LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

JUNE 22, 1999, TUESDAY

SECTION: IN THE NEWS

LENGTH: 4536 words

HEADLINE: PREPARED STATEMENT OF
DONALD A. YOUNG, M.D.,
CHIEF OPERATING OFFICER AND MEDICAL DIRECTOR
HEALTH INSURANCE ASSOCIATION OF AMERICA
BEFORE THE HOUSE JUDICIARY COMMITTEE
SUBJECT - ANTITRUST WAIVERS FOR PHYSICIANS

BODY:

Introduction
(NOTE: Charts not transmittable) 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."
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.
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, l Employer Premiums: Dramatic Fall in Rate of Increase
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.
Growth in Managed Care (percent of population)
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.2
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 (DO J) 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.3 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 1996.4 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.
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,s 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."6 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
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."7 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.8 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.
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.9 Yet, under H.R. 1304, these actions would be legal, and could well become a standard practice in many areas of the country.
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 mason 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."10 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.
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."ll 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.
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.12 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.
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.
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- forservice 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.
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 McCarranFerguson 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 consumerschoice, quality, and affordability. The justification for the proposed antitrust immunity overlooks three critical factors:
-- 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. FOOTNOTES:
1 P. Ginsburg & J. Pickreign, "Tracking Health Care Costs: An Update" Health Affairs 16, July/August 1997.
2 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.
3 Levitt L & Lundy J, Trends and Indicators in the Changing Health Care Marketplace, Henry J. Kaiser Family Foundation (Aug. 1998) p. 65.
4 Mary Chris Jaklevic, AMA: Docs Working less, Study shows physicians earn a little more, put in fewer hour, Modern Healthcare, May. 24, 1999, at 2.
5 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. 6 H.R. 1304, 106th Cong. (1999).
7 H.R. 1304, 106th Cong. ()2 (4) (1999).
8 American Oncology Resources, Press Release (Dec. 14, 1998), available at www.aori.com.
9 United States v. Federation of Certified Surgeons and Specialists, Inc. and Pershing Noakley & 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).
10 Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in ealth Care, Section 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).
11 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).
12 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.)
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