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35–140 PDF 2007

S. HRG. 109–882

EXAMINING COMPETITION IN GROUP HEALTH

CARE

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 6, 2006

Serial No. J–109–106

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MICHAEL O’NEILL, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma ........................ 2

Durbin, Hon. Richard J., a U.S. Senator from the State of Illinois .................... 16

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 86

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 1

WITNESSES 

Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga Faculty 

Scholar, College of Law, University of Illinois at Urbana-Champaign, 

Champaign, Illinois .............................................................................................. 14

Kanwit, Stephanie W., Special Counsel, America’s Health Insurance Plans, 

Washington, D.C. ................................................................................................. 13

Langston, Edward L., Chair-Elect, Board of Trustees, American Medical Association, Chicago, Illinois ...................................................................................... 11

McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust Division, 

Department of Justice, Washington, D.C. .......................................................... 5

Piasio, Mark A., President, Pennsylvania Medical Society, Harrisburg, Pennsylvania ................................................................................................................. 9

Wales, David P., Deputy Director, Bureau of Competition, Federal Trade 

Commission, Washington, D.C., .......................................................................... 7

QUESTIONS AND ANSWERS 

Responses of David A. Hyman to questions submitted by Senators Schumer 

and Specter ........................................................................................................... 24

Responses of Stephanie W. Kanwit to questions submitted by Senator Specter .......................................................................................................................... 28

Responses of Edward L. Langston to questions submitted by Senator Specter . 37

Responses of J. Bruce McDonald to questions submitted by Senators Schumer 

and Specter ........................................................................................................... 41

Responses of Mark Piasio to questions submitted by Senator Specter ............... 45

Responses of David P., Wales to questions submitted by Senators Schumer 

and Specter ........................................................................................................... 51

SUBMISSIONS FOR THE RECORD 

Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga Faculty 

Scholar, College of Law, University of Illinois at Urbana-Champaign, 

Champaign, Illinois, prepared statement ........................................................... 55

Kanwit, Stephanie W., Special Counsel, America’s Health Insurance Plans, 

Washington, D.C., prepared statement .............................................................. 63

Langston, Edward L., Chair-Elect, Board of Trustees, American Medical Association, Chicago, Illinois, prepared statement ................................................... 74

McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust Division, 

Department of Justice, Washington, D.C., prepared statement ...................... 88

Piasio, Mark A., President, Pennsylvania Medical Society, Harrisburg, Pennsylvania, prepared statement .............................................................................. 99

Wales, David P., Deputy Director, Bureau of Competition, Federal Trade 

Commission, Washington, D.C., prepared statement ........................................ 101

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EXAMINING COMPETITION IN GROUP 

HEALTH CARE 

WEDNESDAY, SEPTEMBER 6, 2006 

UNITED STATES SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC 

The Committee met, pursuant to notice, at 11:02 a.m., in room 

226, Dirksen Senate Office Building, Hon. Arlen Specter, Chairman 

of the Committee, presiding. 

Present: Senators Coburn and Durbin. 

OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. 

SENATOR FROM THE STATE OF PENNSYLVANIA 

Chairman SPECTER. Good morning, ladies and gentlemen. The 

Judiciary Committee will now proceed with our hearing on Examining Competition in Group Health Care. 

The concern has arisen because there has been concentration of 

coverage by the health insurance industry and significant issues as 

to what the doctors may do by way of joint action without violating 

the antitrust laws. 

We have seen a very substantial rise in health care costs. Some 

contend that the absence of the ability of physicians to negotiate 

with group health insurers is a significant factor leading to that 

rise. 

We have had a considerable number of requests for an analysis 

by the Judiciary Committee on the antitrust aspects. In 2004, I 

convened a hearing in Philadelphia on the issue of the balance of 

negotiating power. This hearing of the full Committee is being held 

to pursue those issues further. 

Our first witness could sit on either side of the dais today. Senator Tom Coburn has brought a level of expertise to the Committee 

on medical issues. He is very heavily involved in many, many of 

the complex questions which have come before the committee, most 

particularly in the asbestos field. 

Senator Coburn has had over 20 years of practicing medicine in 

Muscogee, specializing in family medicine, obstetrics, and the treatment of allergies. He has a medical degree from the University of 

Oklahoma. He has served three terms in the House of Representatives. 

We welcome you, Senator Coburn, Dr. Coburn, Witness Coburn. 

The floor is yours. 

2

STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM 

THE STATE OF OKLAHOMA 

Senator COBURN. Thank you, Mr. Chairman. I appreciate you 

having this hearing. I am going to be rather brief this morning. 

First of all, I can strongly identify with the physicians who are 

impacted by the market as we see it today and, I think, some insight into the frustration that is out there. 

I do not necessarily agree that the answer of collective bargaining or forming is the answer to our health care problems, and 

let me explain that. But let me, first, also say how frustrating it 

is as a group of physicians to be in a box in terms of what you can 

charge. 

Over 50 percent of our practice was Medicaid and Medicare, 

which means the remaining 50 percent is open to negotiation. Of 

that, 80 percent of that is fixed price, based on the fact that the 

only game in town is controlled by two or three groups of insurers. 

That is significant in terms of any pricing flexibility. What you 

see as you look at physician practices, is rising expenses and lower 

revenues. At the same time, we are seeing health care costs go up, 

so something is wrong somewhere. Is there really a market out 

there? I would question that there is not really a market in health 

care in our country. 

The second point I would make, is it not just about pricing, because the implied pricing comes along with rules and guidelines 

from the insurance companies that add significant costs to the individual practice or group practice in terms of following the rules and 

regulations, the permissions, the approvals, and the time costs associated with meeting the guidelines to be able to service a patient 

who is represented by a certain insurance group or company. 

But more generally, I think we are fixing the wrong problem. I 

think we are tinkering around the edges with a problem on health 

care in our country, and I think if we continue to do it, we are 

going to get more of the same. It is like a balloon; you push in 

somewhere and it gets a bigger overall diameter because you 

pushed in somewhere. I do not think we can fix that. 

I think we ought to ask ourselves the question, why is it that 

this Nation spends 16.2 percent of its GDP on health care, and yet 

we are not significantly healthier than anybody else, or countries 

that spend significantly less? 

The average of the western world is less than 10 percent. So we 

are spending 50 percent more than the rest of the world, and yet 

we are not achieving a greater level of health care than the rest 

of the world. Some of those are free market, some of those are government controlled, and they control costs by rationing. So, I do not 

believe that is the answer either. 

But fixing the problem, is creating a real market for health care. 

We have done it in every other area of our country. Every other 

area that we are extremely successful in, we have allowed the market to allocate resources. 

When I am talking about a market, I am talking about a transparent, consumer-driven health care market where every person 

who is a consumer has skin in the game, where the tax benefit, 

where everybody who has health insurance, it is their health insurVerDate 0ct 09 2002 12:38 May 09, 2007 Jkt 035140 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35140.TXT SJUD1 PsN: CMORC
3

ance, it is not their employer’s, where they own their health insurance and where they go, fixing it. 

One of the things that I have noticed, is the specific case where 

the Department of Justice utilizes a 30 percent rule in terms of impact of group health insurance that did not really fit. The reason 

it does not really fit is because most practices have a large percentage of their income already fixed through Medicare and Medicaid. 

So if you look at 30 percent of the market, you automatically cut 

out the 50 percent that the government controls. What you are 

really talking about is 60 percent of any individual physician’s or 

group practices’ income is controlled if you use 30 percent. So, I 

think that rule is erroneous. I saw the basis for how they came up 

with it. 

