51

STATEMENT OF JOEL STOCKER
on behait of
GREENBERG TRAURIG

Introduction

Mr. Me. Chairman, 1 am Yoel Stocker, a lawyer and shareholder with Greenberg, Traurig.
rg, Traurig * firm. with over 270 lawyers in Miami, West Palm Beach,
Griaade, Ev Landbrdue, Tallahassee, Now York Cly, and Washington, D.C. I am a beal
care lawyer and have practiced for over 20 years, concentrating in health care transactions
and regulation. I have negotiated and defended contracts on behalf of individual physicians,
hospitals, managed care companies, and group practices including both for-profit and non-
profit entities. My experience enables me to provide members of the Committee with an
understanding of the rapidly changing health care environment, the growth of contracting
between various providers and entities, and some of the practical considerations of provider
relationships.

When I started practicing law the doctor-patient relationship was much simpler. Most
health care plans were indemnity products where physicians were paid their charges, and
where patients were responsible for high co-payments and deductibles. In an indemnity
plan, the patients makes a claim on an insurance policy and the physician has no
relationship to the insurer.

‘Then premiums began to rise. Employers found it increasingly difficult to pay for the cost
of health care, and began to offer managed care plans to their employees. Managed care
typically involves employed or contracted physician services where physicians have a direct
or indirect contractual relationship with a managed care company.

Change has also occurred in the way physicians practice medicine. Physicians are
increasingly employed by either other physicians, physician service companies, hospitals or
managed care companies Physician contract relationships with these entities deal with many
of the same issues that exist in the managed care contracting arena.

‘The health care system has changed, and the role of physicians in supervising and defining
health care services for patients is evolving. Physicians no longer make independent
decisions regarding the care for a patients without considering of the price of the care.
Patients now select physicians not only based on reputation of that individual physician, but
also on the reputation of the physician group and the health plan network. Physicians are
often employees with employment contracts; are joined with other physicians in a network
‘or group practice; or have multiple contractual relationships with a variety of health care
plans. As a result of these changes, the contractual relationship between physician and
those to whom they provide services has become increasingly important. Through those
contract relationships, decisions on how, when, and where health care is provided is shared
‘between the patients, the physician and the contract entity.

Today, my testimony will describe various types of contracts, including an examination of
contract terms, when they are used, and the impact they have on medical care for patients.
Iwill center my discussion on four key points:

(1) Although there are several types of contracts that physicians have with managed care
companies, physician group practices, physician networks, and hospitals the terms of
the contracts tend to be similar,

(2) Many of the contract terms between physicians and these other entities relate to
business matters, not to physician - patients communications.

(3) Most of the business contract terms are designed to protect against a physician taking
or moving a block of patients for economic, not medical reasons.

(4) Medical decision making is governed by ethics, state licensing, accrediting bodies,
medical liability, and customer satisfaction.


5

‘an entity subject to the insurance laws and regulations of this state, or subject to the jurisdiction of
the commissioner, that contracts or offers to contract, or enters into an agreement to provide, deliver,
arrange for, pay for or reimburse any of the costs of health care services, including a sickness and
accident insurance company, a health maintenance organization, a nonprofit hospital and health
service corporation, or any other entity providing a plan of health insurance, health benefits or health
services.

In addition, the models define “managed care plan” as “a health benefit plan that either requires a
‘covered person to use, or creates incentives, including financial incentives, for a covered person to use
health care providers managed, owned, under contract with or employed by the health carrier.” Certain
requirements within the models apply to managed care plans and certain subsets of such plans, as
appropriate. Other requirements apply to all health carriers.

‘Many of the issues relating to provider contracting and consumer protections are addressed in the
“Managed Care Plan Network Adequacy Model Act,” but several other important issues are also
addressed in the other models. I will briefly summarize these models and highlight provisions particularly
relevant to the issues under discussion at this hearing.

‘Managed Care Plan Network Adequacy Model Act

‘The mode! establishes standards for the creation and maintenance of provider networks by health
carriers and applies to all health carriers that offer managed care plans. It requires the arrangements
‘between participating providers and health carriers offering managed care plans to address specific issues
set forth in the act, The model also contains requirements for the contracts between health carriers and
intermediaries.

Section 5 of the model, which addresses network adequacy, requires health carriers to maintain a
provider network that is sufficient in the numbers and types of providers to assure that services to covered
persons will be accessible without unreasonable delay. Section 5 also requires a health carrier to file with
‘the insurance commissioner an “access plan” for each of its managed care plans. The access plan must
describe the health carrier's network and other specified processes and procedures. The act requires a
health carrier to make these access plans — with protections for proprietary information -- avaitable on its
business premises and to provide them to any interested party on request.

OF particular relevance to today’s discussion is Section 6 of the Model, which sets forth
‘requirements that a health carrier must address in its contractual and other arrangements with participating,
providers. Importantly, it is worth noting that the model contains a provision prohibiting health carriers
from preventing providers from discussing treatment options with covered persons, irrespective of the
health carrier's position on the treatment options, or from advocating on behalf of a covered person within
the plan's utilization review and grievance processes.

This provision is somewhat broader than the similar provision within H.R. 2976 as it also
addresses a provider's ability to advocate on a covered person’s behalf. H.R. 2976 prohibits plans from
restricting “medical communications,” defined as communications from a provider with a patient relating,
to the patient's physical or mental condition or treatment options. Because H.R. 2976 explicitly allows
states lo establish or enforce requirements that are “more protective of medical communications than the
requirements established under this section,” we assume that the provisions of this model act (and any
state law based on the model act), that protect a broader range of provider actions would be clearly
protected by the preemption language of H.R. 2976.

Other important requirements and provisions set forth within Section 6 of the modet include: a
provision requiring the health carrier to establish a mechanism for notifying participating providers of the
specific covered services for which they are responsible; a provision prohibiting providers from
attempting, under any circumstances, to collect from a covered person any money owed to the provider by
the health carrier; and a provision prohibiting carriers from using standards to select providers that would
allow the carrier to avoid providers serving potentially high-risk populations.

In addition, the model act contains a requirement that carriers make their provider selection
standards available for review by the insurance commissioner and a provision prohibiting any it
under the managed care plan for the provider to furnish “less than medically necessary services” to @
covered person, The model also includes a requirement noting that when a provider's contract is
{terminated for whatever reason, the health carrier must make a good-faith effort to notify covered persons
who are patients of that provider within 15 working days; a requirement that the health carrier ensure that
providers treat all covered persons without regard to the person’s status as a private purchaser or
participant in a publicly-financed health care program: and a prohibition against the health carrier's
penalizing a provider for reporting in good faith to state or federal authorities any act or practice by the
health carrer that jeopardizes patient health or welfare.

Section 7 of the model act addresses contracts between health carriers and intermediaries. It
requires that intermediaries and participating providers must comply with all the model act's applicable
requirements for the relationship between health carriers and providers. The model act specifies that the
health carrier retains the statutory responsibility for monitoring the provision of covered benefits to
‘covered persons and that the carrier cannot assign or delegate that legal responsibility to the intermediary.



17

nurse midwives, therapists, dieticians, dental hygienist, social
workers, certain medical records employees, and so forth, who
would come under a number of States’ definition of health care
provider.

Do you believe it is essential to have it as broad as that?

Mr. GANSKE. I do. I have had personal communications from
members of the nursing and physical therapy professions that they
are experiencing the same types of problems with these types of
gag clauses.

Chairman Tuomas. OK. Then when you have medical commu-
nication defined in the amended bill—in this section, the term med-
ical communication means a communication made by a health care
provider with a patient of the provider, with respect to the patient’s
physical or mental condition or treatment options—it does not indi-
cate that the health care provider show any expertise by virtue of
the license they receive in the State or knowledge about the area
in which they could make comments—it could be physical, mental
or treatment options.

How do you deal with a ophthalmologist making a statement to
a patient about the mental health aspect of the provision or a dieti-
cian making a comment about some physical treatment aspect? Do
you see what I am talking about? Given the broad definition and
the fact that you do not restrict the comment to the expertise, ei-
ther by licensure or employment, contract employment, of the indi-
vidual making the statement, that you provide blanket protection
for anybody to make any comment about any aspect of the plan,
whether they have expertise or not.

Mr. GANSKE. Well, the matter of expertise, I think, is adequately
handled by the State licensing boards. If individuals are making
recommendations outside of their area of expertise, they are going
to be subject to the usual sanctions.

Chairman THoMas. Well, no, not making recommendations, mak-
ing comments about the health plan’s provisions. They are criticiz-
ing the health plan’s provisions in areas in which they have no ex-
pertise. They are making comments about it. They are protected
under this bill in the communications with the patient or with the
people who are provided with the pan and they are making “a
medical communication.” They could be commenting about any of
the physical or mental provisions or treatment options in the plan
and it could be anybody, including one of the medical records
employees.

Mr. GaNSKE. I would just say that if a treating surgeon who is
a licensed physician has a concern about a patient’s severe depres-
sion and recommends to the patient that they obtain a consultation
from a psychiatrist, I think they are operating within the bounds
of what would traditionally be seen as a pertinent part of their
treatment of that medical condition. I think the——

Chairman Tuomas. I obviously have little or no quarrel with the
example that you gave. Do you see how I could provide you with
an example based upon how you define health provider under the
law and the provision in which they could make a comment on the
plan, that I could provide a number of extreme examples in which
people could clearly be seen to be meddling or making disparaging
remarks about a plan with no clear intent to assist the patient in


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Ilinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR, Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jr., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOC! i SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. MCNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILLIP D, MOSELEY, Chief of Staff

JANICE Mays, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH
BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada JIM McDERMOTT, Washington
JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia

AMO HOUGHTON, New York
SAM JOHNSON, Texas

ap


il

STATEMENT OF JOSEPHINE W. MUSSER
VICE PRESIDENT, NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
CHAIR, SPECIAL COMMITTEE ON HEALTH INSURANCE
‘COMMISSIONER OF INSURANCE, STATE OF WISCONSIN

‘Good morning Mr. Chairman and members of the Subcommittee, my name is Josephine Musser. 1
am the Vice President of the National Association of Insurance Commissioners (NAIC) and the Chair of
the NAIC's (EX) Special Committee on Health Insurance (“the NAIC Committee”). 1 am also
‘Commissioner of Insurance for the State of Wisconsin. I have had the pleasure of meeting with you, Mr.
Chairman and other of this subcormmit ng various health insurance-related
measures over this past year. It is a pleasure to retum to testify before you today to discuss H.R. 2976,
the “Patient Right To Know Act of 1996”, and the issues of health care provider contracting and managed
ccare regulation and to inform you of recent NAIC and state-level efforts in these areas.

“The NAIC, the nation’s oldest association of state public officials, is composed of the chief
insurance regulators of the fifty states, the District of Columbia, and the four U.S. territories. This year,
we are celebrating our 125th anniversary. The NAIC’s (EX) Special Committee on Health Insurance is a
committee composed of 38 of our members. ‘The NAIC established this special committee a few years
ago as a forum to discuss the many health care reform proposals and to provide technical advice on a
nonpartisan basis to all who sought our expertise.

‘On behalf of the NAIC Committee, I would like to thank you for providing me with the
‘opportunity to address you this afternoon at this hearing. My testimony will focus upon H.R. 2976, some
of the legislation in place in Wisconsin and other states inthis area, and the efforts underway at the NAIC
to update and expand upon the NAIC's model state laws in the area of managed care. I will highlight
provisions within certain proposed NAIC models that address the critical issues of provider-patient
‘communications, health plan-provider communications and contracts, and other protections for enrotlees
‘and providers within managed care health plans.

‘On July 27, 1995, the NAIC provided a statement for the record of a joint hearing held by the
Subcommittee on Health of the Committee on Ways and Means and the Subcommittee on Health and
Environment of the Committee on Commerce regarding standards for health plans providing coverage
the Medicare program. In this testimony, we provided some background information about state
regulation of managed care organizations and NAIC effors in this area, which I will update and expand
upon today.

States currently regulate managed care organizations through a variety of statutes and regulations
governing health maintenance organizations (HMOs), preferred provider organizations (PPOs), Blue
Cross and Blue Shield plans, indemnity health insurance plans with a managed care component, and
limited prepaid service organizations, among other types of organizations. Many states also regulate
corganizations that perform certain managed care functions, including free-standing utilization review
organizations.

‘As you may know, the states, through the NAIC, have developed, and continue to develop, mode!
state laws and regul the health care area, The NAIC’s model HMO Act has been adopted with
some variation in a majority of states and has served a pivotal role in promoting certain state-level
protections. The NAIC also has a model addressing preferred provider arrangements and prepaid limited
service organizations. These models are discussed in more detail herein.

the “Patient Te

‘The House Committee on Commerce has approved H.R.2976 and the Committee on Ways and
‘Means is considering it on sequential referral. As adopted by the Committee on Commerce, the bill would,
prohibit health plans, both state-licensed and those governed by the federal Employee Retirement Income
‘Security Act (“ERISA”), from prohibiting or restricting any medical communication as part of either a
‘written contract or agreement with a health care provider, a written statement to such a provider. or an
‘oral communication to such a provider. The bill also covers third-party administrators having
responsibility for contracts with health care providers under the plan. The bill defines “medical
“communication” as “a communication made by a health care provider with a patient of the provider (or
the guardian or legal representative of such patient) with respect to the patient's physical or mental
condition or treatment options,” We note and applaud the fact that H.R. 2976 applies t0 both state-
licensed and ERISA governed health plans -- thereby treating both types of plans on a “level playing
field.”

‘As discussed below, the provisions of this bill are similar to a provision within the NAIC's
proposed Managed Care Plan Network Adequacy Model Act that restricts health carriers from prohibiting
participating providers from discussing treatment options. This model also addresses issues not discussed
‘within the proposed legislation that relate to consumer, provider, and health plan rights and obligations.

‘The NAIC Committee appreciates that the proposed legislation specifically allows states to
“establish or enforce requirements with respect to the subject matter of this section” as long as the
requirements are “more protective” of medical communications than the requirements established under
this section. In the course of commenting on federal health insurance reform legislation, the NAIC
Committee has encouraged the inclusion of provisions allowing for state flexibility, such as in this



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7

And what we are trying to find here is a way so that the doctors
are not being kicked out or coerced, directly or indirectly, into
pushing one kind of treatment.

We will get into what PacifiCare did about withholding vaccine
or what another group did in Florida by pushing men to be cas-
trated rather than getting treated by pharmaceuticals that would
reduce the growth of testosterone when they got prostate cancer,
just because it saves $8,000 on average to have them castrated
rather than give them expensive pharmaceuticals.

That’s criminal, that’s obscene. And none of the witnesses are old
enough to get close to having to make that choice. But I want to
tell you it is not a choice that you want to be flim-flammed on by
some doctor who is being pushed by his health care plan.

So, I hope that you can help us find a way to solve this. The
managed care plans aren’t going to suffer if they are doing it right.
And it is the doctors who are going to lose their jobs. So, Mr. Rust,
I think you're heading in the right direction. And I would hope if
we take up Dr. Kongstvedt’s CPA firm’s offer of free help, that we
end up with contracts that will protect the patients and not your
clients.

Thank you, Mr. Chairman.

Dr. KoNGSTVEDT. Mr. Chairman, may I respond, please?

Mr. ENSIGN. Certainly.

Dr. KONGSTVEDT. Mr. Congressman, regarding the issue of Pru-
dential, certainly the legal problems that they had had no relation
to their health plans, it was their investment service.

Mr. Stark. The same chief executive officer runs the whole show.
When re lie down with skunks, you smell.

Dr. KoNGSTVEDT. And in the case of that organization they have
voluntarily sought and secured NCQA accreditation and NCQA ac-
creditation rules are very clear that they prohibit such gag clauses.

Mr. Stark. They were in the NASD, too, but that didn’t stop
them from stealing the money.

Dr. KONGSTVEDT. Well, the only last statement I can make is
that our firm actually represents more health care providers than
we do payors. Our offer of free assistance is, in fact, we believe a
balanced one. We are advocating neither one position nor the other
and we, in fact, do not do business with Prudential at this time.
They are not a client of mine.

ir. ENSIGN. The gentleman would be reminded that veterinary
services do take care of certain medical procedures that he talked
about earlier. [Laughter.]

Mr. ENSIGN. The gentleman from Nebraska.

Mr. CHRISTENSEN. Thank you, Mr. Chairman.

Mr. Rust, in your testimony you state that you represent 3,000
physicians. I want to find out more information about the size of
the practice that you represent or if it is all sizes, all kinds?

Mr. Rust. It is a lot of individuals, many of them formed into
small to medium groups. And by that, I would say everything from
2 to 10 people. And increasingly these days it is larger organiza-
tions of joint venturing physicians who are forming networks to do
managed care contracting that range in size from 30 to 150.

Mr. CHRISTENSEN. What would you say is the predominant scope
of your practice, the large or the individual size?


7

What about a bulletin issued by Humana stating that: “Effective
immediately, all Humana participating providers must telephone
the preadmission review department before an admission occurs
and before conveying the possibility of an admission to a plan
member,” before conveying the possibility of an admission for a
plan member. It is my understanding that public scrutiny led to a
change in this policy, but I think the dangers are real.

These policies restrict communications between patients and
their providers, but if Congress’ focus is only on the actual terms
of the contract, we would be blind to these problems.

Third, oral communications. Plans often communicate orally
what they do not want to put on paper, whether to retain flexibil-
ity, because it is impossible to codify everything, or perhaps be-
cause they are attempting to enforce policies they do not want to
put into print.

Consider the case of Christy DeMeurers. She was diagnosed with
breast cancer and eventually sought care at UCLA, where the doc-
tor who examined her swore under oath that she was an excellent
candidate for a bone marrow transplant. When her health plan dis-
covered this, they threatened to terminate UCLA’s lucrative con-
tract as a center of excellence unless the doctor reversed his opin-
ion about her fitness for the procedure. Faced with this tremendous
economic coercion, Christy DeMeurers’ doctor wrote out a deposi-
tion recommending against surgery, just 11 days after stating
under oath that, “She is a candidate who may receive superior re-
sults.”

Christy DeMeurers is no longer alive.

I think the ban on oral gags is particularly important. If
Congress acts to ban restrictions on written medical communica-
tions only, it will ignore a significant part of the problem motivat-
ing this bill and will tacitly encourage other plans to follow the ex-
ample of HealthNet. The bill passed by the Commerce Committee
contained a reasonable compromise on this issue.

To prevent plans from being subjected to a “he-said, she-said”
battle over alleged oral statements, the bill requires that proof of
a single incident to an oral gag be made by a “preponderance of
evidence,” a higher legal standard than the substantial evidence
test sometimes used in civil money penalty cases. This was a key
component of the amendment approved by the Commerce Commit-
tee and will give health plans greater defense against spurious
charges that are not backed up by any corroborating evidence.

Finally, let me be clear about what this bill will not do. It does
not empower the Secretary of Health and Human Services to scru-
tinize every contract or to place an inspector in every doctor's of-
fice. Instead, the legislation gives the Secretary the authority to ex-
amine cases of alleged gags when they are brought to his or her
attention. This is an appropriate balance that safeguards patients
against efforts to limit their access to critical information.


120

remove clauses from the contract, or does that have to come from
the Governor or the State elected body?

Ms. Musser. I am sorry. I do not know the answer to that. I can
find out and provide you with the information. A State’s authority
varies depending on requirements for filing.

Mr. CHRISTENSEN. Do most States require HMOs to establish a
process for consumers complaints, and how does Wisconsin handle
that area?

Ms. MUSSER. Most of the States have adopted the NAIC Model
HMO Act which establishes a grievance process. Wisconsin handles
it by providing, within the department of insurance, a grievance
process for all consumers, all plans are required to notify each plan
participant of our 800 number and plan participants right to file
a complaint on all their billing and other materials.

Mr. CHRISTENSEN. How is the term provider defined in that act?

Ms. Musser. In the grievance?

Mr. CHRISTENSEN. No. In the-—

Ms. Musser. In the HMO?

Mr. CHRISTENSEN. Yes. I am not certain, but I know that in the
health plan accountability standards, the provider terminology is
broad, similar to the definition in H.R. 2976.

Mr. CHRISTENSEN. OK.

Ms. Archer, I wanted to ask you, you stated that as originally in-
troduced H.R. 2976 would accomplish the goals that you had set
out for the needed change in this area. What changes in H.R. 2976
have occurred that you do not agree with and what would you like
to see changed to move back to the original H.R. 2976?

