LEXIS-NEXIS® Congressional Universe-Document
LEXIS-NEXIS® Congressional
Copyright 1999
Federal News Service, Inc.
Federal News Service
JUNE 22, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH: 3885 words
HEADLINE: PREPARED STATEMENT BY
JOEL I. KLEIN
ASSISTANT ATTORNEY GENERAL
ANTITRUST DIVISION
U.S. DEPARTMENT OF JUSTICE
BEFORE THE
HOUSE JUDICIARY COMMITTEE
SUBJECT - H.R. 1304,
THE QUALITY HEALTH-CARE COALITION ACT OF 1999
BODY:
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.
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.
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.
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.
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.
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. Sections 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.
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.
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.
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.
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.
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").
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.
END
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