I think the other important point that we miss, even though we 

have this big problem in terms of balance in what we call a market 

today, is the fact that there really is no leverage for physicians in 

terms of quality. 

All you have to do is go and look at who all the large insurance 

groups contract with. They all say ‘‘board certified,’’ but the bad 

physicians are getting paid the same as the good physicians. 

So we do not have a market that says we are going to reward 

the best and we are going to disincentivize the worst. What we 

have is a fixed-price oligopoly in the health insurance market today 

that the physicians are frustrated with because they have no pricing leverage. 

So I understand and identify with it, but I do not think fixing 

that problem by giving them more leverage in a false market will 

solve our greater problem. 

As you know, Mr. Chairman, I have talked a long time about the 

unsustainability of our health care problems within the Federal 

Government in terms of the demographic shifts of Medicare and 

what is going to happen there, and in terms of the shifts in terms 

of health risk, especially obesity and diabetes, where we look at 

2070 and 50 percent of every dollar spent on health care by the 

government will be spent on diabetes alone. I mean, this is a much 

larger problem. So, I am going to maintain myself on the dais 

today to hear the testimony. 

But I think the more important question we ought to be asked 

is, how do we convert this one out of every three dollars that really 

is not given as health care to covering everybody in the country 

and making sure we spend money on prevention, and we truly create a transparent, consumer-driven health care system where markets actually allocate the scarce resources, where markets actually 

reward quality and punish poor quality, where markets reward innovation and punish duplication and waste? We do not have that. 

Until we get that right in our country, working around the edges 

by giving pricing power to physicians may solve some of the shortterm frustrations, but it will lead to increased costs—there is no 

doubt in mind that it will—and we will not solve the underlying 

problem that we have. 

I would just make one point on that. And I am not picking on 

this particular thing. I had my staff pull all of the 10(k)s of all of 

the major insurers. It is interesting. 

4

I am just going to use one, United Health Group. This is their 

10(k) for last year. Twenty-two percent of the dollars that they took 

in did not go anywhere to help anybody get well. Now, that is one 

out of five. The national average is one out of three. 

But here is a very profitable insurance company. If you look at 

their 10(k), 22.5 percent of every dollar that they took in did not 

go to help anybody to get well. And I am not against profit. I am 

all for profits. 

But the point is, we have this fixed system that is not truly a 

market, and we are taking a lot of dollars out of the market and 

we have 16.2 percent of our GDP that we are spending on health 

care, and yet a third of that is not really going to health care. 

So, fixing the problem around the edges I do not believe will ultimately solve the problem, and I am grateful that you are having 

this hearing. I agree with a lot about what the AMA says about 

this, and several others, but I do not think it is a solution to the 

problem. I think it is another fix in a bureaucratic maze that will 

relieve some tension, but will not ultimately fix the problem. 

With that, I will end my testimony. 

Chairman SPECTER. Well, thank you, Senator Coburn. 

Do you have any suggestion as to how we reward the good physicians and treat the physicians who are not good, at a lower end of 

the financial scale? 

Senator COBURN. Yes, sir, I do. I believe a market will do that, 

but you have to have transparency in it. You have to have price 

transparency that the President has asked for in terms of hospitals. There ought to be price transparency in terms of doctors. 

There ought to be outcome transparency. It ought to be weighted 

on the mix of patients that doctors see. 

Performance ought to count in health care as much or more than 

anywhere else that we see in our country. The problem with a lot 

of the stuff that CMS is doing, is the best physicians get, routinely, 

our toughest patients. 

I will give you examples. When I have very complicated obstetrical patients, the worst and the toughest I send to the one I trust 

the most. Well, if you measure his outcomes, his outcomes are 

going to be skewed because he has got all the tough patients. So 

how we measure outcomes becomes important. 

But if you have transparency in a market where you know price 

and quality, and consumers get to choose rather than have an advocate who controls for them on the basis of profitability, not on 

the basis of quality—and as I said earlier, most physicians who are 

signed up with these insurance companies are board certified, but 

they are not all the best and they are not all the worst. 

But we have a system that rewards them each the same. We 

ought to have a transparent system that says the best physicians 

are going to make more and the worst physicians are either going 

to get out or get better training. 

Chairman SPECTER. Senator Coburn, in the written testimony 

the AMA urges Congress to require health insurers to publicly report additional enrollment and financial data. Do you think such 

reporting requirements will be helpful? 

Senator COBURN. Well, I am not sure that it would be helpful or 

hurtful, because I do not think it solves the market problem. You 

5

have got an agent for patients and you have got an intermediary 

between the patient and the provider. Their goal is not health care, 

it is profit. 

I believe, whether they report that or not, what it ought to come 

down to is, what are the outcomes of the patients that are under 

their insurance? Do they fare better than under another insurance 

company? 

In other words, we ought to look at outcomes and price, not enrollment. We ought to see what the outcomes are. We do that in 

every other area except health care and education in this country. 

We are failing in education in K-12 in this country because we 

do not allocate dollars based on outcome and quality. We allocate 

dollars based on people. That is what we are trying to do in health 

care. If we change it, the innovation will be unbelievable, what will 

be happening with this excess amount of our GDP. We will markedly improve health care and we will markedly cut the cost. 

Chairman SPECTER. Thank you very much, Senator Coburn. 

There are quite a number of other items that you and I could discuss, but we have some time constraints. After we scheduled this 

hearing, the Majority Leader announced a vote at 12:00. So, we are 

going to move to our second panel. 

Senator COBURN. Thank you. 

Chairman SPECTER. I would invite you to join us in your customary seat on the dais. 

We turn, first, to Deputy Assistant Attorney General Bruce 

McDonald, who has a portfolio which includes regulated industries. 

He was previously at Baker Botts, where he practiced in the Antitrust Group, and before that he had antitrust experience with 

Jones Day. He has a bachelor’s degree and a law degree with honors from the University of Texas. 

Thank you for joining us, Mr. McDonald. We look forward to your 

testimony. 

We have the clock set at 5 minutes, which is our customary time. 

We are going to have to stick very closely to the time limits because we are going to have to conclude this hearing shortly after 

12:00 noon. 

STATEMENT OF J. BRUCE MCDONALD, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF 

JUSTICE, WASHINGTON, DC 

Mr. MCDONALD. Mr. Chairman, Senator Coburn, thank you for 

the invitation to testify. 

Every American knows the importance of affordable health care. 

For the DOJ Antitrust Division, that means working to ensure that 

health care markets are able to respond to consumer demand without interference from anticompetitive restraints. We use both enforcement actions and competition advocacy to protect and promote 

competition in health care markets. 

Most of us rely on private health insurance to defray the cost of 

health care, and most of us are members of a group health plan. 

The group health care plan model involves transactions among several parties. 

Individuals and families receive health care coverage through 

their employment or membership in an association. The employer 

6

or association contracts with a group health plan, an insurer, to 

provide coverage for the members of the group. 

Physicians, pharmacists, nurses, hospitals, equipment manufacturers, and other health care providers supply services and products to the insureds and receive payment from the insurer. 

By joining together larger numbers of potential patients, group 

health plans obtain services and products on behalf of the subscribers at lower cost. Participating health care providers offering 

good quality and competitive rates are able to increase the number 

of patients they serve. 