Ms. ARCHER. I believe that the physician disclosure of financial
incentives should be permitted. HMOs should not be permitted to
forbid disclosure of financial incentives. And also, that nondispar-
agement clauses should not be included in HMO contracts. I under-
stand the HMO’s business interest in keeping providers from
speaking against them. On the other hand, one doctor’s comment
either about the way the HMO deals with his or her particular spe-
cialty or the way the HMO deals with mental health from a gyne-
cologist is not going to affect the HMO business. More likely a re-
porter’s, who knows very little about care, story in the New York
Times will do that. And I think that open communication is always
a good idea.

Mr. CHRISTENSEN. In your testimony you stated that the ability
to terminate physician contracts without cause may have the great-
est chilling effect on patient-physician communications. Could you
explain more fully what you meant by that?

Ms. ARCHER. Well, it goes back to the point that’s been made
throughout the afternoon by some of the witnesses which is that
there may not be any gag rule in the contract with a provider but
the fact that the HMO can terminate a physician for any reason
will silence or can silence the physician.

Again, it is not going to be every physician who is silenced, but
the point is we want to encourage open communications between
physicians and patients. The HMO certainly will always have and
should have the ability, both to screen physicians before admitting
them to the network and to terminate physicians who do not prac-


126

In addition, more subtle, often unwritten, plan policies and procedures are used to impede
physicians ftom discussing treatment options if the plan does not cover those treatments. Recent
media reports have documented the use of a number of these “implied” gag clauses by health
plans that value cost containment and financial gain for shareholders over the well being of
patients.

Both explicit and implicit gag clauses are designed and implemented with the purpose to
control physician behavior and to limit patients’ access to the full range of information that is
needed to make informed decisions about the proper course of their medical treatment. While we
understand the legitimate business interest to control costs and avoid unjustified disparagement
of a plan's operations, such efforts should never undermine the quality of care received by
patients.

We note that many health plan contracts do not contain "gag clauses.” In addition,
several plans have voluntarily removed these contract provisions in response to negative media
publicity and the enactment of state legislative restrictions.

Gag Clauses Violate Medical Ethics

The fundamental issue that "gag clauses" present is an inherent ethical conflict of interest
for physicians, which strikes at the heart of the patient-physician relationship. The ASPRS Code
of Ethics states the general rule that “physicians should provide services under terms and
conditions which permit the free and complete exercise of sound medical judgment and skill.
(Code of Ethics for the American Society of Plastic and Reconstructive Surgeons, Section 1,
Paragraph VN).

Patients must be able to trust and rely on the information their physicians provide to them
regarding appropriate medical treatment and care. Indeed, even setting aside ethical concems,
physicians have a legal duty 10 make patients fully informed of their options regardless
of cost or potential payment limitations. Gag clauses, however, effectively place a wedge
between a physician and his or her patients. While a physician maintains an ethical and legal
duty to the patient. the plan's contractual language seeks to place an opposing contractual duty on
the physician.

Gag clauses erode a fundamental element of the healing process. Trust is the most basic
‘component in the patient-physician relationship, yet these clauses cause doubt in the minds of
patients, often at a time when they are most vulnerable.

Physicians find it increasingly difficult to act as patient advocates, our most basic
mission. If we advocate zealously on our patients’ behalf, we place ourselves in danger of being
dropped by the health plan. If we don't press hard enough, we don't live up to our ethical
obligations. Physicians need support to act as professionals, not as vendors of a third party to
control costs.

‘The Need for Federal Legislation: The Patient Right to Know Act

‘Negative reaction to gag clauses on the part of the public and media have resulted in a
number of states enacting legislation prohibiting gag clauses in recent months. Legislatures in
Massachusetts, Colorado, Georgia, Indiana, Virginia and Vermont have recently passed such
laws. Similar bills are pending in several states including California, Illinois, New York and
New Jersey. Oklahoma, Tennessee and New Jersey have moved against these provisions through
regulatory action.

However, action at the state level is not sufficient to remedy this problem. Many health
plans, such as self-funded ERISA-preempted plans, are not be reached by state law. In addition,
an increasing number of Medicare beneficiaries have begun to join managed care plans. Because
this population often uses a greater number of specialists, managed care gag clauses pose
especially acute problems for unsuspecting Medicare beneficiaries.


66

patients. The MCO acknowledged that it, like other MCOs, terminate only when a provider
no longer meets their selection and retention criteria, which are extra-contractual and not
shared with the physician or the public. In this case, apparently, the retention guidelines
called for the dismissal of physicians who complained too loudly about claims processing for
fear they may share their frustrations with their patients.

T have also been involved recently in a situation where the ‘without cause”
termination provision was employed to chill patient communications that a plan thought was
injurious to its commercial health. This incident occurred in a midwestern city of significant
size. A managed care organization that accounted for approximately 25%-30% of patients
in the city decided unilaterally that it would switch all of its obstetrician and gynecologist
providers from fee-for-service to capitation payment. The payment was to be provided to
cach obstetrician and gynecologist individually, rather than through a legitimate network that
could accept actuarial risk. (As you are no doubt aware, capitation is a single payment, per
member per month, made to a provider to cover all services required by a patient population
in a given month. If services provided are few, the provider makes more money. If services
are great, he loses.)

Most physicians did not feel they could afford to lose 30% of their practice. Even
if they could, their loyalty to their obstetrical patients prevented them from doing so. As
a result, most continued to be providers. But many physicians fully informed their patients
of the new compensation policy of the MCO.

Because it was open enrollment season for most employers at that time, and because
women inevitably drive the decision to choose a health care plan on behalf of themselves
and their family, the MCO began to notice an immediate loss of customers.

In response, the MCO, through its agents, contacted large numbers of those
obstetricians and advised them of the possibility that the MCO could end the relationship
shortly without having to state a reason. It appeared from my observation that the advice
had its desired effect. The obstetricians and gynecologists discontinued discussing the matter
with patients.

‘That was a good illustration of how an MCO can use its power to terminate without
giving a reason, thereby stifling what I believe to be legitimate physician communication with
patients. Nothing could be more appropriate than a physician fully disclosing to a patient
that he or she now has a financial incentive to pot treat, rather than to treat, a patient,
Nothing could be more appropriate than an obstetrician advising her patient in advance of
a pregnancy that her plan provides only for a 24 hour stay at the hospital after labor
delivery. The commercial result of such communication, however, may be that the patient
‘switches plans. In such event, a physician should not fear retaliation; and in case retaliation
occurs, she should not be left to speculate on why it occurred.

‘With that in mind, I would support, at a minimum, passage of H_R. 2976. However,
while it provides some protection for the physician-patient relationship, it does not address
all of the concerns I have expressed in this testimony. I will note, for the record, three
significant defects the Committee may wish to consider.

First, the prohibition on restricting medical communication between a health care
Provider and patient ot guardian i Limited only wo those restrictions that are part of a
written or oral communication made 10 the provider. This does not cover the concerns of
a vast number of physicians, who believe they might be terminated for violating an internal
‘MCO policy on physicians who speak too freely with patients, which policy was never
communicated to the physician. This concern could be alleviated by simply deleting the
phrase "to such a provider’ contained at lines 15 and 17 (Section 2(a)(1)(B) and (C)).

Second, the definition of "medical communication” provided in Section 2(b) is not
broad enough. Using this definition, a 2 physician ‘who fully disclosed to x patient the
capitated method by which she is paid and its possible impact on the patient's care, would


24

Now, in an Los Angeles Times article, it says here that there is
a court case with Pacific Care Health Systems with 11,000 com-
plaints. Pacific Care is resisting a demand by the State Depart-
ment of Corporations to access the internal records of their health
plan. The department, the State’s regulator of health HMOs says
it sought the records after the enrollees complained.

Now, in your bill, the original bill, you talk about protecting com-
munications—and I am jumping—but it says, with any State or
Federal authority who is responsible for licensing or oversight.
What I guess is, by taking that out, what you are saying is, any
doctor, let’s say, who talked to a State regulator or a Federal regu-
lator could be fired. Ought they not to be protected?

I suppose a State could go in and subpoena them under a crimi-
nal action, but we are trying to get away from that. We are trying
to get some interim control both at the State level and at the
Federal level where you do not have to go for a criminal action to
put somebody under subpoena.

Would it not be a good idea to free up the physician’s ability to
communicate with regulators?

Mr. GANSKE. Well, Mr. Stark, if I may address this. When we
dropped a couple of those provisions, first, I think there were some
concerns about communications back and forth between a provider
and the health plan and it was not essential for the bill. The sec-
ond part which was about whether there could be communications
between Federal and State regulators was—well, we did not have
any examples of plans trying to prevent that. So, if you have infor-
mation on that, I would be interested in knowing about it. Since
we had not really seen that as a problem, we just decided to delete
the language and simplify the bill.

Mr. Stark. I guess, and I do not know if we want to get into the
State issue, but it would seem to me that if there is going to be
future—if we are going to look at this both through Medicare, Med-
icaid or through the insurance regulations, we would not want to
provide a screen behind which a plan administrator could say to all
of the physicians, shut up or you will get fired. Then you have to
go through a whole legal routine to get testimony from them. It is
something we can discuss later.

If that was not a particular issue you were concerned about in
changing the bill, I would suggest that maybe we revisit that.

Thanks very much.

Mr. MARKEY. If I may——

Mr. STARK. Yes.

Mr. Markey. In the same way that the gentleman from Califor-
nia is raising issues as the gentleman from Washington and you,
this is not the Magna Carta yet. [Laughter.]}

Mr. Stark. That is an oak tree you are sitting under.

Mr. Markey. We will have the next 5 weeks at least to walk
through. If you have a real life example where you think that, for
example, there is a significant harm that would be created by our
inability to be able to extend this law into areas where we have
not, then I clearly would like to hear it. At the same time, we are
not withholding any protections that already exist. We have ex-
panded, we think, at this point as far as we could go realistically
in our Subcommittee at this time.


95

Mr. CHRISTENSEN [presiding]. Thank you, Dr. Jagmin.

Dr. Nelson, earlier one of the panels talked about the insurance
commissioners taking a look at this and letting it be handled at the
State level. In your opinion, what would be wrong with allowing us
to go that route as we are in, six or seven States now and growing,
rather than, as Dr. Jagmin has stated, down that slippery slope of
Federal regulation?

Dr. NELSON. Thank you, Mr. Chairman.

One of the roles I have in Utah, as being the deputy director of
our State Health Department—and there are many groups which
would not fall under that group—there are about 60 percent or
more of individuals who are insured by employer-owned insurances
which simply do not come under the regulation for a State insur-
ance commissioner.

Further, there are many patients also in Federal programs, spe-
cifically Medicaid or the State programs. So, a tremendously large
number of individuals would not be affected by that.

Mr. CHRISTENSEN. Dr. Jagmin, I wanted to find out under
PacifiCare how autonomous are the doctors under PacifiCare’s
managed care plans?

Dr. JAGMIN. When you talk about autonomous, I assume you
mean clinical decisionmaking processes?

Mr. CHRISTENSEN. Correct.

Dr. JAGMIN. We delegate medical necessity and the determina-
tion of clinical decisions to physicians in our network.

Mr. CHRISTENSEN. So, do they have to get approval every time
they are presented a case scenario versus a specialist, that type of
situation?

Dr. JAGMIN. Physicians in our network do not call the health
plan for approval. We delegate utilization management to provider
physician groups. Now, within their medical group, the physicians
may have set up mechanisms where they call.each other for ap-
proval, but we do not maintain a 1-800, call a nurse program, or
anything like that.

Mr. CHRISTENSEN. Do they lose money if they refer, as a primary
care giver, if they refer out of the network or to a specialist within
the network?

Dr. JAGMIN. Providers lose money if they refer inappropriately.

Mr. CHRISTENSEN. What is determined inappropriately?

Dr. JAGMIN. The physician who is taking care of the patient de-
termines what is inappropriate. If a patient needs care and the
plan’s physician or whoever is contracted to take care of the patient
does not take care of the patient, they will become sicker, they are
going to require more resources, they are ultimately going to cost
the system more. So, the emphasis in good managed care plans is
to determine illness, ‘discover it early, and treat it early.

Mr. CHRISTENSEN. How do the HMOs and, cifically
PacifiCare, encourage doctors to discuss all the possi le alter-
natives with the patient?

Dr. JAGMIN. Sometimes the health plans have to raise all the
possible alternatives with the patient and the physician. The

'ruCare issue we were talking about earlier is a good example—
PruCare has centers of excellence that they use for transplants.
When a member has an unusual disease that requires a transplant,


31

. ‘Sponsored Orga ( Reform initiatives, nd actively sought by most provider
puieiny wale ittmore Sel cay ou eSstvely etial anager! nis fer he ae esos tal weld
apply to health plans, and

‘© The cretion of precedent thet when business disputes arse between physicians and health plans, Congres wil be required to
ess evermore detailed laws controlling the management of health plans and physicians ~ a direction with which the maton as a
‘whole is not comfortable.

AProposal

‘As the health care marketplace continues to evolve, pressures to provide accountable, high-quality
‘pon the best medial practices and outcomes wil only increase. AS a condition of enrllng ins health plen, many employers are
roving to sek comparative “report cards” and other standardized quality information about health plans. Additionally, goverament
‘tions may also change the health care landscape. in the coming years, these market and goverment pressures will nly intensify

‘Aghinst this backdrop, the controversy surrounding “gag clauses is being debated. It is my understanding that this hearing is being
‘held to address many questions, including

‘© What isthe problem surrounding the perception by providers that they are being “gagged?”

‘+ Lfthere is indeed # problem, what is the scope ofthe problem? Is it system-wide or does i rest largely with a few “bad

“apples” the managed cae industry?
+ How can an be made ofthe issues ng plysiciabealth plan ng and physcianpatient
comununeation?

‘© What systemic processes do health plans have in place that balances the concerns of providers and health plans and the
patients they serve? 1a health plan does not have a system in place, should that absence be taken as # measure ofthe
plan's overall quality?

‘Mr. Chairman, to answer many ofthe questions surrounding these concems, Emst & Young LLP would like to submit for your
‘consideration the following’

Eraxt & Young LLP would consider: hing a0 of a representative: and non-staff
Ide! HMOs to valde he proces Degetng he “onurrctulrelaoutlpbetmees provers tnd bent pa

and to impact on

‘Ths cramisntion would encompes the verow pec af be phyicte/eath pan relationship and is pact on patient are,

an have clauses in place in their provider contracts which constitute the commonly accepted
= that Is, restrictions on discussions by a contracting provider with » health plan member
regarding the fll range of options tothe regardless of fait by the plan?

+ Bern Does the plan explicitly promote, through both Its legal and QA processes, open and full communication between
rs and thelr patients? Ifauch communleations are indeed hindered Is the problem surrounding the “gag” Issue at
the plnespotemc or Indvidua in nature?

Me, Chairman, Ernst & Young LLP is pleased to offer our services on a pro bono basis and would collaborate with industry associations
and plans. We would develop a survey technique that would allow the plan to demonstrate its management practices with regard to this

Me, Cana, dunk you anf opty oy. Is the canag mont, ook ferro wring wih yo ote Maer
of the: here today to answer the ‘surrounding the “gag” issue. At this time, would
Se upy tw anor any eesors yuma ate dot eer hem” ve oo Popes



56

purchasing decisions based upon publicly disclosed evaluations, accreditation ratings and
adverse news reporting. These important factors tend to keep both physicians and especially
‘managed care companies in check. Without a good quality reputation, employers and their
employees will simply choose another plan or another physician.

Conclusion

Medical care is changing, and physician agreements are also changing. Sometimes, changes
have both positive and negative results. ‘The doctor-patient relationship is probably not as
intimate as it was, and it certainly is not as unfettered. Many health care markets are
moving in the direction of managed care provided by large scale organizations that contract
with physicians. This is a firmly established trend. The issue before you is whether the
situation calls for more federal regulation, or whether the market, as influenced by
professional ethics, malpractice considerations, accreditation requirements, customer
satisfaction, and the good faith of professionals, can prevent significant abuse.

Attachments




27

between physicians and health plans to require the physicians to
respect and maintain the confidentiality of the business secrets of
the health plans, the most common example being fee schedules
and capitation schedules and, in some cases, also secrets of third-
party vendors.

Clauses related to the health plans’s market position are de-
signed to prevent a contracting physician from taking actions or
making statements that would harm the business interests of the
health plan. The most common example are restrictions on a physi-
cian from encouraging patients to join a competing plan for what-
ever reasons, but primarily because the other plan pays better.

The clause also encompasses the possibility that the health plan
terminates its contract with the physician. The physician then en-
courages patients to switch to a plan that does continue to cover
the services of that physician. Both of these positions are very eas-
ily understood and obviously easy to defend, but they are primarily
economic. The health plan wishes to maintain its membership base.
The physician wishes to maintain his or her patient base. It is dif-
ficult to state which party in any given event may have the better
economic case.

Contracts between health plans and physicians commonly con-
tain language contractually requiring physicians to comply with the
medical management program. Such medical management pro-
grams, which are the hallmark of managed care, usually focus on
utilization management and quality management. Problems may
arise when the physician and the health plan disagree about a
course of treatment or when the physician or health plan want to
use a particular provider or hospital but the health plan does not
use that provider or hospital.

I personally know of no health plans that deliberately and/or sys-
tematically deny medically necessary services to members, al-
though the ongoing debate about the definition and, therefore, cov-
erage of experimental investigational medical services makes this
issue an ever changing one. It is not in the best business interests,
to say nothing about the moral, ethical and legal interests of either
a health plan or the physicians that it contracts with to deny truly
needed care. If care is truly needed and not provided, the patient
gets sicker and is likely to become more expensive to treat in the

ture.

In addition, if either the plan or the providers engage in such
systematic or deliberate behavior, the effect on the market and
sales would ultimately be very detrimental.

Health plans usually have contract clauses that expressly state
that the health plan is not in the practice of medicine and the phy-
sician is obligated to undertake the proper clinical course of action.
Health plans routinely include such clauses for several reasons, not
the least of which is to lower their exposure under joint and several
responsibility or respondeat superior. A gag clause would under-
mine the risk management aspect of that clause in the contract.

The conflict between providers and health plans may not be legal
or contractual, but rather lie in the implementation of those con-
tractual terms. I will be the first to acknowledge that it is more
than possible that some health plans and some medical directors
are inept at carrying out their functions, whatever the actual policy


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96

they can go to a center of excellence. Involving a national center
broadens the range of choice and opportunities.

In my particular case, I have a friend in San Antonio who is an
attorney whose daughter has cystic fibrosis. At age 26, she is still
alive and required a lung transplant. PruCare arranged for them
to go to Barnes, in St. Louis, which is one of the best programs and
they were very happy with the outcome of that care.

Mr. CHRISTENSEN. Should a patient have the right to know finan-
cial arrangements and incentives that doctors have with managed
care organizations?

Dr. JAGMIN. Yes. I think patients should have a right to know
incentives. I do not think they should know proprietary information
and I will give you an example.

When I was practicing in my group, we put out a letter to our
patients and said, you've joined our practice. You should know if
you are a PacifiCare patient, we are paid by capitation. We are ac-
countable for your health care and here is how we are reimbursed.

We found that to be a fair and equitable way to be reimbursed.
We did not tell them our capitation rate is x dollars and cents per
member per month because that would be proprietary information.

Dr. NELSON. Mr. Chairman, it is so much more subtle than that.
Let me tell you about a real live patient not too long ago and I will
do it as briefly as I can. Just to tell you the bind we are in.

I am an obstetrician-gynecologist and I see high-risk patients. I
hope they do not become high risk because they come to me but
high risk in the first place. This is a patient I had not rendered
care for before, who had five previous cesarean deliveries. She was
pregnant for the seventh time, having had a miscarriage. It was
about 33 weeks out of 40 gestation. She was in preterm labor.

Now, the question is, what do we do? Every once in a while at
33 weeks, a patient will be mature enough that if her baby were
delivered it might do very well, with intensive care but very expen-
sive intensive care. If the baby were not mature, if we simply kept
it in the womb a little bit longer it could become mature relatively
rapidly with not much difficulty.

In this particular case, it also meant an expensive operation
which, of course, puts the patient at some risk. Now, what do we
do? Because of my training I did what I thought I was supposed
to do: I called an expert. A colleague of mine who is a perinatal
doctor, a person specializing in high-risk obstetrics.

We agreed together that the appropriate thing to do was to do
an amniocentesis and remove a small amount of fluid from the
womb, analyze that and see if the baby were mature and make our
decision based upon that. As I had the abdomen prepped, the pa-
tient reminded me that she was a member of corporation. Of
course, I took my sterile gloves off and called XYZ. I do not know
where the people came from, and I am sure the person I talked to
did graduate from high school, but not much more.

