Pharmacists have more than enough flexibility under the antitrust laws to adapt to a rapidly-changing marketplace by forming alliances, joint ventures networks, and other collaborative activity without the protection of H.R. 1304. Indeed, Express Scripts works with eight of these such pharmacy coalitions today representing approximately 7,000 pharmacies.
H.R. 1304 is unnecessary and unwise. Existing laws allow pharmacies and pharmacists to work together in ways that are procompetitive and efficient. Passage of this bill would result in the increased pharmaceutical costs, reduce quality of drug therapy, and severely injuring American consumers.
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We strongly urge that Congress reject this bill and continue to allow PBMs to develop efficient innovative ways to decrease health care costs. Thank you very much.
[The prepared statement of Mr. Bascomb follows:]
PREPARED STATEMENT OF STUART BASCOMB, EXECUTIVE VICE PRESIDENT, EXPRESS SCRIPTS, INC., MARYLAND HEIGHTS, MO
I. INTRODUCTION.
My name is Stuart L. Bascomb. I am the Executive Vice President of Express Scripts, Inc. I have been a senior executive at Express Scripts since 1986 and am the company lead in sales. I play an active role in pharmacy network development as well.
I have been extensively involved in the pharmaceutical industry for over 28 years, 18 years in retail and the last 10 years with Express Scripts, a pharmacy benefit management company (''PBM''). I am the past Chairman of the Board of the Pharmaceutical Care Management Association. I also have been involved with the Chain Drug Industry's Accounting Principles Committee and the Chain Drug Industry's Administration and Operations Committee. Due to the depth of my experience both in the provider and PBM sides, I feel that I am qualified to address the impact that H.R. 1304 will have on the cost and availability of prescription drug benefits.
Express Scripts is the nation's largest independent PBM. We currently provide managed prescription drug services to more than 47 million individuals in the United States and Canada. We provide better and more affordable drug therapy to countless individuals every day.
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PBMs are an important innovation in the health care market. PBMs contract with plan sponsors to administer their members' prescription drug programs through a network of pharmacies. Due to the administrative efficiencies that PBMs bring, network pharmacies are able to offer discount pricing. Because these pharmacies are linked on-line through sophisticated PBM computer systems, they are able to monitor quality issues and resolve them quickly.
PBMs are important to consumers because they help to lower the price of prescription drugs by negotiating discounts on prescription drugs with pharmaceutical manufacturers and increasing the efficiency of pharmacy business operations. PBMs also have helped to increase patient access to drug benefits—including important breakthrough drugs—by making them more affordable to health care plans and their members. This includes lowering the out-of-pocket costs patients are required to pay for prescription drugs. And, PBMs have played an important role in assuring patients that the pharmacies they deal with meet high quality standards by requiring network pharmacies to be credentialled and audited.
However, H.R. 1304 threatens to undercut the ability of PBMs to provide lower cost prescription drug benefits to consumers.
I want to add that, on behalf of myself and Express Scripts, we have a great deal of respect for the tremendous role and value of community pharmacies in the health care system. In fact, a recent report by Schering Laboratories found that, on average, patients' approval rating of independent pharmacies is at 70%.(see footnote 117) This said, many pharmacists are independent business owners with their own set of pressures. Given the opportunity to negotiate collectively to increase their fees, such pharmacists will almost certainly do so instead of forming productive and efficient joint ventures that benefit themselves as well as their customers.
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As a company that has been instrumental in lowering pharmaceutical costs for employers and consumers, we are concerned that H.R. 1304 would undercut our ability to fight rising health care costs and expand access to prescription drugs for patients across the country. We urge members of this Committee to reject this proposal because, if enacted, it will halt efforts by PBM companies like ours to develop innovative strategies, many of which are in cooperation with community pharmacies, to decrease total health care spending and improve health outcomes.
II. BACKGROUND ON PHARMACEUTICAL BENEFIT MANAGERS (PBMS).
PBMs manage the pharmacy benefits of patients who are covered by health plan sponsors, whether through an employer, union, insurance company or health maintenance organization (''HMO''). Pharmaceutical costs have increased dramatically over the last two decades and currently are one of the fastest growing components of medical care. PBMs manage both the quality of care and the costs of prescription drugs. Our cost containment efforts include programs focused on reducing the costs of administering the drug benefit and, where clinically appropriate, encouraging, with physician approval, a more cost effective treatment. PBMs contract with plan sponsors (those who pay for prescription drug benefits for their employees or members) to perform a myriad of tasks, including:
Contracting with community retail pharmacists to form a network of participating providers;
Administering sophisticated point of sale claims processing, concurrent drug utilization review and payment systems;
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Providing retrospective drug utilization review;
Developing and managing drug formularies;
Negotiating discounts and rebates with pharmaceutical manufacturers;
Extensive reporting to plan sponsors to assist in managing patient care and program costs;
Maintaining quality control; and
Providing mail service pharmacy.
In addition, PBMs may work with plan sponsors to design drug benefits to achieve objectives for a quality and cost effective benefit. This includes determining how much of the cost of prescriptions employees will be asked to pay, which drugs will be covered, whether mail service pharmacies will be used and whether patients will be offered economic incentives to use equivalent lower cost alternatives.
PBMs have been instrumental in lowering pharmaceutical cost trends for employers and consumers.(see footnote 118) PBMs have been the driving force in automating the claims processing, adjudication and payment process, resulting in more efficient pharmacy and benefit administration. Over 90% of all third party prescription claims are now adjudicated on-line, saving both time and money and significantly improving cash flow to the pharmacies. By bringing third party plans to pharmacy networks, PBMs also have achieved reductions in both pharmacy dispensing fees and actual drug ingredient costs because of the volume of patients. The average pharmacy dispensing fee has fallen 33% over the past ten years.
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Efforts by PBMs to negotiate drug discounts from manufacturers in return for placing the manufacturer's drug on a health plan's formulary also have reduced the cost of drug benefits. All of these reductions ultimately have been passed on to the consumer in the form of stable health insurance premiums and lower out-of-pocket pharmaceutical costs, and for the plans, lower administrative expenses. These same benefits are realized not only by ''private'' health plans, but by the federal government in its prescription drug coverage programs, such as the CHAMPUS, Veterans, Medicaid and the Federal Employee Health Benefits Plan (''FEHBP'') programs.
In achieving these cost-savings and efficiencies, PBMs also have helped improve health care quality in several ways. First, they have enabled broad consumer access to drug coverage, including the use of breakthrough pharmaceuticals. By bringing down the cost of pharmacy benefits, PBMs have enabled more insurance plans and employers to provide drug coverage. The number of those who have access to drug insurance has risen significantly over the past few years. In 1986, 30% of all prescriptions dispensed at retail were third party payers. By 1998, over 68% were third party payers.
Consequently, drug therapy has become more affordable for people covered by our services. Once high-priced out-of-reach drugs are now accessible for everyday treatment. Many working people covered by our services would not be able to afford the out-of-pocket cost of a 30-day supply of drugs. According to a report to be published by Express Scripts this month, last year's annual per patient cost—on an average wholesale price basis before copayments, discounts and active management—was $329.48, up from $282.48 in 1997. New drugs introduced since 1992 accounted for 35.6% ($117.55) of the 1998 pharmacy benefit costs. A single prescription for a post-1992 new drug cost an average of $72 in 1998.(see footnote 119) The 1998 average copayment was 20% of the cost of the drug. This low out-of-pocket share makes drugs much more accessible to Americans. Even if retrospectively reimbursed, many working people and their families could not afford a 30-day supply of some common drugs. For example, the average retail prescription price of a common cholesterol lowering drug, is $100 month, or $1200 annually.
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The more affordable drug benefit coverage, the more employers are able to maintain and expand pharmacy benefits. Indeed, PBMs now are being considered as a cost-effective way to provide Medicare patients with drug care benefits.(see footnote 120) The selection of drugs available to consumers has increased as well. The result has kept greater number of people well, thereby reducing overall health costs and improving the quality of life for countless Americans.
Second, PBM-driven efficiencies have improved the quality of drug therapy. The PBM-driven automation of pharmacies now allows the pharmacist to be immediately notified if a newly prescribed medication conflicts with an existing prescription dispensed at another pharmacy. The shared pharmacy network that is managed by a PBM provides a fast and efficient way to identify drugs that may be more appropriate to individual patients. It also provides a means of identifying therapeutically equivalent or generic drug options for consideration by the patient's physician.
Third, PBMs have helped improve the quality and accessibility of pharmacies. Network pharmacies must be ''credentialled.'' Every pharmacy participating in a PBM or health plan network must meet specific standards, including licensure, insurance and quality assurance requirements. Moreover, by creating a network, PBMs offer health plan payers a number of geographically accessible pharmacies. A patient can go into any network pharmacy and expect the same out-of-pocket charge for the drug. In fact, most of the members that we serve access networks that constitute 95% of the available pharmacies. In a sense, the network levels the playing field for independent pharmacies, chains and discounters. The patient pays the same copayment no matter which pharmacy he or she uses. These consumer advantages rebound to the pharmacists' benefit by bringing them more third party payer customers. In short, contracted networks are a win-win for all involved.
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III. PHARMACISTS HAVE BOYCOTTED AND FIXED PRICES IN PAST EFFORTS TO RAISE FEES AND REDUCE CONSUMER CHOICES.
While consumers have benefited from the cost savings produced by PBMs and other managed care organizations, some pharmacists have resisted attempts by such organizations to reduce pharmacy costs and implement other steps to make drugs and pharmacy services more efficient and affordable. In certain instances, pharmacists have boycotted PBM plans and attempted to fix prices in an effort to raise their fees. This has resulted in reduced consumer choice and higher prices for employers, government programs and consumers. Examples of such efforts include the following:
In December 1998, the Asociacion de Farmacias Region de Arecibo (''AFRA''), an association of approximately 125 pharmacies operating in northern Puerto Rico, and one of AFRA's officers, agreed to settle FTC charges that they had fixed prices and engaged in an illegal boycott in an effort to obtain higher reimbursement rates for pharmacy goods and services under Puerto Rico's government managed care plan for indigents.(see footnote 121) AFRA's boycott enabled the pharmacists to increase reimbursement rates by 22%.
In May 1998, five institutional pharmacies in Oregon agreed to settle FTC charges that they unlawfully fixed prices, leading to higher reimbursement levels for servicing Medicaid patients in Oregon long-term care institutions.(see footnote 122) These five pharmacies, negotiating jointly through the Institutional Pharmacy Network (''IPN''), together provide pharmacy service for approximately 80% of the patients who receive institutional pharmacy services in Oregon. By engaging in collective negotiations over price and terms and agreeing to fix the fees they charged, the pharmacies were successful in raising reimbursement levels. As a result, three managed care plans with which IPN negotiated paid IPN members a higher rate than they paid to other institutional pharmacies.
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In 1994, the FTC obtained a consent decree against the Baltimore Metropolitan Pharmaceutical Association, Inc. (''BMPA'') and the Maryland Pharmacists Association (''MPhA'') for illegally conspiring to boycott the prescription drug plan for Baltimore city government employees.(see footnote 123) In order to coerce higher reimbursement rates for prescriptions in response to cost-containment measures initiated by the Baltimore city government, BMPA, MPhA and some of its members exhorted pharmacists that operated within Baltimore to stop participating in the plan and coordinate their joint activities. These actions increased the cost of obtaining drugs through prescription drug plans and reduced price competition between the firms providing these prescriptions, ultimately harming Baltimore consumers.
In 1992–93, the Southeast Colorado Pharmacal Association (''SCPhA''), which consists of approximately 19 of the 22 pharmacies located in seven counties in southeastern Colorado, conspired to boycott a prescription drug program offered to state retirees. In an effort to force the program to increase its reimbursement rate for prescriptions, SCPhA members refused to fill prescriptions under the plan and placed notices in local newspapers announcing their refusal.(see footnote 124) This conspiracy increased the prices consumers paid to pharmacies for prescriptions filled under third-party benefit plans.
In the late 1980's, various retail druggists in New York participated in a conspiracy to boycott the New York State Employees Prescription Program, successfully forcing an increase in reimbursement rates for pharmacies filling prescriptions for public employees. This conspiracy cost the state of New York approximately $7 million over an 18 month period and defeated a cost-containment initiative which would have reduced the reimbursement amounts paid to pharmacies when they filled prescriptions for some 500,000 state employees and retirees.(see footnote 125)
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Most pharmacies work within existing laws to advance the quality care of their patients. However, in all the above instances, pharmacists acted against the interests of consumers in an effort to increase their profits.(see footnote 126) Fortunately, the antitrust laws provided a means to halt this conduct. However, H.R. 1304 would eliminate this safety mechanism, resulting in higher prices for federal government plans, private plans and all of the plan participants, employees, retirees and dependents these plans serve.
IV. THE MCCARRAN-FERGUSON ACT DOES NOT EXEMPT INSURERS FROM ANTITRUST OVERSIGHT/REGULATION IN THEIR DEALINGS WITH PHARMACISTS.
Some proponents of H.R. 1304 have suggested that the legislation is necessary to provide a counter-weight to the McCarran-Ferguson Act. This is untrue. The McCarran-Ferguson Act does not provide an antitrust exemption to health plans in their dealings with pharmacists. Agreements among insurers or PBMs regarding contracts with individual pharmacists remain subject to antitrust scrutiny, as do mergers among PBMs or health plans.
The McCarran-Ferguson Act deals with the business of insurance, i.e., the underwriting and spreading of risk. It does not provide a blanket antitrust exemption that covers all activities of insurers. Indeed, dealings between insurers and pharmacists generally are outside of the McCarran-Ferguson antitrust exemption.
Two instances of judicial review of agreements between insurers and pharmacies and/or pharmacists regarding drug reimbursements provide excellent examples of how insurers are not protected from antitrust scrutiny by the McCarran-Ferguson Act in their dealings with pharmacists.
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The first example is found in Group Life & Health Insurance Co. v. Royal Drug Co.,(see footnote 127) a Supreme Court case addressing allegations by owners of independent pharmacies that Blue Shield of Texas had violated the Sherman Act by entering into prescription reimbursement agreements with certain pharmacies. Specifically, the independent pharmacists alleged that Blue Shield's Pharmacy Agreement, under which a participating pharmacy agreed to furnish prescription drugs to Blue Shield's policy holders for $2 a prescription and Blue Shield agreed to reimburse the pharmacy for the pharmacy's cost of acquiring the amount of drug prescribed, was an agreement to fix prices. Policy holders patronizing pharmacies that did not participate in the Pharmacy Agreement were reimbursed at 75%. According to the independent pharmacists, this caused Blue Shield's policyholders not to deal with certain of the non-participating pharmacists, thereby constituting an unlawful group boycott as well.
In its defense, Blue Shield claimed that its conduct came within the McCarran-Ferguson Act and therefore was exempted from antitrust scrutiny. The Supreme Court disagreed, noting that the exemption applied to the business of insurance, not to the business of insurers. The Court observed that, ''The primary elements of an insurance contract are the spreading and underwriting of a policyholder's risk.''(see footnote 128) The disputed Pharmacy Agreements did not involve the underwriting or spreading of risk, but were merely arrangements for the purchase of goods and services by Blue Shield. ''There is not the slightest suggestion in the legislative history that Congress in any way contemplated that arrangements such as the Pharmacy Agreements in this case, which involve the mass purchase of goods and services from entities outside the insurance industry, are the 'business of insurance.' ''(see footnote 129)
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Portland Retail Druggists Ass'n v. Kaiser Foundation Health Plan,(see footnote 130) provides another example of insurer conduct toward pharmacists that was subject to the antitrust laws. Several retail pharmacies and non-profit trade associations to which some of the pharmacies belonged brought separate antitrust actions against HMOs alleging, among other things, that the contractual arrangements by which the organizations acquired drugs from manufacturers, wholesalers and distributors violated the antitrust laws. The HMOs claimed an antitrust exemption under the McCarran-Ferguson Act. The appellate court disagreed, holding that these arrangements did not constitute the business of insurance and, consequently, did not fall within the McCarran-Ferguson exemption.
The retail pharmacists also alleged that Kaiser had attempted to monopolize the business of drug sales by coercing drug companies, wholesalers and distributors to grant Kaiser prices lower than those otherwise available to retail pharmacies, in violation of Section 2 of the Sherman Act. They further alleged that Kaiser had resold drugs they had obtained at prices less than those that could have been charged by the retail pharmacists, thus inflicting injury on the retail pharmacists. The appellate court allowed these allegations to stand, thus again subjecting HMO conduct toward pharmacists to antitrust scrutiny.
V. PHARMACISTS CAN FORM NETWORKS AND COLLABORATE UNDER THE ANTITRUST LAWS.
Pharmacists have more than enough flexibility under the antitrust laws to adapt to a rapidly changing marketplace by forming alliances, joint ventures, networks and other collaborative activity without the protection of H.R. 1304. In fact, Express Scripts contracts with no fewer than eight such pharmacist joint ventures, which include over 7,000 pharmacies. In addition, Express Scripts is active in the National Health Information Network (''NHIN''), a coalition comprised of most major pharmacy chains and independent software vendors, on Y2K compliance for pharmacies.
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In 1996, the Department of Justice and the Federal Trade Commission (''FTC'') issued the most recent version of their statements of enforcement policy and analytical principles relating to health care and antitrust.(see footnote 131) These principles are designed to guide all health care providers, including pharmacists, regarding ways they can engage in collaborative activity consistent with the antitrust laws. As outlined by these Health Care Statements, pharmacists can engage in a wide-range of activity without antitrust risk. These include:
Information Sharing: The Health Care Statements provide a ''safety zone'' that allows pharmacists to exchange price and cost information under certain conditions.(see footnote 132) Moreover, the antitrust enforcers will not challenge information exchanges even if they do not come within these safety zones if the procompetitive justifications for the exchanges outweigh any anticompetitive effects.
Joint Purchasing Arrangements: The antitrust enforcers recognize the procompetitive efficiencies of joint purchasing arrangements.(see footnote 133) Consequently, independent pharmacists can collaborate in purchasing arrangements that allow them to obtain significant discounts from pharmaceutical manufacturers.
Network Arrangements: The Health Care Statements also recognize that pharmacist networks serve a procompetitive purpose by enabling independent pharmacy owners to develop efficiencies in furnishing pharmaceutical items and services to PBMs and third party payers.(see footnote 134)
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Two recent FTC advisory opinions illustrate the latitude pharmacists currently have in forming collaborative arrangements. One example is the establishment of the Orange Pharmacy Equitable Network (''OPEN''), which received a favorable FTC Advisory Opinion on May 19, 1999. OPEN's intention is to create a network linking drug prescribing, dispensing and patient education/disease management services in a structure in which prescribing doctors, the dispensing pharmacies and the disease management pharmacists would share common economic incentives to work together to manage drug therapy in the interest of reducing overall medical costs.(see footnote 135)
OPEN's product would be provided under a single contract to be negotiated and executed by OPEN on behalf of its members. Pharmacies would be paid for drug dispensing and compliance monitoring services and pharmacists would be paid for disease management services. A withhold from the payment for drug product dispensing would be placed in a risk pool, along with the savings realized in budgeted expenses for drugs and in expected medical costs, and the funds within the pool would be shared between OPEN and the physician group according to an agreed formula. OPEN's share would be distributed to pharmacies and pharmacists based on the number of value units accrued for billed services and the number of prescriptions filled. All OPEN members would be eligible to participate in the network and there would be no restriction on the ability of pharmacies to participate in other networks.
The FTC staff concluded that this proposal did not raise significant antitrust risks and would not be challenged if implemented as described. The advisory opinion noted that the structure of OPEN appears to foster integration among pharmacies, pharmacists and prescribing physicians in a cooperative effort to assure the most appropriate and cost-effective drug treatment. It observed: ''This type of arrangement appears to offer a potential for achieving significant efficiencies, both in terms of more cost-effective management of pharmaceutical and medical benefits and in terms of improving the quality of pharmaceutical therapy provided to patients.''(see footnote 136)
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The OPEN network resembles another innovative collaborative arrangement among pharmacists set up by the New Jersey Pharmacists Association (''NJPA'') in 1997, which also was approved by the FTC staff.(see footnote 137) NJPA intended to establish two pharmacist service networks to offer health education and monitoring services to diabetes and asthma patients. In providing these educational services, participating pharmacists would, among other things, meet with patients and assess their condition, review their medication history and set objectives for disease management, including modification of patient habits. These services would not involve dispensing medication and may be provided in the patient's home.
As outlined to the FTC, NJPA intended to market these services to insurance companies, HMOs, managed care organizations, pharmacy benefit managers and other third party payers. NJPA would negotiate the fees for such services with third party payers, allowing payers to agree to capitated fees or, alternatively, negotiate a shared risk reward compensation plan in which the pharmacies share in cost savings achieved in treating high risk patients. If costs were lower for an identified group of patients than they were during a defined baseline period, the pharmacies would receive a part of the money saved as compensation.
The FTC approved the proposed networks and noted the procompetitive benefits of the arrangements. The ventures proposed by NJPA did not involve agreement on drug prices, just the price of patient education services, and consequently created no greater opportunity for collusion on the sale of prescription drugs than did the perfectly lawful existence of the NJPA itself. In addition, the FTC noted the significant competition to NJPA's proposed networks arising from doctors, registered nurses and dietitians, physician assistants and competing networks.
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Both of these proposed networks were reviewed and approved under the existing antitrust laws, without the exemption outlined in H.R. 1304. They illustrate how pharmacists currently have a wide variety of options in structuring their dealings with each other and with health plans. They also demonstrate that the antitrust laws do not prohibit pharmacist collaboration that has the potential to benefit consumers; rather they are aimed at cartel behavior, such as that which would be exempted under H.R. 1304. Express Scripts' existing arrangements with collaborative groups of pharmacists reflect the fact that the existing legal structure permits activities which benefit pharmacists and their patients. Indeed, Express Scripts competes with other PBMs for the business of these networks. Any attempt by a single PBM or plan to unreasonably decrease the rate paid to pharmacists below a competitive level results in pharmacies declining to participate, thereby denying the PBM the necessary access to pharmacies it needs to be competitive with other PBMs. Pharmacists, even in today's competitive market, retain reasonable profit margins—approximately 20–28%; H.R. 1304 would provide an opportunity for pharmacists to increase these margins even further, without providing any assurances that patients would be better served.
VI. H.R. 1304 WOULD ONLY RAISE PRICES AND REDUCE ACCESS, NOT BENEFIT CONSUMERS.
H.R. 1304 is unnecessary and unwise. Existing laws allow pharmacies and pharmacists to work together in ways that are procompetitive and efficient. Passage of this bill would result in increased pharmaceutical costs and reduced quality of drug therapy, severely injuring American consumers. We strongly urge that Congress reject this bill and continue to allow PBMs to develop efficient and innovative ways to decrease health care costs.
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Mr. HUTCHINSON. The Chair thanks all of the panelists, and now we will go to the members for a time of questions. The Chair recognizes the gentleman from New York, Mr. Nadler, for 5 minutes.
Mr. NADLER. Thank you, Mr. Chairman. My questions are for Ms. Stuart, and I have two diametrically opposite questions. My first question is, what would you think of an amendment that read as follows, nothing in this act shall make legal any agreement otherwise illegal under the antitrust laws that excludes any health care professional or group of health care professionals from performing services that are within the scope of their practice as defined by the relevant State practice act? And if that amendment were in the bill would your opinion of the bill be different?
Ms. STEWART. Well, it has been from our endeavor from the ANAA perspective for the last several years to defer to State law when it is in regards to specific practice arrangements. I am not an attorney, so I——
Mr. NADLER. What this amendment would do would be to say a nurse practitioner under the relevant State practice act can do anesthesiology under certain conditions—I shouldn't characterize it as anesthesiology—you can do certain things under certain conditions, then no one can sign an agreement saying she can't.
Ms. STEWART. May I defer to the legal counsel?
Mr. NADLER. Sure.
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Ms. STEWART. Thank you. On its surface, it appears that it could be helpful. And, of course, that has been our goal, but specific language——
Mr. NADLER. All right. It would seem to solve your problem. Let us assume that we had an amendment in the bill that solved that problem. Would you then support or oppose the bill or just have no comment on it?
Ms. STEWART. At this point, I suppose I have no comment would be in order. But again, on its surface, it appears like it would be a good idea.
Mr. NADLER. What I am really asking is, do you have other reasons? Let us assume we solve that problem that you addressed yourself to; let us assume it were solved. Do you have other reasons to support or oppose the bill?
Ms. STEWART. Our biggest concern is the exclusionary act.
Mr. NADLER. Let us assume we solve that problem.
Ms. STEWART. If you solved that bill, then I think we were fine with the rest of it.
Mr. NADLER. Okay. Thank you. Now let me ask you an exact opposite question.
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Ms. STEWART. Okay.
Mr. NADLER. Do you think a patient ought to have the right to say—a patient is going to undergo surgery—I don't want an anesthesiologist; I don't want a nurse anesthetist. I want an anesthesiologist?
Ms. STEWART. I certainly think patients deserve the right. And as a prime example of that, in one of the facilities where I work—I have 15 anesthesia care providers, both physician anesthesiologists and nurse anesthetists, eight of the staff members, both CRNAs and MDs—anesthesiologists have asked for me to provide their anesthesia care to themselves or their families, and that was by their choice.
Mr. NADLER. Fine. Now, the patient should have the right in a setting with an HMO—let us assume the HMO has decided that an anesthesiologist is not necessary; it will only pay for a certified nurse anesthetist and the patient wants an anesthesiologist, and even the doctor does or—the surgeon does too, how could we effectuate the right of the patient to get what he wants. Or let us assume the patient wants the other way around—it doesn't matter—the HMO decides we will pay for A, but not B and the patient wants B, and maybe even the doctor, the surgeon also wants B, too?
Ms. STEWART. I think it is highly more likely, given your scenario, that the patient would be asking for an anesthesiologist because of some innate social perception usually. Most often they are concerned because they have been led to believe that a physician will not be involved in their care, which is so far from the actual truth, because we are always working with physicians, we are always highly interdependent with the operating practitioner, whether that physician that is involved in the patient's care is anesthesiologist or an operating practitioner, we are highly interdependent with a physician as we perform the services.