At any point in these arrangements, an anti- competitive restraint can interfere with competitive access or supply, ultimately 

harming consumers. If competing providers were to conspire to 

charge artificially high prices, for example, health plans could be 

forced to raise premiums or curtail service, restricting patient access to affordable health care. 

Similarly, if competing health plans were to conspire to pay artificially low prices or engage in exclusionary conduct designed to obtain or maintain market power, then providers could be forced to 

curtail service or go out of business, restricting patient access to affordable health care. 

The Department has brought enforcement actions to enjoin unlawful arrangements by, for example, insurance plans that impose 

anticompetitive agreements on providers, or providers that form 

group boycotts to obtain higher fees. 

In addition to looking for anticompetitive conduct, the Department examines proposed mergers among hospitals, health plans, or 

provider groups that could reduce competition, restrict access and 

consumer choice, and dampen healthy incentives to provide quality 

health care at affordable prices. 

The Department has brought actions to challenge mergers that 

lessen competition in health care markets, including mergers between insurance companies, and between medical equipment manufacturers. 

In a competition advocacy role, the Department provides technical assistance advice to State regulators on how to avoid regulations that undercut competitive markets. 

In 2003, the DOJ and FTC held lengthy hearings on competition 

in health care, after which we issued a report describing our findings. Some of my fellow panelists testified at those hearings. The 

report’s recommendations reflect the fundamental antitrust principal that consumer welfare is best served by the operation of free 

and competitive markets. 

Mr. Chairman, the Antitrust Division fully recognizes the critical 

important of a competitive health care marketplace to all Americans. We are committed to preserving competition in this marketplace through appropriate antitrust enforcement, and we will continue to monitor these markets closely. 

Thank you for the opportunity to testify. I am happy to answer 

any questions. 

[The prepared statement of Mr. McDonald appears as a submission for the record.] 

Chairman SPECTER. Thank you very much, Mr. McDonald. 

7

Our next witness is Mr. David Wales, Deputy Director of the 

Federal Trade Commission’s Bureau of Competition. Previously, he 

was a partner of the Antitrust Group at Kedwalter, Wickersham & 

Taft. He also served as counsel to the Assistant Attorney General 

in the Antitrust Division of the Justice Department. He has an undergraduate degree from Penn State and a law degree from Syracuse. 

Thank you for coming in today, Mr. Wales. The floor is yours. 

STATEMENT OF DAVID P. WALES, DEPUTY DIRECTOR, BUREAU 

OF COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Mr. WALES. Good morning, Mr. Chairman and Dr. Coburn. I appreciate the opportunity to appear today to discuss some of the 

Commission’s activities to promote competition in health care markets. 

Let me first start by saying that my oral presentation responses 

today are my own and do not necessarily reflect the views of the 

Commission or of any Commissioner. 

The FTC has long been actively involved in health care markets 

and health care continues to be a high priority for the Commission. 

The Agency’s fundamental goal has not changed: to ensure that 

health care markets operate competitively. 

As in the past, the Agency will bring enforcement actions where 

necessary to stop activities that harm consumers by unreasonably 

restricting competition. At the same time, the FTC is not solely a 

vigilant cop on the beat out to protect consumers from anti-competitive conduct. 

The Agency works to promote competition through a variety of 

other actions as well, including providing guidance to market participants to help them comply with the law, undertaking and publishing studies, public hearings and reports, and advising State and 

Federal policymakers on competition issues in health care. 

Indeed, education explaining antitrust policy to the industry and 

the public, is a key part of our mission. There is a good deal of misapprehension and misinformation about the application of the antitrust laws to the health care marketplace and the FTC activities 

and policies in this area. 

The Agency works hard to keep the lines of communication open 

and our guidance up to date as markets evolve, and to provide additional guidance as new market structures and new forms of competition develop. 

As part of its law enforcement role for the past 25 years, the 

Commission has challenged naked price fixing agreements and coercive boycotts by physicians in their dealings with health plans. 

These arrangements largely consist of otherwise competing physicians jointly setting their prices and collectively agreeing to withhold their services if health care payors do not meet their fee demands. 

Such conduct is considered to be, per se, unlawful because it 

harms competition and consumers. Indeed, the anti-competitive effect from this conduct is not simply felt by health plans who are 

forced to pay more to the physicians. It extends to consumers, employers, and governments at the Federal, State, and local levels. 

8

The effects include higher prices for health insurance coverage, 

increased out-of-pocket expenses such as co-payments, reduced benefits, fewer choices, and even loss of coverage. 

Not all joint conduct by physicians, however, is improper. Physician network joint ventures can yield impressive efficiencies. Thus, 

the FTC committed long ago, using a balancing test called the 

‘‘Rule of Reason’’ to evaluate those physician network joint ventures that involved significant potential for creating efficiencies 

through integration. 

Physician joint ventures involving price agreements can avoid 

summary condemnation and merit the balancing analysis if: 1) the 

physician’s integration is likely to produce significant efficiencies 

that benefit consumers; and 2) any price agreements are reasonably necessary to realize those efficiencies. 

In this context, it is important to emphasize that collective setting of prices in negotiation with health plans by physicians does 

not assure quality health care, and there is no inherent inconsistency between vigorous competition and the delivery of high-quality 

health care services. 

Theory and practice confirm that just the opposite is true. When 

vigorous competition occurs, consumer welfare is increased in 

health care, as in other sectors of the economy. 

As noted above, however, it is also important to remember that 

much joint conduct by physicians can be pro-competitive, and that 

neither the antitrust laws nor the enforcement agency is treated as 

an antitrust violation. 

As pressures to control health care costs continue and assure 

quality continues, there has been increasing effort in encouraging 

efforts to achieve the efficiencies that can come through cooperation 

and collaboration. 

Practically every week FTC staff hear about new forms of collaborative arrangements in the health care field involving various 

combinations of providers, insurers, and other purchasers. 

Although these cooperative efforts often involve factually novel 

arrangements, antitrust analysis is sufficiently flexible to distinguish innovative, pro-competitive market responses from collective 

efforts to resist competition. 

The FTC supports initiatives to enhance quality of care, reduce 

or control escalating health care costs, and ensure the free flow of 

information in health care markets because such initiatives benefit 

consumers. 

The Commission has no preexisting preference for any particular 

model for the financing and delivery of health care. Such matters 

are best left to the marketplace. The FTC’s role is important, but 

limited to protecting the market from anti-competitive conduct that 

prevents it from responding freely to the demands of consumers. 

The dynamics of evolving health care markets continue to pose 

challenges for market participants. The FTC is committed to working with physicians and other providers to give them guidance to 

avoid antitrust pitfalls as they respond to market challenges. 

At the same time, collective action by health care providers to obstruct new models for providing or paying for care, or to interfere 

with cost-conscious purchasing remains a significant threat to conVerDate 0ct 09 2002 12:38 May 09, 2007 Jkt 035140 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35140.TXT SJUD1 PsN: CMORC
9

sumers and the Commission will continue to protect consumers 

from such conduct. Thank you. 

[The prepared statement of Mr. Wales appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Mr. Wales. 

Our next witness is Dr. Mark Piasio, president of the Pennsylvania Medical Society. He practices in DuBois, a relatively small 

community, and is chief of the Department of Surgery at the 

DuBois Regional Medical Center. 

He has his bachelor’s degree from Johns Hopkins University, a 

master’s in Psychology, and M.D. from Georgetown University. 

We appreciate your coming down today, Dr. Piasio, and we look 

forward to your testimony. 