That person could not spell amniocentesis, could not tell me if it
was covered or not, and could not find a supervisor who could tell
me. I was finally told, after many minutes on the phone, that this
was not a covered benefit. Now, what am I supposed to do?

Am I supposed to allow my patient to go into labor, maybe let
her baby die and, at any rate, cost thousands and thousands of dol-


118

have an open drafting process in which we invite public participation, both at our quarterly meetings and
through writen comments solicited by circulating our draft models. We hope that the expertise of sate

regulators in dealing with highly i combined with extensive
fais np om the eject of heath care bfomatin, wil nahc to conn ote cunea effort
define a regulatory framework for health information.

Existing NAIC Models and State Laws Governing Managed Care Plans
NAIC Health Maintenance Organization Model Act, Preferred Provider Arrangements Model Act,
and the Prepaid Limited Health Service Organization Model Act

‘The proposed NAIC health plan standards expend upon many of the protections within the
NNAIC’s existing model laws and those in place in many of the states. Forty-nine states have laws
regulating HMOs and 29 of these laws are based upon or sir iar to the NAIC’s Health Maintenance
‘Organization Model Act. This act i several Protections, including specifications for
‘group contracts, requirements that HMOs maintain a quality assurance program and a grievance
procedure approved by the state agency, and ity and it Sy protections. The
proposed health plan models therefore build upon existing requirements in place in many of the states,

‘The NAIC’s Preferred Provider Arrangements Model Act contains requirements relating to
disclosure, access, and provider contracts to ensure that consumers of preferred provider arrangements
‘are informed of differences in benefit levels and that providers are not unfairly discriminated against,
‘among other protections. The NAIC’s Prepaid Limited Health Service Organization Model Act contains
Protections for enrollees of managed care plans providing a limited number of health services, such as
dental care services or vision care services. These models have served as the basis for several state laws
in these areas.

In the NAIC's ERISA white paper (ERISA: a Call for Reform) and in our testimony before
Congress over the past year, we emphasized that all consumers of health care coverage should have the
benefits of certain critical consumer protections. We would like to highlight that a significant portion of
the health care market, including the managed care health care market, is outside the jurisdiction of state
law. ERISA-govemed plans differ from state-licensed managed care plans in terms of the applicable
financial and other licensure requirements. However, the plans are similar in theit ability to restrict
enrollees” choice of providers and (o specify requirements in provider contracts. Hence, many of the
same provider contracting issues that arise in the regulation of state-licensed plans and HMOs also arise
in the ERISA context. The NAIC Committee appreciates that H.R. 2976 extends its scope to ERISA
plans, over which the states do not have jurisdiction, and thereby recognizes this market reality. The
NAIC Committee also recommends consideration of additional protections for such plans so that
‘consumers of both ERISA-governed and state-licensed health plans have similar levels of security and
¥y to challenge any possible unfair treatment by health plans.

AAs insurance regulators, we are concerned about consumer protections, which include the fair and
equitable treatment of enrollees and providers in their dealings with health plans. We believe that the
application of health plan standards to all health plans will help ensure that the health care received by
‘consumers is of the highest quality and will ensure that consumers receive medically-necessary care based
‘on medical decisions. We believe that the augmentation of consumer protections represented in the
proposed NAIC’s models, together with the upcoming development of a consolidated licensing scheme,
‘will ensure that all state-licensed health plans that finance and deliver health care will be solvent and able
to deliver the services promised.

We urge you to maintain the states’ ability to implement innovative and effective protections for
reform of the health insurance market. By doing so in H.R. 2976, as in H.R. 3103, you have recognized
the expertise of the states in regulating the health insurance market and in dealing with health insurance
reform.

‘We appreciate the opportunity to testify before this subcommittee conceming the NAIC's and state
‘activities in this area. The NAIC looks forward to continuing to work with the 104th Congress as it
attempts (o enact meaningful market-based reforms of the health care insurance market.



37

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878.

The Managed Health Care Handbook, 3rd Edition.

by Peter R. Kongstvedt, MD, FACP.

rear pase co Se fim page fer tenis

tive simplicity.
ee TIEn tegen learns by efrnce
ether documents, some of which will be ap-
(pended t0 the agreement as atachmencs or ex-
‘bhibits. As discussed further below, managed
‘heaht care plans traquently reserve the right to
‘spend some of these referenced documents ei-
laterally

‘The contract's foren or structure is intends 4%
accomplish three purposes: to simplify =
seader's ene and understanding of the agree-
‘text, to facilitate amendment or revision of the
contract where the contract form has been weed
for many providers, and to streamline the admin-

any representative of the managed health care
‘Plan oF the provider who has a2 ioterest in an
iasue will be able wo find the pertinent contract

‘by managed health care plans t promote effi-
Gleacy io administering many provider coa-
‘tracts. The managed health care plan, to the ex-
‘temn possible, could design many of its provider

Fre,
‘eases the adminiserative burden in drafting and
revising contracts. Second, if an appendix or ex-
[bit is the only part ofthe contract tha is being.

Copyright 1996.

trvended and hes 8 neparsie sats insoranc éo-

ecnsidersticn for renewal and the bey ins is
(the payment rete, having the payment rae lead

‘The initial paragraph of the comract wil idee
tify the memes of the parties entering isso te
agreement. is always a pood ince o near tat

“warvacs that fe mochorized to sign co behalf of
‘the sonsipning party. If the nousigning party i
‘och sronger inancially then the signing pay,
he would be worthwhile t heve a represcamsion
directly from the nonsigning party thas te sip
Sng party ay exterior cn

se-losured exnployer a party wo the agreement?
AY not, what assurances does the provider bere
(at the self-dasured exmployer will fulfill i
eponsibiltes?

Authored


79

relationship. If patients are to be truly free to make informed medi-
cal decisions, the bill should be strengthened to resemble more the
original measures introduced.

Responding to the loud public outcry against gag clauses, States
have begun to enact “antigag clause” legislation. Given the number
of States moving forward, we expect some to ask, Is the Federal
antigag clause necessary? We say, emphatically, yes, because even
if all the States enacted similar measures, not all health plans will
be reached by the State law. Consequently, Federal legislation is
necessary to make all the gag clauses null and void.

In conclusion, the AMA maintains gag clauses and, more impor-
tantly, gag practices create an unacceptable ethical conflict of inter-
est for physicians. It is simply bad medicine. We will continue to
work to support H.R. 2976 and help physicians and our patients
fight gag clauses. The AMA stands ready to work with you; we will
do all we can to help and I am certainly willing to take questions.

Thank you very much.

{The prepared statement follows. The attachments are being held
in the Subcommittee files.}




Ce NY AH eB WN

RBBRYBSESARAESEES

2
(b) Finpines.—Congress finds the following:

(1) Patients cannot make appropriate health
care decisions without access to all relevant informa-
tion relating to those decisions.

(2) Restrictions on the ability of physicians and
other health care providers to provide full disclosure
of all relevant information to patients making health
care decisions violate the principles of informed con-
sent and the ethical standards of the health care
professions.

(3) Serious concerns have been raised about the
use by health plans of contractual clauses or policies
that interfere with communications between physi-
cians and other health care providers and their pa-
tients and the impact of such clauses and policies on
the quality of care received by those patients.

(4) The offering and operation of health plans
affects commerce among the States, health care pro-
viders located in one State serve patients who reside
in other States as well as that State, and, in order
to provide for uniform treatment of health care pro-
viders and patients among the States, it is necessary
to cover health plans operating in one State as well
as those operating among the several States.


34

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878.

The Managed Health Care Handbook, 3rd Edition.

by Peter R. Kongstvedt, MD, FACP.

Copyright 1996.

Legal issues in Provider Contracting

‘The business of a managed health care plan is
to provide or arrange forthe provision of health

\vider and the managed health care plan. More-

art 5S Soe in an ancrney in private practice is Wash
(gen. D.C. md specialises in Segal and sins ines af
‘cng managed bath care delivery symems, lactating
(000 nd PPO

Me. Sotte ws previcaly the Associa Comacl, Group
Meh Asocinice of Americs, the MMO wade asccistion.
‘Phar tet position, br was a Senior Amoresy with the Of-
{in of tn General Counsel, Departmen of Hanke and He-
ane

Joe as w Masts of Ars dngres in Hette Servicas
‘tiinren Te Ong Washing Unrate ie
‘miemes Profesotal Lacuure in Wasi Services Adwinio-

Mark S. Joffe

‘over, « good contrac can provide important and
seeded provections to both parties if the relation-

ship sours,

‘This chapter is imended w offer wo the muan-
‘aged bealtb care plan and the provider a practical
Buide to reviewing and drafting & provider con-
tinct, Appendines 55-A and 55-8 are a sample

sentence len. agreement berween a bospitu and
‘8 managed health care plan that aays that the
‘bospital agrees to provide access 0 is facitty 10
‘exrollecs of the managed health care pian ia ex-
change for payment of billed charges is a valid

contract. If s single-paragraph agreement is be-
‘pally binding, why is it necessary for managed
‘bealth care contracts to be $0

lengthy? The answer is twofold. First, many

Authored


65

Sometimes, such clauses are explicit, though not nearly as direct and bold as those
that have recently been reported. For example, I would put the following clause, which is
fairly common, in the category of “gag clause” because of its chilling effect on
communication between physician and patient:

“During the term of this agreement, provider shall not advise or
counsel any member to disenrol! from the HMO, and will not
directly or indirectly solicit any member to enroll in any other
HMO or PPO or similar health care service plan or insurance
program."

At first blush, this clause sounds commercially reasonable to one not sensitive to the
physician-patient relationship. Naturally, the HMO wishes to protect what it perceives to
be an economic property interest in its patients. In consideration for allowing the physician
to intrude into the relationship it maintains with those patients, it desires to prevent her
from providing any advice to Re Patient that would have the effect, directly or indirectly,
of causing that patient to switch out of the HMO and into a standard indemnity insurance
plan.

It sounds reasonable, that is, until you consider the predicament of a physician at the
conclusion of her patient examination. When the patient asks her whether she will be able
to provide cutting edge cancer treatment in the event that tests show the patient has breast
cancer, how do you suppose the physician will respond?

If the physician answers fully — that the patient's plan might not pay for such leading
edge treatment — the conversation will logically progress to plans or programs that would.
In that conversation, the physician will likely materially breach her agreement with the
MCO, because the net effect of her answer to the question may be that the patient switches
into an indemnity or other plan to be sure of coverage in the future. In short, the physician
may have effectively counseled the patient to disenroll from the HMO.

Despite its otherwise commercially reasonable appearance, this clause prohibiting
such free communication between physician and patient is unreasonable in practice when
applied to the relationship between patient and physician. No party to this agreement
should have @ proprietary interest in a human being ~ the patient -- that is subject to the
application of commercial law. The MCO is first and foremost an insurer. The patient has
simply chosen it to manage the provision of care and provide coverage, as inexpensively as
possible, from the risk of loss associated with that care.

Neither does the physician have a proprietary interest in the patient. The physician
does, however, have duties to the patient that are well settled in law and provide the
foundation of what we refer to as the physician-patient relationship. The physician has the
duty to diagnose and recommend a course of treatment to the patient. The physician has
the duty to treat and not abandon the patient. And she has the duty to fully inform her
patient, free of commercial concerns, of all relevant treatment options.

Even when such a clause is not contained in an agreement, an MCO may deem the
physician-patient communication described above, which results in a patient leaving the
MCO’s plan, as reason enough to terminate the physician ‘without cause". In the past 24
months I have witnessed many occasions of physician clients terminated without cause and
without explanation. In each case the physician suspects that the termination is the result
of over-aggressive patient advocacy, but it is impossible to test the theory because no
explanation need be given.

It is virtually impossible to bring an action against the MCO to discover the reason
for the termination under the current state of the law. In one freak circumstance, where we
were able to properly threaten an action because of a unique set of facts, the MCO relented
and provided the reason for the termination. The physician had apparently been unhappy
with the processing of patient claims and the MCO feared he was discussing the subject with


74

medical school nobody ever thought of ever selling your practice to
a hospital or some kind of managed care operation.

But that’s what’s happening today. There is a major revolution.
I do not have to tell you that. This doctor brought his patients in
assuring them that they will get the same kind of care in the man-
aged care operation that they got when he was in private practice.

He treated an elderly woman, she was about 75 years old. Later
he had to tell her that he could no longer see her, he had been fired
by the managed care operation because he did not deliver care ac-
cording to the standards of that managed care company.

Now, there is a tearful scene with the 75-year-old woman stand-
ing there saying, “You mean I am going to have to start with a new
doctor and I am going to have to explain my whole life to these peo-
ple? And there is an ethical dilemma here that this bill is a kind
of a blunt instrument trying to reach at but there is going to be
something passed out of the Congress. You are going to get treat-
ment du jour or medicine du jour from the Congress and the State
legislatures because of the issue that that illustrates.

And that is the question of when the physician is standing there,
knowing that he or she is going to be fired by the managed care
operation if they do something that is implicit or explicit or in the
contract or whatever, then they are going to make decisions for
their patients which are based simply on money, not on quality of
care.

Now, doc, I want to say doctors are all great people, we are, and
we try, but there are a few that will be impacted by money. And
the American public is not protected when the physician’s liveli-
hood is on the stake. And my question to you is, in these cases or
in these situations, number one, Does the doctor have an appeal
process that really allows him or her to go back to the managed
care operation and say, You cannot fire me, you cannot terminate
this contract?

And second, the malpractice questions. Some, one of you com-
mented—I read your written testimony—that doctors are supposed
to indemnify the plan. So, if I make a decision and there is a law-
suit has anybody ever put forward their contract and said, Well,
my managed care contract said I could not do that or was prohib-
ited from doing it and, therefore, I am not committing malpractice.
it is the managed care operation that is committing malpractice.

I would like to hear some talk about that issue, because the doc-
tors feel caught in the squeeze between their livelihood and doing
what they think and always knowing that there is this hammer
that can come in the darkness.

So, any one of you or all of you?

Mr. STOCKER. Well, first of all, and again, there may be examples
of it, but I do not see a situation where a managed care company
is going to fire somebody for making a comment to a patient. In
a typical managed care network you have several thousand doctors
and they're doing things and the managed care company is doing
things. And it is only when an issue rises to a very high level that
there’s some action taken.

But also you have got to look at the structure of the profession
and the industry now. You are getting more large-scale organiza-
tions and you’re having doctors who are working for other doctors


H.R. 2976, THE “PATIENT RIGHT TO KNOW
ACT OF 1996”

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

JULY 30, 1996

Serial 104-93

Printed for the use of the Committee on Ways and Means

ee

U.S. GOVERNMENT PRINTING OFFICE
45-118 CC WASHINGTON : 1998

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-057039-5
3



100

Dr. NELSON. I would be very happy to submit that.

{The information was not available at the time of printing.)

Mr. McDERMOTT. One of the things about this that is very dif-
ficult to talk about in detail but it is on television and that’s why
we get the term gag clause. There are no obvious gag clauses. But
there are these subtle pressures on people which I find very hard
to believe that a managed care operation is not using one way or
another.

You say you are not. So, I think you make a very serious error
in coming here on a business basis and allowing all this bad public-
ity to continue going because you resist having a law in place
which prevents the use of gag rules.

Thank you, Mr. Chairman.

Mr. CHRISTENSEN. Mr. Cardin.

Mr. CARDIN. No questions.

Mr. CHRISTENSEN. Dr. Nelson, I just have a couple of other ques-
tions. First of all, the bill that passed the Commerce Committee ap-
plied to all providers not just physicians. How does the AMA or
yourself, personally, fee] about the free communication of medical
advice not just from a physician but also, say, from hospital nurses
and other medical personnel?

Dr. NELSON. I suppose, Mr. Chair, it would have to do with in-
tent. We would think that information from any source is bene-
ficial. A very simple example. If you were to have the misfortune
to have adult respiratory distress syndrome, a very serious disease
which kills lots of people, you would hope that that happened to
you in Salt Lake City, because we have the best outcomes in the
world, literally.

But the fact is that when rounds are held—the rounds are con-
ducted by the attending physician, the resident physician, the in-
tern physician—the nurse, the nurse specialist, the physical thera-
pist, the respiratory therapist, the occupational therapist, the social
worker, the clinical pharmacist, and so forth, we do everything as
a team. So, if anyone of those members found a problem with the
process we would want that information.

Mr. CHRISTENSEN. OK.

I have no further questions. I would add, Dr. Jagmin, I think you
have a very difficult position. I mean I think you are in a bit of
a quandary. In one aspect I understand the position you are taking,
because I understand, you know, the group that you also work for.
But, I also believe that this is an area that needs to be addressed
and investigated. It is tough for you to have to be in the position
that you are in.

l appreciate your testimony.

Dr. JAGMIN. I understand, Mr. Chairman, there is one point I
would like to clear up from Congressman Stark’s comments earlier.

Mr. CHRISTENSEN. Yes, sir.

Dr. JAGMIN. California was requested by the State government to
supply over 50,000 patient charts for review of complaint issues in
California, which run a little bit less than 5 per 1,000 members per
year. Those 50,000 charts included 39,000 members who had never
complained about the health plan.

Imagine having your personal chart put into the hands of the
State government where we know that confidentiality is not always


123

And if we do not make the patients aware of that, then we do
not have the HMOs truly competing in the marketplace and
consumers are not making the choices.

Mr. CHRISTENSEN. Thank you.

Ms. Craft.

Ms. CraFt. Yes. I would like to repeat that I think there are a
lot of unclear and ambiguous points within this bill and to over
simplify, if I could liken employers sponsoring ERISA plans to chil-
dren getting on a schoolbus, right now those employers get on the
bus and they know that DOL is driving the bus and they know
what the rules are. According to this bill, with all the different lay-
ers of people that could be involved in regulation, how many driv-
ers is the bus going to have?

Mr. CHRISTENSEN. Well, we are going to try to hopefully make
this bill a better bill when it comes out of our Subcommittee.

I want to thank you all for your testimony and I appreciate the
time that you have taken out of your schedule this late afternoon.

The Subcommittee stands adjourned.

(Whereupon, at 4:31 p.m., the hearing was adjourned.)

{Submissions for the record follow:]


“tao H.R, 2976

To prohibit health plans from interfering with health care provider
communications with their patients.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 27, 1996

Mr. GANSKE (for himself, Mr. MARKEY, Mr. BARR of Georgia, Mr. BOUCHER,
Mr. Copurn, Mr. DuRBIN, Mr. GENE GREEN of Texas, Mr. JOHNSTON
of Florida, Mr. KENNEDY of Massachusetts, Mr. KLECZKA, Ms.
LOFGREN, Mr. MCDERMOTT, Mrs. MEEK of Florida, Mr. MORAN, Mr.
NADLER, Mr. SANDERS, Mr. SERRANO, Mrs. SMITH of Washington, Mr.
Stark, Mr. Stupps, Mr. TRAFICANT, Mr. WAXMAN, Mr. WHITFIELD,
and Mr. Wise) introduced the following bill; which was referred to the
Committee on Commeree, and in addition to the Committee on Ways and
Means, Economic and Educational Opportunities, and Government Re-
form and Oversight, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall within
the jurisdiction of the committee concerned

A BILL

To prohibit health plans from interfering with health care
provider communications with their patients.

1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE; FINDINGS.

4 (a) Suort TITLE.—This Act may be cited as the
5 “Patient Right To Know Act of 1996”.

Iv


101

observed. So, the judge who ruled on that case in California agreed
with PacifiCare. PacifiCare ultimately did provide the charts for
which there were complaints documented for which there were con-
cerns.

Dr. NELSON. There are a lot of other ways to handle it. In the
State of Utah, where the health department does have access, we
are so incredibly careful about confidentiality that we cannot trace
the chart back to the patient or to the doctor.

But we certainly have the information. it is by that information
that we can improve the quality of care.

Mr. CHRISTENSEN. Thank you both for your testimony.

The next witnesses, please, come forth.

Josephine Musser, vice president of the National Association of
Insurance Commissioners; Diane Archer, executive director of Med-
icare Rights Center; and Lisa Craft from the Blue Ridge Regional
Health Care Coalition.

STATEMENT OF DIANE ARCHER, EXECUTIVE DIRECTOR,
MEDICARE RIGHTS CENTER, NEW YORK, NEW YORK

Ms. ARCHER. My name is Diane Archer, and I am the executive
director of the Medicare Rights Center, a national nonprofit organi-
zation that works to ensure equitable access to quality health care
for seniors and people with disabilities on Medicare. 1 thank the
Subcommittee on Health for inviting me here to testify on the Pa-
tient Right To Know Act.

The Medicare Rights Center, under a contract with the New
York State Office for the Aging and with funding from the Health
Care Financing Administration, operates a telephone hotline that
provides direct assistance to more than 6,000 people each year who
have health insurance questions and problems.