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Mr. NADLER. Let me ask the gentleman from the medical society. Under current law, can an HMO insist that they want one—that they want—let us take this example that they want a nurse anesthetist or, for that matter, instead of an anesthesiologist, regardless of what the patient and perhaps the surgeon wants.
Mr. ANDERSON. It is my understanding that a specific HMO can put whatever requirements on—in that particular case that they elect to do.
Mr. NADLER. And if the surgeon thinks, for example, that and I am not the doctor, so I don't know whether such cases would arise, but I am hypothesizing, if the surgeon thinks, for example, that this case requires an anesthesiologist and the HMO thinks not, the HMO gets its way under current law? And whoever wants to answer that.
Mr. DENNIS. Yes, I will respond to that. Actually, a lot of it depends on the bylaws of the medical staff, if nurses are practicing independently as physicians or the nurses are actually employed by the hospital. So if there is a nurse anesthetist employed by the hospital, it really is a hospital reimbursement issue. It is not an issue the doctor versus the nurse being reimbursed, and usually the reimbursement is pretty much identical. So that is not happening that much. But the HMO does have the right to contract with whom it wants to contract with.
If it wants to contract with nurse anesthetists and not anesthesiologists, which they prefer to do sometimes, they can. They choose to——
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Mr. NADLER. That means that——
Mr. DENNIS [continuing]. They can do the reverse too.
Mr. NADLER. If the hospital chooses to—the HMO, rather, chooses to make such a contract, that means that you never see an anesthesiologist?
Mr. DENNIS. If they wouldn't pay for it or they might pay the same rate as a nurse anesthetist. So it depends—each HMO can develop their own contracts. But in many instances, nurse anesthetists are actually employed by the hospital; sometimes they practice independently.
Mr. HUTCHINSON. The gentleman's time has expired.
Mr. NADLER. Can I ask for an additional minute on that.
Mr. HUTCHINSON. Without objection, 1 additional minute. We will try to go an extra round if we need it.
Mr. WEINMANN. Do you want me to reply to that, too?
Mr. NADLER. One additional question and you may reply. And that is ethical within the—if a surgeon thinks I need an anesthesiologist on this—on this particular operation because for whatever reason, and the HMO demands something else and the hospital demands something else, is it ethical for the surgeon to operate under those conditions without the anesthesiologist?
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Mr. WEINMANN. The surgeon should only operate if he thinks it is ethical to do so. And one of the examples in the text that I did not read concerns an HMO that told a surgeon that he was not entitled to an assistant surgeon for a certain type of operation. The surgeon went to the American College of Surgeons and says what do you think? And they said, well, we have already published guidelines on that; that operation requires an assistant surgeon.
Now, on the battlefield we as physicians would do any darn thing that we need to do to take care of our patients, and we get away with it most of the time; but our hospitals and our cities aren't supposed to be battlefields. If we need an assistant surgeon we shouldn't have to put up with an HMO an insurance company that says, well, you can have your assistant surgeon, if he will work for free. Sometimes they will. But as patients we can't live like that.
Mr. HUTCHINSON. The Chair recognizes——
Mr. NADLER. Thank you.
Mr. HYDE. [Presiding.] I thank the gentleman. And the Chair recognizes the gentleman from Virginia, Mr. Goodlatte, for 5 minutes.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Dr. Weinmann, can you tell me the extent of unionization amongst doctors at this point in time? I know you are a member of the American Federation of State, County and Municipal Employees. Are there other unions that have organizations of doctors?
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Mr. WEINMANN. There are other unions, and as you know this sort of thing, self-promotion, is a big thing. My best answer is that probably 7 percent of doctors are in unions.
Mr. GOODLATTE. What types of doctors are these? Are there any doctors in private practice that are members of unions?
Mr. WEINMANN. Yes, sir. For example, our union, the Union of American Physicians and Dentists, which is affiliated with AFSCME, is about 60 percent salaried, maybe 40 percent fee for service.
Mr. GOODLATTE. By salary, are these Government employees or are they employees of hospitals or——
Mr. WEINMANN. At the present time they are mostly State employees, county employees. They would probably fit the category——
Mr. GOODLATTE. At State or county-run facilities, is that it?
Mr. WEINMANN. Yes, our private practice doctors are not entitled to classical collective bargaining. Our private practice doctors are represented by us in various novel and new ways which we devised after a considerable discussion with the FTC and so forth.
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Mr. GOODLATTE. How do you provide representation to a private doctor?
Mr. WEINMANN. Private practice doctors have to be represented individually within the scope of the law. They do not get collective bargaining right now. Our private practice doctors would be helped by H.R. 1304. They would be mostly helped in terms of what they would be allowed to do for patients because under present law they cannot even negotiate for the right to do things for their patients.
Mr. GOODLATTE. Why is that?
Mr. WEINMANN. It is a preclusion from the contract at the moment. One doctor can say, I am not going to work without an assistant surgeon. But if two doctors who were the only two surgeons in the plan were to go to the same plan and say we won't work without an assistant surgeon, then we have an argument about whether or not they have attempted to boycott the plan.
Mr. GOODLATTE. Thank you. Dr. Anderson, I note one of the justifications for this legislation that has been cited is the McCarran-Ferguson Act. If the McCarran-Ferguson Act were repealed with regard to its application to insurance companies, would that negate the need for this legislation?
Mr. ANDERSON. Mr. Goodlatte, it is our opinion that would not solve the problem. The problem would be much better addressed by a balancing of the equation, if you will, to allow, as my colleague said, self-employed physicians to come together to negotiate with health plans on a level playing field.
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Mr. GOODLATTE. Would you explain the nature of the problem with McCarran-Ferguson now and why that would not help?
Mr. ANDERSON. Certainly I am not an attorney. I will simply tell you, as I did in my opening statement, that in our judgment due to current antitrust restrictions and the extreme market power that the major health plans have that there is an imbalance, a tremendous imbalance between the power and clout of the health plans on one side of the fulcrum with a very long arm and patients and physicians on the other with a very short arm, the power.
And so what we are—what physicians and patients are experiencing is contracts that are issued to physicians that certainly restrict or deny, delay care that are—have things in them components like gag clauses and on and on. And the result is the—what we sense is a tremendous frustration on patients and indeed physicians to that.
Mr. GOODLATTE. Did you hear Joel Klein's testimony, the assistant attorney general, of the Antitrust Division?
Mr. ANDERSON. I did indeed.
Mr. GOODLATTE. He says that they aggressively pursue combinations of HMOs in particular areas and he cites Aetna and I don't know who they were—was it Prudential—whoever they were proposing to unify with, as an example of that. Do you find that that is the case?
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Mr. ANDERSON. Well, I certainly have great respect for Mr. Klein, but I was enlightened by that, because in our observation that is the very first one. In contrast, what we see over and over again is terror among physicians who want to get together and represent their interests. They really were held hostage by the threat of antitrust litigation and the possibility of trouble damages and indeed paying the legal fees of the other side.
Mr. GOODLATTE. In other words, they use the antitrust laws as a sword against—Mr. Chairman, I might ask unanimous consent for 1 additional minute. I would like to ask him one more question.
Mr. HUTCHINSON. [Presiding.] Without objection.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Dr. Anderson, what if we were to turn this around the other way and to build into the law some stronger antitrust provisions on the limit on which a company may hold a particular market—I don't know whether it would be 25 percent or 40 percent or 50 percent—but write a stronger antitrust law to prevent the other side, if you will, from having too much market power and not just leave it to the discretion of the Justice Department, but to write these laws in a stronger way and perhaps even give a private civil cause of action.
Mr. ANDERSON. Well, once again, I am not an attorney. What we are not trying to achieve is a total inversion of the current dynamic. We simply want balance. We simply must have the ability to negotiate with the health plans in a nonthreatened environment for the good of the patients.
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Mr. GOODLATTE. Dr. Young, what would you say about that?
Mr. YOUNG. There already are substantial limits on market power. You quoted the Aetna/Prudential case. It was just within the last few days—there have been others around the country. So there are limits. The McCarran-Ferguson Act does not give health plans and insurers carte blanche. What it says is that States regulate the business of insurance, antitrust at the Federal level still is in place, and antitrust at the State level is still in place. You heard from your witnesses this morning that that is a very active process that is going on.
Mr. GOODLATTE. Thank you. Thank you, Mr. Chairman.
Mr. HUTCHINSON. I thank the gentleman. I recognize the gentleman from Virginia, Mr. Scott, for 5 minutes.
Mr. SCOTT. Thank you. And it is good to see Dr. Dennis again. I didn't have a chance to talk to you Saturday night. You were in quite a hurry.
I just had one question, Dr. Dennis. The representative from the nurse anesthetist articulated concerns about certain groups being excluded, using this legislation to exclude certain groups. As a representative of victims of discrimination in the past, are you concerned that this legislation might be used as a tool to exclude minority physicians?
Mr. DENNIS. Well, there is always a possibility. But I think that this legislation would actually empower minority physicians to negotiate themselves. Now, it is true that a group of physicians could in fact work against minority physicians to exclude them. It is possible.
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But I think the amendment that was recommended earlier by one of your colleagues, it seemed to address that issue to the satisfaction of the nurse anesthetists, but that would also protect other physicians as well. I think the civil rights of physicians are still being violated as well as patients.
But in the case where there is an appeals process which can be negotiated by physicians, where due process, as well as the requirements for participation in health plans and medical necessity, then physicians will be in a position where they can actually bargain with those insurance companies and, of course, if what they do is discriminatory, then physicians will have grounds for legal action.
Mr. SCOTT. Well, sometimes the discrimination isn't just directed at minority physicians but could be directed at everybody except those presently on the list. The negotiation is such that if you just keep the list restricted to these doctors, the minority doctors and some majority doctors would be discriminated against, because the list isn't being expanded. Does that concern minority physicians?
Mr. DENNIS. It does. Because, in essence, using the situation like that, the patients are the ones being discriminated against. And the situation like that, what we would want is case mix adjustment of the profiles of physicians so that they wouldn't be discriminated against based on the severity of illness of their patients; and really that is what is happening is the data that is available doesn't necessarily prove discrimination by race.
What it does show conclusively, though, there is some discrimination based on—this is by the managed-care companies, based on the amount of money that is spent per patient. And if you have a very sick patient who say lives in an inner-city community with diabetes and hypertension and some other problems, then of course it is a little more expensive to take care of that patient; and the profile of the doctors is going to look like they are not cost effective, and that is the way to actually eliminate that doctor from the plan.
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And that doctor may be any race. What the data shows is that it is not race specific; it is related to how sick the patients are. And so by excluding those doctors, the patients that prefer to go to them also switch plans. So—or they withdraw from managed care. They have that option.
And as a result of that, they are red lined by managed care companies. That does concern me. And the ability to negotiate that would certainly level the playing field somewhat. That alone I don't think would be added protection. There still needs to be patient protection; there needs to be a patients' bill of rights to help address that sort of situation and a proper appeals and grievance mechanism.
Mr. SCOTT. Thank you, Mr. Chairman.
Mr. WEINMANN. May I address that also?
Mr. SCOTT. Sure.
Mr. WEINMANN. An article I wrote for the San Francisco Examiner was entitled Medical Red-Lining: Economic Credentials for Physicians. It described how you identify which doctors spent more on their patients than others and found how, therefore, some doctors had higher populations of more sickly patients that required more medical care.
When you identified those doctors, you could then decredential the doctor and drop him from the plan, get rid of his entire cadre of patients because they are inefficient to the plan. You don't have to show prejudice, but you will find these patients and their doctors in minority areas. Getting rid of them by the use of medical profiling will allow you to do it with the semblance of avoiding prejudice.
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In another case, for example, one, by the way, that our union is taking on right now where we were helping the doctor and his patient—I noticed when Mr. Pitofsky and Mr. Klein were speaking, they didn't mention very much about how medicine was actually practiced; and they wondered where were the cases where the unions were defending the patients. Well, now that they are looking for one, we will find them.
Well, the fact is that at the moment we are taking a case in California now where a surgeon appealed with his patient his exclusion from a case and won. The case was assigned to this surgeon, even though they wanted somebody else to do the case. Afterwards, the managed-care plan decided to reject 50 percent of the patient's physical therapy.
I ask you, was there an economic incentive to get even with the patient and his doctor or not? We will see.
Mr. HUTCHINSON. The gentleman's time is expired. I thank the gentleman. The Chair recognizes itself for 5 minutes. I would like to ask a question of Dr. Anderson.
I read your testimony on health plan consolidation results and market concentrations that hurt patients. You were expressing that the Department of Justice has not initiated very many actions in regards to mergers or the concentration of market share within managed-care groups.
My question to you is, has the medical community, either jointly or individually, filed any civil actions for unfair concentration of power in managed-care groups?
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Mr. ANDERSON. Well, again, I am not an attorney, but my counsel here tells me that we would not normally have the standing to bring such an action, nor the resources with which to do that. I would point out to you—and it was alluded to today—that the American Medical Association did ask Justice to look at the proposed merger between—of Aetna and Prudential and Aetna U.S. Health Care and Prudential; and as you may know, 2 or 3 months they have decided to let that go forward, but that really is—and that was unprecedented for the American Medical Association to even ask that. And my understanding, it was rather unprecedented for Justice to take such a look at a major managed-care thing.
Clearly, clearly, that adds to increased consolidation in the marketplace and, as has been pointed out repeatedly, we have gone over the last few years from 18 major health plans down to six.
Mr. HUTCHINSON. This whole issue revolves around a balance of power in the marketplace, and what the medical community is asking for is an antitrust exemption to increase their leverage. And you are saying that the concentration of power makes it difficult to have any leverage with the managed-care groups.
But—and I respect your legal opinion, but it would sure appear to me that anyone who is damaged by anticompetitive behavior would have standing to bring suit and certainly if that is not the case, I agree with the gentleman from Virginia that we ought to look at the antitrust laws to make sure that is the case. That might be an area that could or should be looked at.
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Because I think that it is very important that you have that remedy. I believe that the civil remedies, particularly when you talk about the potential for treble damages and attorneys' fees, should be examined.
Dr. Young, do you have a response to that?
Mr. YOUNG. Yes, I think the example is a very good one. That examination resulted in Aetna divesting itself of plans in Dallas and in Houston. The Justice Department looked at, consulted, talked to them, and the feeling was that the market power there could well exceed threshold limits that would not be fair, and they have divested plans to keep the system as working.
Mr. HUTCHINSON. I thank you. And at this time the Chair recognizes the gentlelady from California, Ms. Waters, for 5 minutes.
Ms. WATERS. Thank you very much.
Are there any HMOs of any significant size that are owned by doctors?
Mr. ANDERSON. It is my understanding—shall I answer?
Ms. WATERS. Yes, sure, anybody.
Mr. ANDERSON. It is my understanding that there are HMOs that are owned by doctors; but they are not, you know, any of the big six that we are currently concerned with.
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Ms. WATERS. Yes?
Mr. YOUNG. The Congress has recently substantially expanded the opportunity for physicians to participate. We run into language issues here, but there are health plans that are managed-care organizations. HMOs are one type of those, PPOs is another. But as part of the Balanced Budget Act, Congress also gave opportunities for physicians to participate in the Medicare care program in other forms of organizations called provider-sponsored organizations, provider-hospital organizations. So the types of plans that can participate—and they look like and they operate a lot like HMOs—have grown very substantially.
Interestingly, for some reason there have not been a lot of people who have chosen to take the Congress' offer to participate. And physician groups and hospital groups and providers have not moved quickly, and I do not understand why.
Ms. WATERS. Yes?
Mr. WEINMANN. Sometimes the physicians prefer to own independent practice associations, and those groups may make deals with the HMOs. As far as we are concerned, an employer is an employer. And because he has an MD doesn't make him necessarily a more benevolent employer than another. It may only allow him to know how to handle the doctors better.
That is why we think the antitrust exemption that Representative Campbell has contrived is very good. It treats employers like employers, no matter who they are.
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Ms. WATERS. In the beginning of the proliferation of HMOs, African American doctors were pretty much excluded. The problem was brought to our attention over and over again. Is that still a problem?
Mr. DENNIS. Yes, it is still a problem. The African American physician doesn't have any leverage and negotiating power with HMOs to help determine what the criteria for participation in plans is. So without that, then, that input is not there.
Secondly, the practices that HMOs use to profile doctors when you are taking care of the sick patients, the profile looks like he is not a cost-effective doctor, makes the doctor noncompetitive for membership.
And the third is because the doctor is also practicing primarily in the solo practice or the small group practice in the inner-city, the doctor doesn't have multiple offices and multiple offices outside of that area, in the suburban communities or the communities where there aren't very many minority patients. So as a consequence that doctor is excluded as well.
Some have been excluded on the basis of lack of board certification. Before 1970, African American physicians were discriminated against wholesale and not allowed really to become board certified often. So today that is not true. Since 1970, a lot of the examinations are objective and the majority of African American physicians are board certified, but the older ones get excluded on that basis.
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Ms. WATERS. What is being done about discrimination and exclusion of African American doctors with the HMOs? Let us put aside the problem of the inability to negotiate these contracts for everybody. I know when the problem reaches everybody, then we will get some solutions. But I want to know what is happening with the discrimination of African American doctors. Who is working on that?
Mr. WEINMANN. Well, I don't know that you can say that we are particularly working on that as the focused problem. But I will tell you this, we are currently representing a doctor in Los Angeles—it is one of our very big cases and we have been working on this for the last few years where we believe that this doctor was dropped from his health care plan because of medical red lining.
We think he had too many sick patients that required too much care and that he got classified as a medically inefficient doctor and that in order to get rid of his patients from the plan, because those patients were increasing costs to the plan, decreasing payouts to shareholders and executives, we think that what they actually did was drop the doctor.
How do we know that? Well, we don't yet, because we haven't tried it. But in the meantime, the plan rejected the doctor on the basis of an interesting clause in his contract, which said that the plan reserves the right to drop doctors or decredential them for business reasons. No other reason need be stated. If they drop the doctor on that basis, he doesn't have to be reported to a medical board or for disciplinary action because they didn't do it because of his medical care.
Ms. WATERS. Let me just say——
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Mr. HUTCHINSON. Would the lady like additional time?
Ms. WATERS. Yes, may I—do I have to tell you exactly how much? One minute, 2 minutes?
Mr. HUTCHINSON. Without objection, the lady will be granted an additional——
Ms. WATERS. Three minutes.
Mr. HUTCHINSON. Two minutes.
Ms. WATERS. Thank you. I suspect that that certainly does happen, and we know that when you have populations that appear to be sicker that the plans, you know, find ways not to deal with them or try and save money and exclude them. I believe that that does happen.
What I am speaking to runs a little bit deeper. I know doctors who literally closed down their practices because they didn't have the patients who could pay, and they were absolutely excluded from HMOs. They didn't want them. They didn't include them in the HMOs, even as they were starting up, and that is what I was really asking about.
Some of the doctors that I was involved with some years ago—I mean, they've long since just stopped practicing medicine. They don't do it any more. I suspect that there is still discrimination going on. And I suspect that it is not really being paid attention to.
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I welcome the opportunity for somebody to look at the exclusion of doctors because they have sicker patients, but you know that is even one of those situations where you have to get in there almost first before you can be really excluded. So I would like to hear some discussion about that at some point in time.
What happens to doctors who are absolutely excluded because of the color of their skin from participating in HMOs?
Mr. DENNIS. Let me respond. Right now they really have no recourse except to sue, and it is a very expensive proposition; and as a consequence of that, most minority doctors don't do it because they can't afford it. The few that do usually get exhausted after years of trying to fight it and give up. By that time, they have no money. They have no way to take care of their families; many of them lose everything in the process. I know a lot of doctors that have done that. Very, very few actually have the resources to sustain themselves.
But unfortunately, there isn't due process. Again, we need a patients' bill of rights, but we also need due process for doctors. We need doctors to be able to negotiate with insurance plans and make sure that they are applying fair practices to them when they include them or deselect them from health plans. That is clearly necessary. And I am—this particular legislation doesn't speak to it specifically, but it needs to be incorporated in somebody's legislation.
Mr. HUTCHINSON. The gentlelady's time has expired. The gentleman from Michigan is recognized for 5 minutes.
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Mr. CONYERS. Thank you very much. First of all, I want to thank this panel. It has done an excellent job. And there are three things kind of hovering as we work to the conclusion of yet another hearing on this very important subject.
One is the whole notion that better health care may cost more so, therefore, we shouldn't try to improve it. The second is that somehow there may be some of the goals that we seek in the patients' bill of rights. And the third is that I have heard people talking about the hard times of HMOs and insurance companies that they weren't making much. So that there was—sometimes they even lose money. Some of these assertions are, of course, obviously incredible.
Dr. Anderson, would you start us off, and then I will go to Dr. Dennis.
Mr. ANDERSON. Yes, sir. I would love to, in fact. Let me kind of take it in sequence here. And I would like to address some of the numbers that my colleagues down the table have opined that this legislation would cost. I think the figure in fact is 80 billion. Now, I would point out that that study was commissioned and paid for by the health insurance industry. So we have got some real concern about the validity of those numbers.
In fact, it is our belief that if this process of balanced negotiation were allowed, it might have a very desirable effect on the overall cost of health care.
Secondly—and I want to reiterate that our primary concern on this is quality care for patients—but there have been repeated allusions to physician compensation. I would only point out that according to AMA statistics, if you will, that since the beginning of this decade, physician compensation has been relatively level, and in the past year, it is gone down by 2 percent.
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In contrast, I would point out to you, and I will read, ''the average compensation for the 25 top executives and HMO firms annual compensation is 6.2 million. The average value of their stock options is 13.5 million.''
Now, if you multiply that by 25, you can buy an awful lot of health care for that.
Finally, with respect to the patients' bill of rights, sir, that I think you mentioned, over and over again we hear the challenges to—from the health insurance industry that meaningful bipartisan patients' bill of rights will increase cost and increase the numbers of uninsured.
We believe strongly that this Nation needs meaningful patients' bill of rights but it also—if patients' rights are opposed, as they have been last year, to the tune of $40 million by the insurance industry and this year we understand by $60 million, then I can't believe if it passes, it will be warmly received and, in fact, embraced by the insurers, which brings me to the reason that I believe we need this current legislation, and it is, once again, to allow the patient's advocate, indeed the physician, to be there at the table in an unthreatened way to make sure those patients' rights are really lived up to.
Mr. CONYERS. Thank you so much. Dr. Dennis, same questions. Are you familiar with Dr. Claude Young in Detroit and the NMA doctors in Michigan that were fighting to get Dr. Murphy, an African American doctor, reinstated who is considered one of the most qualified in his area?
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Mr. DENNIS. Yes, I am familiar. I think in a situation where there is little negotiating power, one has very little resource. In a situation where the managed-care companies actually can control the peer review process—and that's what happened with this doctor—the doctor was basically disqualified as being competent to provide care and then his patients were taken away. Now, that was an attempt for the managed-care company to gain market share and this doctor was trying to be independent and in order to get him out of the picture——
Mr. CONYERS. May I have an additional minute, Mr. Chair.
Mr. HUTCHINSON. Without objection.
Mr. DENNIS. He was accused of inappropriately providing a low level of care. Since there was no mechanism in that particular situation, no outside peer review, whatever the managed-care company said went; and as a consequence, he eventually lost his patients, et cetera.
Eventually, he won in court but the problem with physicians across the country, very little of them actually had the resources to fight these kinds of battles, and at this point managed-care companies are buying everything. When they control a hospital or they control the practice environment, they can control the peer review process, and then it is a whole can of worms.
Trying to fight your way out of that hole is almost impossible. You are fighting peer review and discrimination as well as anticompetitive practices of the health plan. All of that is a very big problem. Of course, in order to insure that that doesn't occur, we need to have somebody looking out for us. We need to have the ability to negotiate. We need to be able to have input into the peer review process, and we need to level the playing field.
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But in addition to that, we, especially in Detroit, physicians need the opportunity to know that they will not be excluded by health plans just on the basis of where their practice happens to be, how sick their patients are, that if their patients prefer them as physicians and have been taking care of them in their community, that a managed-care company can come in from Timbuktu, set up practice and exclude all of them, exclude their sickest patients, and cherry pick, rape the community, and then leave. We need some legislation to protect us against that.
Mr. CONYERS. This is a beginning start; but as usual, African-American doctors are on the bottom. They get all of the problem.
Last word to Dr. Weinmann.
Mr. WEINMANN. I don't like to focus on one particular segment of our physician population, but I would like to tell you afterwards who we are representing in Los Angeles. I think Ms. Waters actually knows him. But I would like to draw your attention to a Wall Street Journal article talking about the HMOs.
This article pointed out that the HMOs were making so much profit that they were having trouble reinvesting their surplus cash. Now, I don't begrudge anybody in America making a buck or for that matter a million or so of them, but in this case, the company—one of the companies—several of the companies making this exorbitant profit did so by restricting the care to their patients. The same companies that made these millions were telling their doctors that they could not get their withholdings back because they had overutilized specialty services. Baloney.
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Another executive—this one is my favorite case—sold his share of the company for $1 billion, not some paltry hundred million or so, but for $1 billion. Included in the sale price was $24 million for a corporate jet. When they rounded it out, it turned out that this was $998 million. Well, bless my soul. He got another $2 million in cash for fuel for the plane, thus being able to advertise a $1 billion sale.
Mr. YOUNG. Chairman, I need to make a comment for the record. We heard about economic profiling based on the health status. We heard the word redlining raised repeatedly. There have been allegations of blatant and outright discrimination against doctors, against HMOs, against health plans, and not a bit of evidence regarding any of that. I think the record should show——
Mr. HUTCHINSON. Let me interrupt you, Doctor. The time has expired and I—do you have anything else?
Mr. CONYERS. Well, no. I just wanted to point out that I am meeting with the doctors about the discrimination in the Detroit area. If you are not aware of it, Dr. Young, there is another Dr. Young whose first name is Claude, the nephew of the past mayor of the city of Detroit in which we have a whole list of doctors.
The doctor I mentioned was reinstated because his qualifications were one of the best in the Nation, but many other doctors who are just good doctors and are not the top 10 get into the problem. So if it is a matter of information, it will be my pleasure to make it available to you, sir.