STATEMENT OF MARK A. PIASIO, PRESIDENT, PENNSYLVANIA 

MEDICAL SOCIETY, HARRISBURG, PENNSYLVANIA 

Dr. PIASIO. Thank you, and good morning, Mr. Chairman and 

members of the committee. 

My name is Mark Piasio. I am an orthopedic surgeon practicing 

in Dubois, Pennsylvania, and president of the Pennsylvania Medical Society. 

First, let me thank you for allowing me to speak with you this 

morning to examine competition in group health care. I would like 

to make it clear that our testimony is not intended as a corporate 

or personal attack on any of the market participants and the people who work for them; each of them is doing what they think is 

best. However, each is doing what comes naturally in failed markets. 

This, we believe, is the fundamental cause of a host of problems 

and calls for extensive public policy analysis and response. 

The lack of competition among health insurers and health delivery markets throughout the country and in Pennsylvania, as well 

as the consolidation of health insurers across the Nation, raises serious concerns for provision of quality patient care. 

As patient advocates, physicians are often undermined by market-dominant insurers and prevented from providing necessary 

care through ‘‘take-it-or-leave-it’’ contracts and other insurer-imposed cost-cutting mechanisms. 

These dysfunctional markets have produced annual double-digit 

health insurance premium increases, physician fee schedules that 

are unilaterally imposed, and have provided stagnant or declining 

compensation and substantial profit levels for health insurers. 

In short, market consolidation is also detrimental to consumers 

from a financial perspective. While many large Pennsylvania insurers are posting huge profits and surplus reserves, premiums continue to skyrocket. Pennsylvania has some of the highest premiums 

in the Nation and patient cost sharing increases. 

Physician payment, particularly in the Philadelphia market, continues to lag behind other geographic markets. For example, evaluation & management services, in some cases, are paying at 65 

percent of the comparable Medicare rate. 

In the meantime, operating costs increased. From 2000 to 2004, 

Pennsylvania health insurers increased premiums 40 percent per 

10

enrollee, nearly double the U.S. average, while insurers’ surplus reserves rose from $5 billion to $6.8 billion. 

Total annual profits of Pennsylvania health insurers increased from $468 million in 2000 to $621 million in 2004. Overhead and 

profit percentages of Pennsylvania health insurers increased, despite the fact that much of the revenue increase was pure price 

level change. 

One of the classic hallmarks of a firm with monopoly power is 

the erosion of administrative efficiency. There is no evidence that 

larger health insurers are more efficient. To the contrary, published studies show that health insurers exhaust their economies 

of scale at 100,000 to 150,000 enrollees. Insurers with 1, 2, 4, or 

5 million enrollees are not any more efficient and may in fact be 

more inefficient than smaller ones. 

So why are these dysfunctional markets not the subject of an 

antitrust investigation? The Sherman Act has two provisions that 

would appear to apply: prohibitions of 1) monopolization; and 2) 

contracts, combinations, and conspiracies in restraint of trade. 

To prove monopolization or monopsonization, it is necessary to 

show that a firm has a dominant market share and has engaged 

in prohibited conduct. The dominant share test is met here. 

The question is whether there is prohibited conduct. Conduct 

that might fall into this category includes: monopoly rents, diseconomies of scale, predatory pricing, product tie-ins, various contract provisions, including the combination of all products and most 

favored payor terms in the 75 percent rule. 

Contracts, combinations and conspiracies in restraint of trade are 

evaluated under per se and Rule of Reason standards. There are 

four substantial Blue Cross firms that operate in Pennsylvania. 

Only Independence offers products in the Philadelphia region. 

We understand that this is due to a Division of Markets Agreement and a non-competition agreement at the national level. If this 

is the case, the full ramifications of the agreement bear investigating. 

There are, perhaps, reasonable arguments that the way southeast Pennsylvania markets are organized and operate does not violate antitrust law. We ask whether, as a matter of public policy, 

good medical care and sound economics, such organizations’ operation is a public good. If the conclusion is that it is not, then 

changes in the antitrust law that restore competitive balance are 

warranted. 

The AMA each year conducts a study looking at the competitive 

markets in the United States and health care. The HerfindahlHirschman Index for the national geographic markets is evaluated 

and 1,800 is considered ‘‘highly concentrated’’. The Philadelphia 

MSA area is approaching 6,000, four times the HHI indicator of little competition. 

Entry into health care insurance markets is not easy. If it were 

easy, much more competition would exist. In large markets such as 

Philadelphia, entry is difficult even for larger players such as 

United. 

As I see my time running short, what we are going to ask at this 

point in time is, there are several options that one can use to address failed markets. 

11

We feel, in Pennsylvania, our markets are failing. Profits are increasing and compensation to physicians and hospitals is declining, 

who are bearing the full brunt of the cost drivers that are occurring 

in our health care marketplace. 

We are asking, since health care is an extremely difficult commodity to measure with respect to a competitive market and countervailing power theories are debatable, we are asking the Department of Justice to look a little bit closer at the markets in Pennsylvania at least, and probably nationally as well, to be sure that competition is providing for good patient service and affordable health 

care for our businesses. Thank you. 

[The prepared statement of Dr. Piasio appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Dr. Piasio. 

We now turn to Dr. Edward Langston, a family practitioner in 

LaFayette, Indiana. He serves on the AMA’s Board of Trustees and 

will chair the board in 2007 and in 2008. 

He has a medical degree from Indiana University, and has bachelor’s degree in Pharmacy from Perdue. As a pharmacist, he also 

serves as Assistant Professor at Perdue’s School of Pharmacy. 

Thank you for being with us today, Dr. Langston. We look forward to your testimony. 

STATEMENT OF EDWARD L. LANGSTON, CHAIR-ELECT, BOARD 

OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION, CHICAGO, ILLINOIS 

Dr. LANGSTON. Well, thank you very much, Mr. Chairman, and 

other members of the Senate Judiciary Committee. 

My name is Edward Langston. I am a member of the Board of 

Trustees of the American Medical Association, and I do practice 

family and geriatric medicine in LaFayette, Indiana. 

I want to thank you for inviting me to testify today, and for holding a hearing on this important subject, competition in group 

health care. 

The AMA has been cautioning about long-term negative consequences of aggressive consolidation of health insurers for quite 

some time. We have watched with growing concern as large health 

plans pursue aggressive consolidation and we fear that this rapid 

consolidation will lead to a health care system dominated by a few 

publicly traded companies that operate in the interest of shareholders rather than patients. 

The AMA’s competition study suggests that our worst fears are 

being realized. Competition has been significantly undermined in 

the majority of markets across the country. 

AMA’s study is the largest and most comprehensive study of its 

kind. It has analyzed 294 metropolitan health insurance markets 

against an index used by Federal regulators for measuring market 

concentration. According to the Federal index, markets that are 

highly concentrated have a few competing health insurers. 

I would like to highlight a few of those numbers to illustrate our 

concern. Most notably, the AMA competition study found that in 

the combined HMO-PPO markets, 95 percent of the metropolitan 

areas have few competing health insurers. For example, in 78 perVerDate 0ct 09 2002 12:38 May 09, 2007 Jkt 035140 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35140.TXT SJUD1 PsN: CMORC
12

cent of the markets, a single PPO has a market share of 50 percent 

or greater. 

This alarming reduction in competition is extremely troubling, 

not only because competition does drive innovation and efficiency 

in the health care system, but because it does not appear to be benefitting patients. Health insurers are posting high profit margins, 

yet patient health insurance premiums continue to rise without a 

corresponding expansion of benefits. 