More than 20 percent of our cases concern HMOs. Most of these
cases are from clients who want to know whether they should re-
main in fee-for-service Medicare or switch to an HMO, or which
HMO to choose and how to distinguish among them.

Our staff spends considerable time studying the HMOs in New
York State but we are still unable to offer much guidance. HMOs
do not disclose the basic information our clients need to know to
make informed health care choices.

In particular, they do not disclose the specialist to whom patients
will have access for a particular health condition, or the cir-
cumstances under which they will cover particular treatments for
cancer, heart disease, stroke, and other costly and complex ill-
nesses. To compound the problem, many HMOs do not allow their
network physicians to disclose two crucial types of information that
their patients need to know in order to make informed health care
choices.

First, some HMOs prohibit their doctors from disclosing treat-
ment options which the HMO will not authorize even when the
doctors believe these treatments may be in their patient’s best in-
terest. While HMOs might have good reason to regulate the care
that network doctors deliver, permitting HMOs to prevent full dis-
closure of all medically appropriate treatment options serves no
public interest.


22

Your wife or your loved one needs to know what their options are
in order to make informed consent in order to get the best treat-
ment.

Now, if that plan has in their contracts that they are not going
to cover a type of treatment, let’s say, bone marrow transplants,
that is fine. The patient should know whether a bone marrow
transplant is an option for them and then they can take up the
issue of whether this is authorized or not with the company.

Chairman THoMas. In the legal advice provided by the gen-
tleman from Washington and your negotiations on the legislation,
all of the examples that were used were fairly obvious in terms of
types of doctors being able to make broad-based recommendations.
Even in the example of the therapist, I think it makes some sense.
I just think when you use the definition—and I am trying to ex-
plore all of the folks who are covered by that very expansive defini-
tion—you reach a point where you are in the chair with a dental
hygienist cleaning your teeth and they are talking about something
they read in People Magazine. It seems to me, that is a bit far
afield in terms of what would be protected in this kind of legisla-
tion, based upon the gentlemen’s concerns and the continued,
repeated examples, including the one that he just gave.

In fact, I found it interesting. In my preparation for this, I read
a number of booklets that are now being prepared to advise doctors
on how to deal with contracts with managed care organizations or
MCOs, as this one book called them, the “Legal Analysis of Man-
aged Care Contracts.” I do want to underscore, because I believe,
Dr. Ganske, you said in your opening comments that you do not in-
tend for this legislation to cover someone who might make dispar-
aging remarks.

For example, in this document, “Legal Analysis of Managed Care
Contracts,” on page 11, they talk about marketing issues. They talk
about how some contracts include provisions that prohibit you from
encouraging any member to disenroll and from making disparaging
remarks about any physician participants in the plan or the plan
itself. “I would recommend that you get an MRI, but your health
care plan is too cheap to pay for it.” Then in offset type it says—
this is the contract language. “Provider shall not make and shall
not use his best efforts to insure that no employer of the provider
or subcontractor of the provider makes any derogatory remarks
regarding HMO to any member.”

That is not your intent as I understand the provisions in your
bill; is that correct?

Mr. GANSKE. Mr. Chairman, that is specifically the issue of a
conflict of interests in terms of a provider bad-mouthing a plan in
order to move a patient into a plan where their fee schedule may
be better. It is a valid concern and that is why we added language
to the bill that specifically preempts that.

Chairman THOMAS. I wanted to get that on the record.

Then on page 12, they go on in advice to doctors in——

Mr. GANSKE. Mr. Chairman, what are you referring to?

Chairman Tuomas. This is a Legal Analysis of Managed Care
Contracts, Managed Care 2000, from Astro Merck [phonetic], a se-
ries of family practice management monographs developed through
an educational grant from Astra Merck. It is sponsored by the


81

“The patient has the right to receive information from physicians and to discuss the benefits,
risks, and costs of appropriate treatment alternatives. Patient should receive guidance from
their physicians as to the optimal course of action.”

In addition, the AMA's Council on Ethical and Judicial Affairs, the AMA entity responsible
for maintaining the Code of Medical Ethics and providing authoritative interpretations of its
contents, has recently stated that:

“The physician's obligation to disclose weatment alternatives to patients is not altered by any
limitations in the coverage provided by the patient's managed care plan...Patients cannot be
subject to making decisions with inadequate information. That would be an absolute violation
of the informed consent requirements. If these clauses are carried out and the physicians are
subject to sanction, a reduction of patient quality of care will result” (see attachment).

The AMA staunchly believes that patients must be able to trust and rely on the information
their physicians provide to them regarding appropriate medical treatment and care. In short,
physicians, as providers of health care, have an ethical and legal duty to ensure that their
patients are fully informed of their options regardless of cost or potential treatment limitations.
Unfortunately for patients, “gag clauses” create a real or perceived potential conflict of
interest for physicians by placing a wedge between them and their physician. “Gag clauses”
and “gag practices” wear away at a most fundamental element of the healing process -- trust.

WHAT ARE “GAG CLAUSES”

‘The Subcommittee’s “Hearing Advisory” suggests that “gag clauses” fall into three categories:
1.) Those that restrain disclosure of treatment options;
2.) Those that restrain disclosure of payment and financial incentive arrangements; and,
3.) Disparagement clauses.

We would respectfully add two other types of “gag clause” provisions:

4.) Those that prohibit communicating with patients in the event the physician is
“deselected” (raising concerns of continuity of patient care); and,

5.) Those that prohibit physicians from referring patients to other specialists or
facilities not participating in the plan.

‘Assuming that medical communications are being made in good faith by a physician to a
patient, these contractual provisions are designed and implemented with the intent to control
physician behavior and to limit a patient's access to the full range of information that is needed
to make informed decisions and provide informed consent about the proper course of medical
treatment. While we acknowledge a legitimate business interest in attempting to control costs
and to avoid unjustified disparagement of a plan’s operations, we firmly believe that such
efforts should not undermine the quality of care received by patients. To be sure, not all
health plan contracts contain written “gag clauses,” yet some in the managed care industry
have stated that “there are no gag rules” in managed care contracts. While we strongly
disagree with this latter statement, we do agree with the recent editorial in the Los Angeles
Times which states “today HMOs are less likely to require physicians to sign restrictive
contracts than to simply fire them for referring too many patients to expensive specialists” (sce
attachment).

WRITTEN AND UNWRITTEN “GAG CLAUSES”

Recent media reports in Time Magazine, USA Today, The New York Times, Chicago Tribune,
NBC Nightly News, Newsweek, National Public Radio, Boston Globe, CNN, Newsday, AP,
and the San Francisco Examiner have documented a number of written and unwritten “gag”
practices. While all differ in detail, most tell a story of health insurance programs that value


76

Mr. McDermott. And what kind of success?

Mr. Rust. Absolutely zero and the reason is that no plan in their
right mind would ever tell the physician the reason they were ter-
minating them. Every time a managed care plan wishes to termi-
nate a physician, they exercise the without clause provision.
Whether or not it has to do with gag clause, bad care, rotten what-
ever, it just does not make any sense for them to do otherwise, be-
cause they have the legal power to do it. And they would have to
be absolutely crazy not to.

Let’s talk about the reality for a moment. Let’s assume, as my
colleagues are suggesting, that the managed care organizations are
a bunch of very sophisticated players who would never do some-
thing like this or exercise a gag clause. But, at the same time,
they're turning over that responsibility to large organizations of
physicians. And that’s happening.

So, now, we are going to have provider agreements under the
large group of physicians. Now, we all know that physicians are a
bunch of greedy yahoos, so, what do you think the physicians are
going to do if they have these clauses? They’re going to enforce
them.

And the fact is that this bill would also make that illegal with
respect to the physician organization just the same way it would
be illegal with respect to the managed care organization. In either
case, it is important to have and, possibly even more importantly,
it is important to have in a situation where you are now shifting
all this responsibility from our sophisticated chief executive officers
of the managed care organizations to the unsophisticated physi-
cians sitting on the board of their large groups.

You asked about two issues specifically. Is there an appeal mech-
anism? There always is an appeal mechanism but it only exists
when you are terminated for a breach or for some reason. So, it is
never used.

If a physician is terminated without cause, it is virtually impos-
sible to find out the reason unless you have, as I have had before,
the freak circumstance of something else going on where you can
pressure the organization to tell you why they did what they did.

With respect to the malpractice indemnity issue, this is the way
it works. Now, under this language that most human beings cannot
possibly read, much less, comprehend, it basically says that if the
HMO ever finds itself as a defendant in a malpractice action, be-
cause of some events that involved the alleged negligence of a phy-
sician, the physician will indemnify and hold harmless the man-
aged care organization.

Now, at first that sounds kind of reasonable for a physician to
say, OK, I do not commit malpractice so if that happens, I do not
care; besides that, I have insurance. What they do not understand
is that their insurance never covers them for that liability. They
are bare with respect to that indemnification under virtually all
malpractice policies.

So, when the issue actually arises that there is a lawsuit and the
HMO has a great deal of fees and costs and possible awards to be
lodged against it and finds itself, as a defendant, sitting along side
the physician, the managed care organization will use that as a


4

Chairman THOMAS. The Subcommittee will come to order.

Today’s hearing focuses on H.R. 2976, as amended, that was ap-
proved by the Commerce Committee last week. This legislation
would prohibit health plan contracts with providers from restrict-
ing medical communications between physicians as well as other
providers and their patients.

Proponents of legislation to prohibit the use of such alleged ga,
clauses—and I am looking for a much better term than that an
we will take nominees today—contend that these clauses under-
mine a physician’s ability to provide his or her patients with the
best possible care. Others, health plans included, argue that provi-
sions such as proprietary compensation arrangements and non-
disparagement clauses are necessary to protect competition and
prevent providers from steering patients to plans simply because of
their reimbursement policies.

We are going to examine this issue, hopefully, from all angles,
this afternoon. Witnesses including a panel of legal experts and
consultants who will shed light on what goes on in the real world
regarding the drafting of managed care contracts, include what
types of provisions are contained in such contracts and what prac-
tices and contract language constitute limits on physician-patient
communications by health plans.

We will also hear from the NAIC on its model regulation on pro-
vider contracting and get a brief overview on what is going on in
the States with regard to legislation restricting the use of certain
contract language.

Finally, we will hear testimony from interested parties including
representatives for health care plans, physicians, patients, and em-
ployers.

To start it off, it seemed appropriate to hear from the authors of
the legislation itself, but prior to recognizing our colleagues, I ask
the gentleman from California if he has any opening comments.

Mr. Stark. Thank you, Mr. Chairman. Thank you for holding
this hearing. I hope that it is the first in a series on the need for
consumer protections in the managed care field.

The press tells us that Dr. Ganske was promised a vote on his
antigag rule bill under suspension, but I understand we may mark
up the bill later. So, at least, there could be a chance for some
amendments, many of which we might adopt.

There is a tremendous demand for consumer protections to stop
the horror stories, anecdotal as they may be, that have accom-
panied this rapid growth in managed care. For example, I believe
we should consider adopting utilization review reforms, timely ac-
cess to care provisions, nondiscrimination laws that protect pa-
tients with serious health problems, a ban on hold-harmless
clauses so that the health plans could be held accountable for their
actions, join in the fun with the physicians for lawsuits and disclo-
sure of physician financial incentives and other planned statistics,
prudent layperson laws that guarantee emergency coverage, a ban
on drive-through deliveries, and so forth.

If the managed care industry were wise, it would embrace these
types of amendments as a way to give the public some faith and
confidence in this rapidly evolving product. It is, however, kind of
disappointing to see the AARP’s testimony today where they seem


46

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,
Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored

by Peter R. Kongstvedt, MD, FACP.

‘Bay 20 longer be eligible to receive Medicare
and Medicaid fends.

‘En 2 hospital concract, the corresponding pro-
‘visions would be when the hospital suffers
fiom a change that materially impairs cs ability
‘@ provide services or if action is taken aguinst it
‘regarding certifications, licenses, or federal
‘agencies or private accrediting bodies.

beaith care plan wan to ensure thatthe provider
fas resources to pey for any eventuality. The
contract will state insurance limits,

‘rovide thatthe Himits wil be set forth in a sepa-
‘ee anachment, or leave it up to the managed
‘bealth care plan to specify. A houpital agreement
‘may require only that the limits be commensu-
sie with limita contained in policies of similar
‘bospitals in the suue. From the managed health

requirement
{evels of insurance, There also should be a provi-
‘ioe requiring the provider to notify the man-
‘ged bealth care plan of any notification of can-
‘exifcation ia « physician coatext ls notification
Atay malas chim,

Croas-indemnification provisioas, to which
(euch party indemnifies the other for damages
‘ennzed by the other party, are common in con-
‘txcu. One weakness of the clause is that some

‘qenily used, this limitation and the fact that a
‘Frovider should still be Liable for his or her negli-

Copyright 1996.

[Bent octs soggest that these indemalfication
Clauses are not exsestial.

‘Term, Suspension, and Terminetion

One section of most contncts identifies the
term of the contract and the term of any mubue~

thought to the length of the contract and the re-
‘ewal periods.
‘Scene contracts give a right of suspension to

‘number of times, the provider will aot be as-
‘signed new HMO members or perbape will re-
ceive a reduction in the amount of peyment. The

‘with cause. The value of heving a provision that
Allows the managed health care plan to terminate
‘without cause is that the managed bealth care
plan need not defend a challenge by the provider
(on the substantive esue of whether the grounds
‘were met. A 90-day period is fairly common. Lf

‘vider will also be given that right A regulatory
‘asue to be aware of is thet some mate laws re-
‘quire providers to continue to provide services
for a specified period of time after their contract
‘bas terminated. These requirements relate tothe
‘sate's requirement for he managed bealth care
plan to heve protections against insolvency and
fave to be reflected inthe contract.
‘Terminations with cause allow the health plan
fo terminate faster and should be used in sinia-


88

‘STATEMENT OF CHRIS L. JAGMIN, M.D.
MEDICAL DIRECTOR
PACIFICARE IN THE SOUTHWEST

Mr. Chairman, members of the Committee, my name is Chris Jagmin, M.D. I am the Medical
Director of PacifiCare in the Southwest, and today I am testifying on behalf of PacifiCare and the
‘American Association of Health Plans (AAHP). AAHP (formerly GHAA/AMCRA) represents
more than 1000 HMOs, PPOs, and similar health plans. AAHP member companies are dedicated
toa philosophy of bath care that pus the ptnt st by providing coordinated, comprebensive
health care. AHP plans care for more than 100 million Americans.

PacifiCare is a network model HMO, which means we provide services through a network of
contracted medical groups and Independent Practice Associations (IPAs). I appreciate the
‘opportunity to address you today and hope my comments will be helpful to you. Let me say at the
‘outset that PacifiCare uses no contract clauses which limit a physician's ability to discuss
treatment options with hiv/her patient. Also, AAHP and its member plans are committed to a
policy of warestricted communication between physicians and their patients with respect to
diagnosis, treatment, and other information affecting the course of patient care.

‘My testimony will highlight three areas:
1 Describe PacifiCare in the Southwest and how we work collaboratively with our physicians.

2. Review our activities to increase the value of health care, improve the quality of
care/services provided, and improve health outcomes for our membership.

3. Discuss health plan contracting issues and related proposed legislation.

PacifiCare in the Southwest is a network model HMO, as noted above. We have 290,000 members
including employees from small to very large companies, union trusts, and individuals. Our senior
risk plan for Medicare beneficiaries (Secure Horizons) has over 500,000 members nationally and
over 75,000 members in the Southwest. We are the largest Medicare risk contractor in Texas and
Oklahoma. There are 58 medical groups/IPAs with 8200 physicians in our network. Of these,
approximately 1800 are primary care physicians and 6400 are specialists.

(Our providers include small primary care offices of one or two physicians, as well as large mult-
specialty medical groups. We also contract with scademic medical centers such as the University
of Texas Medical Branch in Galveston and the University of Texas Health Science Center in
Houston.

This large network provides our membership a wide choice of physicians, Members may change

ysicians within their medical group freely or may change medical groups on a monthly basis.
With such a wide choice, members are encouraged to select the physician who best meets their
needs and preferences. Our medical groups take both quality of care and customer service
seriously. This is reinforced by medical groups’ intense competition with one another for patients.
‘A medical group that responds to patients’ needs will be successful. In contrast, medical groups
that are not sensitive to individual patient needs will lose patients and will not thrive.

PacifiCare in the Southwest is driven by our corporate aim: “Together we make lives better.” We
take great pride in our relationships with our medical providers. We have worked collaboratively
over the years to ensure that physicians have the tools they need for improving care and service.
(Our "Art of Caring Programa” was developed five years ago to improve service. It consists of

‘opportunity to attend intense, four-week courses in quality

Quality Improvement and Continuous Improvement are two values we believe in deeply. Along
with physicians, senior management leads our commitment to quality through our Quality
Improvement Council. Each market in our region has a Physician's Advisory Committee
composed of practicing physicians in our network. These physicians perform peer review activities


67

not be engaged in a protected communication. If such commurication had the effect of
causing the patient to disenroll from the MCO and enroll in an indemnity plan, the physician
could be in breach of her agreement to not “directly or indirectly" cause such an occurrence.

Third, enforcement through civil monetary penalties, although helpful, is not, in my
view, sufficient. Providing physicians with a private right of action to enforce those
restrictions as private attorneys general will force MCOs to be conscious of their obligations
to not interfere in the physician-patient relationship. It would give the physician the right
to ferret out the reasons for her termination and the motivation to determine its legitimacy.

Physicians should not be exempt from the normal rules of contract law. But the
provider agreement between an MCO and a physician is not a normal contract. It has a
direct and profound effect on a human being who is not a party to it — the patient.
Throughout this century, state and federal laws have focused on the protection of patients,
given the commercial realities of our private health care system. Such concerns are evident
in restrictions on fee splitting and the corporate practice of medicine. The latter concept
is analogous to the regulation of MCO agreements as they affect patient care, in that both
seek to shield the doctor-patient relationship from purely commercial concerns, divorced
from common law duties and medical ethics.

In addition, to the degree that such contracts are indeed similar to contracts of
adhesion, there is ample legal precedent for legislative oversight, much as is common in
policies of insurance and landlord/tenant relationships.

In conclusion, written and unwritten policies, whether communicated directly to the
physician or not, that have the effect of chilling communication between physician and
patient should be disfavored in the law. This is especially true in an age when managed care
organizations, through acquisition, merger, or otherwise, are controlling an increasingly
larger portion of the patient population. ‘When patients are being barraged with shrill
commercial claims by such plans, and confused by the relentless news of new therapies and
new methods of medical payments, they will likely try to sort these issues out by talking with
the party they trust most: their physician. They should have that right.


28

and the position of the health plan is. In those cases, it is possible
that an incompetent medical director could communicate an ad-
verse coverage ruling in such a way as to make the network pro-
vider perceive a threat or, worse yet, actually threaten the provider
with termination from the plan, despite having no sound contrac-
tual or policy grounds for such a threat.

Likewise, it is possible that there are some who are using this
issue to resolve by legislative means the problems that they cannot
resolve in the marketplace. It is always a risk, when Congress con-
templates legislative action, that there will be unintended con-
sequences, particularly when there is a high talk to reality ratio.
Some examples, which have been discussed, include increasing liti-
gation based on creative interpretation of the law, lobbying pa-
tients under the guise of medical communications about health
plan movement for reasons that may be detrimental to the competi-
tive process and the creation of a precedent that, when business
disputes arise between physicians and health plans, the Congress
will be required to pass ever more detailed laws controlling the
management of health plans and physicians.

Mr. Chairman, to answer some of the questions surrounding
these issues, Ernst and Young, LLP does have a proposal to submit
for your consideration. We would consider undertaking an exam-
ination of a representative sampling of nongroup, nonstaff model
HMOs to validate the process in the contractual relationship be-
tween providers and health plans to determine this relationship’s
impact on physician-patient communications. This would encom-
pass various aspects and, Mr. Chairman, if you will allow me 30
more seconds, I will conclude.

Including the legal aspects, does the health plan have clauses in
place in their provider contracts which constitute the commonly ac-
cepted definition of the gag clause, that is, restrictions and discus-
sions by a contracting provider with the health plan member re-
garding the full range of treatment options available, regardless of
what is covered and behavior? Does the plan exclusively promote
through its legal and QA processes open full communications be-
tween providers and patients? If such communications are indeed
hindered, is the problem surrounding the gag issue at the plan
systemic or individual in nature?

We are pleased to offer our services on a pro bono basis with the
cooperation of the providers and the health plan industry.

Mr. Chairman, thank you again for the opportunity to testify.