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Mr. HUTCHINSON. At this time the Chair recognizes the gentlelady from Texas, Ms. Sheila Jackson Lee.
Ms. JACKSON LEE. Thank you very much, Mr. Chairman. I thank all the panelists. This is an important legislative initiative. It is important because it has many issues, pros and cons. And so I know that the time is toward the end of this hearing.
Let me extend an invitation to the members of this panel. I would like to engage you in particular after the panel and as we move toward marking this legislation up. Particularly, I will say that to Jan Stewart, who I know raises opposition to the legislation. I hope that I will have an opportunity in my office to meet directly with you, and I leave that door open.
But as we have a short time, let me focus my questions along the lines of some of my other colleagues and somewhat along the lines of my earlier questions to the first panel. What many of us are upset about is the poor state of health care service in America, not the poor state of health care science or medicine. I mean, we are blessed to have made such strides.
Mr. Young, I am not raising a question, Dr. Young, but I am raising a point. I hear what you are saying, and I hope that we can provide you with some documentation. In fact, I hope maybe Dr. Anderson and Dr. Dennis will do so because in my community I have heard so often of the numbers of doctors who have been eliminated off of HMO lists.
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My Indian physician community, which is very large in Houston, have been knocked off of lists because they tend to want to care for seniors. They give more time to seniors. And so they have had enormous, if you will, problems in maintaining, as I think my colleague from California said, their overhead, when they simply want to be doctors, physicians, small business owners and they really want to just do their job. So I would take issue with you.
But Mr. Dennis, since a lot of my constituents are members of the National Medical Association, tell me what you have heard across the country and why this particular legislation as it relates to that constituency base would be of help?
Mr. DENNIS. It would be of help because physicians would be empowered to negotiate the terms under which they sign contracts. Currently, the practices are not even revealed by many companies that do not include minority physicians on their panels. They don't give an explanation when they deselect them, when they kick them off the panel, and frequently they come into communities and the way they are assigned patients shifts them away from their practices, and their practices really dwindle and eventually they have to close because they can't keep them open just taking care of uninsured patients.
So it is a very serious problem all across America, but the one thing that this legislation would do, though, is give them an opportunity to negotiate the terms of those contracts, give them an opportunity to have case mix adjustment of the cases they treat so they see the very sick patients and because they do, it costs more to take care of them.
But it would be adjusted so that it would level the playing field in terms of comparing them with other doctors so they would look more favorable. The other thing is the ability of the patient to choose a doctor of his same ethnicity is necessary. It is true for Hispanics. It is true for African Americans. It is true really for all Americans. They should have the choice of having a physician who has the same diverse background they have, who has the same language and culture if they feel that that is more appropriate for them. Unfortunately, a lot of these managed-care plans don't even take the wishes of the patient into consideration.
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Ms. JACKSON LEE. They don't. Let me move to Dr. Anderson. I thank you. The time goes very quickly. How does this impact the physicians associations that start up in the last couple of years and in particular, how does this—I hope you are not hesitant to say why are we with HMOs? Why couldn't we have legislation to get us back to fee for service and deal with the kind of system that we were used to by fixing the broken parts? Dr. Anderson?
Mr. ANDERSON. If I might, Ms. Jackson Lee. Let me make it clear that the American Medical Association is not opposed to HMOs per se. There are efficiencies and economies that the HMO movement has brought that we would all do well to emulate.
But let me be clear. There appear to be HMOs who are genuinely interested in patient care, but there appear to be those whose primary focus is on the bottom line. And who's—who only care about the quality of care as a secondary thing and to that dynamic, we have a great deal of AGRO.
I really appreciate this opportunity because one of the things that we are most proud of at the American Medical Association right now is our brand new cultural competence compendium and culture competence movement and it's to address the imbalances that you have brought forward and so we are just excited as can be about it. And Dr. Reed Tuckson, who is my associate there, is the spearhead of that; and we look for that to make a major contribution to ethnicity and our ability to help that movement. And I would be more than happy to take you up on your very gracious offer.
Ms. JACKSON LEE. I would appreciate it. My great concern is that we do not lessen or make more inferior those populations who have had a hard time accessing good health care in America over these last 10 to 15 years. Mr. Jones, I will look forward to talking to you. You are from Texas. We certainly—us Texans want to lock arms together to make sure you are in good stead and this legislation can be as helpful to you as it might be to others. I yield back to the chair.
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Mr. CANADY. [Presiding.] The gentleman from North Carolina, Mr. Watt.
Mr. WATT. Thank you, Mr. Chairman. Let me first apologize to the witnesses for having to be in and out of the room. Unfortunately there are some other things going on as there always are relating to issues coming to the floor that I had to tend to. I think all of you were in the room this morning earlier when I asked the question of the first panel. And I want to kind of renew that inquiry, particularly to Dr. Anderson and Dr. Dennis. I think I understand clearly how this bill impacts the relationship, the financial relationship or could impact the financial relationship between physicians and HMOs and that part of it I favor because I am a big supporter of doctors getting the benefit of their labor, rather than management or some other external entity getting the benefit of their labor.
What is not clear to me—and maybe it is because the bill really isn't designed to address that and we have got to address that in a separate context such as the patients' bill of rights or some other mechanism—is whether this bill would have a dramatic impact on either quality of care or cost of care. It seems to me that, in fact, it could have the effect of increasing the cost of care to patients and consumers.
So while I am very, very sympathetic and supportive of the objective of doctors vis-a-vis HMOs, an even more overriding concern that I have and objective that I have is trying to do what we can for consumers; and if the two of you would just address that in whatever way you want to address it. That is the only question I have. I am not excluding other people who want to address it, but I particularly wanted to hear from the AMA representative and the NMA representative.
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Mr. ANDERSON. Thank you, Mr. Watt. First and foremost what we hope to achieve through the passage of this bill is the ability to come forward and sit down with the major health plans and negotiate in a nonthreatened environment for issues first and foremost and above and beyond all that deal with patient quality.
Now, as other persons have testified today, we don't think you can tease out the economics of the health care equation without affecting quality. If you—I mean, they are inextricably linked. If you will, what we are seeing is major health plans ratcheting down capitation rates, requiring physicians to see patients as though they are sliding by on an assembly line. That is not quality care. It is resulting in patients who are frustrated, patients who want more time with their physicians, and yet the ability of a group of physicians to come forward and say this is not good medicine is severely constrained by threats of litigation based on antitrust, triple damages, paying the—I would just shutter to think that I had to pay the legal fees of a major health care health plan who have their own legal department.
What happens is that physicians simply have no voice. They simply have no voice. And we need to correct that. We have got to correct that, and we think this bill will go a long way toward doing that.
Mr. WATT. Could I get a quick response from Dr. Dennis and whoever else wants to respond. Except for the constraints of time, I wasn't trying to——
Mr. DENNIS. Thank you very much, Congressman Watt. First of all, this bill would provide physicians an opportunity to advocate for quality of care as relates to medical necessity. As it is now, health plans deny treatment which is medically necessary each and every day and, usually is not even being denied by someone who is an expert in that care; and there is often very little recourse that physicians have.
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I threaten to sue insurance companies often to get them to respond, and usually they don't respond until after I have taken care of the patient. It takes several days and then they rethink it. Every time they talk to me, I say I am this patient's best witness. Unless you authorize this treatment, I am going to call a lawyer. That is what—you shouldn't have to practice medicine like that. That is wrong. And that's what we are being forced to do.
There was a situation in this area where an HMO had business in four States. They were arbitrarily, to save money, taking certain services out of the hospital and contracting them out so that the doctors in the hospitals wouldn't have the ability to interact with the physicians that were necessary to determine medically necessary treatment. They took—they separated it because it was cheaper to send it out. So as a consequence, it was a major problem. All the hospitals and all the doctors that were dependent upon this particular—some tissue, couldn't get a hold of it because it was being shipped out, so therefore totally disruptive quality of care.
Now, the managed-care company refused to do anything about it. Every time I went there and talked to the CEO, they threatened me. They threatened, they said—they tried to shift it to an antitrust violation and as a consequence, what we had to do was get physicians in all four of those States to independently say that they thought it was a bad practice and then I had to expose it in the Washington Post. Eventually they backed down. But, you know, it was very, very difficult. Now, we shouldn't have to do that to protect quality of care patients. We need something like this.
Mr. YOUNG. If I could respond for the record, Mr. Chairman.
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Mr. CANADY. Yes, Dr. Young, you may respond.
Mr. YOUNG. There is clear evidence, clear medical evidence from experts across the country that we still have something like 20 to 30 percent overutilization of health care services. That overutilization has an adverse and negative effect on quality of care.
At the same time, we have very substantial underutilization of services. We have underutilization because people lack health insurance and they lack access; and we have underutilization because physicians are not always keeping up to date on guidelines and how to care for patients.
We also know, for example, that women and minorities receive open heart surgery at substantially lower frequencies than other populations, and that has all been well documented. We also know that very simple things that cost very little, like beta blockers and aspirin after a heart attack that can save lives are not being prescribed and not being given. That is because we have moved away from an evidence base for medicine, and we know that if you do complicated procedures in a hospital that does them frequently, the cost will be lower and the outcomes will be dramatically better.
There are reasons that a health plan will centralize services in one area that are entirely related to the outcome of that care, and there are guidelines that are based on good evidence and expert opinion from groups such as the American Medical Association that help lay out the parameters that should allow us to deal with this underutilization problem that we have been talking about.
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Ms. HENRY. Could I comment from the pharmacists' perspective?
Mr. CANADY. Briefly.
Ms. HENRY. It will be brief. In our sector, the health insurance industry has consistently devalued our pharmacy services and treated us with a commodity-only mentality like we are going to pay for the drug product but that's all.
A recent study placed the annual cost of misuse of medications at $76 billion. An update of that study placed it recently at $110 billion. It is interesting that the estimate is really close to the alleged $80 billion that this bill's opponents say it might cost us.
Many studies have demonstrated that pharmacists can successfully impact this situation and prevent drug misuse products, lower costs significantly by decreasing doctor visits and hospitalizations that result from overutilization medications, underutilization of medications, undetected drug interactions, and primarily by educating the patient how to use their medication appropriately. But because there is less payment for less care, there is more cost in the long run and since we are not in any way, shape, or form compensated for our pharmacists' services, it's hard to find the time to deliver those services.
So that would be a parameter that we would be negotiating under this bill, and that is how we could help lower health care costs.
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Mr. WATT. Thank you.
Mr. WEINMANN. I can do this in 1 minute. I can do it in 45 seconds if I talk fast. Sliding by patients on an assembly line, that is something Dr. Anderson just said. Let me tell you that for the time being we as a union get more members from that than from anything else. It is better than fees. It is better than salaries. It is better than remuneration.
I just love these after-hours phone calls where somebody tells me he was told to see five patients in an hour. Yesterday he only had to see four. Another doctor told me recently that she quit a plan that was paying her nearly $200,000 a year. She was now down to about 35 percent of that income, but at least she said I am no longer committing one malpractice per day.
Second, overutilization. That was brought up by Dr. Young. Now, this is a good point, overutilization, and so is underutilization. I don't say that both don't exist. I say that we want to be at the bargaining table when the parameters of underutilization and overutilization are discussed so we can make sure that utilization isn't disguised as cost controls, but it is.
Mr. CANADY. I think we have overutilization of time here.
Mr. CONYERS. Mr. Chairman, I have a unanimous consent question.
Mr. CANADY. I understand you had some closing thoughts as well and I have a thought. Then we will wrap it up. Go ahead.
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Mr. CONYERS. I ask unanimous consent that the testimony submitted by the National Guild of Medical Professionals of AFL–CIO be included, a letter to the honorable James Moran of Virginia, and a letter from Dr. Don A. Udall, a relative of the former distinguished member here.
Mr. CANADY. Without objection.
[The information referred to follows:]
PREPARED STATEMENT OF THE NATIONAL GUILD OF MEDICAL PROFESSIONALS, OFFICE AND PROFESSIONAL EMPLOYEES INTERNATIONAL UNION AFL-CIO
OFFERED BY THE EXECUTIVE BOARD OF THE NATIONAL GUILD FOR MEDICAL PROFESSIONALS, DR. JOHN A. MATTIACCI, PRESIDENT
May it please the Committee:
Thank you for the opportunity to offer this Testimony in connection with House Bill 1304. The testimony is offered on behalf of the National Guild for Medical Professionals; Office and Professional Employee International Union; AFL–CIO.
The Guild is a unique labor organization, composed of over twenty thousand medical doctors, doctors of osteopathy, doctors of podiatric medicine, optometrists, clinical social workers, and community pharmacists located in thirty-five states. Three common characteristics are shared by each of our members. First, they are members of their own professional associations. Second, they are independent contractors involved in the delivery of health care services to the citizens of their communities, and third, they are all members of the OPEIU, and the AFL–CIO.
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The Guild supports, and urges the passage of House Bill 1304. This Bill is formal recognition of the urgent need to dismantle the legal barriers that have, for the first time in this country's history, caused a diminution in the quality and availability of health care to our patients.
House Bill 1304 is important because it recognizes the economic changes in the health care industry. This country is in a strange position as it regards health care. The problems with the health care system are not medical. They are not political. They are economic.
This Bill is important because it recognizes the disparate economic positions of the doctors, who are practicing as independent contractors, and the insurance companies that are increasingly delivering service through managed care. (The Minority Leader of the Senate announced on Sunday that over one hundred and fifty million Americans were now receiving health care through managed care organizations) House Bill 1304 recognizes that the independent medical professional is primarily responsible for the delivery and quality of health care services to the patient.
The importance of this Bill, and what it is addressing, can not be over emphasized. To comprehend the urgent need to pass this Bill, this Committee must first recognize the changing nature of health care in this decade, and the economic forces that are currently affecting the delivery of health care.
Health care was once the exclusive purview of the doctor whose contact and contract was with the patient. Hospitals were originally created as non-profit centers that would provide the expensive facilities that no individual doctor could provide, so that the community could be served.
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The line of privity originally ran from the patient to the doctor. The line also ran from the patient to the hospital. The Doctor was an integral part of the Hospital, and, therefore, held his or her connection with the patient throughout the course of treatment.
Gradually, this has all changed. This century has provided an explosion of medical chemistry, technology, and techniques. This research and development has delivered tools to the doctor, which were the topics of science fiction only fifty years ago. But, the advancement of medical science comes with a price, and the structure of our society insures that that price will be charged.
Every doctor in our country is held to what the Courts have described as ''the community standard of care''. During the past thirty years the application of the community standard in professional liability cases has insured that every doctor must apply the highest and best technology in the treatment of the patient. During this period, there was a parallel development of national publications disseminating medical and technical knowledge. This means that when a new (and more expensive) treatment, drug, device, or technology is available anywhere in the nation, it is applied everywhere in the nation. In this manner, the doctor fulfills his or her oath to the patient, and secondarily avoids liability.
But, there is a price for this level of treatment, and that price, during the decade of the eighties, drove the aggregate cost of health care to unacceptable levels. Efforts to stem this rising cost began in the eighties and ran through the nineties. These efforts resulted, since 1994, in the growth of managed care to the level that it is at today.
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Economic Model of Managed Care
The growth of managed care has its own associated price. The economic model of managed care rests on the ability of the managed care organization to ''manage'' the medical professional who is delivering the care. In a perfect world, the theory of managed care makes sense, but as we all know, we do not live in a perfect world.
Look, for a moment, at the economic model of managed care.
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The business of insurance is like no other business in the country. The carrier does not undertake the risk of medical coverage until it has been paid in full for the risk that it is undertaking. Those premiums go into the premium pool. The shaded rectangle above represents the premium pool.
There are only four parties involved in this model. The payer, be it the government or the employer; the managed care company; the medical provider; and the patient. ALL of the money in the system is paid into the premium pool. Each of the entities in this model has its own role, and each must function for the ultimate delivery of the medical care that is the ''product'' of the model.
First, remember that managed care, with the exception of staff model HMO's, does not provide the care to the patient. It ''purchases'' that care, from empaneled medical providers, on behalf of the enrolled beneficiary.
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Next, remember that the managed care industry does not produce a separate product which attracts additional capital to the premium pool.
Next, remember that the provider does not accumulate capital, but the managed care certainly does.
Finally, remember that every dollar that is spent for advertising, bill boards, celebrity endorsements, executive salaries, and dividends comes from this premium pool.
As stated above, managed care is not like any other industry. It does not manufacture a product. It ''administers'' a service that the medical professional provides, and managed care is pre-paid for that service. There is no activity of the managed care industry that expands the premium pool. So, how does managed care make money? It makes money by shifting premium dollars within the premium pool.
In other words, managed care, bringing no money independently into this closed economic model, makes its money by taking money from the patient in the form of diminished access; and it makes its money by taking money from the provider in terms of lower fees. These are the only two methods in which an ''administrator'' (which does not directly provide service) can make money.
Legal Structure
Since the creation of managed care, the legal and economic structure in which the managed care industry exists has given the industry a free hand to dictate economic and medical policy. Never before has an industry shown such exponential growth free of legislation or regulation.
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Within the decade of the nineties, the market penetration of managed care has been aided by government support both through positive financial benefits (The HCFA Risk Contract Program) and the failure of any meaningful legislative or regulatory initiatives. The results of this unregulated growth are the documented and anecdotal stories of patient mis and mal treatment that other testimony has detailed. Yet, every time a state or the Congress proposes some law or regulation, the defense that is mounted by the insurance industry is that managed care ''must be left to operate in a free market, otherwise it could not produce the cost reducing results that it has shown''.
The flaw in this argument is that the managed care industry does not exist in a free market. The market is stacked in its favor. The anti trust laws do not apply to managed care, yet they apply to the doctors that deal with managed care. The current structure of the law allows the managed care company to dictate fees, hours, office organization and even treatment regimes, yet these same laws immunize the managed care company from liability where the dictated conditions lead to patient morbidity or mortality. The only legislative relief that medical professionals have received is the ability to attract capital; form provider groups and go into competition with managed care companies on a miniature scale. All this relief does is to tell the doctors to get another mouth into the premium pool trough. This is unrealistic, and economically unfeasible.
House Bill 1304
House Bill 1304 correctly focuses on what the law calls contracts of adhesion. These are contracts which, because of the disparate economic strength of the contracting parties, are imposed by one party upon the other party. This is the current state of affairs in managed care. The managed care company is in the position to dictate the price that it will pay for procedures, dictate the hours of service, and the ability of the patients to gain access to care.
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Antitrust laws were enacted for the purpose of preserving competition, preventing market manipulation, and prohibiting monopolies. As the laws are structured and enforced today, doctors are prevented from acting collectively in any manner, and the per se rules are enforced. However, the managed care industry has exclusions which allow companies to enjoy unlimited market share, and incalculable competitive advantage.
Managed care has gone to extremes in protecting its position in this unregulated market. When the last round of proposed legislation took place, the managed care argument was that there are too many doctors. This is the ultimate self serving tactic. In 1992, no one in the nation argued that there was an excess of medical professionals. The single statistic that all parties agreed upon was that the medical system had to be prepared to meet the retirement years of the baby boomers. Magically, though, by 1966, a year in which the market share of managed care had begun to mature, we are faced with the call to close down medical schools. The truth of the matter is that there are not too many doctors, there are just too many demands for return on a static premium pool. The reality could be that there are too many administrators in the pool, not too many doctors.
Managed care companies are allowed to develop virtual monopolies within certain relevant markets, and the doctors, without whom no managed care company could provide care, are restrained by the anti trust acts from forming provider groups that are beyond the safe harbor percentages. What an ironic situation to be in.
The patient enrolls with a managed care company that has the financial ability to purchase every billboard and television commercial within the relevant market. Yet, when the issue of patient choice or point of service comes up, the managed care industry tells the legislature that it will lose money if that relief is passed.
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House Bill 1304, for the first time, would begin to level the field on which the medical professional and the managed care industry play, and that leveling has to begin, because there are too many conflicting interests in the current unregulated industry. Look for a moment at the duties of the different parties, and the rampant conflicts of interest. For profit MCO's owe duties to the shareholders. Medical Professionals owe duties to the patient. Employers and the Government owe duties to the employee and the beneficiary. But the duties that the managed care industry owe to its shareholders make it incumbent upon the officers of the company to ''create profit'' through bidding the service of the doctor, and ''governing'' the access of the policyholder-patient to the doctor.
In order to create profit, the managed care industry has the tool of restricted panels at its side. Through panel restriction, the managed care company can deselect a recalcitrant doctor. It can impose capitation fees without patient population floors. It can refuse to negotiate fees or treatment recommendations. It can interrupt or destroy the doctor-patient relationship. It can require violations of patient confidentiality and it can deny coverage. Without the type of relief that House Bill 1304 provides, the medical professional can do absolutely nothing in the face of any of these actions that are regularly taken by managed care.
In upholding its duty to the shareholder, the managed care company must, by economic definition violate its duty to the patient. The terms of House Bill 1304 would recreate the role of the medical professional as the patient's advocate.
Managed care will surely attack this Bill with the argument that this Bill will only allow doctors to argue about fees, and therefore it will cause costs to increase, and medical Armageddon will ensue.
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This is not the case. The elements of negotiation are not restricted, in any labor contract, to fees or rates of pay. They address what the workers, in this case the medical professionals, see in the work place, in this case in the treatment room. These negotiations will address the entire scope of activities that have resulted in the patient outcry that drives this hearing. Please do not be distracted by managed care's argument. The insurance industry has survived since its creation centuries ago. It will survive empowering the doctor to advocate on behalf of the patient.
This Bill is not about doctors' fees. This Bill is about the elimination of the chilling effect that the capital accumulation of managed care has on the ability of the doctor to practice medicine in the best interest of the patient. This Bill is about preventing the insurance industry from dismantling the finest health care delivery system in the history of the world for the benefit of next quarter's shareholder statement. This Bill gives the Medical Professional a single tool to fight the over-reaching that managed care has practiced in pursuit of profits.
This bill is truly the prescription that the health care industry needs.
Thank You
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Mr. CONYERS. I thank Tom Campbell who caused a committee that hasn't had much to do lately to come together and be immersed in a very timely and important health care subject. And I thank, of course, all of the witnesses, who have been outstanding. And the one thing I urge is that we have yet another hearing on this subject. There are still many questions outstanding that we think we can begin to work through, and it is at the committee level that these kinds of things have to be dealt with, so I urge upon the members to implore Chairman Hyde that we meet yet another round on this very complex subject. Thank you.
Mr. CANADY. I thank the gentleman. I concur in his interest in this very important issue. I want to also thank Congressman Campbell who has made a significant contribution here. I would thank all the panel members, as well, for their participation.
I would say that from my own perspective, I am still concerned that this legislation may go a little too far, Dr. Anderson. Here's my concern. As I read this bill, we have a situation where we are going to effectively have a hundred percent of the anesthesiologists, family practitioners, orthopedics, whatever the specialty area might be, in a negotiating position; and I don't know of any community in America where the insurance companies or the HMOs have that same kind of power. And so I would say that that concerns me.
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The other thing that concerns me is that, really, doctors aren't in the same position. In most instances—and Dr. Weinmann certainly has some exception—but in most instances they are not in a position of an employer/employee with relation to these companies; and, therefore, it is not like a labor negotiation where it is one group of employees negotiating with one employer, but rather it is a situation where you have negotiations going on separately, I would assume, with a number of different HMOs; and that gives a little more market power than I would like to see.
On the other hand, I do believe you have a very legitimate concern and a serious problem, and I would like to see something done to address that. I also would like to see some of the provisions that are in the Patient Protection Act. Gag orders, I think that is a terrible thing. I think that physicians should always be able to have the opportunity to fully inform their patients of all of their health care options, whether the insurance company is covering certain items or not.
And I also believe that anybody should have to stand behind their product. Doctors have to do that, nurse anesthetists have to do that, and I think that insurance companies also, when they make health care decisions and sometimes they are in a position of doing that, they should do that as well.
This, I am sure, will be an ongoing debate and I look forward to working with you, Dr. Young, and you, Dr. Anderson and the organizations that you represent and the employers and everybody else who is affected here. And I know Chairman Hyde has that position as well, and we will work with Representative Campbell, as well, who has definitely made an important mark on this issue. So we thank you all for your participation. We will declare the hearing adjourned.
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[Whereupon, at 2:05 p.m., the committee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
| American Society of Anesthesiologists, |
| Park Ridge, IL, July 1, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Re: H.R. 1304, ''Quality Health-Care Coalition Act of 1999''
DEAR CHAIRMAN HYDE: I am writing you in my capacity as President of the American Society of Anesthesiologists (ASA), a national professional association, the membership of which includes approximately 34,000 physicians and other scientists engaged or especially interested in the medical practice of anesthesiology. I request that this letter be included in the record of your Committee's hearings on the captioned bill, held June 22, 1999.
I wish first to record the fact that ASA supports passage of H.R. 1304, for the reasons set forth in the testimony of the American Medical Association. ASA believes that adoption of this legislation is necessary not only to ''level the playing field'' in resolution of patient care issues with health plans, but also to preserve the fundamental physician-patient relationship that has historically been the cornerstone of our health care system.
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More important, however, I wish to respond to the testimony of Jan Stewart, President-Elect of the American Association of Nurse Anesthetists (AANA), which inappropriately sought to use these hearings as a vehicle to advance the AANA's bootstrap agenda on scope of nurse anesthetist practice, by citing a litany of alleged anticompetitive actions by physicians in general and anesthesiologists in particular.
Ms. Stewart's testimony repeatedly refers to nurse anesthetists as ''competitors'' of anesthesiologists, but as the AANA well knows, that term is appropriate only if one ignores the long-standing Medicare/Medicaid requirement that a nurse anesthetist be supervised by an anesthesiologist or another physician—a requirement that is also a hallmark of the health code of virtually every State in the nation. Thus, when Ms. Stewart says on page 3 of her statement that nurse anesthetists administer 65% of the anesthetics in this country, what she studiously fails to acknowledge is that they are always supervised by a physician and that anesthesiologists are involved in 90% of the cases.