In addition to the compelling results of our study, many health 

care systems across the country exhibit characteristic, typical, uncompetitive markets and barriers to entry for new health insurance 

carriers: the ability of large, entrenched health insurers to raise 

premiums without losing market share and the power of dominant 

health insurers to coerce physicians into accepting unreasonable 

and unjust contracts. 

We believe there are significant, immediate steps Congress can 

take to inform the debate about excessive health insurance market 

power and its effects on cost and patient care. For instance, we believe that current market distortions warrant Congress directing 

the Department of Justice to exercise its investigation power to determine whether plans are, in fact, engaging in anti-competitive behavior to the detriment of consumers—our patients, your constituents. 

To gauge the severity of the problem, there should be public reporting of health insurer enrollment numbers by county, by MSA, 

and by product line. There should be standardized reporting of 

medical loss ratios for nonprofit, mutual, and for-profit insurers by 

State and product line. Health insurers should be required to report their financial information, including total revenue, premium 

revenue, profit, and administrative expenses. 

Now, all of this information is critical in assessing efficiencies 

and determining how much of the premium dollar is going toward 

actual patient care. 

It is time to address the serious public policy issues raised by unfettered consolidation of health insurance markets. The AMA study 

demonstrates the competition has been undermined in markets 

across the country. 

This has real, lasting consequences for the delivery of health care 

and it is time to halt the march toward a marketplace controlled 

by a few health insurance conglomerates. It is time to encourage 

meaningful competition that will truly benefit America’s patients. 

Thank you very much, Mr. Chairman, for this opportunity. 

[The prepared statement of Dr. Langston appears as a submission for the record.] 

Chairman SPECTER. Thank you very much, Dr. Langston. 

Our next witness is Ms. Stephanie Kanwit, Special Counsel to 

America’s Health Insurance Plans, a national association representing more than 1,300 member companies which provide a variety of health care insurance. She was formerly a partner at Epstein Becker & Breen, and spent 6 years as head of Health Litigation for Aetna. She is a graduate of the Columbia University Law 

School. 

We appreciate your being here, Ms. Kanwit, and the floor is 

yours. 

13

STATEMENT OF STEPHANIE W. KANWIT, SPECIAL COUNSEL, 

AMERICA’S HEALTH INSURANCE PLANS, WASHINGTON, DC 

Ms. KANWIT. Thank you so much. Good morning, Chairman Specter and other members of the committee. 

America’s Health Insurance Plans’ testimony this morning focuses on two main topics. First, the fact that vigorous competition 

does exist in the health care industry, including how that competition has spurred the introduction of new products that benefit consumers, and, second, on the issue that Senator Coburn addressed, 

the issue of increasing quality and transparency, how we are working with practitioner and employer groups to maintain a competitive marketplace. 

Health insurance plans operate in one of the most highly competitive industries in this country. The Department of Justice and 

the Federal Trade Commission, in their recent landmark report, 

explored the issue of whether payors, such as health insurance 

plans, possess monopsony, or buyer side power, in the U.S. health 

care market. The resounding conclusion was that they do not, nor 

do they possess monopoly power. 

In fact, employer groups testified repeatedly at those hearings 

that health insurance markets in most areas of the country enjoy 

robust competition, with multiple insurers offering multiple product options to employers on behalf of their employees. 

Such vigorous competition is critical for all stakeholders, including health insurance plans and health care practitioners, to increase efficiency and improve patient care and ultimately reduce 

costs for consumers. 

Consumers benefit from that competition. They have wide 

choices in the U.S. health care markets. I cite some of those choices 

in my testimony, including how every major metropolitan area in 

the U.S. has multiple competing health care plans purchasing physicians’ services, and each of those plans offering multiple products 

to consumers and employers. 

In addition, new types of products, such as consumer- directed 

health plans, which many of you know are HSAs, continue to be 

introduced into the marketplace, affording consumers additional 

choices to the HMO, PPO, and indemnity options that we are all 

familiar with, thus demonstrating the vitality of the marketplace. 

Senator Coburn spoke this morning of the need to promote greater transparency in health care. We support that goal totally. Our 

members are currently working with a 125-member coalition. 

This coalition consists of more than 35 physician groups, just for 

one, the American Medical Association, as well as the American 

Board of Internal Medicine, the American College of Cardiology, 

the American Academy of Pediatrics, as well as other provider 

groups like the American Hospital Association, and government 

agencies like CMS, the Centers for Medicare and Medicaid Services. 

What are we doing with this group? We are working to develop 

uniform processes for performance measurement and reporting. 

Two goals. First, to allow patients and purchasers to evaluate the 

cost, quality, and efficiency of health care. Second, to enable practitioners to determine how their performance compares with others 

in similar specialties. 

14

Senator Coburn spoke of the need to improve outcome measurement. Exactly right. Toward that end, the AQA, this coalition, has 

endorsed a set of clinical physician-level performance measures 

that are already being incorporated in provider contracts. 

Over the next few months, the AQA is working toward identifying a set of efficiency measures. We are also receiving report from 

CMS, as well as the Agency for Healthcare Research and Quality, 

and we are carrying out pilot programs in six areas of the country. 

Secretary of Health and Human Services Michael Leavitt has applauded our efforts on these pilots and he has expressed interest 

in creating more throughout the country. The results of this pilot 

program are going to lead to a national framework for measurement and reporting of physician performance. 

Finally, I want to note that health insurance plans are designing 

products to carry out one of the key recommendations of the FTC/

DOJ health care report, and that is to promote incentives for providers to deliver high-quality and efficient care. 

We are working with stakeholders across the health care community, particularly health care professionals who work on the front 

lines, to develop and improve incentive programs, as well as an 

overall strategy with accountability for the quality of care delivered 

to providers. 

Thank you so much for this opportunity to testify. 

[The prepared statement of Ms. Kanwit appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Ms. Kanwit. 

Our final witness is Professor David Hyman. He is a professor 

at the University of Illinois College of Law, School of Medicine. He 

previously served as Special Counsel at the FTC. Before teaching 

at Illinois, he was a professor at the University of Maryland Law 

School. He has a medical degree and law degree from the University of Chicago. 

We appreciate your being here, Professor Hyman, and we look 

forward to your testimony. 

STATEMENT OF DAVID A. HYMAN, PROFESSOR OF LAW AND 

MEDICINE, GALOWICH-HUIZENGA FACULTY SCHOLAR, COLLEGE OF LAW, UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN CHAMPAIGN, ILLINOIS 

Mr. HYMAN. Thank you, Mr. Chairman. Thank you for appearing, Ranking Member Durbin, from my home State of Illinois. 

Let me start just by echoing Senator Coburn’s remarks at the 

outset about the importance of relying on markets and health care, 

and strengthening and improving them. Let me just flag a volume 

that has been mentioned several times over the course of this 

morning, the joint report of the Federal Trade Commission and Department of Justice, Improving Health Care: A Dose of Competition, issued in 2004, which comprehensively surveys the performance, both good and bad, of the financing and delivery sides of the 

health care market, and offers a series of recommendations for 

ways of strengthening and improving the performance of the market. 

My academic interests focus on the financing and regulation of 

health care, and I have written a number of articles on that subVerDate 0ct 09 2002 12:38 May 09, 2007 Jkt 035140 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35140.TXT SJUD1 PsN: CMORC
15

ject, including one on the specific issue that we are going to be 

talking about this morning, monopsony power in health care financing markets. There is a 2004 Health Affairs article on that 

subject that I would be happy to provide. 