[The prepared statement and attachments follow:]


40

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,
Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.
55
‘with all nondiscrimination ‘wader ally favor an obligation to cooperate with these

‘federal, state, and local lew. These
may also apply to subcontractors of the provider.

program.
‘The managed bealth care plan's dilemene is how
‘te ariculate this obligation in the contract when
‘the wilization review program may be quite ée-
ct and teeny espn ovr tie Out
‘option used by some managed care organiza-
‘Hous is t0 append the wtilization review program
fits conrest as on exhbis A sand opto is
‘merely 10 incorporate the program by reference.
Jo either case, it is important for the managed
‘health care plan to ensure that the coutact al-
tows into amend the utilization review standards
{a the forure without the consent of the provider.
Webe managed bealth care plan does not append
cross-referenced standard, the managed health
‘ear plan should give each provider « copy of the
(pidelines and any amendments. Without this
documentation. the provider might argue that it
(G4 not agree t0 the guidelines or subsequent
amendments.

‘The contract eeeds to inform providers of
‘heir responsibilities to cooperste la efforts by
‘the managed health care plan to ensure compli-

‘programs rather than one to comply becanse 8
fequiremest w comply with the programs deci-
‘shons seems t0 prectade the right to disagree.
‘The same basie concepts end priaciples apply
te the provider's acceptance of the managed
health care plan's quality stsurance program.
‘Some managed heakh care plans tend t0 equate

‘programs but is likely to engender the concem or

criticism of government regulators, which view

‘the two programs as being seperate. In the last

‘several years, os managed health care plans have

Placed greater emphasis on their quality assur-
improvement

provider
fevmeased cor-

(0 give providers a beter iden of their responsi
bilities.

‘The contract should inclede & provision re-
«quiring the provider to cooperate both in fara


109

For example, my office reviews all contracts between HMOs and
providers. We would know if an HMO was contractually imple-
menting a gag rule. As this debate began to grow nationally, I re-
quested that my Market Regulation Bureau review the history of
complaints and market conduct exams, searching out operational
gag rules in addition to contractual gag rule provisions.

Not only have no HMOs implemented a gag rule in Wisconsin,
but also we have received no complaints from providers or consum-
ers on the issue. Obviously, this approach works for Wisconsin.

In fact, our State has the lowest uninsured rate in the country,
according to the U.S. Census Bureau. I am proud of the climate of
innovation fostered by Wisconsin Governor Tommy Thompson, who
has helped our State advance significant small employer insurance
reform, as well as Medicaid managed care. Working together, we
have created a regulatory structure that works for Wisconsin, and
we have a thriving managed care industry.

Managed care simply does not seem to get the headlines that
Governor Thompson’s welfare and education reforms get.

Mr. CHRISTENSEN. Ms. Musser, at this time, I am going to have
to go and vote. I will come back and we will finish this off and give
you ample time to finish your testimony and have some questions.

So, at this time, the Subcommittee stands in recess.

[Recess.]

Mr. CHRISTENSEN. Ms. Musser, we will let you finish up your tes-
timony. We will give you a couple of extra minutes to finish up and
then go into some questions.

Ms. Musser. Thank you.

As I was saying, my office reviews all contracts between HMOs
and providers. And we would know if an HMO was contractually
implementing a gag rule. But, as was mentioned earlier today and
as the debate began to grow nationally, I requested that my Mar-
ket Regulation Bureau review the complaints and market conduct
exams searching out an operational gag rule, in addition to any
contractual provisions that might exist.

Not only fave no HMOs implemented a gag rule in Wisconsin,
but also, we have received no complaints from providers or consum-
ers on this issue.

Obviously, this approach works for Wisconsin. In fact, our State
has the lowest uninsured rate in the country, according to the U.S.
Census Bureau. Among the NAIC members, the gag clause has
been discussed at great length as we have worked to develop man-
aged care standards. Knowing this issue is of critical importance to
consumers, our proposed Managed Care Plan Network Adequacy
Model Act includes a provision similar to the provision in H.R.
2976 relating to medical communications.

During the past year, 17 States have taken legislative or regu-
latory action to prohibit gag clauses. Another 10 States have con-
sidered the issue. And of course, as I mentioned before, the great
State of Wisconsin took action more than 20 years ago.

The NAIC Model Act suggests ways to bolster existing State re-
quirements and to strengthen consumer safeguards in the rapidly
evolving marketplace. The NAIC has either adopted or is develop-
ing models in the following areas: Quality assessment and improve-
ment, utilization review, provider credentialing, managed care plan


45

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,
Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored

by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

Clause isto protect the managed health-care plan
from Liability arising from a provider's megli-
‘pence.

Use of Nome
‘Many provider contracts Hank the shitty
either party © use the name of the otter. This

done by identifying the circumstances ia which
‘he party's name mey or mary not be wend. Coo-
(rect claueas may allow the managed heakh owe
(plan the right wo use the aezne of the provider for

‘wise, the party seads the written approval of the
‘ther party. The ese applies not only to the mame
‘but also to amy symbol, wademark, and service
‘mark of the entity. The managed health care plan

should require that the provider keep all infor.
‘tustion about the managed iealth care plas com
dential and probibit the ose of toe information
for any competitive purpose after the contract is
termineied. With medical groups frequently
‘ewitching managed care affilacions, this prow
‘hee is impornant to the managed healt care
pln.

Notification

The health care plan needs cesore
that It is advised of « pumber of importzt
haa tha ft iy of he provi
meet his or ber contractual obligations. The:

frat sould sonny the iformaton at onde
(0 be conveyed tothe managed health care plan

‘contract, The contract should require immediate


130

AV-HED

June 28, 1994

DeaiDgctor (s).

Congratulations and thanks from AvMed Health Plan! You ltave been selected to receive
a cash bonus as one of AvMed's outstanding Primary Care Physicians (or Practices).

AvMed Is continually striving to improve the quality of health services to its members.
‘One way by which this is accomplished is by the recognition of those physicians who
consistently provide high quality services in an efficient manner.

In 1993, AvMed improved the mechanism by which physicians were chosen to receive
financlal Incentives. Objective patamelers were Used for the selection process, Rather
thats dosotibing in detail the complex formula, I will simply describe the basic criteria
which were utilized. They included acceptance of capliation for the year 1993 as part of
at least 100 AvMed members, current patticipation with AvMed, a patient satisfaction
survey which looked al such issues as accessibility, avallability, waiting time, ease of
referrals, and general patient salisfaction with your services. A separate bonus was
predicated solely on the basis of _patient satisfaction, A second level of measurement
was made on the basis of the scores you received on your medical records review. A
separate bonus was then predicated on the basis of quality of services as reflected In the
scored medical record review.

Patlent complaints, member PCP changes, your office's cooperation with AvMed, and
your office's compatibility with and support of the AvMed philosophy were used as
modifiers which either increased, decreased or did not change the above scores. PCP's
may qualify for one or both of these bonuses, PCP's in the upper 50 percentile were
included in the distribution of bonuses.

lam pleased to award the enclosed check (s) in recognition of the quality service

provided to your Avivied patients, Our thanks and best wishes for continued excellence
in the future.

Sincerely,
U Uelano

Roger H, Strube, M.D.
Medical Director, Miami Plan.

RHSAm


41

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878.

The Managed Health Care Handbook, 3rd Edition.

by Peter R. Kongstvedt, MD, FACP.

Copyright 1996.

requirement,
quirements thoald be conveyed to the proven.
‘Tee contract should state that these obligation,
‘survive the termination of the contract,

‘The managed health care plan also needs ale.
1! right to have access to books and records,
‘The contract will want to state thatthe managed
bhealh care plan, is representatives, and govers-
ment agencies have the right to inspec, seview,
‘and make or obtain copies of medical financial,

‘often an iasve of controversy. If there are no foes
{for copying these records, the contract should 1
‘mate. When the managed health care organiza
tion is acting on behalf of other payers, itis do-
‘sirable to have language jg tha the

other payers have agreed to comply with appli
‘cable confidentiality taws,

by the managed health care plan. Ifthe managed
bbeatth care plan participates in any public or pri-

care plan. If such @ provision is included in te
contract, the managed bealth care plan should
inform the provider of the types of repors it
‘might request to minimize any fosare problems.
Finally, the provider should be obligated 1 pro-
‘vide information that is necessary for compli-
‘mace with sate or fodera lew.

‘An often neglected legal issus is bow de
managed health care plan obsaias the socbriy
to have sccess to medical records. Provider

‘contain an ecknowledg-

records. The problem with this approsch is that
the managed health care plan muight not have te
fight to have access to tis information, and, fit
does not, on echnowledgment of thet right is be
‘eoccract has no legal effect. Some state laws give

Authored


70

nies are just like managed care companies in that respect, they
have a business interest to protect.

So, the interesting thing about it is that when you see physicians
getting together in these arrangements, they behave pretty much
the way managed care companies behave.

Dr. KONGSTVEDT. I would echo that. I have been struck by how
rapidly providers of care—hospital executives, physicians, and
other providers of care—do change their attitude regarding some of
these types of provisions. Any willing provider, open access, other
types of contractual terms, when they become globally capitated
and it is now their business risk.

Mr. ENSIGN. Thank you.

The gentleman from California, Mr. Stark.

Mr. Stark. Thank you, Mr. Chairman.

I just want to hop ahead here. we are going to hear later from
the AMA, but I think they say it properly. They say the very first
fundamental element of the patient/physician relationship—and
this is a section of some major issue of ethics published by the
AMA’s Code of Medical Ethics—the patient has the right to receive
information from physicians and to discuss the benefits, risks, and
costs of appropriate treatment alternatives. Patients should receive
guidance from their physicians as to the optimal course of action.

Now, in addition, their council on ethical and judicial affairs, the
AMA entity responsible for maintaining the Code of Medical Ethics
and providing authoritative interpretation stated that, “The physi-
cian’s obligation to disclose treatment alternatives to patients is
not altered by any limitations in the coverage provided by the pa-
tient’s managed plan. Patients cannot be subject to making deci-
sions with inadequate information. That would be an absolute vio-
lation of the informed consent requirements. If these clauses”—and
they are referring here to gag clauses—“are carried out and the
physicians are subject to sanctions, a reduction of patient quality
of care will result.”

Now, that’s what the doctors are saying. Dr. Kongstvedt, you
would suggest, I think in your closing, that we should trust the
professional managers with these things. And they probably are
not the recipient of your consulting. So, the Prudential Life Insur-
ance Co. that has stolen over $3 billion from their investors, has
had over $300 million in fines, and has been convicted as a cor-
poration and its top executives of felonies, do you think we should
trust that company to manage care? No way, you just cannot.
You’re putting the fox into the hen house.

And there is more than just good faith. When the incentives are
skewed, as I think Mr. Rust suggests, that the doctors judgment
is pushed.

0, the question today is, How can we handle this. If its a Medi-
care contract, then aren’t we all paying the bill? So, we have a real
right to see that the beneficiaries get what they're entitled to. And
what they’re entitled to is the level of care, which is far higher
under an indemnity plan because there are no restrictions on it, as
there are in indemnity plans. Even the best managed care plan far
more restrictions than an indemnity plan. Just by definition, in-
demnity plans are better when it comes to choice of quality care
that’s available.


80

STATEMENT
of the
AMERICAN MEDICAL ASSOCIATION
to the

Subcommittee on Health
‘Committee on Ways and Means

U.S. House of Representatives
RE: H.R. 2976, the “Patient Right to Know Act of 1996”

Presented by John C, Nelson, MD

July 30, 1996

INTRODUCTION

My name is John C. Nelson, MD. I am a practicing obstetrician and gynecologist from Salt
Lake City, Utah. 1 also serve on the Board of Trustees of the American Medical Association
(AMA) and as part-time Deputy Director of the Utah Department of Health. On behalf of the
300,000 physicians and medical students of the AMA, I am pleased to have this opportunity to
testify before you today about so-called “gag clause” provisions and practices that are
commonly found in many of today’s managed care contracts and H.R. 2976, “The Patient
Right to Know Act of 1996,” a bill that would prohibit managed health insurance
organizations from  sestricting patient-physician communications. We commend the
Subcommittee Chairman Bill Thomas for holding this important hearing.

‘As you may know, recent estimates suggest that over 58 million Americans are enrolled in
health maintenance organizations. In addition, another 81 million receive care through some
type of managed care arrangement. To date, almost 80 percent of the AMA’s members
maintain some form of managed care contract. Many observers believe that the near-term
result of this trend has been a marked decrease in the rate of health care inflation. A number
of studies have suggested that managed care provides care at least equal to that provided in
fee-for-service medicine, Other studies, press accounts, anecdotal evidence, and a growing
wave of public opinion, however, have begun to point out that needed care may be denied
because of the financial pressures put on physicians and other health care providers to reduce
costs to the detriment of their patients. We believe that a patient’s needs must come first.

‘The AMA believes that “patient protection” and “antitrust relief” provisions similar to those
contained in the House-passed Medicare reform package of last year should be enacted. As
you know, the AMA supported these Medicare reforms and although the President vetoed the
final bill we believe that, now more than ever, “anti-gag clause” legislation should be enacted
not just for Medicare, but across the board to encompass all health benefit plans. We also
believe that only in this way will some of the more egregious examples, in which physicians
have been prevented from providing relevant information to their patients, be addressed.

“GAG CLAUSES” DISTORT THE PATIENT-PHYSICIAN RELATIONSHIP

“Gag clauses” strike at the heart of the patient-physician relationship because they present an
inherent ethical conflict of interest. The AMA's Code of Medical Ethics, which lays out the
guiding principles for the entire medical profession, is very specific on this point. In it we
find a very important section entitled Fundamental Elements of the Patient-Physician
Relationship. ‘The very first “Fundamental Element” is as follows:


35

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,
Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongetvedt, MD, FACP. Copyright 1996.

0

‘clavse) or by goverament payer programs (6.8.
‘Modicare and Medicaid).

‘An ideal contract or contract form dons mot
ccetract terme very depend-

{ng on the issues of concers and the objectives of
8 relative

10 the managed bealts care plans enroiiees
qe emote Sra amber of inns of be
‘managed bck care plan.

‘and the contract between the IPA or
smedical group and the provider.

(the end of the negotiation process that
achieved all its besic goals The managed baat
‘care plan's key objectives will vary. the mum-


121

tice good medicine and we want that. But open communications is
something that we should also want.

Mr. CHRISTENSEN. Ms. Craft, have any of your employers men-
tioned concerns about whether physicians are telling their employ-
ees about all treatment options or that they might be holding back
information because of the way they have been paid?

Ms. CraFT. That has been a concern within some employers. Pri-
marily within our business coalition, that has been a concern of
large employers with multiple locations. Managed care has moved
yey slowly into Southwest Virginia. At this point, we only have
HMO offerings that are still discount fee-for-service. We are not
into a capitation arena. So, we are hearing that, but from some of
our larger employers with multiple locations.

Mr. CHRISTENSEN. Dr. Jagmin’s testimony earlier reflected his
concern and the association’s concern about a sliding scale, a slip-
pery slope approach to the Federal Government getting into this
area of the law. What is your coalition’s view on the Federal Gov-
ernment moving into this area to try to, what I think maybe needs
to be corrected, what is your coalition’s view on that?

Ms. Crort. Our view, as a business coalition and representing
many business coalitions, is that this kind of legislation to prevent
gag rules and that kind of thing is not a bad thing. However, espe-
cially with this piece of legislation, there are so many ambiguities,
so many things that do not seem to be very clearly defined that I
think employers fear what could come out of this. There could be
multiple layers of regulation from the Federal Government, the
State government, from different areas, and from Health and
Human Services, that they have never been regulated by before.

And I think that they just would like to see some of these ambig-
uous areas clearly defined. I think they would like to see some of
the terms, such as oral communication, very clearly defined so that
it could not be a passing comment that a doctor made one time or
it could not be simply what a patient perceived that the doctor said
to them. I think with some definition some of this could become
more acceptable.

Mr. CHRISTENSEN. OK. Would any one of you want to have any
kind of closing statement? I apologize for the interruption we had
earlier, and I want to give you each a fair opportunity just to have
a closing comment.

Yes, Ms. Musser.

Ms. Musser. I think there is an advantage to going last because
there are many things that I would like to comment on this after-
noon, but I will mention just a couple of issues. I would like to cau-
tion all of us not to confuse issues related to informed consent or
issues of responsibility for knowledge of what is covered in an in-
surance policy. Whose responsibility is it to understand what is
covered and what is not covered? I would maintain it is not the
physician’s responsibility to find out or to be prepared for a cov-
erage issue. Those issues are the patient’s responsibility, except in
emergency situations when patients do not have the time to call
the human resource managers or to find out what is covered or not.

To address the anecdote that Dr. Nelson shared with us earlier,
I do not believe it is the physician’s responsibility to stop a proce-
dure to find out what is covered. And if it is an indemnity plan,


105

In conclusion, the Patient Right to Know Act as originally introduced, is an excellent first
step to helping patients take responsiblity for their health care. But, in order for consumers to
make informed choices about their health care, Congress will need to mandate far greater
disclosure from HMOs. Most importantly, HMOs will need to disclose their medical protocols,
including the terms under which they pay for particular treatments and the conditions under which
they disallow care. Without these additional HMO disclosures, consumers carinot assess the
nature of the care HMOs deliver, cannot make informed choices about their HMOs and cannot
take responsibilty for their health care. Thank you.


14

characteristics. The American Academy of Actuaries (“AAA”) is providing the technical assistance in
developing a formula that is effective, but does not impose onerous data requirements. The results of this
«effort will be incorporated within the "CLEAR" effort

‘There are four principal risk elements inherent surance function:

C1 Asset Risks: Risk that existing assets will decline in value and erode surplus as a result of that
decline.

C-2 Pricing and Obligation Risks: Risk of any mispricing in the determination of premium rates
oF deviations between assumptions and experience in the payment of claims liabilities. This is the
predominant risk for health carrie

C-3 Interest Rate Risks: Risk of loss due to unforeseen changes in interest rate levels.

‘C-4 General Business Risks: Catch-all category that includes general business risk. Includes risk
of assessments, administrative expense overruns, and environmental changes such as health care reform.

For health plans, regulators are principally concemed with C-2 risks. This is the risk that insurers
may not have adequate funds available to cover insurance risks.

In December 1994, AAA presented to the HORBC a proposed model reflecting the variability
inherent in health care coverages. ‘The model applies factors to various asset, premium, and reserve items
and contains credits for actions taken by an entity which reduce risk and loads for actions taken which
increase risk. An example is managed care credits for activities or payment arrangements which reduce
risk. The model also attempts to capture the impact of regulatory activity on an entity. An example is
state rate approval requirements which may increase risk.

HORBC asked AAA to develop a simplified formula which maintained the formula's precision while at
the same time minimized the costs to the health organization in collecting the data. The simplified
formula must meet the following criteri
specific — to the extent possible, the data should come directly from the annual statement
ora supplemental blank (or be added to the annual statement) or from other specifically referenced

source for all reporting organizations.
auditable — to the extent possible. the data should be included in the annual statement
information that is electronically captured by the NAIC and that it be easily measured for

‘consistency and quality through cross-checks with other annual statement data.

available — the data should be relatively easy for health organizations to obtain without
substantial modifications of current reporting systems. One organizational form should not bear
excessive data-gathering costs relative to another organizational form.

‘The AAA has submitted its proposed simplified formula to the HORBC working group. The
‘working group will commence testing of the formula this summer and fall, and anticipates providing a
detailed report by the end of the year. The results of the survey will determine what types of
‘modifications to the formula will be required and whether another survey will be necessary.

‘State Activity in the Area of Consolidated Licensure

‘As I mentioned, Wisconsin is the only state to regulate HMOs as insurers, having always done so.

This strategy of regulation allows a high level of flexibility and monitoring. For example, Wisconsin
requires a business plan to be filed by HMOs which include a detailed description of provider access. My
office reviews these plans to assist HMOs in creating a structure that will provide adequate levels of
provider access. Also, by reviewing this plan and by requiring provider contracts to be filed with my
office, we can monitor emerging changes in the managed cate industry and develop the proper oversight
strategies. This flexible approach contributed to a managed care climate that allowed Governor
‘Thompson to lead the country in implementing managed care for AFDC recipients.
Other states have made significant progress. The state of Ohio is considering proposed legislation that
seeks to accomplish many of the same goals as the NAIC's CLEAR effort. Ohio's Mansged Care
Uniform Licensure Act proposes to rewrite comprehensively existing managed care laws. This effort is
the result of an intensive effort to define the role and scope of risk-assuming entities. ‘The bill includes
financial, quality, and utilization review requirements and would streamline the financial regulation and
‘oversight of all operations of managed care insurance organizations and place such regulation within one
‘chapter of law. These organizations include HMOs, PPOs, provider-sponsored networks, and multiple
‘employer welfare arrangements.