The fact of the matter is that nurse anesthetists are not equal substitutes for physician anesthesiologists. Most (but not all) nurse anesthetists possess a bachelor's degree in nursing, and they pursue a technique-oriented two to three year nurse anesthesia training program. In contrast, anesthesiologists possess a four-year undergraduate degree (typically pre-med), four years of medical school training, and three to four years residency training in anesthesiology. Contrary to the implications of Ms. Stewart's testimony, any limits on nurse anesthetists' ability to ''compete'' stem from recognition by the federal and state governments—not to speak of private health care delivery entities—of their technical, rather than medical, training.
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Ms. Stewart says on page 3 of her testimony that no study has demonstrated a difference in outcome of cases done by nurse anesthetists or anesthesiologists. As recently as 1992, however, the federal Health Care Financing Administration—after reviewing all the anesthesia outcome studies then available—declined to eliminate its long-standing physician supervision requirement, expressly citing anesthesia safety concerns. And as the AANA well knows, the published abstract of a current Medicare outcome study at the University of Pennsylvania found significantly higher mortality and failure-to-rescue rates when nurse anesthetists were not supervised by an anesthesiologist. ASA supports proposed legislation in the House (H.R. 632 and H.R. 2002) that would compel HCFA to undertake a comprehensive comparative anesthesia outcome study; the AANA, apparently concerned about what a study would show, opposes such legislation.
Ms. Stewart's testimony refers to a handful of nurse anesthetist-inspired antitrust cases related to agreements between anesthesiologists and hospitals, in only one of which was anticompetitive conduct established. Referring to the recent case brought by the Minnesota Association of Nurse Anesthetists alleging anticompetitive conduct by several hospitals and anesthesiology groups, Ms. Stewart notes only in passing the important fact that the federal District Court granted the defendants' motion to dismiss the case before trial, and that the case is now on appeal by the nurse anesthetists from that ruling. Be that as it may, it is important to note that H.R. 1304 is concerned with negotiations between providers and health plans, not hospitals, and that the application of the antitrust laws relating to contracts with hospitals by anesthesiology groups would be unaffected by passage of H.R. 1304.
Ms. Stewart's testimony ignores the fact that H.R. 1304 would permit nurse anesthetists, as well as anesthesiologists, to band together to increase their negotiating power with managed care organizations. If, as the AANA contends, nurse anesthetists are genuine competitors who offer the same services as anesthesiologists at lower cost, they would appear to benefit at least as much as physicians by passage of the bill.
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What the AANA knows, however, is that the impediment to nurse anesthetists acting like anesthesiologists, without the benefit of a medical school and residency education, is not alleged anticompetitive conduct by physicians but the constraints that the federal and state governments have wisely placed upon their scope of practice. We hope that you and other members of the Committee will recognize this fact, and will focus upon the merits of H.R. 1304—which we strongly support—undistracted by arguments that properly belong in another forum.
Sincerely,
| John B. Neeld, Jr., M.D., President. |
cc. Members of the Judiciary Committee
| American Association of Nurse |
| Anesthetists (AANA), |
| Park Ridge, IL, July 16, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Re: H.R. 1304 ''Quality Health Care Coalition Act of 1999''
DEAR CHAIRMAN HYDE: On June 22, 1999, I appeared before your committee as President-elect of the American Association of Nurse Anesthetists (''AANA'') to testify against adoption of H.R. 1304. The AANA is a professional association representing more than 27,000 certified registered nurse anesthetists (''CRNAs'')—95 percent of the practicing nurse anesthetists in the United States. The AANA is extremely concerned that H.R. 1304 will effectively exempt physicians from the requirements of the antitrust laws. We strongly believe that this could seriously undermine efforts to increase competition in our health care system and to ensure affordable, high-quality care.
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On July 1, 1999, John B. Neeld, Jr., M.D., President of the American Society of Anesthesiologists, wrote to advise you of its support for H.R. 1304 and to object to my testimony on June 22, 1999 characterizing nurse anesthetists as competitors of anesthesiologists.
Dr. Neeld's argument that anesthesiologists do not compete with CRNAs because the former have more schooling is deceptive. The relevant issue is not how long someone goes to school but what knowledge and skills must be acquired in order to competently perform anesthesia activities. Rather than engage in a meaningless comparison between the education of physician anesthesiologists and CRNAs, the pertinent inquiry is whether the education and training that CRNAs receive prepares them to provide high quality care. The evidence is overwhelming that CRNAs provide exceptional anesthesia care. Any suggestion that CRNA education is inadequate is both demeaning and untrue. Not only are CRNAs superb clinicians, they can be educated and integrated into the health care system more quickly and at lower cost than anesthesiologists.
Dr. Neeld's argument that anesthesiologists do not compete with CRNAs because the latter must be supervised by physicians is equally false. This reasoning was unequivocally rejected by the Ninth Circuit court in Bhan v. NME Hospitals, Inc., 772 F.2d 1467 (9th Cir. Court of Appeals, 1985). In its decision, the Court stated that legal restrictions upon nurse anesthetists ''do not, however, necessarily preclude the existence of a reasonable interchangeability of use or cross-elasticity of demand sufficient to constrain the market power of M.D. anesthesiologists and thereby to effect competition. As a matter of law, Bhan's allegations are sufficient to establish that he is a proper party to bring this antitrust action. . . . The decision of the district court is reversed and the case remanded for further proceedings.'' 772 F.2d 1471.
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Dr. Neeld's citation of ''the published abstract of a current Medicare outcome study at the University of Pennsylvania'' as evidence that supervision of nurse anesthetists by anesthesiologists lowers mortality and failure-to-rescue rates is a blatant misrepresentation. In contrast to Dr. Neeld's wishful thinking, this abstract concludes with the sentence, ''Whether this [the difference in mortality and failure-to-rescue] is a caregiver or hospital effect remains to be determined.'' [Emphasis added.] Moreover, the abstract's findings about mortality and failure-to-rescue are irrelevant to the work of CRNAs and anesthesiologists in most instances. Observed differences in surgical mortality rates were more than ten times greater than anesthesia mortality rates attributed to anesthesia care by any researcher in the past decades, and nurse anesthetists do not perform tasks related to ''failure-to-rescue.''
Dr. Neeld is vigorous in his contention that the supervision of nurse anesthetists represents a reasonable constraint on their scope of practice and in no way is anticompetitive. The AANA believes exactly the opposite, and this issue currently is being hotly debated. We are concerned that Dr. Neeld has used his status as a physician to spread misinformation about nurse anesthetists and the nature of our profession.
The practice of nurse anesthesia is well recognized in the health care community. CRNAs provide anesthesia services in all practice settings, from university-based medical centers to free standing surgical facilities. Even though the number of anesthesiologists has greatly increased in the last twenty years to the point that even some members of the ASA believe there is a surplus of anesthesiologists, this has not resulted in a reduction in the need for nurse anesthetists. Studies by both the federal government and the American Hospital Association have documented a shortage of nurse anesthetists. The high demand for CRNA services is a testament to the quality of care given by nurse anesthetists. Suffice it to say that if anesthesiologists enjoyed a recognized benefit over nurse anesthetists, Dr. Neeld would not have seen the need to write you and the American Society of Anesthesiologists would not be spending vast sums of money trying to convince HCFA and state legislatures to restrict the practice of nurse anesthetists.
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In light of the current controversies over supervision and anticompetitive behavior by the American Society of Anesthesiology, the AANA believes that passage of H.R. 1304 would serve only to increase the ability of physicians to limit unfairly the practice of other health care professionals.
Thank you for this opportunity to clarify our views.
Very truly yours,
| Jan Stewart, CRNA, ARNP, President-Elect. |
| American Bar Association, |
| Section of Antitrust Law, |
| Chicago, IL, June 4, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: On behalf of the Section of Antitrust Law of the American Bar Association, I am pleased to transmit the Section's comments on the Quality Health Care Coalition Act of 1999. The Section of Antitrust Law is the world's largest bar association of antitrust/competition lawyers. The Section has a long tradition of bipartisan support of broad enforcement of the antitrust laws. We welcome a discussion of dissenting views on antitrust policy issues. If, after reviewing these comments, you have any questions, I would be happy to respond.
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Very truly yours,
| Phillip A. Proger, Chair, Section of Antitrust Law. |
Enclosure
REPORT ON ''THE QUALITY HEALTH-CARE COALITION ACT OF 1999''
BY THE SECTION OF ANTITRUST LAW OF THE AMERICAN BAR ASSOCIATION
These views are presented only on behalf of the Section of Antitrust Law (''Antitrust Section'') of the American Bar Association (''ABA''). They have not been approved by the House of Delegates or the Board of Governors of the ABA, and should not be construed as representing the position of the ABA.
Introduction
On March 25, 1999, Representatives Campbell, Conyers and others introduced the Quality Health-Care Coalition Act of 1999 (''Act''), H.R. 1304. The Act is virtually identical to H.R. 4277, introduced by Rep. Campbell in 1998. Like its predecessor, the Act would amend federal and state antitrust law by conferring on health care professionals engaged in negotiations with a health plan, the same treatment under antitrust laws as collective bargaining units recognized under the National Labor Relations Act (''NLRA''). The Act also would limit penalties or damages for actions taken in good faith reliance on this protection.
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The Antitrust Section disfavors antitrust exemptions directed at specific industry categories or conduct, and such exemptions rarely have been enacted. The antitrust laws are designed to provide general standards of conduct for the operation of our free enterprise system. Special exemptions from these standards rarely are justified—they often are not necessary to eliminate the risk of antitrust liability for procompetitive conduct, and the goals for such protection often can be achieved in a manner consistent with established antitrust principles and enforcement policy.
The Antitrust Section opposes the Act because it is both unwise and unnecessary. The Act would protect price fixing, group boycotts, and market or customer allocations which occur through negotiations with health plans, and which otherwise could be deemed illegal per se under established antitrust principles. This broad protection from antitrust law has not been shown to be necessary to protect procompetitive conduct, it may result in higher prices and diminished consumer choices without improving quality or achieving other important goals in the delivery of health care, and it would not advance the policies underlying existing labor exemptions from antitrust law.
Summary of the Act
The Act has two main provisions. The first states that health care professionals who are engaged in negotiations with a health plan regarding the terms of a contract to provide health care items or services covered by the plan, shall be entitled to the same treatment in connection with such negotiations as are bargaining units recognized under the NLRA in connection with such collective bargaining. A health care professional will be treated as an employee engaged in concerted activities in connection with such negotiations, and shall not be regarded as an employer, independent contractor, managerial employee or supervisor.
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The second main provision states that actions taken in good faith reliance on the first provision shall not be subject to criminal sanctions, civil damages, fees, or penalties under antitrust law, beyond actual damages incurred. The Act also provides, by way of limitation, that the first provision shall not confer any right to participate in any collective cessation of services to patients not otherwise permitted by law.
The Act defines ''health care professional'' as an ''Individual'' who provides patients with health care items or services, treatment, assistance with activities of daily living, or medications and, to the extent required by law, who possesses specialized training that confers expertise in the provision of such items or services. The Act defines ''health plan'' as a group health plan within the meaning of the Employee Retirement Income Security Act of 1974, or an organization offering a Medicare+Choice Plan or Medicaid managed care benefits in accordance with the Social Security Act.
The Act states as findings that (i) the delivery of health care through managed care plans has increased substantially in recent years; (ii) health care plans have experienced increased concentration in recent years; (iii) the McCarran-Ferguson Act has created an enhanced opportunity for market power of insurance companies in health care, and has given such companies significant leverage over health care providers and patients; (iv) permitting health care professionals to negotiate collectively with health care plans will create a more equal balance of negotiating power, will promote competition, and will enhance the quality of patient care; and (v) allowing such collective negotiations will not change the ethical duties of health care professionals to continue to provide medically necessary care to their patients.
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Competition in Health Care Is Essential to Promote Efficiency and Consumer Welfare
Health care markets have experienced rapid and far-reaching changes in recent years, not only in the increased use of managed care arrangements to finance and deliver services, but also in the extent of consolidation among both payers and providers through mergers, joint ventures and other collaborative arrangements. Health care markets still vary widely, however, in the number, size and quality of managed care plans and provider organizations, as well as in prices and price trends. Notwithstanding these differences, competition among health plans, and among providers and provider networks, has been the operative force which determines prices, and the range and quality of services offered to consumers.
The Act ignores important differences in health care markets and presumes that health plans In all areas now have the ability to impose terms on health care professionals which could not be achieved in a competitive market. The Act focuses in particular on horizontal consolidation among health plans as a perceived threat to competition and quality of care, and seeks to address this by promoting a ''countervailing'' consolidation among health care professionals into ''bargaining units'' to gain leverage in negotiating with health plans. Accordingly, although health care markets are complex and are affected by a wide range of market forces and government policies, these comments are directed primarily at horizontal consolidation among health plans or providers and its effects on competition.
Consolidation among direct rivals is a common and often procompetitive business strategy in many industries and markets, and has been widely observed in health care in recent years. In a competitive market, a rational firm pursues consolidation only where this is expected to achieve cost savings and other efficiencies through the integration of operations and services. This, in turn, enables the firm to increase its sales by offering customers lower prices, new services, improved quality or other attributes they value.
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Health care professionals have engaged in varying degrees of consolidation in response to market forces in recent years. Some have engaged in direct mergers to form large practice groups, either independently or as a part of health systems which include hospitals and other providers. Others have sought to achieve marketing and operating efficiencies associated with larger scale organizations through joint ventures among themselves, or with hospitals and other providers. Many of these organizations are large and sophisticated, and individually may have significant influence over prices or other terms in negotiating with health plans due to their size, reputation, or quality or range of services, and the desires of consumers and employers for health plans to include them as participating providers.
Many other health professionals still practice as individuals or in small practice groups. They may prefer the autonomy and other attributes of a smaller practice setting, but many perceive that they have little or no influence in negotiating with health plans on prices or other terms for their services. These practitioners frequently seek to facilitate contracting with health plans through local independent practice associations and other collaborative arrangements. The degree of actual integration in services or financial risk reflected by these organizations varies widely. Organizations which achieve no meaningful change in how participants provide or are paid for their services are unlikely to benefit consumers through lower costs, improved quality or in other respects.
As drafted, the Act could be interpreted to protect only ''individual'' health care professionals, and not professional corporations or other organizations through which they enter into contracts with health plans or provide services. If so, the Act's coverage may be so narrow that it would have little or no effect on negotiations with health plans. More importantly, however, this would encourage health care professionals to remain in or revert to individual proprietorships to qualify for protection under the Act, thereby depriving consumers of efficiencies which otherwise may be achieved through consolidation in response to normal market forces.
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The Act would encourage health care professionals to form large new ''bargaining, units'' without regard to whether this will achieve efficiencies through a meaningful integration of their services, or whether the benefit of such efficiencies will be passed on to consumers. There would be no limit on the size of such organizations. This would substantially eliminate the normal incentives for health care professionals to consolidate only to achieve efficiencies which enhance their ability to compete, and thereby benefit consumers. In fact, the Act would protect ''bargaining units'' which act solely to increase provider income. This, in turn, could result in fewer options and higher prices for professional services provided under health plans, including Medicare and Medicaid managed care plans, without any offsetting benefits in quality of care or other attributes of service.
Antitrust Law Promotes Procompetitive Joint Contracting by Health Care Professionals with Health Plans
The basic objective of antitrust law is to encourage and protect the competitive process by inhibiting practices that unreasonably interfere with free competition. This enhances consumer welfare by ensuring the most efficient allocation of resources so as to offer consumers low-priced, high-quality and accessible goods and services. Exemptions or immunities from antitrust law may insulate some market participants from competitive pressures which otherwise may lead to the most advantageous allocation of resources, and thereby promote consumer welfare.
The Antitrust Section—consistent with its opposition to other proposed antitrust exemptions—strongly endorses continued competition in health care, and regards continued application of antitrust law as being essential to maintain competitive and efficient health care markets. See, e.g., Reports of the Antitrust Section on the Antitrust Health Care Advancement Act of 1997, the Television Improvement Act of 1997, the Major League Baseball Antitrust Reform Act of 1997 and the Curt Flood Act of 1997, and the Major League Baseball Antitrust Reform Act of 1995 (available at http://www.abanet.org/antitrust). In February 1989, at the urging of the Section of Antitrust Law, the ABA House of Delegates adopted a policy that urged the repeal of the McCarran-Ferguson Act, which provides an antitrust exemption for the business of insurance:
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The ABA urges repeal of the current McCarran-Ferguson exemption to the antitrust laws . . . ; and recommends that states retain the authority to regulate the business of insurance, and that the federal government defer to state regulation except in unusual circumstances where the regulatory objective can only be effectively accomplished through federal involvement.
In April 1989, the Section testified before Congress on behalf of the ABA in support of repealing the McCarran-Ferguson exemption. In addition, the Section has published a book entitled Identification and Description of Antitrust and Competitive Issues Raised by Key Health Care Reform Bills (1994), in which the Section analyzed the positive effects of competition on reform of the health care system, favored antitrust enforcement against anticompetitive conduct affecting health care by both providers and health plans, opposed regulations that impaired competition, and opposed exemptions and implied repeals of the antitrust laws.
The analytical principles embodied in antitrust law have evolved through numerous applications across a broad array of markets and conduct, including significant applications in recent years to joint contracting activities in health care. See, e.g., North Like Tahoe Medical Group, FTC File No. 981–0261, 64 Fed. Reg. 14730 (March 26, 1999) (analysis of proposed consent order to aid public comment); Asociacion de Farmacias Region de Arecibo, FTC File No. 981–0153, 63 Fed. Reg. 70407 (Dec. 21, 1998) (analysis of proposed consent order to aid public comment); Dentists of Juana Diaz, Coamo and Santa Isabel, Puerto Rico, FTC File No. 981–0154, 63 Fed. Reg. 50573 (Sept. 22, 1998) (analysis of proposed consent order to aid public comment); M.D. Physicians of Southwest Louisiana, FTC File No. 941–0095, 63 Fed. Reg. 33423 (June 24, 1998) (analysis of proposed consent order to aid public comment); Mesa County Physicians Independent Practice Association, FTC Dkt. No. 9284, 63 Fed. Reg. 9549 (Feb. 25, 1998) (analysis of proposed consent order to aid public comment); FTC and Commonwealth of Puerto Rico v. College of Physicians-Surgeons of Puerto Rico, Trade Reg. Rep. (CCH) 24,335 (D.P.R. 1997) (consent order); Montana Associated Physicians, Inc., FTC Dkt. No. C–3704, 62 Fed. Reg. 11201 (March 11, 1997) (consent order); United States v. Federation of Certified Surgeons and Specialists, Civ. No. 99–167–CIV–T–17F, 64 Fed. Reg. 5831 (Feb. 5, 1999) (stipulations, proposed final judgment and competitive impact statement); United States v. Federation of Physicians and Dentists, Inc., Civ. No. 98–475 (D. Del., Aug. 12, 1998) (complaint); United States v. Health Choice of Northwest Missouri, 1996–2 Trade Cas. (CCH) 71,606 (W.D. Mo. 1996) (final judgment and competitive impact statement); United States v. Women's Hospital Foundation, 1996–2 Trade Cas. (CCH) 71,561 (M.D. La. 1996) (final judgment and competitive impact statement); United States and State of Connecticut v. Healthcare Partners, Inc., 1996–1 Trade Cas. (CCH) 71,337 (D. Conn. 1996) (final judgment and competitive impact statement); United States v. Lake Country Optometric Society, Trade Reg. Rep. (CCH) 45,095 at 44,781 (W.D. Tex., Dec. 15, 1995) (criminal plea).
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In most of these cases, federal and state antitrust enforcement agencies have brought actions against health care providers who collectively resisted cost containment efforts by managed care firms, thereby enhancing income of providers while producing higher prices and reduced services for both health plans and consumers. See, e.g., Mesa County Physicians Independent Practice Ass'n, FTC Dkt. No. 9284, 63 Fed. Reg. 9549 (Feb. 25, 1998) (85% of physicians in Mesa County, Colorado, established a single agent to bargain on their behalf with managed care plans). In some extreme cases, physicians have refused to provide services to patients in efforts to maximize their own income at the expense of their patients. See, e.g., FTC and Commonwealth of Puerto Rico v. College of Physicians-Surgeons of Puerto Rico, Trade Reg. Rep (CCH) 24,335 (D.P.R. 1997) (to achieve their goals, physicians called for an eight day strike during which they ceased providing non-emergency services to patients). No enforcement actions have involved collective efforts by providers to improve patient welfare rather than provider income.
Antitrust principles are founded on preserving competitive rivalry as the underlying force by which consumer welfare is enhanced. Courts and government enforcement agencies, however, have sought to accommodate the special interests and concerns associated with Joint contracting and other collaborative arrangements among health care providers within the context of established antitrust principles. See, e.g., U.S. Department of Justice & Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (1996), reprinted in 4 Trade Reg. Rep. (CCH) 13,153 (''Statements of Enforcement Policy''): All Care Nursing Service v. High Tech Staffing Services, 135 F.3d 740 (11th Cir. 1998) (rejecting antitrust claims challenging joint bidding and contracting program to facilitate hiring of temporary nurses by twelve hospitals operating in the same county); Levine v. Central Florida Medical Affiliates, 72 F.3d 1538 (11th Cir. 1996) (rejecting price-fixing claim challenging physician hospital organization's joint contracting and exclusive referral arrangements used to facilitate contracts with health plans): Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995) (rejecting, inter alia, price fixing claim challenging HMO's use of ''most favored nations'' price provision in contracts with physicians who compete with physician group which owns HMO).
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Analytical principles have been developed to evaluate whether these arrangements threaten to harm competition and consumer welfare, or rather have a meaningful prospect of benefiting consumers through cost savings. better management of utilization, and/or enhanced quality and coordination in the delivery of health care services. These principles have evolved substantially in recent years. primarily through Issuance of the Statements of Enforcement Policy and their predecessors by the Department of Justice and Federal Trade Commission in 1993, 1994 and 1996, and by numerous applications of these enforcement policies to provider joint ventures in Business Review Letters of the Department of Justice and in Advisory Opinions of the FTC Staff. These enforcement policies also are reflected in a series of government consent decrees (many of which are cited above). resolving antitrust claims against joint conduct by providers in their dealings with health plans.
Antitrust law recognizes that Joint ventures among competing health care professionals often are a lawful means of achieving efficiencies which promote competition, and that participants may jointly negotiate prices and other competitive terms of contracts with health plans where this is reasonably necessary to achieve the venture's procompetitive goals. Importantly, antitrust law requires careful consideration of the procompetitive benefits which joint contracting by a provider network or joint venture among competing health care professionals is expected to produce. Where there is no procompetitive integration of services (i.e.. a meaningful prospect for improving efficiency in the delivery of' care, reducing costs, better managing the utilization of services, or improving quality of care). the only likely result of joint contracting by providers will be to increase or maintain prices for their services. Such conduct ordinarily is regarded as horizontal price fixing which is illegal per se under established antitrust principles.
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The Act, in contrast, makes no distinction between joint negotiations by health care professionals which simply would benefit the providers through higher prices, and those which would benefit consumers through lower costs, Improved quality or expanded services. Thus, the Act would protect all collective negotiations. even those whose sole purpose and effect is to maintain or increase providers' income without integrating their services In an efficient and procompetitive manner.
Antitrust law also recognizes that even legitimate provider networks are not permitted to achieve market power by consolidating the negotiating leverage of a substantial percentage of competing providers into a simple ''bargaining unit.'' Rather, participation must be limited so competing networks can form, or participants must remain free to join multiple networks or to contract directly with health plans. For example, the Statements of Enforcement Policy provide a safety zone for nonexclusive provider networks with up to thirty percent of competing providers in a market, thereby allowing at least three totally separate networks to form.
The Act, in contrast, would encourage and permit health care professionals to organize ''bargaining units'' which are not limited in size and participation to prevent the exercise of market power. In fact, all competition could be eliminated because the providers could form a single ''bargaining unit'' without fear of antitrust challenge. The Act, for example, would permit all physicians in New York or Dallas to form one bargaining unit to demand a significant increase in their fees, thereby substantially increasing health care costs. This would eliminate competitive options not only for consumers and health plans, but also for health care professionals themselves (where bargaining units demand and achieve exclusive dealing restrictions with health plans), and would materially distort the normal market forces and rivalry on which our competitive system is based.
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There could be no assurance that joint negotiations carried on under the protection of the Act would promote competition and benefit consumers. The Act provides for no federal or state regulatory scheme to ensure this, but rather presumes that all collective actions by providers either would be beneficial or benign with no mechanism to police their conduct.
A variety of joint ventures among competing health care professionals now are operating successfully and without immunity from antitrust law—in a wide array of health care markets, and many engage in joint negotiations with health plans on behalf of participating providers. Antitrust law is inherently flexible in that it focuses on actual market conditions and competitive effects, and its application will ensure that such joint conduct furthers legitimate procompetitive goals as health care markets change and new methods are introduced to deliver and finance care. Thus, although the analytical standards used to evaluate such conduct should he subject to continuing review and refinement, antitrust enforcement will do far more to preserve competition and enhance consumer welfare than the broad antitrust exemption set forth in the Act.
No Compelling Need Has Been Shown for Broad Antitrust Immunity for Health Care Professionals Who Jointly Negotiate with Health Plans
Neither the findings in the Act nor other general observations about trends in health care markets demonstrate a compelling need for the broad antitrust immunity proposed in the Act. The Act expressly seeks to alter the dynamics of contract negotiations between health care professionals and health plans, but the broad generalizations about health care markets expressed therein not only are inconsistent with particular market settings where providers now have significant influence over prices and other terms in their negotiations with health plans, they also would not merit a broad exemption from antitrust law even if true.