Now, obviously the backdrop for this hearing is the complaints 

of health care providers about disparities in bargaining power in 

dealing with insurance companies. The fact that the complaints 

come from health care providers should give us pause for two distinct reasons. 

First, disparities in bargaining power are simply not the same 

thing as monopsony, or buyer side monopoly. Indeed, equal bargaining power is very much the exception in most markets. But as 

long as those markets are reasonably competitive, you do not need 

equal bargaining power to get efficient outcomes. 

I can give plenty of examples, including car rental and purchase, 

retail consumer goods and air travel, where there are huge disparities in bargaining power, but reasonably efficient outcomes. 

Second, is the context of this is that the sellers of a service, any 

service or good, have a natural tendency to conflate what is good 

with them with what is good for society. But the interests of consumers and patients do not map perfectly onto the interests of 

health care providers, so we should generally discount complaints 

from providers of services. 

We should pay close attention to complaints from consumers of 

services, but discount complaints from providers of services, consistent with the maxim that the purpose of antitrust is to protect 

competition, not competitors. 

Now, we have heard a certain amount this morning about the 

emergency of national insurers and the significance of high 

Herfindahl-Hirschman indices in individual States and metropolitan areas. 

On the emergence of national insurers, this actually marks a deconcentration, not an increased concentration, in the markets in 

many States as we have gotten new entrants from national insurers. 

Second, the raw numbers of people covered by national insurers 

is not really important. What is important, is their percentage in 

any given market. 

Now, when you analyze market power, if you do not have direct 

evidence of anti-competitive effects, you usually start by trying to 

identify a relevant product and geographic market and calculate 

the shares of market participants and concentration ratios. 

So, let us talk about the HHI in the minute and 43 seconds that 

I have remaining. HHI is a mechanical calculation which you do 

after you have determined the relevant product and geographic 

market. 

HHIs determined in the absence of a sensible market are essentially meaningless. I closed my written statement with the example 

that I am the only person at the University of Illinois College of 

Law that does empirical research on medical malpractice. 

That means the HHI for researchers in medical malpractice 

there is 10,000, a completely monopolized market, but I can assure 

you, I do not have any monopoly power whatsoever in dealing with 

16

my dean on any subject. So, you basically have to get the market 

right in order to come up with a sensible HHI. That is part one. 

Part two is, even if you have defined the market properly, an 

HHI is simply a screening tool which creates both false positives 

and false negatives for the kinds of things we are interested in. 

So all it does, in the context of merger analysis which is where 

it was developed, is mark areas where our index of suspicion 

should be higher or lower for whether there are monopoly or monopsony problems. 

It does not define them, it does not identify them. All it does is 

say you should not worry about these sorts of transactions, and 

these other transactions you might want to look further in order 

to determine whether there are monopoly, monopsony, and market 

power problems. 

The final point that I want to make, is the importance of factoring in false positives and false negatives in an analysis of monopoly and monopsony power. It is not a trivial proposition to determine when there is, and the more aggressively we look for it, 

the fewer false negatives we end up with. But the more false 

positives we have, the cost of false positives are borne by consumers quite directly. 

Thank you very much. 

[The prepared statement of Mr. Hyman appears as a submission 

for the record.] 

Chairman SPECTER. Thank you, Professor Hyman. 

Senator Durbin, would you care to make an opening statement? 

STATEMENT OF HON. RICHARD J. DURBIN, A U.S. SENATOR 

FROM THE STATE OF ILLINOIS 

Senator DURBIN. Thanks, Mr. Chairman. I will make it very 

brief. I thank this panel for gathering today, and I thank you for 

calling this hearing. 

I listened to the testimony that was given, and as I was listening 

to it I was thinking about how lucky we are on this side of your 

microphones, because we are Federal employees. We have a Federal Employees Health Benefit Program and we have an agency 

that sits down with these insurers and bargains with them before 

they can have a chance to sell to 8 million Federal employees and 

their businesses. It turns out that they are pretty good negotiators. 

In 2005, the Federal Employees Health Benefit Program offered 

249 plans. In 2006, it was up to 278 plans, exactly the opposite of 

the experience you are describing; where many of your health care 

providers are finding fewer and fewer insurers, we are finding 

more and more who want to do business with us. 

The Office of Personnel Management has the responsibility to negotiate with hundreds of insurance companies on our behalf. Tom 

Bernatavitz, vice president of Aetna Insurance, recently said pretty 

tough negotiators are at OPM. 

He said that OPM experts were ‘‘much tougher’’ in negotiations 

with insurance companies, which has more than 250,000 Federal 

enrollees. Bernatavitz says, ‘‘In general, we wanted some more benefit enhancements at some additional premium costs that they really wouldn’t allow....There was definitely a lot of rigor about keeping 

our premiums down.’’ 

17

So, it turns out that we have a pretty good model here, and some 

of us believe that it is a model that ought to be expanded. It ought 

to be expanded so that small businesses all across America can 

have the same basic common market of private insurance companies. There are four or five States in this country where there is 

one dominant health insurance company that sells to over 70 percent of the market. 

I do not want to dwell on this, Mr. Chairman, other than to suggest to Dr. Coburn and my colleague, Senator Specter, that if you 

take a look at what we are doing effectively here to represent Federal employees and their families, we do not have the problems 

that they are just describing in the open market outside. I hope 

that you all will take a look at Senator Lincoln’s bill that I am cosponsoring. 

Thank you. 

Chairman SPECTER. Thank you, Senator Durbin. 

We now will turn to the panelists for a five-minute round of 

questioning. 

Ms. Kanwit, I was disappointed that we asked five health insurers to testify today and none would agree to do so: United, Aetna, 

Independence Blue Cross, Highmark, and Wellpoint. 

So let me ask you, what is wrong with an antitrust exemption 

for doctors to be able to negotiate with these companies which have 

had such an enormous number of mergers, some 400 in the last 12 

years? 

Ms. KANWIT. Well, a couple of points, Senator Specter. The idea 

of physician collective bargaining has been condemned by the Federal Trade Commission and the Department of Justice over the 

course of the last 10 or 15 years for a very good reason, the reason 

being that allowing physician collective bargaining or an exemption 

from the antitrust law allowing them as horizontal competitors to 

bargain collectively with health plans, without clinical or financial 

integration, will inevitably raise prices while doing absolutely nothing to increase the quality of health care that consumers enjoy. 

Congress, in the last 10 years, has looked at numerous bills on 

collective bargaining and rejected every one of them, as, by the 

way, have many, many States. There are just a handful of States 

that allow physicians, under very strict rules, to collectively bargain. That is because it is a bad idea. 

Chairman SPECTER. Let me turn to Mr. McDonald. We only have 

a few minutes, so we are going to have to be brief on the responses. 

Only two challenges over 400 mergers in the past 12 years. Is 

there not some suggestion of not quite enough scrutiny, Mr. 

McDonald? 

Mr. MCDONALD. Mr. Chairman, antitrust analysis is very factspecific. We have investigated a large number of mergers and 

found reason to challenge the ones that you have mentioned. 

Chairman SPECTER. You have investigated all 400? 

Mr. MCDONALD. Likely not, Mr. Chairman. But we have investigated all those that had any significant possibility of presenting 

an anticompetitive problem. 