‘in undertaking the development of health plan standards, the NAIC recognized that the delivery of
health care services was evolving away from fee-for-service insurance arrangements to managed care
nts of many types. In light of the fact that most state insurance departments have a principal
role in regulating managed care entities, and have therefore observed the market evolution firsthand,
insurance regulators recognized the need to strengthen consumer safeguards in the managed care arena.
‘The models under development apply in general to a wide array of managed care organizations. When
appropriate, these models restrict the application of certain provisions to certain types of network plans.
‘The models include the following broad definition of “health carrier”:


119

Mr. CHRISTENSEN. Thank you for your testimony.

Thank you all for your testimony.

Ms. Musser, first, I would like to ask you, Does your department
review contracts of health plans seeking licensure of each plan?

Ms. Musser. Yes. They have to file a business plan, any material
changes to their business plan, all provider contracting arrange-
ments, and all financial data, including the IPA or the network
financial data.

Mr. CHRISTENSEN. Do you specifically look for gag clauses or
those types of paragraphs that might be interpreted by physicians
as gag clauses?

Ms. Musser. We specifically look for all violations or, stated
more positively, all areas of compliance with our State statutes, in-
cluding compliance with the provision prevents the interference by
an insurance company with the professional relationship of a physi-
cian with his patient.

Mr. CHRISTENSEN. How many various presentations have you
reviewed in your tenure in Wisconsin?

Ms. Musser. I believe that we have reviewed and licensed six or
seven new HMOs. We have a total of 27 now in the State. And we
have renewed and reviewed material changes which, of course,
mean mergers and acquisitions and other changes of ownership, I
would say in another half dozen.

Mr. CHRISTENSEN. Have you turned down any HMO or managed
care contracts that have applied for doing business in Wisconsin
yet?

b Ms. Musser. We do not exactly turn them down. We send them
ack.

Mr. CHRISTENSEN. Have you sent any back?

Ms. Musser. Yes.

Mr. CHRISTENSEN. Sending back for the provision that would be
called a gag clause?

Ms. Musser. Not to my knowledge. All of my examiners, market
conduct and financial, in reviewing the HMO contracts have not
seen the contractual provisions. That is why we have looked for the
operational effects and found none there, as well. The examiners
also look for operational effects in the market conduct exams.

Mr. CHRISTENSEN. Do other States, as you know, review these
types of contracts as closely as Wisconsin?

Ms. Musser. I believe that several other States do. The problem
is that the insurance commissioners regulate HMO plans in most
States. The health commissioners regulate them in a number of
other States. And in a few States it is the department of corpora-
tions that regulates HMOs.

In fact, no other State licenses them as insurers, like we do. So,
we have, I think, a different evolution of the regulation.

Mr. CHRISTENSEN. What would be the general consensus across
the country? You said that some have the department of corpora-
tions, some have the insurance commissioners, some have the
health regulators. What is the predominant way that the States
handle this area?

Ms. Musser. The insurance commissioners.

Mr. CHRISTENSEN. And do the insurance commissioners generally
have the authority to ask health maintenance organizations to


CONTENTS

Text of H.R. 2976
Advisory of July 23, 1996, announcing the hearing

WITNESSES

American Association of Health Plans, Chris L. Jagmin, M.D .

American Medical Association, John C. Nelson, M.

Archer, Diane, Medicare Rights Center

Craft, Lisa Britts, National Business Coalition on fieaith

Ganske, Hon. Greg, a Representative in Congress from the State of Towa

Jagmin, Chris L., Pacificare in the Southwest, and American

Suaviaton of Health Plans

Kongstvedt, Peter R., M.D., Ernst and Young, LLP

Markey, Hon. Edward J., a Representative in Congress from the State of
Massachusetts

Medicare Rights Genter, Diane Archer

National Association of Insurance Commissioners, Jose]

National Business Coalition on Health, Lisa Britts Cral

Nelson, John C., M.D., Salt Lake City, Utah, Department of Heaith, and
‘American Medical Association .

Pacificare in the Southwest, Chris L. Jagmin, M.D

Rust, Mark E., Kamensky and Rubinstein

Salt Lake City, Utah, Department of Health, John C: Nelson, M.D)

Stocker, Joel, Greenberg raur

Wisconsin, State of, Office of the Commissioner of insurance, “Josephine

lusser

SUBMISSIONS FOR THE RECORD

American College of Cardiology, Bethesda, MD, Richard P. Lewis, letter ...
American Society of Plastic and Reconstructive Surgeons, Arlington Heights,
IL, statement .
Brola, Samuel, ai
National Association of Pediatric Nurse Associates and Practitioners, C

Hill, NJ, Renee McLeod, statement

ay

124

125
128

139


137

In the Spring of 1995 we had a hearing before the Statewide Providers & Subscribers
Assistance Panel. AvMed's attomey, Mr. Cholodofsky, stated that the care being provided
for David was not medically necessary. The doctor on the Panel asked Mr. Cholodofsky,
‘WHO at AvMed was qualified to make that decision. The doctor asked FOUR times. He
did not get an answer. The nurse on the panel asked Dr. Edelstein of AvMed., WHY
anyone would ever consider reducing care to a patient whose conditions will not improve
and Can only get worse and who has a DO NOT RESUSCITATE order in piace. She
asked FIVE times and the main response was to complain about how complicated David's
case was and that my letter writing made the case even more complicated.

Part of the BPR Case File on Strube is a letter obtained by the investigator simply to show
how he signed his letters. Apparently, no one there had read it until | pointed out its
contents. In it, Roger Strube clearly described how AvMed controls physicians financially.
He states: "Patient complaints, member PCP changes, your office's cooperation with
‘AvMed, and your office's compatibility with and support of the AvMed philosophy were
used as modifiers which either increased, decreased, or did not change..." the physician's
bonus. To me, that states very clearly, "Do what we tell you or you will not receive a
bonus.

‘AvMed has used financial leverage in other ways. With the cooperation of Nations Health
Care, Nursefinders’ (nursing agency subcontracted by Nations) payments were delayed
by up to six months. At one time the past due amount exceeded $200,000.00. This was
@ successful attempt to force the nurses to accept several dollars an hour less pay.

‘The January 22, 1996 TIME Magazine reports on a case in California where an arbitration
panel found that telephone calls made to “influence or intimidate" the doctors was
interference in the doctor-patient relationship. They decided this constituted “intentional
infliction of emotional distress". They also determined that the California HMO's actions
fit the legal definition of “extreme and outrageous behavior exceeding all bounds usually
tolerated in a civilized society.” | believe the actions of ail the individuals/entities in our
case exceed those described in the magazine and these people should be held legally and
financially accountable.

és of 8 OF pri 25, 1996, we leamed that AvMed, their Miami Attorney Steven Ziegler and
fenturi investigations have improperly, unethically and probably illegally, been attempting
gation ttorvation about ne oer tary They have contacted our son's health care
providers and used false statements in their efforts to induce cooperation. They have
threatened to use subpoenas. AvMed is not charged with anything and therefore cannot
subpoena anyone. We believe this is one more attempt to frighten or intimidate us into
‘every available avenue to pursue our rights under the law, and to see that justice

is done, finally.

August 1, 1996

We have been told by Assistant State Attorney Paul Silverman that the charge against
Roger H. Strube will be dismissed because he is only consulting and because the Florida
Agency for Health Care Administration now claims there is no one at that agency to testify
that Roger H. Strube's actions constituted practicing medicine. Trial date is still set for
August 19, 1996,

August 2, 1996

Sent fax letter to Paul Silverman and a copy to Dade State Attorney Katherine Rundle,
citing the Florida Supreme Court decision in Reams v. State, which states: “In prosecuting
for practicing medicine without a license, State is required to prove only that defendant is
not a licensed physician and that he practices within the statutory definition and exceptions
to the act must be raised and proved by the Defense."

August 4,1996
Sent fax letter to State Attomey Katherine Rundle with a copy to Paul Silverman, citing the
Florida Supreme Court decision, Florida Statutes, Black's Law Dictionary, and the Notice


98

Dr. JAGMIN. Now, in PacifiCare, Dr. Nelson or the physician in-
volved in this Humana issue, would not have called me or anybody
else for approval to do the procedure.

Mr. CHRISTENSEN. OK. Dr. McDermott.

Mr. McDermott. Thank you, Mr. Chairman.

I would like to follow that line of questioning. If the physician
delivers the care, at some point you are going to go after Dr. Nel-
son if he does too many amniocentesis. Ultimately, your computer
printout is going to come out that he does one on practically every
case he has.

Now, what’s the penalty for that in your organization?

Dr. JAGMIN. The penalty for being an outlier is not a penalty. I
learned from Brent James of Inter-Mountain Health Care in Salt
Lake City, and I am sure that Dr. Nelson knows, the fact that a
physician is in variation compared to his or her peers does not
mean they are wrong. It means there is a variation and we should
investigate it and explain it.

It may be that the patients who went to Dr. Nelson were truly
sicker, truly did require those procedures. That every one of them
was justified. Fine. Variance is explained.

It may be that there is a learning opportunity for Dr. Nelson to
learn what the rest of his colleagues are doing. It may be that Dr.
Nelson is doing the right thing and all the other doctors should be
doing more amniocentesis.

Mr. McDERMOTT. Well, you puzzle me because obviously Dr. Nel-
son thinks there is a situation of subtle kind of gag or subtle re-
striction on his practice. You say it does not exist. I do not under-
stand why your organization would oppose this bill, since you say
you rarely use this, I think that the language you actually used in
your testimony rarely, if ever, use these kinds of
antidisparagement or any other kind of clause, why would you re-
sist this being in the law?

Dr. JAGMIN. Physician health plan contracts are very com-
plicated. And what we really oppose is the Federal regulation of
that contract and that interaction. This is only one example that
once we get started into we are going to be micromanaging every
detail of that relationship. We are all going to be unhappy, both
providers and health plans.

Mr. McDerRmorTrT. But I said to the last witness, as I think you
may have heard, I suspect that Dr. Nelson’s going to win in the
end, because his story is much more compelling than your kind of
rational presentation of this. You got billions of dollars, I mean you
got the front page of Time magazine last December with a doctor,
with a mask in his mouth, being gagged. When you have got that
going on out there, I cannot understand why you, on a business
basis, would resist something that you say you rarely, if ever, use
and there would be no penalty on Dr. Nelson. You would never,
ever deduct anything out of his paycheck if he did an amniocentesis
on everybody.

Dr. JAGMIN. Let me give you an example where I think we have
problems with the language of the bill. Theoretically now some of
the communications that happen between a medical director and a
physician in the plan I would consider would be a restriction.


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44

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition.
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

359

‘of the amount that the managed — managed health care plans allow their providers

Best care plano cher payer tvs. To

‘he PHO reaches a critical sie. The amount of
‘coenpensation racelved by the PHO would be re-
‘daced to reflect the cost of services thai the PHO
does not assume ilty for or stop-toes
coverage that is provided by the managed health
ene plan.

Another issue to consider is whether the man-
aged bealth care plea will have the right wo have

‘ly all the risk for the defined population. the
PHO needs 0 consider carefully the assump-
‘ices that have been made regarding the demo-
[hia snd ath sede of cover pple

In recent years, as providers gaia more experi-
‘ence with managed health care plans, they are
‘becoming more sophisticated in mmalyzing and

smercsied i eo sol volume ofp

thet » managed bealth care plan ix able
Give 0 te poviae Conaraces are also sow
beginning to allow volume as a factor affecting

‘0 longer eligible for enrollment? What If serv.
tees are provided to a sonearolies who obtained

Primary respoasibility.
Under the regulations of the HCFA, the mas-

aged healt care plan is legally reaponsibie and
say be forced 1 pay back he HCFA even Ifthe
‘payment was received by the provider withoot
the knowledge of the managod health care plan.
Manag heath ce ln sou cae so
Provisioe tranaferring the Kability wo the
provera as ervensanes
‘Another issue thet should be addressed in the
‘contract is the reeponsibility of the managed
‘health care plan as a secondary carrer ifthe pro-
‘vider bills the primary carrier en emcut greater
than the amoust the provider would have re-
‘ceived from the managed healt care plan. From
the managed health care plan's perspective, it
‘will wand a contract provision relieving the man-
‘aged heakh care plan of any payment responsi-
bility if the provider has received at least the
‘acnourt that he or she would have been entived
‘0 under the managed bealth care plao-provider
eoarect.

‘Hoid-Harmiess and No Balance Billing
Causes

Virwoally all provider contrects contain a
bbold-harmless clause, under which the provider
‘agFees not to was oF assent any claims agzinst the
‘enrvllee for services covered under the contract,
‘even if the managed health care plan becomes

‘may not balance bill a member for any payment
‘owed by the plan, regardless of the-rensce for
‘eoupeyment; the provider tony bill the member
for aay amount that the member is required 1
‘Pay, such as copeyment or coinsurance, or for

Authored


93

the time, Nonetheless, PacifiCare encourages our doctors to discuss all treatment options, including
those which may not be covered.

PacifiCare agrees with the statement: "Patients cannot make appropriate health care decisions

‘without access to all relevant information relating to those decisions". This information should
include an undersandog of wheter the eames wre covered by the pln as this infomation may

(Over the years, PacifiCare has enjoyed substantial growth, a high level of member satisfaction, a
low level of disenroliment, and a high mutual regard with our medical providers. Regulation of our
provider contracts is not necessary and could potentially impair the communication between the
doctor and the patient,

‘Legislating Contracts — HLR. 2976

‘The Committee on Commerce made significant changes to the introduced version of H.R. 2976.
‘Changes include a shorter definition of medical communication with the addition of a specific
reference to oral communication; a change in the amount of civil money penalties; deletion of the
“prohibition on adverse action by a health plan”; and redrafting of the rule of construction.

While the scope of H.R. 2976 has been improved since it was first introduced, we still have serious
problems with the bill. Today I am going to address two areas of concern.

“Restricting” Communications

We believe that the intention of H.R. 2976 is to protect patient care by assuring unrestricted
physician-patient communication regarding medical diagnosis and treatment options.
‘Unfortunately, this bill could actually place patient care at risk by interfering with our health plans"
‘quality assurance initiatives. H.R. 2976 includes language that would bar a health plan from
including “any provision that prohibits or restricts” any medical communication in contracts or
agreements, written statements, of oral communications with health care providers. The vagueness
of the term “restricts” opens the door to broad interpretation by the Secretary of Health and Human
Services and the federal courts, leading to extensive government micro management of health care
delivery.

‘Some health plans and physician group practices currently require physicians to refer to clinical
pctce guidne or prcts poco er dscucing Angee a eaten pen with
their patients. For example, some require physicians to check with the plan before recommending
‘an organ transplant, to make sure the doctor knows about the plan's use of centers of excellence for
transplant surgery. If broadly interpreted, such practices, designed to ensure high-quality care,
could be deemed “restrictive.” Other health plans and medical group practices require physicians to
discuss complex cases with their peers, i.c., doctor-to-doctor, to assess the medical appropriateness
of a course of treatment for a particular patient, prior to discussing treatment options with their
patients. These discussions focus on the tough cases for which a clear-cut treatment may not be
obvious. H.R. 2976 could prohibit this quality improvement practice. These types of quality
improvement activities do not interfere with plans’ commitment to free and open communication or
their commitment to placing no restrictions on discussion of medical treatment options.

Limits on “Oral Communications”

We are concemed that H.R. 2976 not only bans a health plan from including any provision that
prohibits or restricts medical communication as part of a written contract or written statement, but
also as part of an “oral communication.” The inclusion of “oral communication” in H.R. 2976 is
‘unnecessary as the relationship between a plan and its providers invariably is governed by a written
agreement.

The purpose of written contracts is to assure that all parties involved have a clear understanding of
‘what is expected of them. Currently contracts are enforced on the basis of mutually agreed to
written terms and conditions, precisely because oral communications are easily subject to
misinterpretation. H.R. 2976, which permits disputes to be based on undefined oral


18

their right to know on the basis of physical or mental condition or
treatment options.

This is just an area that you need to look at and think about.
As we move toward the potential markup, I would like to have
some conversations in terms of the scope and the extent to which
folk who I believe probably have no professional expertise could
make comments and be protected under the very broad umbrella.
I understand you need to create a broad umbrella. I am just ques-
tioning, perhaps, maybe it is broader than it needs to be.

Mr. GANSKE. Mr. Chairman, I worked with Congressman Burr,
and also worked with various interested parties on this legislation.
We came to an understanding of sorts and had a colloquy on this.
I think this would be an appropriate issue for report language, es-
pecially in terms of just exactly what a medical communication is.
I believe that it is basically any test, consultation or treatment op-
tion, any risks or benefits associated with them in any variation
and quality among health care providers or institutions providing
such services, as an example of, I think, the type of language that
I would be happy to work with you on.

Chairman THOMAS. I appreciate that. I am currently represent-
ing an interest group of one on this issue. It may or may not extend
beyond that, but that is the group I am looking out for right now.

Does the gentleman from California wish to inquire?

Mr. Stark. Thank you, Mr. Chairman. I have been trying to sort
out the differences between the original bill and the bill before us.
I guess the easiest way would be to ask the witnesses if they could
just give me a quick summary of what was dropped from the origi-
nal bill and if there was any reason other than political expediency
to get a bill passed. If there was a technical reasons for dropping
it, maybe you could tell us. Maybe there was no reason other than
votes, that is a pretty good reason.

Could you run through quickly and give us an idea—

Mr. Markey. I can, if you want, just summarize——

Mr. Stark. Yes.

Mr. Markey [continuing]. The changes that were made. The
most significant change was the deletion of language in the base
bill that listed a series of adverse actions that are prohibited.
Instead the—

Mr. Stark. The doctor, the termination to renew a—a refusal to
renew a contract, that section?

Mr. MarKEY. Right, exactly.

Mr. Stark. OK.

Mr. MarKEY. Instead, the substitute does make clear that plans
may not gag their providers. Plans that attempt to impede free
communications between providers and patients would still be pun-
ished even if they have taken no retaliatory actions. The substitute
contains a more focused definition of protected medical communica-
tions, deleting a long list of terms that appeared in the base bill.

The substitute includes a provision that makes clear that provid-
ers may not use the protections of this bill solely for the purpose
of steering patients into a competing health plan which pays them
better. That is based on language from the gag clause ban which
passed the Assembly of California by a 72 to 0 vote.


14

drawing such a conclusion. Dr. Rosabel Young, a Texas neurologist, was
reprimanded by her HMO-employer, CIGNA, for recommending a muscle biopsy
to one of her patients even though it wasn’t covered by the plan. She was told that
“it was a mistake to tell the patient about a procedure before checking to see if it
was covered.” “It was as if I was a store vendor and was only supposed to
advertise the products we offered,” she recalled. Clearly, CIGNA was trying to
keep Dr. Young from giving her best medical advice to her patients, to gag her,
not by invoking a specific provision in her contract but by enforcing an oral policy
against discussing treatment options not covered by the plan with those patients.

The Patient Right to Know Act was approved by the Commerce Committee last
week by a voice vote. I am pleased that the Ways & Means Committee has now
tured its attention to HR 2976, and I am hopeful, Mr. Chairman, that you will
schedule action on it as soon as possible.

Mr. Chairman, silence isn’t always golden. No doctor can practice good medicine
ina muzzle, We must ungag the doctors, and give patients confidence that nothing
is preventing their doctors from telling them the truth, the whole truth and nothing
but the truth. America’s patients deserve nothing less.

Thank you and I yield back the balance of my time.


97

lars if | make the wrong judgment? Or do I go ahead and try to
keep the baby in utero which if I do inappropriately could make the
uterus burst and she could lose her life?

Oh, by the way, all these young folks are making these decisions
in a cavalier fashion on the telephone some place in a clandestine
place, never having seen my patient. I am the one who takes the
medical-legal hit. If there were a problem, I am the one who has
to go to court.

What did I do? I did what was right, I prayed and I did the
amniocentesis. I ate the cost of it. I ate the cost of the test which
was several hundred dollars, found out that my patient was not
mature, kept her on tributelene or medication to make her not con-
tract and successfully delivered her several weeks later of a term
infant.

What was my thanks? A letter of reprimand for telling my pa-
tient something she should not have been told, even though I pro-
vided good care.

So, it is not just, Mr. Chairman, what’s written in the contract,
it is the implementation and the subtleties, the vagaries, the regu-
lations, and so forth, that come out. It was very difficult.

Mr. CHRISTENSEN. Would you be able to give a copy of that letter
of reprimand to the Subcommittee?