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The findings state that mergers among health plans have resulted in a significant increase in concentration in markets for health care financing which, together with the protection afforded to health plans by the McCarran-Ferguson Act, enables them to exercise market power over health care professionals in contract negotiations. Contrary to this suggestion, however, courts generally have held that the McCarran-Ferguson Act provides no exemption from antitrust law for an insurance company's agreements with third parties that supply goods or services to policyholders. See, e.g., Group Life & Health Ins. Co. v. Royal Drug, 440 U.S. 205 (1979), Rozema v. Marshfield Clinic, 1997–1 Trade Cas. (CCH) 71, 796 (W.D. Wis. 1997). In fact, federal and state antitrust enforcement authorities have asserted jurisdiction over provider contracts and health plan mergers notwithstanding the McCarran-Ferguson Act, including Aetna's pending acquisition of Prudential's health plans. See, e.g., United States v. Medical Mutual of Ohio, 1999–1 Trade Cas. (CCH) 72,465 (N.D. Ohio 1999) (final judgment and competitive impact statement, prohibiting health plan's use of ''most favorable rates'' provisions in contracts with hospitals). Moreover, the McCarran-Ferguson Act reflects deference to the primary role of state regulation over the business of insurance, whereas under the Act there would be no comparable regulation of health care professionals. The Antitrust Section has supported repeal of the McCarran-Ferguson Act's exemption from federal antitrust law, and this would better serve to promote competition than would the broad antitrust immunity proposed in the Act.
The findings also state that permitting collective negotiations by health care professionals will create a more equal balance in negotiating power, promote competition and enhance the quality of patient care. The Act. however, makes no distinction between markets where health plans arguably may have a degree of market power over health care professionals, and others where the converse may be true or where neither has such leverage. Thus, the Act may enable health care professionals to jointly negotiate, and thereby enhance their negotiating leverage, in market settings where many health plans operate and none possesses market power over providers. This would not be warranted even by the findings set forth in the Act.
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Consolidation among health plans admittedly has been observed in many areas, but this does not warrant a special exemption from antitrust law to enhance the negotiation of health care professionals with whom they contract. Although there have been few direct antitrust challenges to date against mergers between health plans, federal and state antitrust law, as well as state regulation over the business of insurance, provide significant enforcement authority to monitor such transactions and prevent undue concentration among health plans which threatens competition. See, e.g., Proposed Acquisition of Metlife Healthcare Network of Kansas City, Inc., No. 95–07–13–0006 (Mo. Dep't. of Ins., Sept. 18. 1995) (order approving consent agreement requiring divestiture of St. Louis HMO); Matter of Harvard Community Health Plan, No. 95–0331 (Suffolk Super. Ct., Mass., Jan. 18, 1995) (assurance of discontinuance approving health plan merger subject to restrictions on future pricing and provider contracts); Agreement between New Hampshire Department of Justice, Harvard Pilgrim Health Care, Inc., Matthew Thorton Health Plan, Inc., The Hitchcock Clinic and Darthmouth Hitchcock Health Systems (Oct. 16, 1995) (approving health plan merger subject to restriction on exclusive contracts with primary care physicians).
Health plan mergers should continue to be subject to careful antitrust review by federal and state enforcement officials, as well as by private parties. The Antitrust Section fully supports such efforts. Mergers among health plans are—and should be—subject to scrutiny to avoid the concerns with health plan market power stated in the Act. At the same time, courts and enforcement agencies have recognized that consolidation in a broad range of markets—including markets for health care services and health care financing—may be procompetitive and enhance consumer welfare. These judgments, however, are properly made based on a careful analysis of market data for individual transactions, not through broad and unsupported findings such as those set forth in the Act.
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The Act Would Not Advance the Policies Underlying Existing Labor Exemptions from Antitrust Law
The Act would grant to health care professionals in their negotiations with health plans, the same protection from antitrust law under the ''statutory'' and ''non-statutory'' labor exemptions that is available to employees in collective bargaining with their employers through legitimate labor organizations under federal labor law. Importantly, however, the Act would not require that providers actually become employees of a common employer, or achieve any efficiencies by integrating their practices. Nor would the Act subject such negotiations or the ''bargaining units'' formed for this purpose to the jurisdiction of the NLRB or the requirements of federal labor law. Extending these exemptions to conduct which is not subject to the collective bargaining requirements of federal labor law would be inconsistent with federal labor policy, and would not advance the main purposes for those exemptions—to allow restraints on competition within and limited to the labor market (i.e., wages, hours and conditions of employment), and to accommodate and give deference to the primary role of federal labor law in the collective bargaining process.
The statutory labor exemption is derived from Section 6 of the Clayton Act, which declares that ''the labor of a human being is not a commodity or article of commerce,'' and from the Norris-LaGuardia Act, 29 U.S.C. §101 et seq., which prohibits federal courts from issuing an injunction growing out of a ''labor dispute.'' The statutory exemption protects unilateral union conduct, and requires that the entity seeking the exemption (1) must be a bona fide labor organization; (2) must be acting in its self-interest (i.e., pursing a labor market objective), and (3) must not have combined with a non-labor group. United States v. Hutcheson, 312 U.S. 219 (1941).
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The nonstatutory labor exemption is an implied immunity developed through court decisions, which protects a labor union's collective bargaining with an employer over wages, hours and other terms and conditions of employment, as well as resulting agreements regarding these matters. Courts also have extended the nonstatutory labor exemption to other concerted activity and agreements between labor groups and other parties. In doing so, courts generally have required that the concerted activity or agreement (i) arise in a collective bargaining setting; (ii) be intimately related to a mandatory subject of bargaining; and (iii) not have the potential for restraining competition in a business market in ways that would not follow naturally from elimination of competition over wages and working conditions. See, e.g., Connell Construction Co. v. Plumbers & Steam Fitters Local Union No. 100, 421 U.S. 616, 635 (1975).
Courts have recognized the nonstatutory labor exemption in order to accommodate and give deference to important policies in federal labor statutes, ''which set forth a national labor policy favoring free and private collective bargaining . . . which require good faith bargaining over wages, hours and working conditions . . . and which delegate related rulemaking and interpretive authority to the National Labor Relations Board.'' Brown v. Pro Football, Inc, 116 S. Ct. 2116, 2120 (1996). Federal labor law delegates to the NLRB the ''primary responsibility for policing the collective bargaining process. And one of their objectives was to take from antitrust courts the authority to determine, through application of the antitrust laws, what is socially or economically desirable collective-bargaining policy.'' Id. at 2123.
Both the statutory and non-statutory labor exemptions apply only to activity arising out of a labor dispute, i.e., a dispute which involves a bona fide labor organization of employees, and which promotes legitimate labor interests rather than entrepreneurial or other non-labor interests. ''Of course a party seeking refuge in the statutory exemption must be a bona fide labor organization, and not an independent contractor or entrepreneur.'' H.A. Artists & Associates, Inc. v. Actors' Equity Assn., 451 U.S. 704, 717 n.20 (1981). See also, Columbia River Packers Ass'n v. Hinton, 315 U.S. 143 (1942). These exemptions apply only to employees and their collective bargaining units, not to independent contractors or business entities engaged in collective contract negotiations. See 29 U.S.C. §152(3) (stating that the term ''employee'' as used in the NLRA shall not include any individual having the status of an independent contractor).
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Unlike the existing exemptions, the Act would not accommodate federal labor policy by preserving the Jurisdiction and regulatory authority of the NLRB over health care professionals' joint negotiations with health plans. Indeed, unlike all other groups covered by the labor exemptions, health care providers would be exempt both from antitrust law and from federal labor law. Thus, the Act Would not further the policies under federal labor law on which these exemptions are based.
In fact, these exemptions already apply to health care professionals, but most are not traditional employees of health plans. Rather, they provide service to numerous health plans under separate commercial contracts. The existing labor exemptions. however, do not extend beyond the labor market into the realm of commercial competition.
The Act would address this by expressly abrogating the requirement that collective bargaining by health care professionals pertain to an employment relationship. Thus, even if the Act provided for application of existing federal labor law and regulations, it would extend the labor exemptions significantly beyond collective bargaining over wages, hours or other terms of an employment relationship (i.e. physicians employed by a multi-specialty physician group, hospital or health plan), to cover any joint negotiations regarding the terms for items or services provided under a health plan. Federal labor law, however, reflects no fundamental policy favoring collective bargaining over terms and conditions for such health care contracts. Thus. the Act cannot be justified as an extension of federal labor law and policy.
Furthermore. the objectives of the Act differ significantly from the objectives embodied in federal labor statues and the exemptions that flow from these statutes. These exemptions seek to balance ''the inherent tension between national antitrust policy, which seeks to maximize competition, and national labor policy, which encourages cooperation among workers to improve the conditions of employment.'' H.A. Artists, 451 U.S. at 713. By contrast, the stated purpose of the Act is to ''promote competition'' and ''enhance the quality of patient care.'' Engrafting these conflicting procompetitive objectives onto existing labor statutes, particularly when limited to a single industry, will jeopardize over sixty years of generally applicable jurisprudence under federal labor law.
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The Act also would conflict with the nonstatutory labor exemption in that it provides no express protection for health plans which negotiate and contract collectively with health care professionals. In Brown, 116 S. Ct. at 2121, the Court recognized that, where application of the nonstatutory labor exemption ''is necessary to make the statutorily authorized collective bargaining process work as Congress intended, the exemption must apply both to employers and employees.'' Section 3(b) of the Act limits damage awards for actions taken in good faith reliance on the Act's antitrust immunity, but even this limitation does not apply expressly to health plans. Moreover, awards of actual damages and injunctive relief would not be prohibited. Accordingly, health plans which enter into contracts through joint negotiations with health care professionals still would be subject to price fixing and other antitrust claims by employers, enrollees or government enforcement agencies.
Conclusion.
Health care markets continue to experience profound change in many areas. It is difficult to predict the nature and extent of future change in the structure of health care markets and the preferred methods for delivering and financing health care. Nevertheless, competitive rivalry among health plans, and among providers and provider networks, should continue to serve as the primary vehicle by which consumers are assured of receiving, the best and most cost-effective health care services possible. Continued application of antitrust law is essential to preserve this competitive process, which will assure that health care markets respond in a dynamic and efficient manner to consumer preferences, advances in health care, and the many other factors which influence cost and benefits under health plans. For these reasons, the Antitrust Section opposes the exemption from antitrust law proposed in the Act.
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| David Elbaor, |
| Attorney at Law, |
| Washington, DC, June 23, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Hon. JOHN CONYERS, Minority Chair,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Re: H.R. 1304
DEAR CHAIRMEN HYDE AND CONYERS: My Committee of labor lawyers representing both unions and management only recently became aware that the leaders of another Committee of the American Bar Association have taken a position and submitted a paper to you in opposition to H.R. 1304. My awareness of that opposition came in a roundabout way, from the American Medical Association to me as Co-Chair of the Anti-Trust, RICO and Labor Law Committee.
I will be brief. The submission from the Section of Anti-Trust Law in opposition to H.R. 1304, the ''Campbell bill'', cautions you that the paper ''should not be construed as representing the policy of the ABA.'' More accurately, that Section's submission is not the policy of the American Bar Association and its members. Indeed, this particular submission from the Section on Anti-Trust Law, having been issued under a unique ''blanket authority'' procedure, must indicate that it carries no inference of approval as policy of the American Bar Association, and that the Section's submission has only a 90 day period of validity.
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The Campbell bill, H.R. 1304, is serious and consequential legislation. It requires judicious and impartial analysis, respectful of its impact on other laws and rights established by those laws—and also on the economy. It is legislation that if enacted will affect not just one small group of health care providers but all Americans for a long time. If an analysis is to be imposed on H.R. 1304, and the bill to be judged by that analysis, that analysis certainly should be one that is valid for more than 90 days from the date submitted.
The analysis submitted by the Anti-Trust Section is as noted valid for only 90 days. As Co-Chair of the Anti-Trust, RICO and Labor Law Committee of the American Bar Association, a Committee that has examined the intersection of two great bodies of law—anti-trust and labor law—I ask you and your colleagues to solicit views of other groups looking at H.R. 1304. I welcome the opportunity to solicit such views from my Committee's members and to report on them to you.
Very truly yours,
| David Elbaor, Co-Chair, Anti-Trust, |
| RICO and Labor Law Committee, ABA. |
cc: Honorable Thomas Campbell
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Hon. JOHN CONYERS, JR., Ranking Minority Member,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN AND MR. CONYERS: You recently received a submission from the American Bar Association's Section of Antitrust Law regarding that Section's views concerning H.R. 1304, the ''Quality Health Care Coalition Act of 1999.'' The ABA Section of Antitrust Law was fully authorized to convey its views on this subject, and before preparing their letter, they went through all appropriate channels to obtain that authority. As the Antitrust Law Section stated in its submission to you, the views expressed were presented on behalf of that Section only, and not on behalf of the Association. This is because the ABA itself has not yet taken any position on H.R. 1304.
On June 23, 1999, David Elbaor, Co-Chair of the Antitrust, RICO & Labor Law Committee of the ABA Section of Labor and Employment Law, sent you a separate letter which also commented on H.R. 1304. I wanted to let you know that the letter sent to you by Mr. Elbaor does not represent the views of the ABA or any of its Sections or Committees and that Mr. Elbaor did not have the authority to send this letter on behalf of the ABA or any of its entities. Unlike the ABA Antitrust Section, Mr. Elbaor did not go through the appropriate channels and obtain the proper authority before sending his letter to you.
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I hope this letter eliminates any confusion that may have resulted from Mr. Elbaor's letter. If you have any questions, please let me know.
Sincerely,
| Robert D. Evans, Director. |
Cc:
Honorable Tom Campbell
Phillip A. Proger
Stephen E. Tallent
David Elbaor
PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF HEALTH PLANS, INC.
The American Association of Health Plans (AAHP) appreciates the opportunity to submit a written statement regarding H.R. 1304. AAHP is the largest national trade organization representing health maintenance organizations (HMOs), preferred provider organizations (PPOs), and similar health plans that provide coverage to more than 140 million Americans. AAHP member companies are dedicated to a philosophy of high-quality care that puts the patient first by providing coordinated, comprehensive health care.
H.R. 1304 is the most recent example of the special treatment physicians have long sought in the form of legislative exemptions from federal antitrust laws. AAHP opposes such legislation, including H.R. 1304, because it is anti-competitive and unnecessary. Most importantly, it is consumers who will ultimately suffer the brunt of the anti-competitive consequences of such legislation. Provider price-fixing and boycotts by physician cartels offer consumers nothing but higher prices, fewer choices, and lost opportunities for improving health care quality. This would have a serious impact on the number of uninsured which has risen every year since 1987, when it stood at 31.8 million. Over 43 million did not have private or public insurance during any part of 1997.
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AAHP is also a member of the Antitrust Coalition for Consumer Choice in Health Care, a diverse group of employers, health plans, providers and others involved in the purchase, management and delivery of health care services. AAHP supports the testimony submitted by the Coalition in opposition to H.R. 1304.
H.R. 1304 Will Benefit Physicians, Not Consumers
Antitrust laws and enforcement are frequently misunderstood. Their objective is not to protect competitors; whether they are big or small, strong or weak, buyers or sellers, physicians or health plans. 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. Competition promotes cost containment, consumer choice and the expansion of managed care and other innovative approaches to health care delivery that benefit consumers. Enforcement of antitrust laws is crucial to preserve and ensure competition in the health care marketplace.
The topic of this hearing is important to the future of our health care system and its ability to meet the challenge of providing consumers with affordable, accessible, high quality health care. Health plans have made a major contribution toward this goal. 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.
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.(see footnote 138) 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 have hospital privileges—all in an effort to prevent Group Health Plan from providing an alternative to fee-for-service coverage.
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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, successful challenges have been brought against:
Professional society ethical rules and ''self-regulation'' that prohibited contracting with managed care plans(see footnote 139)
Denials of hospital privileges to doctors affiliated with health plans(see footnote 140)
Restraints by dominant fee-for-service payers on physicians affiliating with health plans(see footnote 141)
Combinations among providers to force higher fees(see footnote 142); and
Conspiracies to obstruct utilization review programs(see footnote 143), boycotts and other conspiracies to maintain prices or force increases in fees.(see footnote 144)
A great deal of similar anticompetitive conduct still occurs today and the antitrust enforcement agencies have devoted substantial resources to protecting consumers from it.(see footnote 145)
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H.R. 1304 Would Grant Physicians Unprecedented Collective Bargaining Rights
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 competing physicians, hospitals and other providers.
Unfortunately, H.R. 1304 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). In fact, H.R. 1304 would provide no regulatory oversight whatsoever. No other American workers, whether employees or independent contractors, are afforded this kind of special treatment.
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 shield physicians', or other workers', collective activities from antitrust restrictions if they are eligible for unionization as employees of the entity with which they are negotiating and do not have managerial or supervisory responsibilities.(see footnote 146)
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The National Labor Relations Board (NLRB) recently decided that physicians contracting with a New Jersey HMO, AmeriHealth, were not ''employees'' as they alleged, and thus not eligible for unionization. According to the NLRB decision, rather than being ''controlled'' by the HMO as argued by the physicians, they retained wide entrepreneurial discretion in how to run their practices and make profits, and were free to contract with other insurance companies. Furthermore, according to the NLRB, the HMO lacked substantial control with respect to the physical conduct in the performance of the physician services provided.(see footnote 147)
Outside the labor law exemption, attempts by physicians to negotiate collectively are governed by the antitrust laws. Under the antitrust laws, collective negotiation of price and other competitively sensitive terms is allowed 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 law 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 United States Department of Justice to stop an illegal boycott by nearly all the orthopedic surgeons in Delaware aimed at artificially maintaining high fees for orthopedic medical services in Delaware.(see footnote 148)
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An action by the FTC against a western Colorado physician's organization alleging that the physicians fixed prices and prevented or deterred the entry of third-party payers into the county. The FTC argued that this anticompetitive behavior led to higher prices for physicians services, and the exclusion of a wide range of third-party payers who might have offered alternative health insurance programs to the area's consumers. The physician organization agreed to a settlement that would prevent it from engaging in collective negotiations on behalf of its members and collectively refusing to contract with payers, as well as other illegal activities. The settlement would not prevent the physicians from engaging in activities that have the potential to benefit consumers.(see footnote 149)
An action by the FTC against North Lake Tahoe Medical Group, Inc. (Tahoe IPA) alleging that the for-profit corporation, which comprised at least 70 percent of the physicians practicing in the North and South Lake Tahoe areas, restrained competition by fixing or increasing prices, thereby depriving third-party payers, their subscribers, and patients of the benefits of competition among providers. The group agreed to a settlement that would prevent it from illegal price-fixing and other types of conduct that harms consumers, but would allow it to engage in legitimate activities that have the potential to benefit consumers.(see footnote 150)
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.(see footnote 151)
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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.(see footnote 152)
AAHP strongly opposes any policy or legislation that would make it harder to challenge price-fixing, boycotts, and other anticompetitive combinations or agreements among competing health care providers whether organized informally or through cartels. 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 by the proposed legislation to be illegal.(see footnote 153)
Perceptions of Health Plan Market ''Dominance'' Do Not Justify Special Treatment for Physicians
Proponents of H.R. 1304 argue that competing physicians need antitrust exemptions in order to combat alleged widespread health plan market ''dominance,'' which creates unequal bargaining power between health plans and physicians. Such proponents also allege that physicians' incomes have decreased, and that patient satisfaction and health care quality has suffered as a result of this so-called ''dominance.''
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Rarely are these arguments supported by data or empirical evidence. In fact, these arguments are undercut by the following:
Nationally, Medicare fee-for-service is by far the single largest payer, yet proposals for collective bargaining by competing physicians do not extend to permitting such joint negotiation with government programs.
Data from 20 large metropolitan statistical areas (MSA) across the country indicated the number of HMOs operating in those markets ranged from 8 to 26, suggesting significant competition among health plans in the marketplace.
Physicians often form groups or independent practice associations (IPAs) which negotiate with health plans and generate substantial gross revenue equivalent to midsize businesses. Over 50% of all physicians belong to an IPA.(see footnote 154) It is questionable as to why businesses of the size and sophistication of these physician-run practices would be granted special antitrust treatment when a similar business in another industry would not warrant such treatment. For example, the Chicago, IL MSA has approximately 21,000 physicians engaged in office-based patient care. The largest physician group in Chicago (an IPA) has 940 physician members.(see footnote 155) If 20% of each physician's gross revenue (the average percentage indicated by the directory) flows through the IPA, total revenue for the IPA would be about $77 million.(see footnote 156) The directory also indicates that up to 70% of physician income can come from one IPA; in that case, the total revenue for this IPA could be around $270 million. In addition to being organized through IPAs, physicians also belong to such groups as physician hospital organizations (PHOs) and management service organizations (MSOs). According to a directory of physician groups, the other 54 physician groups in Chicago have up to 530 member physicians each.
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Between 1986 and 1997, the mean net income for self-employed physicians grew from $131,100 to $228,200 (an increase of 74%).(see footnote 157)
The growth of physician income has outpaced that of the average U.S. worker, whose earnings rose by 43%.(see footnote 158)
In reality, physicians wield considerable negotiating power over health plans who cannot operate provider networks without meeting network adequacy standards under state licensing laws. Under such laws, health plans must have sufficient numbers of primary care physicians and specialists to operate.
Collusion among even a very small number of competing physician can effectively prevent a health plan from entering a market or maintaining operations. For example, health plans must have obstetricians in their network. In markets where there are few obstetricians, their agreement to boycott or fix prices can effectively bar health plans from doing business, or force costs and premiums, ultimately paid by consumers, to increase dramatically.
Contrary to proponents' arguments, health plans have had a positive impact on quality of care. Many studies have examined how quality of care in managed care plans compares with quality in other forms of health care coverage. The pattern of largely positive findings about quality of care in health maintenance organizations (HMOs) was reported in the Miller and Luft reviews of 1994 and 1997 and has continued to hold true in studies published since early 1997. Research findings, in general, show that HMOs provide their patients with care that is comparable to, or better than, care provided in indemnity plans. Furthermore, the success of health plans in providing quality care has not compromised their ability to provide more affordable care through efficient and appropriate use of resources.(see footnote 159) Quality of care is also subject to comprehensive regulation under state law, federal programs such as Medicare and Medicaid for plans participating in them, and through accreditation programs.
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Similarly, consumers have given health plans high marks. Many surveys have reported the high levels of consumer satisfaction with managed care health plans. In a 1998 analysis of public attitudes, the president of the Roper Center for Public Opinion Research at the University of Connecticut stated that ''huge majorities say they are satisfied with their health care, including their ability to get a doctor's appointment and the most sophisticated medical treatment.''(see footnote 160) A 1998 comprehensive review of surveys on public attitudes toward managed care concluded that ''there is little evidence of widespread or serious dissatisfaction with health care arrangements among those who have coverage.''(see footnote 161) The same review also found that the vast majority of people enrolled in managed care would recommend their plan to others.
Physicians Do Not Need Legislative Exemptions to Conduct Legitimate Collective Negotiations
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.''(see footnote 162)
AAHP has supported 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,(see footnote 163) in response to requests for guidance regarding specific proposed conduct involving the health care industry. The policy statements provide physicians with guidance in participating in a wide range of activities that are procompetitive, including the formation of physician network joint ventures, multiprovider networks and joint purchasing arrangements by providers.
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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.
Physicians Do Not Need Antitrust Exemptions to Address Quality of Care Issues
Proponents of H.R. 1304 argue that physicians need exemptions from antitrust laws in order to address issues of quality. This simply is not true. In testimony before the House Judiciary Committee on a bill similar to H.R. 1304 introduced last Congress, FTC Chairman Robert Pitofsky opposed the legislation, noting that the ''broad exemption from the antitrust laws . . . 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.''(see footnote 164)
In addition, health plans have a variety of mechanisms in place that allow—and in fact encourage—physicians to contribute to efforts to improve quality of care. Examples of areas in which health plans' participating physicians are actively involved include:
the development and implementation of quality assurance and improvement programs;
the adoption of clinical practice guidelines;
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the development of utilization management criteria;
the development of formularies;
the adoption of preventive health guidelines;
providing recommendations regarding the credentialing process; and
technology assessment.
In many of these areas, physician involvement is required by federal and state laws and regulations, National Association of Insurance Commissioner (NAIC) Model Acts, and private accreditation standards.
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.
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AAHP wishes to thank the committee and the chairman for this opportunity to present its views.
PREPARED STATEMENT OF THE AMERICAN OSTEOPATHIC ASSOCIATION
PRESENTED BY JOHN B. CROSBY, JD, EXECUTIVE DIRECTOR OF THE AMERICAN OSTEOPATHIC ASSOCIATION
Collective Bargaining Rights for Physicians
This statement is presented on behalf of the 43,000 osteopathic physicians practicing throughout the United States who seek collective bargaining rights for physicians. The American Osteopathic Association (''AOA') is the national professional organization for osteopathic physicians. In addition, the AOA is the recognized accrediting authority for colleges of osteopathic medicine, osteopathic postdoctoral training programs and osteopathic continuing medical education.
Osteopathic medicine is one of two distinct branches of medical practice in the United States. While allopathic physicians (M.D.s) comprise the majority of the nation's physician workforce, osteopathic physicians (D.O.s) comprise more than five percent of the physicians practicing in the United States. Significantly, D.O.s represent more than 15 percent of the physicians practicing in communities of less than 10,000 and 18 percent of physicians serving communities of 2,500 or less.
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The AOA officially endorsed the Quality Health Care Coalition Act of 1999 (H.R. 1304) at the April meeting of its Council on Federal Health Programs to respond directly to a major concern of our members. This legislation is also supported by most of the nation's medical associations and is consistent with the nation's house of medicine.
Over the last few years, there has been a dramatic shift in the delivery of health care throughout the United States. Health care decisions, previously the result of consultation between physician and patient, are increasingly controlled by HMOs, insurers and other managed care organizations. As a result of these changes, the AOA has been inundated with telephone calls from physicians throughout the United States who are upset about actions of HMOs and health insurers. These actions have damaged the physician-patient relationship at its most basic level. The AOA believes that action is necessary to level the playing field and allow physicians to negotiate with healthcare plans on important issues of quality care.
Any solution must begin with identification of the problem. It would be simplistic to place blame for all problems in the health care world on the insurance industry and its managed care systems. The AOA believes, however, that many of the problems in health care have developed because of a lack of communication and discussion between physicians and health care insurers. With a handful of insurers able to control access to the vast majority of patients, physicians who negotiate on an individual basis simply are not in a reasonable position to bargain. Instead, they are forced to accept unreasonable contract terms in order to sustain their practices.