Chairman SPECTER. Dr. Piasio, the Daily and Sunday Review 

from Towanda, Pennsylvania has noted the Pennsylvania Medical 

Society recently cautioned against the impending merger, as they 

18

put it, of two of Pennsylvania’s largest health insurers, Independence Blue Cross and Highmark, two companies who have an enormous share of the Pennsylvania market. Would you be apprehensive or opposed to such a merger? 

Dr. PIASIO. Well, certainly we have not seen any information yet 

as to what efficiencies that merger is going to bring. Contrary to 

some of the things you have heard earlier though, there may be 

markets in the country that are working competitively. Pennsylvania certainly is not. We enjoy the highest premiums, the lowest 

reimbursement, and the highest profit margins and reserves of 

most insurers in the country. 

I think if you look at the contract provisions under the Rule of 

Reason, we are meeting those requirements of at least questionable 

behavior on the part of our large players. 

But what we would much prefer to see in Pennsylvania are the 

four Blues competing in each other’s market as opposed to having 

one Blue now. We do not have national players in Pennsylvania. 

Aetna and United represent extremely minor players in our entire 

State, and even less so. 

So from our perspective, until we see some evidence that a merger of that nature is going to bring some level of consumer benefit 

as well as provider and quality benefits, we are looking at it extremely cautiously. But as they are operating now, we do not particularly see where there is going to be any efficiency that the market is going to enjoy. 

Chairman SPECTER. Professor Hyman, do you not think that Dr. 

Piasio has a point, that all of these mergers have to have an impact 

of lessening competition? 

Mr. HYMAN. The question is, who is merging, and are they combining market shares in the same market or are they, as the rise 

of national firms would suggest, buying shares in different markets? You have to look at them individually. I do not know enough 

about the Pennsylvania market to have an informed opinion on 

that subject. 

Chairman SPECTER. Mr. Wales, in your written testimony you 

said that ‘‘the antitrust laws allow physicians to act jointly, including agreeing on fees, so long as their efforts produce significant efficiencies and price agreement is reasonably necessary to achieve 

those efficiencies.’’ 

Absent that standard, physicians cannot act jointly on agreeing 

on fees. Is that not an extraordinarily difficult standard for physicians to try to achieve, putting themselves at risk of violating the 

antitrust laws? 

Mr. WALES. Mr. Chairman, what we have found is that when you 

do not have collective bargaining that is associated with pro-competitive benefits and integration, that you do find clear consumer 

harm, whether it be increased prices for health care, higher out of 

pocket expenses for consumers, reduced benefits and choices. So I 

guess we do find that, without that integration, that there are clear 

harms in place. 

What we have tried to do is be very clear with doctors as to what 

types of integrative efficiencies we think would be permissible, and 

have done that through not only guidance with our colleagues at 

Department of Justice in statements, but also in advisory opinions 

19

and other fora, including our web site and enforcement actions, 

where we try to explain where that line is that we do not think 

doctors should cross. 

Chairman SPECTER. Well, thank you, Mr. Wales. The red light 

was on during your testimony and I will conclude, and yield to the 

Democratic side, as our alternation provides. 

Senator Durbin? 

Senator DURBIN. Thank you, Mr. Chairman. 

So Ms. Kanwit, let me make sure I understand here. By your answer to Senator Spector’s question about collective bargaining as 

an antitrust exemption for doctors, I take it that you are opposed 

to exemptions for the antitrust law. 

Ms. KANWIT. We are, Senator. 

Senator DURBIN. How about the McCarran-Ferguson Act which 

applies to your industry which gives you an exemption so that you 

can share pricing information which some say may lead to higher 

prices and collusion by your own industry? That has been on the 

books a long time. 

Ms. KANWIT. It has. 

Senator DURBIN. Do you support that exemption? 

Ms. KANWIT. Senator, the McCarran-Ferguson Act has been on 

the books for about 60 years and it has worked very well. But it 

is not an antitrust exemption. It does allow insurers to gather, collectively, actuarial information in the interest of consumers. But it 

specifically does not allow boycotts or collusive pricing, so it is not 

exactly an analogy to physician collective bargaining. 

Senator DURBIN. But it clearly is an exemption for your industry 

that most businesses do not enjoy. If all of the automobile manufacturers had the ability to do what the insurance industry has under 

McCarran-Ferguson, some would suggest that it would not be in 

the best interest of consumers. Do you understand that? 

Ms. KANWIT. It is, but it is a very, very narrow exemption for 

rate setting, actuarial rate setting. But the real purpose of 

McCarran-Ferguson, as everyone knows, was to give the States authority over the business of insurance, an issue that has been litigated over and over for 60 years. This was a minor point on it, but 

it is an extraordinarily narrow exemption. 

Senator DURBIN. But it is an exemption. 

Ms. KANWIT. It is. 

Senator DURBIN. Thank you. 

Dr. Piasio, so if you were allowed to collectively bargain, which 

many doctors have been seeking for a long time so they have some 

power to bargain as the Federal Government does for 8 million employees, what is the protection for consumers, I mean, in terms of 

whether or not individual doctors and practitioners are going to 

charge reasonable rates for their services? 

Dr. PIASIO. I think, first and foremost, we need to distinguish, in 

terms of collective bargaining, it is allowed if you are going to be 

at risk, such as taking risk as an insurer, but not in a fee-for-service system. 

I am not sure there are good studies out there that show it does 

not work. I think when you look at what that does, it kind of goes 

into that countervailing power theory of how to balance a market 

20

competitively that cannot be done economically or through political 

processes. 

At least that seems to work in other markets. If you look at the 

western part of Pennsylvania where there are some competitive insurers, we enjoy slightly lower premiums and slightly higher reimbursement. At this point, I am not here to say that collective bargaining is the solution. It is just one of the potential solutions in 

trying to bring back competition to a market that does not seem 

to exist, at least in my State. 

Whether it will work or not, I leave it up to the gentleman to 

the right to study and get back to us as to whether they can make 

it work. Certainly when you are looking at trying to put in efficiencies such as electronic records and quality and value metrics, 

which we have not even started discussing yet as to how you can 

do that, it is difficult to integrate, but you can do it unless you are 

at risk. That is just something that we are not experienced enough 

to do. 

Senator DURBIN. Professor Hyman, thank you from being here 

from Illinois. But let me ask you this question. You seem to be 

skeptical about whether or not there is a concentration of power 

here to the disadvantage of these providers and consumers. 

But most people you speak to would agree with the following 

statement: ‘‘It seems like every year the premium costs for health 

insurance goes up and the coverage goes down. I have to pay more 

out of pocket for less coverage each year.’’ So, this is a consumer’s 

point of view in this picture. 

Then when you step back and you look at it in a global context, 

you say the end result here, the health care result that comes out 

of this, is not as good as we might expect. There are countries that 

spend a lot less per capita on health care and get a lot better results, in terms of life expectancy, for example. 

Do you quarrel with those conclusions? 

Mr. HYMAN. Well, I certainly would quarrel with drawing a causative line from one to the other. I think the quality issue, which 

I touch on very briefly at the end of my written statement, is a 

very important issue. 

I do not see, even if we by fiat de-concentrated the insurance 

market, we would see the kinds of quality improvements that we 

would want to buy and that we, in fact, are already paying for. I 

think that is something we need to go after directly. 

It is certainly clear that the costs of health care have gone up, 

and go up every year. But drawing a causative line between that 

market concentration, actually, there are a bunch of other things 

going on. There is an increase in the number of elderly people receiving care. They have higher intensity of services. 