Dr. NELSON. I am sure I can find it.

Mr. CHRISTENSEN. I would be interested in seeing that.

[The information was not available at the time of printing.]

Mr. CHRISTENSEN. Dr. Jagmin, Dr. Nelson earlier talked about a
Humana contract that he recently testified from. Would you con-
sider that a gag clause?

Dr. JaGMIN. If I am remembering the contract correctly, it was
an issue about informing the patient. .

Mr. CHRISTENSEN. Dr. Nelson, do you have that, would you
reread that?

Dr. NELSON. Right here. This is the Physician Bulletin 96001-
5896. And it says, “Effective immediately, all Humana participat-
ing providers must telephone the preadmission review department
at 1-800, before an admission occurs and before conveying the pos-
sibility of admission to plan member.”

Now, it talks about many group contracts that specify a 50-
percent penalty for not getting preadmission review authorization.

Dr. JAGMIN. I think the issue of the particular quote, before con-
veying the possibility of admission to the plan member, is wrong.
And I think Humana subsequently said that that was a wrong
statement, that there was an inappropriate person who issued it.
That is inappropriate behavior, clearly.

Now, the issue of what is covered under a benefit is definitely in
the plan’s purview. Something may be medically necessary and not
covered in the plan’s benefit. So, it is important for physicians to
notify patients that you need to have this done, and now we are
going to figure out if your plan covers it or not. I am going to call
the plan to see if I can do it. I think we are starting to confuse
medical necessity with benefit plan coverage issues.

Mr. CHRISTENSEN. And under the association you are represent-
ing, the medically necessary words, would be, something that
under Dr. Nelson’s scenario would have been covered?


26

Mr. GANSKE. Thank you, Mr. Chairman.

Chairman Tuomas. The next panel is described as a panel of
legal experts, Dr. Peter Kongstvedt, who is partner and national
practice director of the Managed Care Strategy and Medical Man-
agement Section of the Managed Care Group of Ernst and Young;
Joel Stocker from Greenberg Traurig, Miami, Florida; and Mark
Rust, a partner in Kamensky and Rubinstein law firm in Chicago.

I would tell each of you that your written testimony will be made
a part of the record. You may proceed to inform the Subcommittee
in any manner you see fit in the timeframe that you have avail-
able. We will begin with Dr. Kongstvedt and move to the rest of
the panelists.

Doctor.

STATEMENT OF PETER R. KONGSTVEDT, M.D., PARTNER AND
NATIONAL PRACTICE DIRECTOR, MANAGED CARE STRAT-
EGY AND MEDICAL MANAGEMENT SECTION, MANAGED
CARE GROUP, ERNST AND YOUNG, LLP

Dr. KONGSTVEDT. Thank you, Mr. Chairman. My name is Peter
Kongstvedt. I am a board-certified physician of internal medicine
and a fellow in the American College of Physicians. I appreciate
your introduction.

On behalf of Ernst and Young, LLP, I would like to thank you
for inviting me to testify.

In the popular press, the issue at hand has been labeled the gag
rule or the gag clause. Many groups charge that HMOs and PPOs
have sought to restrict or gag what a contracting provider may or
may not discuss with a health plan member, including discussions
related to the provision of patient care and to the health plan’s
business secrets.

Using the technique of orchestrated outrage, the issue has been
brought to the public’s attention, using such examples as the cover
of a widely circulated news magazine featuring the photo of a
model wearing surgical scrubs and mask, ostensibly to represent a
gag physician. Using another technique known as the identifiable
victim, others have used anecdotes to describe the issue in terms
of a misfortune that has occurred to an individual, ascribing that
misfortune to the provision in the contract between the health plan
and the physician.

In Ernst and Young’s dealings with a broad representation of the
health care industry, predominantly on the provider's side, we have
not actually seen evidence of the gag rule being an issue. The issue
at hand does appear to be somewhat difficult to surface. In all hon-
esty, I can say that I have not personally seen such a gag clause
in its most restrictive format, but it is possible that such a contract
does exist, because I certainly cannot claim to have seen every con-
tract in existence.

At the same time, there are indeed clauses in these contracts
that serve to control certain aspects of communication between
physicians and members of health plans, as illustrated in the
attachment to my testimony. The three common forms of such
clauses include those related to business secrets, those related to
the plan’s market position and those related to compliance with the
plan’s medical management program. It is common in contracts


107

tract, statement, or oral communication that prohibits or restricts
protected patient/provider communication. The term “restricts” can
be interpreted to mean limiting, confining, affecting, or may apply
to such communication as utilization review.

Currently, contracts are enforced on the basis of written terms
and conditions. Employers, health plans, and providers come to the
bargaining table as business partners to negotiate the terms and
conditions, setting forth the obligations of the parties. This bill pro-
vides Federal statutory rules that allow disputes to be based on all
communications between the provider and the health plan.

Communications could include direct verbal statements, impres-
sions, conversations, and so forth. If the government is to monitor
all these communications, including reports, memos, newsletters,
educational materials, and all conversations to and with participat-
ing network providers, costs will surely increase because each com-
munication will have to be scrutinized by the health plan to ensure
they are not interpreted or perceived as prohibiting, limiting, or
confining protected communications.

In addition, this bill will open up a new arena of litigation relat-
ing to communication with at least two new types of evidence. One,
showing a pattern of oral communication violations; and two, dem-
onstrating a preponderance of oral communication violations. How
these patterns and preponderances are proven is uncertain and
may be subject to fabrication.

‘hird, the bill will erode managed care and the higher quality
and lower costs associated with managed care. Employers have
used managed care arrangements in order to lower costs and main-
tain quality health benefits for employees. Many managed care op-
tions include performance guarantees and information require-
ments which allow employers to include contract provisions aimed
at assessing and maintaining the quality of health care services de-
livered. Without the ability to contract in this manner, employers
will have no incentive to continue the managed care relationships.

With the return to traditional indemnity coverage, we will see
cost increases and decreased quality initiatives. Not only is this a
negative for employers, the erosion of managed care will be iden-
tical for public plans, including Medicare and Medicaid, Indian
Health Services, and Federal and State government employee

ans.
P In addition to the erosion of managed care and associated cost
increases, this bill will drive up administrative expenses by requir-
ing plans to renegotiate contracts, review all contracts, written
statements, oral communications, and greatly increase medical
costs by favoring fee-for-service options as a means to avoid HHS
micromanagement.

In conclusion, employers are opposed to H.R. 2976 because of its
negative impact on employer provider contracting, thus minimizing
the positive effects of managed care. The communication regula-
tions created by the bill and the regulatory function created for
Department of Health and Human Services is an additional layer
of unnecessary burden and expense. These provisions also greatly
diminish ERISA and create new liability for employer sponsored
plans and third-party administrators.

Thank you.


128

Samuel Brola
Monika D. Brola
17400 S. W. 113 Court
Miami, Florida 33187
Telephone: (305) 254-9608
Facsimile: (305) 256-0841
Intemet E Mail: sambrola@ix.netcom.com

August 12, 1996

Philip D. Mosely, Chief of Staff
‘Committee on Ways and Means

U, S. House of Representatives

1102 Longworth House Office Building
Washington, D. C. 20515

RE: Committee on Ways and Means, Subcommittee on Health, Hearing on H.R. 2976,
the “Patient Right to Know Act of 1996” held on Tuesday, July 30, 1996.

Dear Mr. Mosely,

am submitting this evidence as an individual who has been through all stages of disgust
with the way managed care is being operated.

|1do not officially represent any organization but am merely the person who has fought their
case the longest and hardest while seeking justice and the truth However, | believe my
case is only one of thousands in the Miami area

The hearings are all about gag clauses and secret contracts. SECRETS are at the root
of the managed care problem and secrets kept from the public are not in the best interests

of the people.

| believe that health care cannot be left to profit oriented/cost cutting managers. There
must be Federal laws that protect the patient by:

1) Eliminating all gag clauses and secret contracts. The people have a right to know!

2) Eliminating any biocks to a patient suing his HMO and his employer in State Court. The
current system too often allows HMO's escape by citing ERISA. Filing a suit in Federal
Court is expensive and since attorney's fees are not guaranteed; most Americans cannot
afford due process.

3) Requiring that all HMO personnel who make decisions of medical necessity must be
licensed as medical doctors in the state where the patient is located. We are trying to
clarify this issue through a criminal court case.

4) Holding individuals, not corporations, liable for malpractice, bad faith, and contract
‘compliance. Anything less will not change the corporate behavior.

| am enclosing 25 copies of the evidence | wish to have printed as part of the printed
fecord of this hearing. Please use them in the following prioritized order.

1) Copies required to ensure printing for the record
2) 13 Copies - One to each member of the subcommittee.

3) Please distribute any remaining copies to media representatives who expressed an
interest in this hearing.

Prense coneinm BY Phone, Fax, oR Eman rHAr THIS
Evi bene wit BE PRWTED AS PART OF THE HERRIWE.


50

terest protection provision that restricts a physician’s ability to
move to one plan or location and take away patients.

Combining professional and business obligations sometimes cre-
ates tension in a business relationship. However, in my experience,
it is generally understood that physicians must exercise their pro-
fessional medical judgment in providing health care services. They
must abide by the rules of their profession. Parties to these con-
tracts generally understand and abide by that principle. However,
as Congress examines contract terms and provider relationships, it
is important to distinguish between communication about business
relationships and communications about medical care.

I personally have never seen a term in a contract that restricts
communications applied to medical care options. That is not to say
that examples do not exist. However, these provisions are generally
written to protect business interests and are applied in that way.

Let me describe a few provisions that I consider business interest
terms of a contract. They include noncompetes, antidisparagement
and confidentiality of business information. Such terms include re-
strictions on disparagement in the solicitation of members. Group
practices, managed care companies and networks attract patients
to their groups, plans and networks and want to protect these rela-
tionships. For that reason, they include similar provisions in their
agreements with physicians. These provisions are developed to
keep physicians from aggressively discrediting the managed care
companies and moving large numbers of patients to other plans.

Confidentiality provisions protect managed care companies,
groups and networks from having other companies and providers
know what they pay for their services. It protects their member
lists and it protects their unique methods of doing business. These
terms are generally not directed at controlling the flow of medical
information between doctor and patient.

Medical care is changing and physician agreements are: also
changing. Sometimes changes have positive and negative results.
The doctor-patient relationship is probably not as intimate as it
once was and it is certainly not as unfettered. The decision before
you is whether this competitive health care market calls for more
Federal regulation or whether the market, bound by professional
ethics, malpractice considerations, accreditation requirements, cus-
tomer satisfaction and the good faith of professionals is enough to
prevent significant abuse.

Thank you.

[The prepared statement and attachments follow:]


104

Testimony of Diane S, Archer, Executive Director, Medicare Rights Center

‘Lam the Executive Director of the Medicare Rights Center, a national not-for-profit
‘organization that works to ensure equitable access to quality health care for seniors and people
with disabilities on Medicare. 1 thank the Subcommittee on Health for inviting me to testify today
on the Patient Right to Know Act.

‘The Medicare Rights Center, under a contract with the New York State Office for the
Aging, with funding from the Health Care Financing Administration, operates a telephone hotline
that provides direct assistance to more than six thousand people each year who have health
insurance questions and problems. More than 20% of our cases concern HMOs. Most of these
cases are from clients who want to know whether they should remain in fee-for-service Medicare
or switch to an HMO or which HMO to choose and how to distinguish among the HMOs, Our
staff spends considerable time studying the HMOs in New York State, but we are still unable to
offer much guidance, HMOs do not disclose the basic information our clients need to know to
make informed health care choices. In particular, they do not disclose the specialists to whom
patients will have access for a particular health condition or the circumstances under which they
will cover particular treatments for cancer, heart disease, stroke and other complex and costly
illnesses

To compound the problem, many HMOs do not allow their network physicians to disclose
two crucial types of information that their patients need to know in order to make informed health
care choices.

First, some HMOs prohibit their doctors from disclosing treatment options which the
HMO will not authorize even when the doctors believe these treatments may be in their patients’
best interest. While HMOs may have good reason to regulate the care network doctors deliver,
permitting HMOs to prevent full disclosure of all medically-appropriate treatment options serves
no public interest. Indeed, our clients and, T suspect, a large number of HMO enrollees, currently
choose their HMO because their doctor is in the network. They believe that they can trust their
doctor to disclose their best health care options; and they should be able to trust their doctor,
without fear that their medical advice has been censored by the HMO.

Second, many HMOs prohibit providers from disclosing financial incentives that may
influence provider decisions about the care they deliver. Without information about physician
financial incentives, patients cannot make informed choices about their health care. While a
patient may choose an HMO because it covers a particular treatment, IMO financial incentives
may discourage physicians from providing this care in all but the rarest of instances. Medical
practice is a regulated industry analogous in some ways to the distribution of pharmaceuticals. As
‘a matter of long-standing public policy, the government requires comprehensive warnings to
accompany the sale of pharmaceuticals in order to ensure that consumers understand the risks
they are taking when they use particular drugs. The medical policies and practices of HMOs merit
similar scrutiny because they have a direct bearing on people’s health and well-being. At the very
least, a Patient Right To Know Act should protect the ability of physicians to disclose how HMO
financial incentives can discourage delivery of costly specialty care.

‘While constraints on physician disclosures may serve HMO business interests, none serve
any legitimate health care interest. They only undermine consumer choice about which HMO to
join and what kind of care they need. None of these constraints have any place in our health care
system and, indeed, many states already outlaw one or more of them. If Congress sincerely wants
informed consumer choice, it should pass HR 2976 as originally introduced and outlaw HMO
constraints on physician disclosure about treatment options and financial incentives as well as
non-disparagement clauses in HMO contracts.

However, even this legislation will not serve its purpose unless Congress addresses the
ability of HMOs to terminate physician contracts for any reason. For example, even if federal law
forbids HMOs from restricting some or all types of physician communications, HMOs can
nonetheless terminate doctors because of their communications. This ability to terminate
physician contracts without cause has perhaps the greatest chilling effect on physician-patient
communications, In order for the Patient Right to Know Act to achieve its desired objective ~
informed health care decision making -- Congress must forbid HMOs from terminating physicians
for disclosing treatment options, financial information and any other information that bears on the
quality of care the HMO delivers.


68

Mr. ENSIGN. I would like to thank the panel.

We will just take a couple of questions here real quick with all
of you.

First of all, could you maybe just go down the line and tell me
what, say, three or four top concerns that you see that physicians
have when they’re negotiating their contracts with managed care.

And if each of you would respond.

Dr. KONGSTVEDT. That question is a very moving target, because
the old world of individual solo practitioners in small groups nego-
tiating is rapidly giving away to large organized systems of care,
through physician hospital organizations, MSOs, management serv-
ice prganizations, vertically integrated, integrated systems and so
‘orth.

There is very rapid movement toward global capitation in which
the providers are now receiving a large global capitation and the
very issues being debated today are now becoming internal to the
provider system and external to the HMOs.

So, it is very difficult to answer that question because those con-
cerns are rapidly moving. Answers that are germane to solo practi-
tioners who are not moving into integrated systems will be very,
very different than that answer for physicians who are part of a
large, integrated delivery system.

Mr. ENSIGN. OK. Well, why don’t you then answer what are the
group versus the individual, primary concerns?

Dr. KONGSTVEDT. In my experience on the side of the solo and
small group practices, the large concerns are the issue raised that
managed care organizations are unlikely to change substantial
terms in a contract for one physician and that is true. They will
not do so.

The payment provisions are generally whatever they are. It is
very common, as has been said, that physicians may or may not
read the contract. They rarely do employ a lawyer to review all of
the terms to do so.

On the large group side, the large integrated systems, the issues
of negotiation involve the level of the global capitation and who will
do what function in utilization management, credentialing, quality
management and so forth. The more that these processes are
moved out to the integrated delivery system, the more these issues
are between the individual physicians and the physician leadership
of that integrated delivery system.

Mr. EnsIGN. OK. Mr. Stocker.

Mr. STOCKER. My experience is similar. We are seeing a signifi-
cant movement in south Florida toward very large-scale physician
organizations where the physicians are becoming much more so-
phisticated in negotiating these contracts, and where they have a
lot more bargaining power than individual physicians.

In my experience, what they are concerned with is the amount
of payment and, frankly, these large groups are encouraging the
managed care companies to move to a global cap, some sort of a
global cap arrangement.

The role of the physicians in care management, what they are at-
tempting to do is to move a lot of the functions that you typically
see in an HMO into the physician arena and, frankly at least in


20

seen. So, the short answer is, because the State insurance plans do
not regulate a lot of the plans.

Mr. McDERMOTT. Well, let me just walk you through an example.
One day, I was flying home to Seattle and I was sitting next to a
woman who was the manager of an office for a neurologist out in
Vienna, Virginia. I asked her if she had anything to do with these
managed care contracts and she said, Oh yes, we have signed 70
of them. I said, Well, you have signed them, have you read them
all? Do you know all the provisions that are in them? She said, Are
you crazy? I could not possibly do that. She said, We have to sign
all of these so that we can get paid.

Now, suppose she were to find that there was a clause or the doc-
tor was to find that there was a clause in one of those contracts
that was restrictive, a gag clause, and they wanted to deal with
this. Under your bill, what would be the mechanism by which that
individual neurologist could go after the particular company he had
signed this contract with? Would all managed care contracts have
to be reviewed by the Justice Department before they could be used
by insurance companies or——

Mr. GANSKE. No.

Mr. McDERMOTT [continuing]. Would the doctor have an individ-
ual cause of action against the insurance company because they
have an illegal provision in their contract? Explain to me how that
would work. I would like to know, as a physician, when I am back
out there practicing after this election. What steps do I have to
take under the provisions of this bill to deal with this kind of stuff?

Mr. GANSKE. Well, I do not know whether you will be back prac-
ticing after this election. [Laughter.}

The way that I would see this working is, the bill, if it is signed
into law, outlaws or bans those gag clauses. Upon information of
them, the Secretary of HHS could levy a $25,000 fine.

Now, let us say that you are a practicing provider, whether you
are a nurse practitioner, a physical therapist, or whatever. You get
a communication from the medical director of the plan. It says,
“You have recommended a treatment that we are not covering. I
would remind you that you have in your contract a clause that says
you may not discuss treatment options unless you first get an OK
from us. If this behavior persists, we will take you off our plan.”

That raises some concern for that practitioner so the practitioner,
I think, would then initiate a complaint and point out to the man-
agement that, under the Patient Right To Know Act, this restric-
tion is not legal and if you persist in enforcing it, then I could bring
this to the attention to the Secretary of HHS. It does not mean that
the Secretary is going to look at every contract around the country.
It simply provides a mechanism whereby these would be limited.

Mr. McDERMOTT?. So, it would be the general counsel of HHS
who would get these cases as they came from individual practition-
ers, who have received a communication that they are going to be
dropped because there is a clause that limits them?

Mr. GANSKE. That would be how I would envision it.

Mr. McDERMOTT. Mr. Markey.

Mr. MarRKEY. The regional HHS office, yes.

Mr. McDermott. OK.


86

problem is still not resolved, then the doctor may appeal directly
to PacifiCare’s physician advisory committees. PacifiCare also has
a separate provider appeal mechanism available to physicians in
the network.

Proprietary information clauses protect information such as the
specific financial arrangements between the plan and physicians,
whose release of this information would undermine competition
among plans.

Disclosure of precisely how much a physician is paid per member
per month, which I note can be an incomplete and misleading
measure of payment, will do little to help patients answer the ques-
tion that is foremost in their minds: Am I receiving the health care
services needed for my disease or illness? Both antidisparagement
and proprietary clauses in no way restrict physicians from discuss-
ing treatment options. And, in fact, are commonly found in many
other professional and business agreements.

In addition, even though the Commerce Committee bill was nar-
rowed in scope, the legislation still includes language that would
bar a health plan from including “any provision that prohibits or
restricts” any medical communication in contracts with health care
providers.

The vagueness of this term opens the doors to broad interpreta-
tion by the Secretary of HHS. The bill also bans a health plan from
prohibiting or restricting medical communication as part of an oral
communication. Including oral communication that would change
longstanding rules of contract law which have relied on written
agreements between two parties.

Regulating the terms of contractual agreements between provid-
ers and health plans is not the way to ensure that patients receive
the information that they need about their care, nor is it the way
to ensure that physicians put patient interests first.

Quality improvement systems and holding physicians account-
able for patient satisfaction are more effective. At PacifiCare physi-
cians, along with senior management, lead our commitment to
quality through our quality improvement council. Each market in
our region has a physicians’ advisory committee composed of prac-
ticing physicians in our network. These physicians perform peer re-
view activities, as well as design studies in collaboration with
PacifiCare to improve our members’ health.