Not too long ago, most health care was provided on a fee-for-service basis. Patients were allowed to seek treatment from the physician of their choice and doctors received payment for the health care services they provided. That business model has all but disappeared and a third party—the health care insurer—has taken control. Statistics indicate that nearly 80 percent of Americans receive health care coverage in some form of a managed care health plan. With managed care, insurers control the cost of medical treatment by subjecting decisions about the health care that will be provided to aggressive review programs. Stated simply, where insurers do not believe that the physician-recommended treatment is appropriate, they will not pay for it.
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At the same time as managed care has become the dominant business model for health care insurance; the insurers involved in managed care administration have consolidated at an astonishing rate. The New York Times recently reported that since 1994, the 18 leading health insurers have combined into six. As a result, fewer insurers control access to the physician of choice for an increasing number of patients. Physicians who wish to treat patients must work, at an unfair advantage, with these insurers. Insurers are further strengthened in their interaction with physicians and patients by protection from antitrust laws under the McCarran-Ferguson Act. Market control allows the insurers to determine where patients can receive medical treatment and what care they can receive.
The AOA receives complaints virtually every day from member physicians about problems they encounter with health insurers. A few examples of these complaints better illustrate the problem and point the way to a solution. The most basic level of difficulty encountered by physicians is access to patients. As stated earlier, we are now in an era where a few insurers and managed care companies control access to the majority of patients in a given market. In these situations, physicians are offered contracts with various terms that can be detrimental to the practice of good medicine. Some may contain 64gag'' clauses, others may require that physicians agree to work in all of the insurers managed care programs rather than simply a PPO or HMO, and others may be structured to give the physician incentives for limiting patient care.
The best advice for anyone confronted with an unreasonable contract is to negotiate. However, that advice does not work when access to the insurers' patients is an economic necessity. We know from the experience of our physicians in New Jersey that the terms frequently are not negotiable. Physicians who did not want to agree to provide service in all of the health insurers' programs were told that they could either agree to the entire contract or reject it, eliminating free choice of physicians for nearly one quarter of the patients in that area.
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Other physicians may not even be offered contracts. A few years back, the AOA received a call from two of our members in Arizona who had a successful ophthalmology practice. They spent many years and invested enormous energy into developing their practice. As a result of hard work, they enjoyed positive, longstanding relationships with thousands of patients in their community. When managed care arrived on the scene, our members wanted to work with the insurance companies. They were prepared to bargain and agree to the same sort of price controls and incentives to which their colleagues had agreed. Unfortunately, the insurance company did not have the same concerns about continuity of established physician-patient relationships. Because of its dominance in the marketplace, the company was free to ignore the preferences of its policyholders. So, despite an enthusiastic letter-writing campaign from their patients, these ophthalmologists lost many of their patients and were denied access to many new patients.
Once a physician has agreed to the contract terms dictated by the health insurer, the insurers are able to use the terms to restrict patient access to medical care. Physicians must comply with restrictive programs of utilization management. Where a proposed course of treatment is deemed not medically necessary, the insurer will refuse to reimburse for that care. A physician who believes that one treatment may be more effective based on knowledge of the background and history of a particular patient faces the daunting task of proving that the recommended course of treatment is ''the most appropriate'' or ''essential''. Additionally contracts have included ''gag'' clauses that prevent physicians from discussing treatment options with patients.
For osteopathic physicians, treatment denials may be a particularly difficult problem. One of the services that sets osteopathic physicians apart from their allopathic brethren and makes osteopathic medicine distinct and unique is the education and training in osteopathic principles and practices, including osteopathic manipulative treatment (OMT). Many patients choose to see an osteopathic physician because that physician can provide OMT. However, while OMT is widely accepted within the osteopathic community, allopathic physicians (who do not receive education or training in OMT) are unfamiliar with its benefits and applications. Where a D.O. recommends OMT for his patient, a M.D. who serves in utilization review may not believe that it is the most appropriate treatment or that it is essential. Consequently, the care can be denied.
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Not too long ago, the AOA received complaints from osteopathic physicians who work in the Albany, New York area about a managed care organization that refused to reimburse for OMT services. Despite efforts by the state osteopathic association to provide the insurer with scientific studies and other information concerning OMT, the insurer continued to deny payment.
Similarly, in Georgia, a health care insurer adopted the position that OMT is not a separate medical service and is, instead, encompassed within and paid for as part of the cost of a basic medical examination. Thus, while this doctor's patients sought an osteopathic physician because he could provide OMT, the insurer effectively refused to pay for it. A variation of this problem has arisen in Virginia. There, a major health insurer will provide reimbursement for OMT, but offers payment at such low levels that it is not economically feasible for physicians to provide the service. In all three of these cases, insurers agreed to meet with the physicians to discuss the issue. However, the response was always the same: The health insurance companies felt no obligation to negotiate contract terms.
These examples illustrate the problem and point the way to a solution. The AOA believes that the current problems are the result of the unequal bargaining power between physicians and insurers. At the present time, a limited number of insurers control access to a large (and increasing) number of patients. In some metropolitan areas, insurers may so dominate the particular market that refusing to work with the particular insurer results in more than one-third of the eligible patients being denied access to the physicians of their choice. In addition to market power, insurance companies also enjoy the benefits of protection from antitrust liability under the McCarran-Ferguson Act. Consequently, insurers who control access to patients are able to dictate terms under which physicians will provide medical care.
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Physicians would like to negotiate with the insurers, but do not have a real opportunity to do so. With few exceptions, negotiation as a collective group is impossible under the current Federal Trade Commission and Department of Justice antitrust interpretations. Individual negotiations have proven to be fruitless. From labor history, we know that great strides are made in negotiations with the largest and most powerful organizations once the process of collective bargaining is opened. In fact, the mere possibility of collective bargaining negotiations creates sufficient concern on the part of some employers to bring about immediate changes. From our experience in working with managed care organizations, we know that the insurers have been much more receptive to discussions about issues of interest to osteopathic physicians when those discussions are held with representatives of the national and state organizations than they have been in their meetings with individual physicians.
Having identified the problem as an inequality of bargaining power, the solution becomes clear. In our view, physicians should have the same ability to negotiate with health care insurers that other workers receive under the National Labor Relations Act. That is precisely what is proposed in the Quality Health Care Coalition Act of 1999. If physicians are able to join together for purposes of negotiating contracts, they can speak with a united voice regarding ''gag'' clauses and other inappropriate practices. Because the physicians will be negotiating on a collective basis, it will be far more difficult for the insurers to reject their concerns with a ''take-it-or-leave-it'' response. In addition, collective bargaining will enable physicians to speak with a unified voice so that insurers will understand that complaints regarding contract provisions reflect the concerns of medical professionals for their patients and not one isolated physician.
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One final note must be added to dispel some concerns that may be present. Some groups have asserted that physicians seek collective bargaining authority so that they will be able to ''fix prices'' or go on strike. Nothing could be further from the truth. Osteopathic and allopathic physicians are dedicated professionals who have devoted years of education and training to providing health care treatment. Physicians take a Hippocratic Oath that obligates them to provide care for their patients. The Osteopathic Oath, to which all D.O.s subscribe, requires the following obligation:
''I will be mindful always of my great responsibility to preserve the health and the life of my patients, to retain their confidence and respect, both as a physician and friend who will guard their secrets with scrupulous honor and fidelity, to perform faithfully my professional duties, to employ only those recognized methods of treatment consistent with good judgment and with my skill and ability . . .''
(Osteopathic Oath, AOA Yearbook and Directory of Osteopathic Physicians, at 644 (AOA 1999).)
Numerous position papers reinforce the physician's commitment to providing care. Physicians want collective bargaining ability to make certain that they are allowed to continue to provide good patient care. To underscore this point, the Quality Health Care Coalition legislation states that ''[t]he exemption provided in subsection (a) shall not confer any night to participate in any collective cessation of service to patients not otherwise permitted by law.'' The AOA believes that this provision is entirely appropriate.
Conclusion
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In conclusion, the AOA believes that physicians today face considerable difficulty in negotiating with health care insurers. We believe that this difficulty is attributable to the inequality in bargaining power between individual physicians seeking access to patients and health care insurers who control decisions regarding the care patients receive and the physicians who are permitted to treat them. The inequality results in physicians being forced to accept unreasonable contract terms, such as ''gag'' clauses, that are not in the best interests of patient care. We believe that allowing physicians to negotiate collectively will create a level playing field that will benefit physician and patient alike.
PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF ORTHOPAEDIC SURGEONS
WILLIAM W. TIPTON, JR., M.D., EXECUTIVE VICE-PRESIDENT
Mr. Chairman and members of the Committee, I am William W. Tipton, M.D., an orthopaedic surgeon and Executive Vice-President of the American Association of Orthopaedic Surgeons.
On behalf of the 15,000 board-certified fellows of the Association, thank you for the opportunity to present testimony before this committee on H.R. 1304, otherwise known as the Quality Health Care Coalition Act of 1999.
Let me begin by saying that the Association supports passage of the Quality Health Care Coalition Act of 1999 sponsored by Representatives Tom Campbell and John Conyers. This legislation has bipartisan support in Congress as evidenced by more than 115 co-sponsors, including a near majority of this Committee.
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In today's health care environment, insurance companies exert tremendous control over the contracts they present to physicians, with little or no opportunity for the doctors to give their input. These contracts often contain provisions that adversely affect patient care and the doctor-patient relationship. The passage of this legislation will allow physicians and other health care professionals who are not affiliated with each other to join together to negotiate the terms and conditions of these contracts without violating antitrust laws. Most importantly, this bill would allow physicians to negotiate contracts in the best interest of their patients.
Consolidation of health care insurance industry is anti-competitive and has had an adverse effect on patient care
The managed care industry has achieved tremendous bargaining power because of the ever-increasing consolidation of the health insurance industry. In January of this year, the New York Times reported that since 1994, the 18 leading health insurers had combined into 6 companies. There are now a few relatively large insurance companies that dominate the health insurance market. Through consolidation, health plans not only gain market power, but economic strength as well. As a result, they have been able to join together, not to negotiate or discuss contracts with physicians, but to dictate the terms of their contracts on a ''take it or leave it'' basis. They have been able to impose contract terms, which often are not in the best interest of patients, in order to maximize their profits and minimize their patient care responsibilities.
Current antitrust laws do not give physicians relief from the massive market power of health insurers. Moreover, the industry enjoys its own antitrust exemption, which gives them an unfair competitive advantage in the marketplace.
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Although physicians sometimes join together and form large group practices to counter this tremendous market advantage, their negotiating strength is still highly limited.
This legislation will enhance competition and improve patient care
Since contracts between health plans and physicians govern so many aspects of patient care and the physician-patient relationship, it is vitally important that physicians have meaningful input into these contracts. If enacted, the Quality Health Care Coalition Act of 1999 would give physicians the ability to negotiate on behalf of their patients and quality patient care.
Specifically, physicians and other health care professionals would be able to more effectively oppose contract provisions such as the following:
I. Restrictions on the patient's ability to receive ''medically necessary'' care
Some contract provisions give health plans absolute veto power over the medical decisions made by physicians. Administrative and clerical staff members, who sometimes have little or no medical education or training, often overrule the physician's sound medical treatment decisions in favor of less costly alternatives, even though these alternatives are less likely to benefit the patient.
In addition, health plans often impose contract terms that prevent patients from getting all the information they need from their physicians. These terms, otherwise known as ''gag clauses'', prohibit physicians from discussing all possible treatment options with their patients.
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Some contracts contain provisions that make it difficult for patients to see specialists. Because specialists do not treat them, these patients do not get the kind of care that they really need for their particular problems.
Many contract provisions place burdensome administrative requirements on the physician which may delay care so long that the patient's condition gets much worse or, in some cases, gets so bad that it is no longer treatable. In these instances, the physician has spent more time dealing with the health plan's paperwork than he/she has caring for the patient.
II. Loss of patient care continuity
Under some contracts, patients can lose their physicians without prior notification and without the right for the physician to appeal the decision. The removal of a physician from a health plan is problematic under any circumstance. It disrupts the continuity of patient care, delays treatment and can cause a myriad of other medical management problems.
Since the loss of a physician can be traumatic for his/her patients, it should only occur when the quality of patient care is being jeopardized. Physicians need the ability to negotiate contract terms that ensure that they are not removed from the plan for any reasons other than those related to patient care.
III. Forcing physicians to participate in all of an insurer's plans
Many managed care contracts require that the physician participates in all the plans an insurer offers or he/she will be excluded from participating in any of the plans. Physicians are then forced to participate in plans without knowing their medical policies, the type and number of patients they will see, the plans' administrative requirements and, even, what they will be paid. When physicians are forced into these types of situations, they not only lose some of their autonomy but, more importantly, they may not be adequately prepared to care for the other plans' patients, despite their best attempts.
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IV. Health plan immunity against liability Health plan immunity against liability
Contracts often include ''hold harmless'' clauses which give health plans total immunity from medical malpractice suits while passing absolute liability on to the physicians, even though the treatment decisions were dictated by the plan. Hold harmless clauses are especially onerous because managed care contracts already contain veto power over a physician's decision-making authority and restrict the communication between a physician and his/her patient through the use of gag clauses. Hold harmless clauses give health plans the ability to make medical decisions without being held accountable for those decisions.
Hold harmless clauses and the other contract terms described above illustrate the reason why physicians need a voice in formulating their relationships with health plans. For too long now, medical decisions have been made in the ''board room'' instead of the examination or operating room. All too often, medical judgements are made by administrative personnel who base their decisions on what will maximize profits for the health plan rather than what is in the best interest of the patient.
In sum, the passage of the Quality Health Care Coalition Act of 1999 will give physicians an opportunity to have meaningful input into how health care is delivered in this new era of managed care. This, in turn, will help restore the role of the physician as the patient's best advocate.
The Quality Health Care Coalition Act embraces the general principles of the antitrust laws by creating a greater balance of power between insurance companies and physicians. The Act also embraces the principle that the needs of patients must be foremost in any health care delivery system.
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Dispelling misinformation about the intent of this legislation
Contrary to the belief of some in the insurance industry, the Quality Health Care Coalition Act will not result in strikes by physicians. In fact, the legislation contains language that expressly prohibits the cessation of care. Moreover, physicians have ethical and legal responsibilities to their patients that prevent them from abandoning their patients. Once a physician begins a relationship with a patient, it will continue as long as the patient needs treatment. This is a long-standing tenet of the medical profession.
The Quality Health Care Coalition Act is also not about price-fixing. Although the legislation might give some physicians more power to negotiate higher fees, its primary purpose is to help restore the physician-patient relationship. This is what physicians want most of all in this new era of managed care. And this is what patients need if our health care delivery system is to continue as second to none.
Conclusion
There is a clear imbalance in negotiating strength between health plans and physicians. Because health plans are continuously increasing their negotiating strength through mergers and the acquisition of market share, they currently have the ability to dictate contract terms that adversely affect patient care.
Therefore, we urge you to support the passage of the Quality Health Care Coalition Act. It will give physicians the negotiating ability they need to protect their patients in today's volatile health care environment.
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Thank you again for the opportunity to present testimony to your Committee on this important issue.
PREPARED STATEMENT OF KENNETH G. MASON, M.D., PRESIDENT OF THE ARLINGTON COUNTY MEDICAL SOCIETY
Mr. Chairman and Members of the Committee,
I want to thank you for the opportunity to offer this written testimony regarding H.R. 1304, Quality of Health Care Coalition Act of 1999, and to express the Arlington County Medical Society's strong support for this legislation. I am Kenneth G. Mason, M.D., a general surgeon in private practice in Arlington, Virginia and president of the Arlington County Medical Society. I was trained at Howard University College of Medicine and did my surgical residency at George Washington University Hospital here in Washington, D.C. I am currently chairman of the Department of Surgery at Arlington Hospital.
The health care system in the United States badly needs repair. The compromise that patients and physicians experience in the health care environment has worsened. The cost containment procedures that are being implemented by the insurance industry to provide a competitive product for the health care marketplace are actually threatening the welfare of patients and disabling physicians in their ability to deliver quality medicine.
I would like to offer some actual examples from my medical practice experience:
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A few months ago, I performed an emergency appendectomy on a patient beginning at about 11:45 PM and finished a little before 1:00 AM. On arriving in my office the next morning, I was called by the patient's insurance company at 8:15 AM. The insurance clerk informed me that the patient had to be discharged that day since the insurance company's policy was to allow only one day postoperatively barring extenuating circumstances. I advised the representative that it was my medical opinion that the patient was unable to go home—she was still in the recovery room, and once she was evaluated post-operatively, a discharge determination would be made. The insurance clerk thereupon told me that because I was uncooperative she was going to take punitive action and place my repayment claim in a special file which would take at least 6 months and an appeal to get paid. As it turned out, the insurance company paid neither my bill nor the hospital's bill requiring a series of special appeal actions to be taken by the hospital, the patient, and myself to get the bills paid.
The second example is one Thursday afternoon a patient appeared in my office with fever from an abscess. I felt that an urgent CT scan was needed to assess the condition before deciding on whether treatment should be done in the office or in the operating room. Because this patient was in an insurance plan that required authorization of all tests by the patient's primary care gatekeeper, I had to have him call that office for approval. However, the office has closed for the day. It took until Friday morning to get the test approved at a specified facility many miles from the patient's home. The test was completed Friday afternoon, but no report was available until Monday morning. The patient spent the weekend in a great deal of pain and with a fever of 102 degrees. It took until Monday for the patient to finally receive the appropriate medical treatment—96 hours later than it should have. Had I sent the patient to the emergency room, the patient would have had a substantial risk that the admission would have been denied and the patient would have been responsible for a hefty bill. Unfortunately, the possibility that a patient will be stuck with a bill often influences patients and physicians to try to work within the insurance company rules, sometimes to the detriment of the patient.
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Over the past several years, the insurance industry has evolved from approximately 18 companies to what we now know as 6 very large and powerful insurance companies. In their efforts to compete in the health care marketplace and increase their market share, the insurance industry has implemented:
Unjustified and vague denial of medical care
Unreasonable administrative mazes for patients and physicians to obtain approval for surgery, testing, or much needed consultations
Unreasonable requirements for documentation to submit medical claims that have become so onerous that in most cases it takes more time to process a medical claim than it does to provide medical care to a patient
Extreme cost-cutting measures that deny treatment and threaten the welfare of patients inclusive of extreme reimbursement reductions for providers resulting in high volume and low quality medical care
Unfavorable contractual agreements
— Insurer rather than physician/patient determination of medical necessity
— Unilateral change of contracts by insurer without notification
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— Hold harmless clauses
— ''most favored nation'' clauses
— clauses that surrender physicians' right to mediation
— gag clauses
— clauses that discourage appropriate referrals
Exclusion of physicians from insurance plans without just cause
Elimination of decision making between physicians and patients
Medical decision making that is controlled by unqualified insurance company personnel
Denial of appropriate formulary for patients
Unjustified and lengthy delays in payment of ''clean claims''
Physicians as well as patients have been rendered powerless when negotiating on any terms with these very powerful insurance companies. I understand that the goal of the antitrust laws is to encourage an open and competitive market place, but when the welfare of patients is threatened and physicians are teetering on the edge of going out of business or selling out to medical managements companies, we have a very inefficient health care market place. H.R. 1304 addresses this imbalance of power exerted by the insurance industry and will allow physicians to negotiate for their patients and themselves. If the insurance industry is permitted to continue their abusive methods, patients' welfare will continue to be threatened and good, caring physicians will leave the field of medicine.
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Again, I thank Chairman Hyde and the Committee for holding this hearing and allowing me to submit written testimony in support of this very important health care issue.
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PREPARED STATEMENT OF MICHAEL PIERCE CONNAIR, M.D., VICE PRESIDENT, FEDERATION OF PHYSICIANS AND DENTISTS, AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES (AFSCME)
SUMMARY
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; if they do not, they run the risk of losing a large block of their patients and perhaps going out of business. Insurers routinely call upon the Department of Justice and the Federal Trade Commission to prosecute physicians who dare to organize any resistance to these unfair trade practices.
It is these physician contracts which give managed care insurers the legal ''right'' to deny care, to deny medically prescribed treatment and to unfairly squeeze physicians financially. Patients, as well as physicians, are harmed by contracts which maximize insurer profit without a counterbalancing patient advocacy voice.
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The more egregious contract provisions include:
Contracts which discourage appropriate specialist care by using perverse financial incentives;
Unreasonable administrative barriers to prompt and reasonable care;
Forcible separation of patients from trusted physicians for administrative and financial reasons;
Low paying contracts which result in high volume, low quality care;
Capitation schemes which pay physicians not to treat patients;
Deselection of physicians from managed care contracts without just cause;
''Hold harmless'' clauses which ask physicians to assume liability for insurance company decisions; and
Contracts which can be unilaterally modified by the insurer without negotiation.
Though private practice physicians are treated as employees in many respects by managed care administrators, we have none of the employee fights and protections afforded by labor law. Unfortunately, private practice physicians don't quite fit the traditional definition of an employee under the National Labor Relations Act. A physician whose decisions can be overridden by an administrator, whose reimbursement is nonnegotiable and can be lowered unilaterally, and who can be deselected (fired) without cause, needs a labor union as much as a steel worker, independent trucker or baseball player.
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The antitrust laws were written to prevent large companies from putting small companies out of business and from hurting consumers with anticompetitive business practices. Insurance companies have been exempted from the antitrust laws by which physicians must abide. 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 need to negotiate as equals when dealing with insurers to achieve appropriate treatment of providers and patients and to restore some sense of balance to the health care system.
I strongly believe that the ''Quality Health-Care Coalition Act of 1999,'' sponsored by Representatives Tom Campbell and John Conyers, will protect my patients and colleagues and the profession of medicine from predatory insurance company behavior and serve as a valuable adjunct to any ''patient protection'' legislation the Congress may pass. True collective bargaining will help contain some health care costs and will empower me and other physicians to advocate for quality patient care which the managed health care system has eroded.
STATEMENT
I am Dr. Michael Pierce Connair, an orthopedic surgeon in private practice in Connecticut. I am an attending physician at Yale New Haven Hospital and the Yale Spina Bifida Program, and the Hospital of St. Rapheal in New Haven. I trained at Harvard Medical School and did my orthopedic surgery residency at Harvard. I am a past president of the Connecticut State Medical Society Orthopedic Section (1997–1999) and a fellow of the American Academy of Orthopaedic Surgeons. I am a vice president of the Federation of Physicians and Dentists (PFD), a union affiliated with AFSCME. I actively organize physicians for PFD. The following statement is submitted for the hearing record on The Quality Health-Care Coalition Act of 1999 (H.R. 1304).
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Eleven months ago, I submitted oral and written testimony at a House Judiciary Committee hearing on a similar bill. Since that time, my ability to provide optimal care for my patients has further eroded. Insurers have become more arrogant about blocking appropriate care and then delaying payments to providers; physicians are having more difficulty paying for overhead while giving adequate time to patients. More of my colleagues have left the practice of medicine because managed care does not allow them to deliver quality care and make a reasonable return on resources invested in overhead and hours worked. Like many doctors, I have resisted decreasing the amount of time I spend with each patient to my financial detriment.
Congress and state legislatures have been considering enhanced consumer protections in the health care industry: access to emergency care and specialists, appeal rights 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 organizations is equally compelling. Adverse terms in physician-insurer contracts can be just as deleterious to patient care quality. The Quality Health-Care Coalition Act gives physicians more control over the physician-insurer contracts which heavily impact on patient care.
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 insurers. Many managed care organizations 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. The contracts can often be changed at will by the insurer to the detriment of physicians and their patients. My specialty is orthopedics. I am a solo practitioner. Like most physicians, I have had no formal training in contract negotiation. There is simply no way that I can negotiate with AETNA or Blue Cross or any other insurance company on equal footing.
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The result is that insurance company executives—who have a fiduciary duty to the corporation and to stockholders, but never to the 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; rarely will an insurer negotiate contract terms unless all or most doctors refuse to sign the bad contract. If only a few doctors refuse to sign, those doctors will lose business and their patients will lose their choice of providers and have their care disrupted—or be forced to pay for their care our 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. I personally have agreed to participate in foolish contracts so as not to force a particular patient to switch to another doctor. Ironically, when all doctors refuse to participate in a substandard contract, patient choice suddenly increases! The insurer is then forced to allow patients to see any doctor they choose out of the network and the insurer must pay undiscounted rates for patient care it failed to provide in the network.
Even if a physician rejects one managed care 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. 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 HN40's 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.
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Do you really think physicians in this position can afford to turn away all patients covered by such large companies? If a physician's overhead is 60% and the doctor suddenly loses 20% of his or her patients, the doctor's personal income decreases by 50% (overhead does not go down with the loss of those patients). The insurer knows the doctor must agree to the contract; coordinating a collective refusal to sign an unfair contract violates antitrust law. The insurers effectively use the mere threat of FTC or DOJ investigation as a weapon that scares doctors into not even attempting to protect themselves or their patients contractually.
In a health insurance industry increasingly dominated by managed care organizations, 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 managed care organizations which translate into bad care.
1. Displacement of Physicians' Medical Decision Making Authority
Many contracts explicitly grant the insurer 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 the treatment, usually because the treatment is too expensive.
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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. Or, I may first be required to prescribe cheaper alternatives first which are not as effective and which can delay access to more effective drugs. This is a particularly serious problem for drugs such as antidepressants, where newer but costlier medications such as Prozac have proven to be more efficacious than earlier medications, or new anti-inflammatory medications like Celebrex which cause fewer side effects and deaths but cost more than generics like ibuprofen and naproxyn.
I, of course, am still liable if I fail to provide the treatment or medication or referrals that I believe are indicated and my patient suffers as a result. In that instance, many contracts may 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 or forced me to try a cheaper but inferior treatment. Bad outcomes have no consequences for the insurer. The ''hold harmless'' provisions enable managed care organizations to make reckless medical decisions to increase profits at the expense of the patient without being exposed to potential liability in the same way that the ERISA laws shield some insurers from malpractice liability.
Other contract provisions are more subtle in their interference with treatment decisions, but no less damaging. Contracts may not explicitly grant the insurance company absolute veto power. Rather, they interfere with care 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. For example, a CAT scan which should take several minutes to schedule, may consume more than an hour of secretarial and doctor time over the course of a week or longer as administrators postpone approval. As doctors are forced to waste enormous time, energy and resources fighting to obtain the required approval, can anyone doubt that patient care is needlessly—and all too often dangerously—delayed or, worse, that some patients' needs go completely unmet?