We can do more things for more people that cost more. The retail 

prices of some things have gone up. You have seen consolidation on 

the provider side as well, something we have not mentioned so far, 

and then you can get the sort of bilateral monopoly problems. 

There are a lot of things going on, would be my short answer. 

Senator DURBIN. Thank you. 

Thanks, Mr. Chairman. 

Chairman SPECTER. Thank you, Senator Durbin. 

21

They have started the vote, but we are going to complete the 

round of questioning with Senator Coburn. 

Senator COBURN. Thank you, Mr. Chairman. 

I just would wonder, how many of you all really think there is 

insurance out there versus pre-paid expense that is paid for by an 

agent? How many really believe there is an insurance market in 

this country? I am talking, risk spreading market versus pre-paid 

health care expense. Does anybody want to answer that? 

Mr. HYMAN. I guess my short answer is, there is a huge amount 

of pre-payment, but there is some risk pooling for catastrophic expenditures. 

Senator COBURN. But the vast majority is pre-paid medical expense. 

Mr. HYMAN. I would probably say a majority. I am not sure 

‘‘vast’’. 

Senator COBURN. The point is, we are paying a very expensive 

fee to have pre-paid health care expense. The other question that 

I had, for anybody that wants to answer it, who is the consumer? 

I have heard the word wielded about a bunch. The consumer I see 

is not my patients or the individual. The consumer is whoever has 

the power. 

Senator Durbin talked about the FEHBP that went up 6.7 percent this year, versus 8 percent last year. That is the largest purchaser in the country, 8 million people, and it still went up that 

much. Yet, the costs to the providers, the reimbursement to the 

providers who are caring for the people, is not rising at all in terms 

of numbers. 

So the question goes back to the 16.2 percent of our GDP. What 

are we getting for it? Doctor? 

Dr. LANGSTON. Yes, Dr. Coburn. It is not necessarily a free market because there are middlemen involved. Our concern is that we 

are raising the red flags on some of these issues because we are 

seeing the change in the number of coverage and the increase of 

6.8 to 8.6, yet premiums are rising in the double-digit areas. 

All we know is, in 2004 and 2005, the insurance industry spent nearly $55 billion in consolidating and in acquisition, so there is 

something going on. We know the profits are higher. As a physician, our reimbursement is not changing. 

I think we are unjustly accused of being the driver, which indirectly says we are getting more payment for what we are providing, 

where in fact what we are doing is providing, I believe, increased 

quality of care because of technology, drug expenses, and other institutional and system expenses. 

So we are raising the red flags and we really appreciate the opportunity to talk about that because we think it needs to be explored. We, too, call for transparency. That is why we said we need 

the data, just as you do, to make public policy decisions on what 

are the real costs within that industry, and is there really any risk 

there. We certainly advocate the quality measures because that is 

ingrained in us as professionals, and we support that, quite frankly. 

Senator COBURN. Let me go to one other point. We have almost 

47 percent of our health care paid for by the government. 

Dr. LANGSTON. Right. 

22

Senator COBURN. That is off the table. So that leaves 52 percent, 

of which about 12 percent is not covered through some type of insurance program. What do we get for the one in four dollars of 

that? That is $1.9 to $2.3 trillion, somewhere between that. There 

is 45 percent of that, so you have got $1 trillion. 

For the $250 billion that does not ever get into health care at a 

minimum, what are we getting for that in terms of quality? And 

the reason I raise that question, is Mr. McDonald’s statement said 

that doctors can increase the patients that they serve. Well, they 

cannot. They are maxxed out. 

What is happening, is the arc of medicine is declining and the 

quality of medicine—the first thing you are taught in medical 

school is to listen to your patient. 

That is not happening any more because doctors cannot afford to 

pay for the receptionist, the insurance filing clerks, and their malpractice, and at the same time see the same number of patients. 

So what is happening, one of the reasons we are with the 16.2 

percent, we are not seeing this markedly increasing quality that we 

should be because we are spending 50 percent more than anybody 

else in the world, is because we are jamming the very people. 

So what is the response? The response is, well, I will order a test 

rather than listen to the patient. What we do know, is about a 

quarter of a trillion dollars of tests are ordered every year that are 

not necessary. That is one of AMA’s own studies. They are not necessary because they do not have the time to listen to the patient. 

So I want to go back to my opening statement and just let people 

comment. Why do we not take and let consumers, the real consumer, be the decider of value about their health care, and why do 

we not let everybody own their own health insurance rather than 

their employer own it? Why do we not give the tax benefit to the 

individual rather than to the employer? Any comments on that? 

Ms. KANWIT. Senator, I would like to comment on that. We are 

working hard, as I mentioned in my comments here, to make 

value-based information available to consumers so that they can 

make choices. You raise an excellent point. The Federal Trade 

Commission and Department of Justice, in their recent study, said 

exactly the same thing. 

Senator COBURN. Well, the problem with that is, most people 

who come under one of your insurance companies do not have that 

choice because their employer made that choice for them. They do 

not get to make that choice, so they have a proxy making that 

choice. 

What I am saying is, why would we not want individuals to 

make that value judgment rather than their employer, and let individuals decide what is in their best interests in terms of their care 

rather than some proxy for them? Let them squeeze out this one 

in three dollars out of the health care system to either increase 

quality and lower premiums. 

Somebody else? Yes, sir. Doctor? 

Dr. PIASIO. Yes. I would also just like to comment. At least in 

Pennsylvania, when you are looking at trying to get the transparency with respect to the quality, and now the new value metric, 

those are going to be determined by the sole insurer. 

23

We do not have the bargaining power to even participate in those 

discussions as to even determine what those metrics may be. So in 

the transparency issue of what is quality and what is value, we 

have very little input on exactly how we are even going to measure 

what we are doing. 

Senator COBURN. All right. Thank you. 

Chairman SPECTER. We have only nine minutes left on the vote. 

Well, thank you all very much for coming in. This is a panel to 

be continued. 

In concluding the hearing, let me call to the attention of the regulators, Mr. McDonald and Mr. Wales, the impending merger of 

the two big companies in Pennsylvania. Independence Blue Cross 

collected 28 percent of the $28 billion spent on health insurance 

premiums; Highmark collected 27 percent of the $28 billion. 

I would join Dr. Piasio and Dr. Langston—even an Indiana AMA 

guy speaks for Pennsylvania, in part—in taking a very close look 

at that situation. When they talk about efficiencies, one last question. I would like you to provide it in writing for me. 

They talk about efficiencies. Why not hold them to a specific determination of what those efficiencies are, pulling down cost and 

the commitment that they are going to reduce premiums by that 

amount? Let me address that to the regulators, the Department of 

Justice and the FTC. 

But let me ask that of you, too, Ms. Kanwit, since you are here 

representing all of these companies. We only surveyed five of them, 

who would not come in. That is not a very good sign if the Senate 

Judiciary Committee wants to have an antitrust hearing on this 

issue not to have companies be willing to come in and respond to 

some questions. 

Chairman SPECTER. But this is a big, big issue. We all know the 

costs of health care. Everywhere I go, it is a question. I spent last 

week traveling in Pennsylvania, and everywhere I went the question comes up repeatedly, especially among small business men and 

women, what are we going to do? 

Thank you all very much. Sorry the vote intervenes, but I think 

we pretty much covered the ground. 

That concludes our hearing. 

[Whereupon, at 12:11 p.m. the hearing was concluded.] 

[Questions and answers and submissions for the record follow.]

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