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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 of the insurers 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?
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 for 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 insurers—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. Financial risk is the business of insurance companies, not doctors. Shifting financial risk downstream to physicians and hospitals corrupts medical decision making by physicians.
Other contracts penalize doctors who make ''excessive'' referrals to specialists—more referrals, that is, than the insurer 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 depending on utilization patterns. Primary care 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.
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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. History taking, exam time, analysis time and talk time are important elements in accurate diagnosis and treatment. Beyond a certain point, increased patient volume means decreased quality.
Exclusive contracts are used 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 unit of service. Patients who are forced to switch doctors by this game, resent leaving their trusted doctor; this discontinuity of care compromises care quality.
3. Companies' Right to Make Unilateral Changes in Contract Terms
Another insidious provision, found all too often in contracts between physicians and managed care organizations, gives the insurer the fight unilaterally to change any contract term at will. The physician's only recourse generally is to terminate the contract with one 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. Insurers reserve the right to change fee schedules at will depending on the profitability of the organization. Insurers significantly reduce reimbursement or capitation rates unilaterally, making contracts 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. The policies and procedures include the fee schedule; they often are not provided to the doctor or even made available upon request!
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Managed care organizations 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 insurer, for a period which may 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 importantly, however, is the impact on the patients: If their doctor's contract with their insurer is terminated, their relationship with their doctor, which may have developed over the course of many years, also will be severed.
4. Deselection Without Just Cause
Patients' relationships with their doctors are jeopardized by another common feature of managed care contracts—namely, provisions which permit the insurer to terminate the physicians' contracts 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 which can be changed unilaterally without negotiations? The following example may be illustrative. One insurer came to my office and to Yale University, and told us that they would like physicians to sign their contract but that those 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. It was clear 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 this company. The contract had many unreasonable terms, but I felt obliged to sign it ultimately for fear of losing a large share of my patients and perhaps my practice.
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Doctors and their patients are held hostage by the insurer's demands. The problem is that the health care deck is stacked and the insurance companies and managed care organizations hold all the cards. The antitrust laws were written to prevent large companies from putting small firms out of business with unfair business practices and to protect consumers. Physicians have not been exempted under the National Labor Relation Act and therefore are held to the same standards as Microsoft or Standard Oil. Ironically, the health insurance industry, which enjoys antitrust protection under the McCarran-Ferguson Act, is taking advantage of physicians' inability to bargain collectively in order to impose unfair contract terms and limit consumer quality and choice.
The current situation simply puts too much negotiating power in the hands of increasingly large HMOs and other managed care organizations. 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 confront a huge insurer with one voice. Private practice physicians cannot negotiate individually and be expected to bargain effectively for their patients and for themselves. That is why H.R. 1304 is so important. Groups of physicians and other health care professionals must be able to negotiate jointly in order to restore some sense of balance to the health care industry and to obtain contracts that provide equitable treatment. If the antitrust laws are used to suppress physician influence in contract negotiations, the managed care organization will continue to dominate the health care market place, at the expense of doctors and patients alike. Without a powerful physician voice, the patient has no effective advocate in this trillion dollar industry and profit will remain more important than patient care and dignity.
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I want to thank Chairman Hyde and the Judiciary Committee for conducting a hearing on this matter and for allowing physicians to share their experiences as Congress considers this legislation. The Quality Health-Care Coalition Act will allow the market place to self correct many of the abuses that plague the current system and are harming the quality of health care that Americans expect.
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.
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.
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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 other-wise 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.
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.
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(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.
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.
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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 percent. Financial Allowance amounts shall belong to Plan and may be used by Plan as it deems appropriate.
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.
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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.
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.
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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 tortuous conduct, or delay by Company.
Medical Records
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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
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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.
5. If physicians do not hang together while negotiating HMO contracts each will certainly be hung separately.
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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.
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PREPARED STATEMENT OF THE AMERICAN ACADEMY OF OPHTHALMOLOGY
Patients are the true victims when ophthalmologists and other physicians are blocked from collectively negotiating with health insurance companies. Often the result is lack of quality care or the withholding of care for those in need.
Recently the patient of an ophthalmologist in South Carolina was diagnosed with cataracts as well as significant diabetic complications, causing her to have poor vision. In order to treat her diabetic retinopathy (which leads to serious vision loss or blindness), the cataracts needed to be removed. The ophthalmologist removed the cataract from one eye, but the insurance company has delayed the procedure for the other eye, questioning the need for cataract removal in both eyes. The longer the patient waits for the cataract surgery, and ultimately laser treatment, the more likely it is that she will have permanent vision loss. The ophthalmologist in this instance believes that if he had the ability to negotiate collectively with the insurance company, he would have been able to influence this quality of care decision, and medical decisions would not be made by insurance administrators, who generally have no medical training. Therefore, the patient would not be experiencing a dangerous delay in care, which could lead to complete blindness.
Ophthalmologists deal with these types of situations all too often. The American Academy of Ophthalmology has an active membership base of over 16,000 ophthalmologists who are frustrated and concerned about the lack of negotiating rights they have as physicians. As the world's largest association of eye physicians and surgeons, the American Academy of Ophthalmology is dedicated to achieving accessible, appropriate, and affordable eye care for the public.
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Unfortunately, the example above does not represent an isolated case for the field of ophthalmology. The managed health care industry is continuing to consolidate, and because ophthalmologists are not able to collectively negotiate with health plans under current antitrust law (except under extremely limited legal avenues), they cannot serve effectively as advocates for their patients. Conversely, the health insurance industry is protected from antitrust laws by an out-dated special exemption granted with the passage of federal legislation in 1945, the McCarran-Ferguson Act. Thus, the health insurance issuers are able to exert significant leverage over physicians.
H.R. 1304, ''The Quality Health Care Coalition Act of 1999,'' will ''level the playing field'' between health care plans and physicians by allowing physicians to collectively the terms and conditions of their contracts. The result will be quite simple: quality health care for patients.
Consolidation of Health Care Plans
Almost 80 percent of patients currently belong to managed health care plans, and more than a dozen health insurance competitors have been eliminated in the last five years due to mergers and acquisitions. This has led health insurance issuers to place physicians in a ''take it or leave it'' position in terms of contracting. Ophthalmologists and other physicians are often forced to sign such contracts to sustain the viability of their practices because these large managed health care plans dominate the market.
Health Plans Offer Onerous Contractual Conditions
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There are many clauses in health insurance issuers' contracts, which are quite simply onerous. Examples of such conditions in contracts are:
prohibiting physicians from discussing all treatment options because the health plan does not cover the procedures (commonly referred to as ''gag clauses''),
restricting access to specialty physicians,
removing physicians from a plan without reason,
forcing physicians to join all of the insurers' plans (or none at all),
limiting medically necessary care,
changing contract terms without negotiation,
enforcing unreasonable administrative burdens.
Furthermore, managed health care plans have virtually unlimited control over medical procedures provided to patients, often leaving physicians out of the decision-making process. Thus, the insurance administrators are determining what is ''medically necessary,'' not the physicians. It is often not the ophthalmologist who is able to determine whether a patient will receive the necessary treatment to maintain the health of his or her eyes; it is the plan's administrators, who generally are not ophthalmologists or any other type of physician.
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Opposing Arguments are Unfounded
Opponents of H.R. 1304 contend that health care costs will rise considerably, and patients will therefore lose access to care should the bill become law. This statement is a scare tactic, and there is absolutely no evidence that these scenarios will occur. When other patient-friendly legislation has been enacted, such as mental health parity and health insurance portability, the health insurance industry predicted an adverse effect on insurer coverage and cost to patients. There were no such adverse results. Another argument the opponents use is that the legislation would allow physicians to strike. There are both legal and ethical duties that physicians abide by, compelling them to treat their patients until the medical condition no longer warrants treatment or the patient chooses to cease the physician-patient relationship. In section 3, subsection (c), H.R. 1304 clearly states ''The exemption provided in subsection (a) shall not confer any right to participate in any collective cessation of service to patients not otherwise permitted by law.''
Conclusion
H.R. 1304, the ''Quality Health Care Coalition Act of 1999'' is much needed legislation in this changed managed health care marketplace. This bill, introduced by Representatives Campbell and Conyers will ''level the playing field'' between physicians and health insurance issuers to ensure that patients are receiving optimum health care. If health insurance issuers are allowed to continue to use the current imbalance of power to their advantage, situations such as an insurance company delaying the decision to perform cataract surgery and thefore increasing the chances that the patient will become blind, will not cease. In effect, by not enacting H.R. 1304, Congress will be stating that the lack of treatment patients are receiving is acceptable. The ''Quality Health Care Coalition Act of 1999'' will allow physicians to fight for the health of their patients.
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| University of Pennsylvania Health System, |
| Department of Medicine, |
| Philadelphia, PA, June 16, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
RE: Quality Health Care Coalition Act of 1999 (H.R. 1304)
GENTLEMAN: I am Professor of Medicine and Health Care Management at the University of Pennsylvania's School of Medicine and the Wharton School. I am expert in the areas of health care economics, physician behavior, and the cost and uses of new technology.
I have been retained by United Food & Commercial Workers Local 56, AFL-CIO, 7730 Maple Avenue, Pennsauken, New Jersey 08 109, to offer some brief comments about the likely impact of legislation which would exempt physicians from certain aspects of current anti-trust. laws in collective bargaining with insurance company providers of health care and how that legislation would affect the cost of health care. Knowing full well how much paper there will be to review as a result of the open comment period, I will keep my remarks brief and to the point, focussing only on my opinions about the likely impact on costs of health care.
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The possibility of costs increasing because of the passage of the proposed legislation may be traced to dues or fees which might approximate up to $ 1,000.00 per doctor per year to the union or other collective bargaining agent, which theoretically may be passed on to the patient. The possibility of collective bargaining by doctors may also result in small economic gains to them in the short term. These factors must be viewed in the larger context of health care in the new millennium. The following factors, forthcoming in the future, more than overwhelm the aforementioned two reasons for concern:
(1) The continued advent of new and more expensive health care technologies is accelerating. The cost of administering these technologies to patients will be in the order of magnitude of thousands of dollars per administration, rather than the current cost of hundreds of dollars per administration, on average. In my opinion, by 2005 (1B 2-3 years) our economy will not be able to absorb all new technologies, resulting in obligatory general rationing;
(2) The ''baby boom generation'' is closing in on the age where persons are by far the highest users of health care. Indeed, there is an inverted population pyramid in this country that also challenges Social Security. Again, health care cost inflation for this reason will far overwhelm any increase generated by enhanced collective bargaining; and,
(3) Health care inflation is wage-intensive because so many people are needed to care for the ill. Although managed care has brought health care inflation somewhat closer to general inflation in the short term, this cannot continue and, again, the cost of general inflation and health care inflation specifically, will far overwhelm the health care economy in the near future.
In addition, in the future, allowing physicians exemptions from the anti-trust law to collectively bargain would bring physicians and the insurance carrier enterprises for whom they work (e.g., managed care) closer so that, together, they will have more power and economies of scale in fighting ever-increasing litigation and the clinically-specific but often erroneous micro-management that may raise the cost of health care just as much as it lowers it in the future. Over time, physicians and managed care likely would form a ''quasi-partnership'' comparable to that which now is existent between many unions and many mature industries in the United States. That kind of relationship would be best for the patient, the doctor and managed care, replacing the adversarial relationship among these entities that currently increases the cost of health care.
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Importantly, the solution under consideration is ''pro-competitive,'' one that will level the playing field and allow the marketplace to help solve the problem of health care inflation. Managed care currently includes 92% of all physicians and has penetrated the marketplace to the point where such entities can ''control'' patient flow to different physicians. Larger enterprises have a greater ability to lower the rate of health care inflation (due to economies of scale and other reasons) and a partnership between managed care and physicians could magnify this benefit.
The health care marketplace should make health care enterprises accountable to patients which in many instances is not now the case. A less adversarial relationship between health care plans and physicians through the collective bargaining process, would be preferable to that relationship which exists now. This will increase accountability for managed care entities significantly. Patients will ''choose with their feet,'' putting even more competitive pressures on the managed care-physician partnership to keep costs down.
Thus, nurturing a ''partnership'' through the collective bargaining process between the managed care insurers and physicians will improve accountability to patients, putting pressure on both managed care and physicians to keep the rate of health care inflation under control. Additionally as I have indicated, there is an overwhelming need to direct our cost control efforts at factors other than collective bargaining which will really increase health care costs. Collective bargaining in my view will result at least in a partial marketplace solution in the health care industry.
Thank you for allowing me to express my opinion.
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Sincerely,
| Alan L. Hillman, MD, MBA. |
cc:
Honorable Thomas Campbell
Anthony Cinaglia, President UFCW Local 56
Steven Kramer, U.S. Department of Justice, Anti-trust Division
Robert F. O'Brien, Esquire
(Footnote 1 return)
This written statement represents the views of the Federal Trade Commission. Chairman Pitofsky's oral presentation and responses to questions are his own, and do not necessarily represent the views of the Commission or any other Commissioner.
(Footnote 2 return)
An appendix describing these cases in more detail will be provided under separate cover.
(Footnote 3 return)
See President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry, Quality First: Better Health Care for All Americans (1998); California Managed Health Care Improvement Task Force, Improving Health Care in California (1998).
(Footnote 4 return)
101 F.T.C. 191 (1983).
(Footnote 5 return)
Id. at 234–35.
(Footnote 6 return)
Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order).
(Footnote 7 return)
Commonwealth of Virginia v. Physicians Group, Inc., 1995–2 Trade Cas. (CCH) 71,236 (W.D. Va. 1995) (consent decree).
(Footnote 8 return)
North Lake Tahoe Medical Group, Inc., FTC File No. 981–0261, 64 Fed. Reg. 14730 (Mar. 26, 1999) (proposed consent order).
(Footnote 9 return)
See, e.g., Mesa County Physicians Independent Practice Association, Inc., Dkt. No. 9284 (May 4, 1999) (consent order); Asociacion de Farmacias Region de Arecibo, Dkt. No. C–3855 (March 2, 1999) (consent order); Ernesto L. Ramirez Torres, D.M.D., Dkt. No. C–3851 (Feb. 5, 1999) (consent order); M.D. Physicians of Southwest Louisiana, Inc., Dkt. No. C–3824 (Aug. 31, 1998) (consent order); Institutional Pharmacy Network, Dkt. No. C–3822 (Aug. 11, 1998) (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 decree); Montana Associated Physicians, Inc./Billings Physician Hospital Alliance, Inc., 123 F.T.C. 62 (1997) (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); Baltimore Metropolitan Pharmaceutical Association, Inc. and Maryland Pharmacists Association, 117 F.T.C. 95 (1994) (consent order); Southeast Colorado Pharmacal Association, 116 F.T.C. 51 (1993) (consent order); Peterson Drug Company, 115 F.T.C. 492 (1992); Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Pharmaceutical Society of the State of New York, Inc., 113 F.T.C. 661 (1990) (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, 110 F.T.C. 175 (1988) (consent order); Preferred Physicians, Inc., 110 F.T.C. 157 (1988) (consent order); Association of Independent Dentists, 100 F.T.C. 518 (1982) (consent order).
(Footnote 10 return)
See, e.g., Medical Staff of Memorial Medical Center, 110 F.T.C. 541 (1988) (consent order); North Carolina Orthopaedic Association, 108 F.T.C. 116 (1986) (consent order).
(Footnote 11 return)
See Medical Staff of Broward General Medical Center, 114 F.T.C. 542 (1991) (consent order); Medical Staff of Holy Cross Hospital, 114 F.T.C. 555 (1991) (consent order).
(Footnote 12 return)
The Commission challenged an alleged boycott of a health plan by physiatrists (doctors specializing in rehabilitative medicine) that demanded not only higher fees, but also that the plan pay for physical therapy services only if the patient was referred by a physiatrist (rather than a doctor in another specialty). La Asociacion Medica de Puerto Rico, 119 F.T.C. 772 (1995) (consent order). See also Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia, 624 F.2d 476 (4th Cir. 1980), cert. denied, 450 U.S. 916 (1981) (physicians used their control of Blue Shield to impose payment policies that disadvantaged competing clinical psychologists).
(Footnote 13 return)
The courts have immunized certain agreements arising out of collective bargaining between employers and unions—the so-called ''nonstatutory'' or ''implicit'' labor exemption—precisely because it was necessary to effectuate the statutory exemption that protects the bargaining and related activities of unions and their members. See Brown v. Pro Football, Inc., 518 U.S. 231, 237 (1996). See also P. Areeda and H. Hovenkamp, IA Antitrust Law 255c at 173 (1997) (''There seems little warrant in labor law or policy for distinguishing most collective bargaining agreements from unilateral union activities to accomplish the same result.''). Courts might well find similar logic supports immunizing many agreements arising from the collective bargaining protected by H.R. 1304, including not only agreements about wages, but also agreements that preserve the ability of physicians to work free from competition by nonphysicians.
(Footnote 14 return)
Some types of plans are required as a condition of licensure to maintain a network of providers adequate to provide services to their enrollees; thus, the inability to establish a satisfactory network would force such a plan to leave the market (or prevent it from entering).
(Footnote 15 return)
Enrollees of HMOs would have to pay out of pocket the full cost of services obtained from non-network providers. PPO enrollees who see non-network providers would have to pay any amount by which the providers' billed charges exceeded the plan's payment allowance. In addition, they likely would have to pay the full charge at the time of service, file a claim for payment, and wait to be reimbursed by the plan, instead of simply paying the copayment and relying on the doctor to collect the remainder of the fee directly from the insurance company.
(Footnote 16 return)
Columbia River Packers Ass'n v. Hinton, 315 U.S. 143 (1942). Accord, Los Angeles Meat and Provision Drivers Union 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 17 return)
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 a provision expressly stating 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:
(Footnote 18 return)
Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Rochester Anesthesiologists, 110 F.T.C. 175 (1988) (consent order).
(Footnote 19 return)
See, e.g., Baltimore Metropolitan Pharmaceutical Association, Inc. and Maryland Pharmacists Association, 117 F.T.C. 95 (1994) (consent order); Pharmaceutical Society of the State of New York, Inc., 113 F.T.C. 661 (1990) (consent order).
(Footnote 20 return)
See Peterson Drug Company, 115 F.T.C. 492, 540 (1992). See also Pharmaceutical Society of the State of New York, Inc., 113 F.T.C. 661 (1990) (consent order).
(Footnote 21 return)
United States General Accounting Office, ''Private Health Insurance: Continued Erosion of Coverage Linked to Cost Pressures'' 2–3 (GAO/HEHS–97–122) (July 1997). A more recent study also concluded that the increase in the proportion of workers who are not covered by private health insurance, from 15.1% in 1979 to 23.3% in 1995, was due in large part to per capita health care spending rising much more rapidly than personal income during the period. (Per capita health spending divided by median income rose from 4.5% in 1979 to 7.3% in 1995.) Kronick & Gilmer, ''Explaining The Decline in Health Insurance Coverage, 1979–1995,'' 18:2 Health Affairs 30 (March/April 1999). Another study reported that in 1997, 2.5 million people refused to accept employer-sponsored health insurance coverage for which they were eligible, even though they had no other source of coverage. Sixty-eight percent of these employees reported that the high cost of health insurance was the reason they rejected the coverage. Thorpe & Florence, ''Why Are Workers Uninsured? Employer-Sponsored Health Insurance in 1997,'' 18:2 Health Affairs 213 (March/April 1999). See also Findlay & Miller, ''Down a Dangerous Path: The Erosion of Health Insurance Coverage in the United States'' (May 1999).
(Footnote 22 return)
In 1997, private insurance paid $109.1 billion for physician services, and an additional $43.2 billion for dental and other professional services. This amounts to about 44 % of total private insurance payments, and about 49% of private insurance payments for health services and supplies. National Health Expenditures 1997, Table 3 (found at www.hcfa.gov/stats/nhe-oact/tables/t11.htm).
(Footnote 23 return)
A study published last year concluded that, although health care costs and health insurance premiums did not increase at identical rates on a year-to-year basis in recent years, ''over a slightly longer period, the dominant influence on premiums is underlying costs'' of health care products and services. Ginsberg & Gabel, ''Tracking Health Care Costs: What's New in 1998,'' 17:5 Health Affairs 141, 145 (Sept./Oct. 1998).
(Footnote 24 return)
Information on HMOs' market shares is most readily available.
(Footnote 25 return)
See The InterStudy Competitive Edge, Regional Market Analysis 8.1 (June 1998).
(Footnote 26 return)
Indeed, in 1997 the percentage of workers in traditional HMOs fell from 33 to 30%, while the percentage enrolled in PPOs and point of service plans rose. See ''Wall Street Verbatim; Wider Networks Need Not Drive New Cost Explosion,'' Medicine & Health (June 22, 1998).
(Footnote 27 return)
Group Life and Health Insurance Co. v. Royal Drug Co., 440 U.S. 205 (1979); see also Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982).
(Footnote 28 return)
The statements of antitrust enforcement policy issued by the Commission and the Department of Justice create an antitrust safety zone for health care providers' collective provision of non-fee-related information to health plans. See Statements of Antitrust Enforcement Policy in Health Care 40, 4 Trade Reg. Rep. (CCH) 13,151 (Aug.1996) (available at www.ftc.gov).
(Footnote 29 return)
''Aetna's U.S. Healthcare Unit Revamps Doctors' Contracts After AMA Criticism,'' Wall Street Journal B10 (Oct. 20, 1998).
(Footnote 30 return)
101 F.T.C. at 302–09.
(Footnote 31 return)
Id. at 314; see also Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Rochester Anesthesiologists, 110 F.T.C. 175 (1988) (consent order).
(Footnote 32 return)
For example, a survey conducted by the Center for Studying Health System Change found large differences in Americans' willingness to trade lower health care costs for limits on choice of providers available in the network, and that many people on both sides of the question had strongly held views. Data Bulletin Number 4 (Fall 1997).
(Footnote 33 return)
Other observers have urged actions to make it possible for much greater numbers of consumers to choose their health plans directly, rather than having their range of choice defined by their employer. The AMA, for example, has proposed moving from an employment-based system of health insurance to a system of individually selected and owned health insurance coverage, in order to permit individuals with varying needs and preferences to choose the plan that suits them best. As the AMA recognizes, such a system depends on competition among various plans on price, plan features, and quality, that will place pressure on plans to operate efficiently and to lower the price of insurance, as well as to be responsive to individual patients' concerns about quality. American Medical Association, ''Expanding Access to Insurance Coverage for Health Expenses'' (Nov. 1998); American Medical Association, ''Rethinking Health Insurance'' (Nov. 1998).
(Footnote 34 return)
The Presidential Commission concluded that more active involvement by public and private group purchasers and by consumers in demanding high quality services would increase the industry's ability and willingness to focus on quality improvement. To this end, it recommended development of core sets of quality measures for health plans, institutional providers, and individual practitioners, and making valid, reliable and comprehensive comparative quality information widely available. Quality First: Better Health Care For All Americans 3–4 (1998). Much work already is being done to develop and improve methods for measuring and communicating information about health plans' performance and the quality of services they provide.
(Footnote 35 return)
In addition, there are plans to use a government website as a gateway for consumers seeking information on health care quality.
(Footnote 36 return)
Last year, Aetna ranked last among health insurers in nine states and the District of Columbia according to a U.S. News and World Report survey, it received the worst ranking by California doctors in a survey conducted by the Pacific Business Group on Health Negotiating Alliance, and ranked lowest in overall satisfaction of patient members according to the North Central Texas Health Plan Employer Data and Information Set Coalition.
(Footnote 37 return)
Aetna has been cited by regulators in Texas and Florida for contracts with physicians that are in violation of state law. Most recently, New Jersey reviewed the conduct of the insurer from 1995 to early 1997 while it was the largest HMO in the state. The investigation revealed a 92 percent error rate out of 40 complaints reviewed, deceptive advertising for emergency care in 11 percent of 159 ads reviewed, and claims payment problems in 43 percent of 164 cases reviewed according to the Bergen Record, May 9, 1999.
(Footnote 38 return)
In April, a consumer advocacy group, the Foundation for Taxpayer and Consumer Rights, filed suit accusing Aetna/U.S. HealthCare of violating the RICO statute by systematically misleading its members about the company's commitment to quality care while their systems are designed to reap profits and usurp the quality of care. Earlier, a federal jury returned a $1.86 million verdict against Aetna/U.S. HealthCare, including $1.25 million in punitive damages for using ''hardball tactics'' to force a drug store chain to drop its health plan administrator and instead rely on U.S. Healthcare's services (Brokerage Concepts, Inc. v. U.S. Healthcare (E.D. Pa. Jan 25, 1999)). Aetna was also found guilty of ''malice, oppression, and fraud'' by a California jury that awarded $116 million in punitive damages to the widow of a former Aetna patient who was allegedly denied timely care that was recommended by his physician (Goodrich v. Aetna U.S. Healthcare of Cal., No. RCVO20499 (Cal. Super. Ct. Jan. 20, 1999)).
(Footnote 39 return)
Alpha Center, Washington, D.C. (Alpha restricted its review to 25 states because the study was funded with a grant that was insufficient to evaluate all 50 states).
(Footnote 40 return)
Pennsylvania Medical Society
(Footnote 41 return)
Sacramento Bee (May 19, 1999)
(Footnote 42 return)
National Public Radio, Frank Browning on the Future of Health Care in America (March 1–4, 1999).
(Footnote 43 return)
Interstudy , The Interstudy Competitive Edge, 1996.
(Footnote 44 return)
''Concern Rising About Health Plan Mergers,'' The New York Times, January 13, 1999.
(Footnote 45 return)
United States v. Alston, 974 F.2d 1206 (9th Cir. 1992).
(Footnote 46 return)
Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998) (Physician owners of a health plan held to be fiduciaries under ERISA. Case may now proceed on issue of whether physicians breached their fiduciary duty under ERISA for operating under an incentive structure that provides year end bonuses based on utilization); Neade v. Portes, Nos. 92–L–1074, 94–L–1103, 1999 WL 179338 (Ill. App. Ct. Mar 31, 1999) (HMO physician held to have breached fiduciary duty to disclose to patient financial incentives that might lead to withholding care due to bonus incentives. Case noted to exemplify a new trend expanding the traditional concepts of fiduciary duty to managed care arena.); Foundation for Taxpayer and Consumer Rights v. Aetna, allegation that policies that reward physicians for limiting care ''severely intrude on the physician patient relationship and seriously restrict the ability of Aetna physicians to provide . . . high quality health care.'' (See footnote 3)
(Footnote 47 return)
P. Ginsburg & J. Pickreign, ''Tracking Health Care Costs: An Update'' Health Affairs 16, July/August 1997.
(Footnote 48 return)
Sheils, John F. and Haught, Randall A., Managed Care Savings for Employers and Households: Impact on the Uninsured, June 1997, The Lewin Group, Inc. for the American Association of Health Plans.
(Footnote 49 return)
Levitt L & Lundy J, Trends and Indicators in the Changing Health Care Marketplace, Henry J. Kaiser Family Foundation (Aug. 1998) p. 65.
(Footnote 50 return)
Mary Chris Jaklevic, AMA: Docs Working less, Study shows physicians earn a little more, put in fewer hours, Modern Healthcare, May. 24, 1999, at 2.
(Footnote 51 return)
The term ''health care professional'' is defined under H.R. 1304 to mean an individual who provides health care items or services, treatment, assistance with activities of daily living, or medications to patients and who, to the extent required by state or federal law, possess specialized training that confers expertise in the provision of such items or services, treatment, assistance, or medications.
(Footnote 52 return)
H.R. 1304, 106th Cong. (1999).
(Footnote 53 return)
H.R. 1304, 106th Cong. §2 (4) (1999).
(Footnote 54 return)
American Oncology Resources, Press Release (Dec. 14, 1998), available at www.aori.com.
(Footnote 55 return)
United States v. Federation of Certified Surgeons and Specialists, Inc. and Pershing Yoakley & Associates, P.C., Case No. 99–167–CIV–T–17F (M.D. Fl. , filed Jan. 26, 1999). See Proposed Final Judgement, Stipulations, and Competitive Impact Statement, 64 Fed. Reg. 5831 (1999).
(Footnote 56 return)
Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care, §4, Statement of Department of Justice and Federal Trade Commission Enforcement Policy on Providers' Collective Provision of Non-Fee-Related Information to Purchasers of Health Care Services, at 14 (1996).
(Footnote 57 return)
H.R. 4277, ''The Quality Health-Care Coalition Act of 1998'': Hearing Before Committee on the Judiciary of the House of Representatives, 105th Cong. (July 29, 1998) (statement of Robert Pitofsky, Chairman, Federal Trade Commission).
(Footnote 58 return)
Charles Rivers Associates Study (Figures are based on a preliminary cost model which estimates a range of dollar impacts for each of four related effects, two price effects, and two utilization effects. Predictions under this model indicate the annual total dollar impact of the proposed legislation ranges from $35 billion to $80 billion in increased expenditures for personal health care services. These figures represent from about 3 percent to 7 percent of total personal health care expenditures predicted for the year 2000 in the National Health Expenditures Projections, published by the Health Care Financing Administration. Projections are derived from year 2000 predictions of health care expenditures.)
(Footnote 59 return)
Charles River Associates has estimated that the annual total dollar impact of H.R. 1304 would range from approximately $35 billion to $80 billion in increased expenditures for personal health care services financed by the public and private sectors. See Charles River Associates, Antitrust Waivers for Physicians: Costs and Consequences (June 1999).
(Footnote 60 return)
HMOs provide comprehensive health coverage for hospital, physician, and other health care services for a prepaid, fixed fee. They contract with or directly employ participating health care providers, and members choose from these providers to obtain their covered services. In contrast, PPOs contract with health care providers to provide services at discounted fees to members. Plan members may go ''out of network'' to obtain services from nonparticipating providers, and are usually charged a higher copayment for this option. POS plans, which typically are offered by HMOs, combine elements of both HMO and PPO arrangements.
(Footnote 61 return)
L. Levitt L & J. Lundy, Trends and Indicators in the Changing Health Care Marketplace, Henry J. Kaiser Family Foundation (Aug. 1998).
(Footnote 62 return)
See, e.g., S.C. Hill & B.L. Wolfe, Testing the HMO Competitive Strategy: An Analysis of Its Impact on Medical Care Resources, J. Health Econ. (June 1997) (finding a one-time savings in premiums of 20% attributable to an increase in HMO enrollment in Madison, Wisconsin, from 7% in 1982 to 80% in 1984); S. Christensen, The Effects of Managed Care and Managed Competition, CBO (Feb. 1995) (estimating that national health spending in 1990 would have been 12% lower if all insured persons had been enrolled in effective HMOs); KPMG Peat Marwick, Health Benefits in 1995 (1995) (based on a survey of employer-sponsored health benefits, the rate of increase in premiums decreased from 12% in 1991 to 2% in 1995 as a result of increased managed care enrollment).
(Footnote 63 return)
P. Feldstein & T. Wickizer, Does HMO Competition Reduce Health Insurance Premiums?, Medical Practice Management (Aug. 1996).
(Footnote 64 return)
See, e.g., G. Riley, et al., Stage at Diagnosis and Treatment Patterns Among Older Women with Breast Cancer, J. Am. Med. Ass'n (1999) (Medicare HMO enrollees with breast cancer are diagnosed and treated at earlier stages than Medicare fee-for-service patients); J. Seidman, et al., Review of Studies that Compare the Quality of Cardiovascular Care in HMO versus Non-HMO Settings, Medical Care (1998) (quality of cardiovascular care in HMOs is better than or equal to care in non-HMO settings); N. Every, Influence of Insurance Type on the Use of Procedures, Medications and Hospital Outcome in Patients with Unstable Angina, J. Am. College of Cardiology (Aug. 1998) (managed care patients with unstable angina are more likely to be discharged from the hospital with beta-blockers); R. Miller & H. Luft, Does Managed Care Lead To Better Or Worse Quality Of Care? Health Affairs (Sept./Oct. 1997) (most studies indicate that HMO quality of care generally is equal to or better than that offered by fee-for-service).
(Footnote 65 return)
See, e.g., C. Tudor, Satisfaction With Care: Do Medicare HMOs Make A Difference? Health Affairs (Mar./Apr. 1998) (HMO enrollees were more likely than nonenrollees to be ''very satisfied'' with the costs of care and with getting care at one location); J. Sisk, et al., Evaluation of Medicaid Managed Care: Satisfaction, Access, and Use, J. Am. Med. Ass'n (July 1996) (Medicaid managed care enrollees gave higher ratings of satisfaction compared with beneficiaries in traditional Medicaid); Consumer Reports, How Good Is Your Health Plan? (Aug. 1996) (respondents to a national survey that reported having a serious illness were equally satisfied with their health plan as those who did not have a serious illness); OPM/The Gallup Organization, FEHBP Consumer Satisfaction Survey (Oct. 1997) (FEHBP beneficiaries in HMOs reported being highly satisfied with their health plans); CareData Reports, Inc., Health Market Surveys (1997 & 1998) (finding that consumers nationwide are satisfied with their health plans).
(Footnote 66 return)
Health Care Financing Administration, The Medicare + Choice Program: Facts and Figures (May 1999).
(Footnote 67 return)
Id.
(Footnote 68 return)
Health Care Financing Administration, National Summary of Medicaid Managed Care Programs and Enrollment, <http://www.hcfa.gov/medicaid/trends98.htm> (visited May 19, 1999).
(Footnote 69 return)
J. Rodgers & K.E. Smith, Do Medicare HMOs Reduce Fee-for-Service Costs? Price Waterhouse LLP (Sept. 1995).
(Footnote 70 return)
Sheils & Haught, Managed Care Savings for Employers and Households: 1999 through 2000, The Lewin Group (May 1997).
(Footnote 71 return)
L.C. Baker, Association of Managed Care Market Share and Health Expenditures for Fee-for-Service Medicare Patients, J. Am. Med. Ass'n 281 (Feb. 3, 1999), 432–37.
(Footnote 72 return)
W.P. Welch, HMO Market Share and Its Effect on Local Medicare Costs, HMOs and the Elderly, Health Administration Press, Ann Arbor, MI (1994).
(Footnote 73 return)
American Med. Ass'n v. United States, 317 U.S. 519, 535–36 (1943)
(Footnote 74 return)
Summaries of these and other cases can be found in FTC Antitrust Actions in Health Care Services, available at http://www.ftc.gov/bc/atahcsvs.htm and Department of Justice, Summary of Antitrust Division Health Care Cases, available at http://www.usdoj.gov/atr/public/health—care/0000.htm.
(Footnote 75 return)
College of Physicians-Surgeons of Puerto Rico, 5 Trade Reg. Rep. (CCH) 24,335 (D.P.R. 1997).
(Footnote 76 return)
United States v. Federation of Certified Surgeons & Specialists, Inc., 64 Fed. Reg. 5831 (Feb. 5, 1999), consent decree in No. 99–167–CIV–T–17F (M.D. Fla., consent decree filed Jan. 26, 1999.)
(Footnote 77 return)
Trauma Assocs. of N. Broward, Inc., 118 F.T.C. 1130 (1994).
(Footnote 78 return)
Chain Pharmacy Ass'n of New York, Inc., 114 F.T.C. 327 (1991).
(Footnote 79 return)
Medical Staff of Memorial Med. Ctr., 110 F.T.C. 541 (1988).
(Footnote 80 return)
Wilk v. American Med. Ass'n, 895 F.2d 352, 355 (7th Cir.), cert. denied, 498 U.S. 982 (1990) (holding unlawful the AMA boycott of chiropractors).
(Footnote 81 return)
See, e.g., Oltz v. St. Peter's Community Hosp., 861 F.2d 1440 (9th Cir. 1988) (affirming lower court decision to grant a new trial on damages where jury found anesthesiologist providers and local hospital liable for attempting to eliminate competition from CRNAs through exclusive dealing contract).
(Footnote 82 return)
Department of Justice & Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (1996), reprinted in 4 Trade Reg. Rep. (CCH) 13,153 at 20,799 (''Health Care Antitrust Guidelines'').
(Footnote 83 return)
Id., at 20.808.
(Footnote 84 return)
The Health Care Antitrust Guidelines establish several ''safety zones'' that describe conduct that the agencies will not challenge ''absent extraordinary circumstances.'' The agencies have never found any circumstances that warranted a challenge of conduct that was covered by a safety zone. In addition, the agencies stress that much conduct that falls outside the safety zones also is legal; it simply requires a more fact-intensive inquiry of the particular circumstances involved than does safety zone conduct. Id. at 5–6.
(Footnote 85 return)
Id., at 43.
(Footnote 86 return)
For example, the American Medical Association has posted on its Web site (at www.ama-assn.org/physlegl/legal/doc4.htm) a comprehensive annotated model managed care contract that explains in great detail the types of provisions found in most managed care contracts and suggests language that would be most favorable to physicians.
(Footnote 87 return)
AMA, Legal Issues for Physicians <www.ama-assn.org/physlegl/legal/doc5.htm> (visited May 19, 1999).
(Footnote 88 return)
American Medical Association, Medical Group Practices in the US—A Survey of Practice Characteristics (1999 ed.) at 40. For this survey, a medical group practice is defined as: ''the provision of health care services by three or more physicians who are formally organized as a legal entity governed by physicians in which business, clinical and administrative facilities, records, and personnel are shared and the practice goals, objectives, and values are commonly defined. Income from medical services provided by the group are treated as receipts of the group and distributed according to some prearranged plan.'' Id. at 1.
(Footnote 89 return)
Id. at 43.
(Footnote 90 return)
Id. at 37 (emphasis added).
(Footnote 91 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); American Medical Group Association, Press Release (Aug. 28, 1996) (''The revised statements insightfully address current market developments which make it increasingly important for physicians to form clinically integrated groups in order to respond to demands by patients, employers, and health plans for high-quality health care, accountability, and value); Statement of the American College of Physicians (Aug. 28, 1996) (''New, flexible antitrust guidelines issued today by the Justice Department and the Federal Trade Commission will mean more competitive opportunities for new types of physician-run health plans.''); Grady, 1996 Revised Antitrust Policy Statements: Building a Bridge to Network Competition, 24 Health Law Digest 3 (Oct. 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 92 return)
American Medical Association, Physician Socioeconomic Statistics 1999–2000, at 146.
(Footnote 93 return)
Data are not available that shows the percentage of physician income by type of managed care arrangement, or by health plan, in various markets. The AMA survey estimates, however, that nonfederal physicians derive only 13.6% of their income from capitated contracts. Id. Moreover, the data suggest that a relatively small proportion of physicians account for much of this capitated income. The median nonfederal physician derives only 3% of his or her revenue from capitated contracts, while the physician at the 75th percentile derives 20% of his or her income from capitation.
(Footnote 94 return)
See, e.g., Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 201 (3d Cir.1992) (55% market share is insufficient to constitute monopoly power), cert. denied, 507 U.S. 921, 113 (1993); Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 489 (5th Cir.1984) (99% is enough, 60% is not likely to suffice, and 33% is insufficient) (citations omitted); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir.1981), cert. denied, 455 U.S. 921 (1982); United States v. Aluminum Co. of Am., 148 F.2d 416, 424 (2d Cir.1945) (in widely quoted dicta, Judge Learned Hand stated that while a 90% market share ''is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three percent is not'').
(Footnote 95 return)
Physician Socioeconomic Statistics 1999–2000 at 99. Figures do not add up due to rounding.
(Footnote 96 return)
Interstudy MSA Profiles, 1998. Includes point-of-service enrollees. ''Share'' is defined as enrollees as percentage of MSA population. The two exceptions, which still fall far below the monopsony threshold, are for (1) Pittsburgh, where Keystone Health Plan, a subsidiary of the Blue Cross of Western Pennsylvania, has a 38.9% share; and (2) San Francisco, where the Kaiser Health Plan has a 26.5% share.
(Footnote 97 return)
Interstudy: The InterStudy Edge: Managed Care: A Decade in Review, 1980–1990; Competitive Edge Part II: HMO Industry Report 8.2
(Footnote 98 return)
SMG Marketing Group: Managed Care Digest: PPO Edition, 1992 HMO–PPO/Medicare/ Medicaid Digest, 1998)
(Footnote 99 return)
J.C. Robinson, The Corporate Practice of Medicine (Berkeley: University of California Press, in press) at 93–94.
(Footnote 100 return)
Robinson at 136–37.
(Footnote 101 return)
R.L. Lowes, The Second-Generation IPA: Will It Save Independent Practice? Medical Economics (Aug. 11, 1997), available at www.pdr.net/memag.
(Footnote 102 return)
Id.
(Footnote 103 return)
Robinson at 97.
(Footnote 104 return)
American Oncology Resources, Press Release (Dec. 14, 1998), available at <www.aori.com/aboutaor/releases/default.htm>.
(Footnote 105 return)
The AMA recently released data on physician income for 1997 showing a 1.2% drop in median physician income to $164,000. However, average physician income rose to $199,600 while the average number of hours worked per week dropped to 57.9 from 58.5 in 1996. This is equal to a 1.3% increase in the average hourly rate of pay. M.C. Jaklevic, AMA: Docs Working Less, Modern Healthcare, May 24, 1999, at 2.
(Footnote 106 return)
Milliman & Robertson, 1998 HMO Intercompany Rate Survey (Sept. 28, 1998). (no page number available)
(Footnote 107 return)
''Health Care Cost Containment Act of 1985,'' S. 379, 99th Cong.
(Footnote 108 return)
Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211–17 (1979).
(Footnote 109 return)
See Royal Drug, 440 U.S. 205; Portland Retail Druggists Ass'n v. Kaiser Foundation Health Plan, 662 F.2d 641 (9th Cir. 1981) (holding that the McCarran-Ferguson Act provides no exemption from antitrust law for an insurance company's agreements with third parties that supply goods or services to policyholders).
(Footnote 110 return)
The NLRA was the first express federal embracement of the use of collective bargaining between labor organizations and employers (including multiemployer bargaining units) to resolve disputes regarding wages, hours, and other terms and conditions of employment. Congress's intent in passing the NLRA was to improve the unequal bargaining power of employees through the use of collective bargaining. 29 U.S.C. §151.
(Footnote 111 return)
The 1947 Taft-Hartley amendments to the NLRA included an amendment of Section 2(3) to expressly provide that the term ''employee'' does not include ''any individual having the status of an independent contractor.'' 29 U.S.C. §152(3) (1976). This amendment was directed at the Supreme Court's decision in NLRB v. Hearst Publications, Inc., 322 U.S. 111, 127 (1944), which affirmed a ruling of the NLRB that the term ''employee'' as used in the Act should be construed broadly so as to include independent contractors. The Court reasoned that inequality of bargaining power in controversies over wages, hours, and working conditions should control over technical distinctions between employee and independent contractor status. The House Report accompanying the amendment included a stinging rebuke to this decision:
(Footnote 112 return)
Columbia River Packers Ass'n v. Hinton, 315 U.S. 143 (1942). Accord, Los Angeles Meat & Provision Drivers Union, Local 626 v. United States, 371 U.S. 94 (1962); United States v. National Ass'n of Real Estate Bds., 339 U.S. 485 (1950); United States v. Women's Sportswear Mfg. Ass'n, 336 U.S. 460 (1949); American Med. Ass'n v. United States, 317 U.S. 519 (1943).
(Footnote 113 return)
E.g., NLRB v. United Ins. Co., 390 U.S. 254, 256 (1968) (common law standards of master-servant and agency status are controlling in distinguishing an employee from an independent contractor under the NLRA).
(Footnote 114 return)
AmeriHealth Inc./AmeriHealth HMO, United Food & Commercial Workers Union, Local 56, AFL–CIO, Case 4–RC–19260 (NLRB Region 4 May 2, 1999).
(Footnote 115 return)
See Hirschfeld, Provider Sponsored Organizations and Provider Service Networks—Rationale and Regulation, 22 Am. J.L. & Med. 263 (1999).
(Footnote 116 return)
Organizations involved in measuring the quality of health plans include the National Committee for Quality Assurance, the Joint Commission on the Accreditation of Healthcare Organizations, the Minnesota Health Data Institute, the California Collaborative Healthcare Reporting Initiative, and the New England HEDIS Coalition.
(Footnote 117 return)
Schering Laboratories, Schering Report XXI, America's Pharmacist (June 1999).
(Footnote 118 return)
See Experiences of Health Maintenance Organizations with Pharmacy Benefit Management Companies, HHS OIG Report, April 1997 (stating that HMOs report that the biggest benefit of using PBMs is their ability to help control prescription costs).
(Footnote 119 return)
Express Scripts Drug Trend Report, June 1999.
(Footnote 120 return)
Legislation has been proposed advocating PBM involvement in Medicare drug benefits as a way to provide prescription drug coverage to fee-for-service Medicare enrollees.
(Footnote 121 return)
In re Asociacion de Farmacias Region de Arecibo, (Network Inc., No. C–3855 (March 2, 1999) (WL, FATR FTC)).
(Footnote 122 return)
In re Institutional Pharmacy, (Network Inc., No. C–3822 (August 11, 1998) (WL, FATR FTC)).
(Footnote 123 return)
In re Baltimore Metropolitan Pharmaceutical Ass'n, Inc. (WL, FATR–FTC), 117 F.T.C. 95 (1994).
(Footnote 124 return)
In re Southeast Colorado Pharmacal Ass'n, 116 F.T.C. 51 (1993).
(Footnote 125 return)
In re Chain Pharmacy Ass'n of New York State, Inc., 114 F.T.C. 327 (1991).
(Footnote 126 return)
The FTC also obtained a consent decree against RxCare of Tennessee in 1996 for implementing a most-favored nation (''MFN'') clause that required members of RxCare that accepted a reimbursement rate lower than the RxCare rate to demand the lower reimbursement rate for all its RxCare business. In re RxCare of Tennessee, Inc. 121 F.T.C. 762 (1996). Because RxCare's business constituted such a large percentage of the pharmacies' third-party business, the clause made it very expensive for pharmacies to discount their reimbursement rates to other payers. Consequently, they rarely did so. In effect, this MFN clause created a price floor for pharmaceutical reimbursements in Tennessee.
(Footnote 127 return)
440 U.S. 205 (1979).
(Footnote 128 return)
Id. at 211.
(Footnote 129 return)
Id. at 224 (citations omitted).
(Footnote 130 return)
662 F. 2d 641 (9th Cir. 1981).
(Footnote 131 return)
Statements of Antitrust Enforcement Policy in Health Care, 4 Trade Reg. Rep. (CCH) 13,153 (August 28, 1996) (''Health Care Statements'').
(Footnote 132 return)
Absent extraordinary circumstances, the antitrust authorities will not challenge such an information exchange if the exchange is managed by a third party; the information provided is based on data more than three months old; and there are at least five providers of information of which no one provider's data accounts for more than 25% on a weighted basis and the data is aggregated such that it would not allow participants to identify prices. Id. at 20,811, Health Care Statement 6(A).
(Footnote 133 return)
Absent extraordinary circumstances, the antitrust agencies will not challenge any joint purchasing arrangement in which ''the purchases account for less than 35% of the total sales of the purchased product or service in the relevant market'' and in which the cost of the jointly purchased item ''accounts for less than 20% of the total revenues from all products or services sold by each competing participant in the joint purchasing arrangement.'' Id. at 20,812, Health Care Statement 7(A).
(Footnote 134 return)
According to the Health Care Statements, ''multiprovider networks will be evaluated under the rule of reason, and will not be viewed as per se illegal, if the providers' integration through the network is likely to produce significant efficiencies that benefit consumers, and any price agreements (or other agreements that would otherwise be illegal) by the network providers are reasonably necessary to realize these efficiencies.'' Id. at 20, 826, Health Care Statement 9(A).
(Footnote 135 return)
Orange Pharmacy Equitable Network, FTC Advisory Opinion, (May 19, 1999). ''http://www.ftc.gov/bc/adops/operadop.htm''.
(Footnote 136 return)
Id. at 5.
(Footnote 137 return)
New Jersey Pharmacists Ass'n, FTC Advisory Opinion (Aug. 12, 1997). ''http://www.ftc.gov/os/1997/9708/newjerad.htm''.
(Footnote 138 return)
American Medical Association v. United States, 317 U.S. 519 (1943).
(Footnote 139 return)
See American Medical Association, 94 F.T.C. 701 (1979), affd 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).
(Footnote 140 return)
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).
(Footnote 141 return)
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).
(Footnote 142 return)
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).
(Footnote 143 return)
See Indiana Federation of Dentists v. FTC, 476 U.S. 447 (1986).
(Footnote 144 return)
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).
(Footnote 145 return)
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 hospitals 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 Assn, Inc., 63 Fed. Reg. 9549 (Feb 25, 1998); M.D. Physicians of Southwest Louisiana, Inc., 63 Fed. Reg. 34423 (June 24, 1998).
(Footnote 146 return)
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.
(Footnote 147 return)
Re: AmeriHealth HMO Inc./AmeriHealth HMO and United Food & Commercial Workers Union, Local 56, AFL–CIO, No. 4–RC–19260.
(Footnote 148 return)
United States of America v. Federation of Physicians and Dentists, Inc., Civil Action No. 98–475 (Aug. 12, 1998).
(Footnote 149 return)
Mesa County Physicians Independent Practice Association, Inc., 63 Federal Register 9549 (Feb. 25, 1998).
(Footnote 150 return)
North Lake Tahoe Medical Group, Inc., 64 Federal Register 14730 (March 26, 1999).
(Footnote 151 return)
FTC v. College of Physicians-Surgeons of Puerto Rico, Civil No. 97–2466 HL (D.P.R. Oct. 2, 1997).
(Footnote 152 return)
Trauma Associates of North Broward, Inc., 118 F.T.C. 1130 (1994).
(Footnote 153 return)
See, e.g., Arizona v. Maricopa County Med. Socy, 457 U.S. 332 (1982); FTC. v. Indiana Fedn of Dentists, 476 U.S. 447 (1986).
(Footnote 154 return)
The average annual revenue per physician in 1997 for doctors in the East North Central Region (the AMA reports data on each of the nine Census regions) is $412,000. This number was derived by adding the mean professional expenses per self-employed physician (Table 26) to the net income after expenses before taxes (Table 36). American Medical Association, Physician Socioeconomic Statistics, 1999–2000 Edition.
(Footnote 155 return)
U.S. Department of Commerce Bureau of the Census, Statistical Abstract of the United States, 1998.
(Footnote 156 return)
Center for Healthcare Information and The IPA Association of America, 1998 Directory of Physician Groups and Networks.
(Footnote 157 return)
Center for Health Policy Research, American Medical Association, ''Socioeconomic Characteristics of Medical Practice 1997/98'' 1998. Also, AMA's Physician Socioeconomic Statistics, 1999–2000.
(Footnote 158 return)
Source: Levitt L & Lundy J, Trends and Indicators in the Changing Health Care Marketplace, Henry J. Kaiser Family Foundation (Aug. 1998), p. 65.
(Footnote 159 return)
In 1997, Robert H. Miller and Harold S. Luft, two health services researchers, updated their 1994 report of peer-reviewed or federal government research studies on managed care. Their study found that for 18 of 24 indicators of quality of care, HMO care was as good as or better than care provided in other settings. Building on their earlier research, the new report focused on 15 studies published between late 1993 and early 1997. One of the 15 studies reviewed was the source of several negative findings.
(Footnote 160 return)
E. Ladd, op.ed., ''Health Care Hysteria, Part II,'' New York Times, July 23, 1998
(Footnote 161 return)
K. Bowman, ''Health Care Attitudes Today,'' American Enterprise Institute, 1998
(Footnote 162 return)
''Annual Report to Congress,'' Physician Payment Review Commission (1995).
(Footnote 163 return)
Statements of Antitrust Enforcement Policy in The Health Care Area, U.S. Department of Justice and the Federal Trade Commission (August, 1996).
(Footnote 164 return)
Testimony of the Chairman of the Federal Trade Commission, July 29, 1998. (http://www.ftc.gov/os/1998/9807/camptest.htm).