We currently have 52 practicing physicians, including specialists,
who actively participate in our monthly quality improvement ac-
tivities. We have targeted quality improvement activities in clinical
areas such as congestive heart failure, diabetes, early detection of
breast cancer, depression, and pediatric asthma.

These measurement and improvement activities will allow us to
improve the care and outcomes for our members. HMOs and other
integrated networks provide the unique vehicle for systematic qual-
ity improvement that is not readily available in fee-for-service ar-
rangements.


H.R. 2976, THE “PATIENT RIGHT TO KNOW
ACT OF 1996”

TUESDAY, JULY 30, 1996

House oF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:10 p.m., in room
1310, Longworth House Office Building, Hon. Bill Thomas (Chair-
man of the Subcommittee) presiding.
(The advisory announcing the hearing follows:]

(ey)


69

my view, I see that as a very positive thing because physicians are
in a good position to manage care.

id what we are seeing is a redundancy, a deliberate redun-
dancy required in those functions so that the HMO can exercise its
responsibility and the physicians can effectively manage the care
and control the costs. And also, they want to know to whom pay-
ment is going to be made, you know, on what basis. Risk pools, the
issue of risk pools, the issue of stop loss insurance and those kinds
of economic terms.

Mr. ENSIGN. OK. Mr. Rust.

Mr. Rust. My experience has been very similar. In individual
contracts, it is virtually impossible to negotiate particularly the im-
portant legal issues that exist there. If it is a ministerial item,
you've got the name of my group wrong or it is with me, individ-
ually, and I am really in a group of four, they’re willing to go ahead
and do that. But there’s no negotiation otherwise, and physicians
do not usually try to, other than what I referred to as hit-and-run
tactics where, for example, they do not like the indemnity clause
so they strike it out, initial it, sign it, throw it into the hopper, and
hope the MCOs do not really notice it.

With respect to larger groups, there is negotiation but, as the
other speakers have suggested, usually it is about price-type terms.
When you see various kinds of clauses that tend to inhibit what
physicians can say and they are put into a commercially sounding,
reasonable context, you have to understand most of these groups
are relatively newly formed and they are very fearful that they will
even be able to get the contract to begin with. Sometimes they put
a great deal of capital into building this organization and they do
not have much experience. it is not the kind of thing they normally
really focus on negotiating.

Mr. ENSIGN. Would you, like to comment on the difference be-
tween the way that primary care physicians versus specialists or
subspecialists view this negotiating phase? And actually the way
that they view the whole idea of this patient protection the gag
rule.

Mr. Rust. If I can take a stab at that, Mr. Chairman.

That’s a very important distinction because the groups that we
are talking about—and it was just referred to a moment ago that
we are seeing more large group contracting, as opposed to individ-
uals—are by and large primary care driven, gatekeeper model type
groups. And those are the people who are negotiating these con-
tracts and being very concerned about capitation.

Specialists are often times, still even in that environment, enter-
ing into contracts individually and they still have the same prob-
lem as any of the individual physicians have, it is impossible for
them to negotiate these things.

Mr. STockeR. At least in my experience when you're talking
about these larger groups, the physicians that are running these
groups have very similar ideas about confidentiality provisions,
antidisparagement provisions, and noncompete provisions that the
managed care companies do. And they typically put the same kinds
of provisions in their contracts with other physicians because both
of these types of entities are trying to protect the same thing, the
business reputation of their company. And these physician compa-


15

who are working for doctor networks, who are working for very
large-scale organizations.

So, there are a number of different levels between the managed
care company and the doctor. To me, the gag rule issue isn’t nearly
as significant an issue as the basic issue of managing care and
looking at how doctors are performing with respect to economics
and with respect to quality?

And these issues are looked at and will be looked at irrespective
of whether you pass any legislation with respect to gag rules or
not. So, if a doctor is down there and he’s making a lot of referrals
for a lot of expensive things that are not medically necessary, he
may very well be fired, irrespective of a gag rule.

Because if you are going to manage care, you are going to have
to manage care and, at some point or another, somebody is going
to have to do it in order to keep the costs down.

It is a different reality I think than the reality we are talking
about where you have got a doctor who has no bargaining power,
who has this managed care contract that is shoved in front of him.
The way I see it, that’s not the reality that we are dealing with
toda:

My McDermorT. If that’s not the realit: why have, whatever it
is, some 17 or 20 legislatures plus the U.S. Congress passed laws
against drive-by babies, drive-by baby delivery? And said that man-
aged care contracts cannot prevent women from staying in a hos-
pital overnight after childbirth?

Explain to me what’s going on that all over the country in legis-
lative bodies people are jumping up and doing that kind of thing?

Mr. Stocker. Well, first of all, drive-by babies have nothing to
do with gag rules. The issue with drive-by babies—and I think it
is a very legitimate issue—is what level of care, what standard of
care should be common, I mean should be the baseline?

And that’s a different issue from gag rules.

Mr. McDermott. But it gets back to the question of what level
of care is expected and using a managed care contract as a defense
against malpractice.

Mr. STOCKER. Well, irrespective of whether there’s a Be rule or
not, every physician and I think at this point, managed care com-
panies, as well if they are telling physicians what to do, are bound
by community standards of care. I mean that will be the standard.
And, if an HMO is directing a physician to do something that is
below community standards, my view of it would be that the HMO
would wind up bei liable and probably if the physician went
along with it, he would be, too.

I would never counsel a client, HMO, or a physician client, to
provide any services below the community standard of care.

Mr. McDermott. Have you defended any physicians who have
been dropped off the panel?

Mr. STOCKER. I represent both physicians and HMOs and other
kinds of—and I haven’t had that come up ever.

Mr. McDermott. Have you, Mr. Rust?

Mr. Rust. I am sorry, what was the question?

Mr. McDERMoTT. Have you ever represented anybody who has
been dropped off the panel by an HMO’

Mr. Rust. Oh, yes, certainly.


Ix

6

(2) PROCEDURES.—The provisions of sub-
sections (c) through (1) of section 1128A of the So-
cial Security Act (42 U.S.C. 1320a-7a) shall apply
to civil money penalties under this paragraph in the
same manner as they apply to a penalty or proceed-
ing under section 1128A(a) of such Act.

(d) DEFINITIONS.—For purposes of this section:

(1) HEALTH CARE PROVIDER.—The term
“health care provider” means anyone licensed under
State law to provide health care services.

(2) HEALTH PLAN.—The term “health plan”
means any public or private health plan or arrange-
ment (including an employee welfare benefit plan)
which provides, or pays the cost of, health benefits,
and includes an organization of health care providers
that furnishes health serviees under a contract or
agreement with such a plan.

(3) SECRETARY.—The term “Secretary” means
Secretary of Health and Human Services.

(4) COVERAGE OF THIRD PARTY ADMINISTRA-
TORS.—In the case of a health plan that is an em-
ployee welfare benefit plan (as defined in section
3(1) of the Employee Retirement Income Security
Act of 1974), any third party administrator or other
person with responsibility for contracts with health


103

In conclusion, the Patient Right To Know Act, as originally intro-
duced, is an excellent first step to helping patients take responsibil-
ity for their health care. But, in order for consumers to make in-
formed choices about their health care, Congress will need to man-
date far greater disclosure from HMOs. Most importantly, HMOs
will need to disclose their medical protocols, including the terms
under which they pay for particular treatments and the conditions
under which they disallow care. Without these additional HMO dis-
closures, consumers cannot assess the nature of the care HMOs de-
liver, cannot make informed choices about their HMOs, and cannot
take responsibility for their health care.

Thank you.

[The prepared statement follows:]


73

Mr. Stocker. First of all, you probably think that Florida is—
tourism is a big industry there, but really health care is the big in-
dustry in Florida, and we see a lot that sort of is advanced guard
stuff there.

And one of the things we are seeing is that health plans really
do not want to contract with individual physicians very much any
more. It is too costly for them to do that, and they cannot get the
care management and some other things that they want.

So, more and more we are seeing them contracting with groups,
specialty groups and large IPAs, and PHOs and all these other
things. And we do see nondisparagement provisions with respect to
business types of terms. But I have never seen a gag rule. I have
never seen a contract provision that prohibits a physician from dis-
cussing treatment options.

panat’s just in my range of experience, but I see a lot of these
things.

Mr. CHRISTENSEN. I have got one last quick question. I just
wanted to find out, Mark, it looks like you were also chair on the
legislation for the Ilinois State Bar as well as the chair of the
American Bar’s Medicine and Law Committee——

Mr. Rust. I am on the standing committee for legislation.

Mr. CHRISTENSEN [continuing]. Tort and Insurance Practice Law.
Where did you come down on, earlier this year when we were try-
ing to put together malpractice reform legislation for the medical
community?

Mr. Rust. The Illinois State Bar Association just had a tort re-
form bill passed, or Illinois just had a tort reform bill passed the
previous term. And there were a number of pieces of legislation
that arose to reverse those so-called tort reform provisions, and the
Bar Association was in favor of reversing those tort reform provi-
sions but that didn’t happen.

Mr. CHRISTENSEN. And on the American Bar, as far as the over-
all—that was on the Illinois side?

Mr. Rust. That was on the Illinois side, that’s correct.

Mr. CHRISTENSEN. What about the position that the American
Bar has taken?

Mr. Rust. The American Bar Association has been opposed to
tort reform, by and large.

Mr. CHRISTENSEN. Yes, unfortunate.

Thank you.

Mr. Rust. That was not my personal opinion, and I am not here
to testify for the American Bar Association.

Mr. CHRISTENSEN. Thank you.

Mr. ENSIGN. Does the gentleman from Washington wish to
inquire?

Mr. McDermott. Thank you, Mr. Chairman.

I wish I could get a debate going between the three of you about
this whole issue because I am sure there are no gag clauses. There
is no contract that says, thou shalt not say, XY or Z. It is much
more subtle than that. And it seems to me that from my own expe-
rience watching television I saw a classic example of a gag clause.
That was on “Chicago Hope.” A doctor came into a managed care
operation bringing his patients with him. Well, when I got out of


99

For instance, if we know a patient’s having a certain procedure
done at a particular hospital, and I know from dealing with other
patients that hospital B over in this other city has a much better
success rate. If I call that physician and say, Did you know this?,
am I gagging that physician?

We read that potential communication as a gag and it is very
much up to the whim of the Secretary in determining that. I am
concerned about that.

Dr. NELSON. If I may, I take exactly the opposite approach. I say
how can anybody be opposed to it? The groups like PacifiCare that
are doing a good job, do not have anything to fear. The ones who
are doing a bad job are the ones that need to fear. It is so subtle,
Dr. McDermott, so subtle. Within the last 2 weeks I received from
one of my groups I have worked with for 13 or 14 years now, a new
way in which I will be paid. There are four tiers. I happen to hit
tier three, so I am going to be paid a little bit more but not as
much as if I were to hit tier four.

Now, the way this was determined is that they took the number
of dollars I spent for my patients and compared the number of dol-
lars I spent to my patient to the number of other doctors, all spe-
cialties, and divided it by the number of doctors.

Mr. McDermort. All specialties, not just-—

Dr. NELSON. Yes.

Mr. McDERMOTT. You weren't compared against obstetricians?

Dr. NELSON. No, sir. All doctors.

Mr. McDERMo‘TT. So, that’s kind of a universal salary schedule?

Dr. NELSON. Correct. So, what they got was an average. And 0.3
was the average and I was 0.4, some small number. I said to the
person explaining this, Does that mean I am a better doctor or
worse doctor? We do not know was the answer.

Well, if I am a better doctor, you should pay me more, not less.
The fact you are paying me less makes me believe you think I am
a worse doctor. No, sir, we do not know. Well, then why are you
paying me less? Well, because you spent more than average and it
went around like that.

The sum and substance of it was, well, if, in fact, 1 am doing the
correct thing, maybe you should be paying me more, maybe all the
other guys are wrong. Maybe I am the worst doctor in history and
I need to repent but the point is you cannot tell me and, yet, I am
being treated as if I were the person who is not doing it well.

So, these are the things that are really happening right now.

Mr. McDERMOTT. What's the differential between tier 1, 2, 3, and
4

Dr. NELSON. It is about 5 or 7 percent. Among a large number
of patients in a capitated plan that could be more.

Mr. McDERMoTT. Five percent each tier?

Dr. NELSON. Roughly.

Mr. McDERMot?. So, you could be making 20 percent more if you
were at the top?

Dr. NELSON. It is 15 to 20 percent, I am sorry I do not remember
the numbers exactly but I could get them for you.

But it is a different percent per tier.

Mr. McDermott. I think it would be useful for the Subcommit-
tee to see how that actually operates.


84

plans. The AMA has worked closely with the sponsors of H.R. 2976 in developing this bill
and maintains that it is a necessary first step to rid the health system of these egregious
contract provisions without unduly interfering with the legitimate business practices of
managed care companies.

‘STATE/EEDERAL INTERPLAY NECESSARY TO CORRECT “GAG” PROBLEMS

In reaction to the loud public outcry caused by local cases where physicians have been
“gagged,” thereby threatening patients, a number of states have begun to enact “anti-gag
clause” legislation. For example, legislatures in Massachusetts, Colorado, Maryland,
Georgia, Indiana, Virginia, Maine, New Hampshire, Rhode Island, Tennessee, Vermont and
Washington have all passed such measures. Another twelve states currently have similar
proposals pending while a number of other states have chosen to address this issue through
regulation. Finally, the National Association of Insurance Commissioners (NAIC) recently
adopted a non-binding model bill that would, in part, ban plans from contracting to limit or
prohibit a participating physician from discussing treatment options with patients regardless of
the health carrier's position on the treatment options, or from advocating on behalf of patients
within a utilization review or grievance process.

Given the number of states moving forward with legislation, the NAIC’s model bill and
various private sector activities to educate the public about these provisions and practices, we
expect some to pose the question, “is federal anti-gag clause necessary?” ‘The AMA believes
the clear and simple answer is “yes!” Even if all the states enacted similar “anti-gag clause”
measures, not all health plans can, nor will, be reached by state law. Consequently, federal
legislation is necessary to make “gag clauses” null and void in all'health plans. Although the
courts have yet to speak on this issue, we believe waiting for the courts to render their final
judgment could, in the interim, prove harmful -- if not fatal -- for many patients.

In addition, an increasing number of Medicare beneficiaries have begun to join managed care
plans. Because this population often uses a greater number of specialists, managed care “gag
clauses” could pose especially acute problems for unsuspecting Medicare beneficiaries.
Although the path for Congressional reform of Medicare remains uncertain, we would expect
efforts to change the system to include an even greater role for managed care plans in the
immediate future. Federal legislation covering all private and public sector health plans is,
therefore, needed in order to ensure that every patient is adequately protected from these
contractual provisions and practices.

CONCLUSION

In conclusion, the AMA maintains that “gag clauses” and “gag practices” should be made
unenforceable and null and void. Toward this end, we support both private and public sector
efforts to prohibit “gag clause” provisions and practices. The AMA maintains that such
practices are an unreasonable burden on physicians and create an unacceptable ethical conflict
of interest, as well as being “bad medicine.” In addition, to our support of the “Patient Right
To Know Act of 1996" (H.R. 2976), we will continue to work to support physicians fighting
against such practices and provisions. The AMA stands ready to work with you, Mr.
Chairman and Members of the Subcommittee, on this important issue. I would be pleased to
answer any questions you may have at this time. Thank you.


52

Relationship to Patients

Physicians today contract with various entities: hospitals, group practices, physician
“etwe “s, and/or managed care companies.' These entities are modeled in various fashiens:

Group Practice/Physician Company

These entities provide physician services, generally by hiring physicians. The entities then
contract with managed care companies, IPAs and other Service Provider Networks to
provide physician services. Physicians contract with these entities either as employees or
independent contractors. Although a physician may have an ownership interest in one of
these entities, increasingly, they are large companies that employ physicians.

IPAs/Networks

‘These are entities that contract with physicians and physician companies to provide services
throughout a geographic area. These companies may be physician, hospital, or investor
owned. While some such entities are single specialty providers, (e.g. surgical IPA), many
provide comprehensive services in wide geographic areas, contracting with multiple managed
care plans, They often contain their own credentialing, utilization review /quality assurance,
provider and member relations functions, and claims administration functions.

These large scale entities often resemble managed care companies, without the marketing
and regulatory compliance functions (they rely on the managed care company for those
services). By not being directly competitive with managed care companies, they are able to
sell their services to multiple managed care services (often for a percentage of the managed
care company's total premium).

‘The IPA/network typically enters into provider contracts with physician groups,
IPA/network agreements tend to be very much like physician provider agreements with
managed care companies. This is because they ultimately sell services to managed care
companies and also because they have similar business interest to protect; provider
agreements typically contain non-competition, non-disparagement provisions, etc. These
intermediary entities then contract with managed care companies, by providing physicians
and services.

Managed Care Companies

Managed care companies, such as HMOs, EPOs, and PPOs, enter into provider agreements
with physicians, physician groups, physician service companies, and IPAs/networks. These
provider agreements enable managed care companies to provide physician and other health
care goods and services to the public. Managed care companies are also able to control the
price and quality of the services they render through the provider agreements. Managed
care is different from traditional indemnity or fee-for-service care. Managed care controls
price through negotiated agreements. Such agreements set a contract price for services, and,
‘ensure quality by selecting providers and monitoring the care provided. Managed care
‘companies are regulated (typically on the State and Federal levels) and , consequently,
provider agreements contain provisions to assure regulatory compliance. In addition,
provider agreements contain typical business provisions.

Increasingly, managed care companies prefer to contract with larger scale physician entities
(group practices, practice companies, IPA/networks), rather than individual physicians.
‘They do this for several reasons: 1) larger entities become involved in the care management
process and often share risk with the managed care company; 2) there is less administrative
cost in contracting with larger groups; and 3) by aggregating volume, better pricing for
services can be negotiated, thereby lowering overall premium costs.

Attachments


48

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878.

The Managed Health Care Handbook, 3rd Edition.

by Peter R. Kongstvedt, MD, FACP.

‘A clause identifying how the contract will be
smended is almost always inchuded ina provider

contract. This is a common provision in coo
Tier eH is elitey chat he probiom will

bow sotices are provided t parties
‘tad to whom. The manner in which notice is

Copyright 1996.

Castag
Both parties need 10 confiem that the parties

‘Authored


10

These policies restrict communications between patients and their providers, But if
Congress focusses only on the actual terms of the contract, we would not view this as a
problem.

Third. Oral communications. Plans often communicate orally things that they do not
want to put on paper--whether to retain flexibility, because it is impossible to codify on
paper a multi-billion dollar industry, or perhaps because they are attempting to enforce
policies they don't want to put in print.

Consider the case of Christy DeMeurers, She was diagnosed with breast cancer and
eventually sought care at UCLA, where the doctor who examined her swore under oath
that she was an excellent candidate for a bone marrow transplant. When her health plan
discovered this, they threatened to terminate UCLA's lucrative contract as a Center of
Excellence unless the doctor reversed his opinion about her fitness for the procedure.
Faced with this tremendous economic coercion, Christy DeMeurers' doctor swore out a
deposition recommending against the surgery-—just eleven days after stating under oath
that "she is a candidate who may receive superior results.”

I think the ban on oral gags is particularly important, If Congress acts to ban restrictions
‘on written medical communications only, it will turn a blind eye to a significant part of the
problem motivating this bill and will tacitly encourage other plans to follow the example of
HealthNet in its treatment of Christy DeMeurers.

The bill passed by the Commerce Committee contained a reasonable compromise on this
issue. To prevent plans from being subjected to a "he said, she said” battle over alleged oral
‘statements, the bill requires that proof of a single incidence of an oral gag be made by a
"preponderance of the evidence," a higher legal standard than the "substantial evidence" test
sometimes used in civil money penalty cases. This was a key component of the amendment
approved by the Commerce Committee and will give health plans a greater defense against
spurious charges which are not backed up with any corroborating evidence.

Finally, let's be clear about what this bill will not do. It does not empower the Secretary
of Health and Human Services to scrutinize every contract or place an inspector in every doctor's
office. Instead, the legislation gives the Secretary the authority to examine cases of alleged gaps

i ion. This is an appropriate balance that safeguards
Patients against efforts to limit their access to critical information.

Mr. Chairman, as passed by the Commerce Committee, the Patient Right to Know Act is
a balanced bill that addresses a real problem in the health care market. I look forward to
working with you and the other Members of this panel on this important issue.

Thank you. I would be pleased to answer any questions that Members may have.


39

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878.

The Managed Health Care Handbook, 3rd Edition.

by Peter R. Kongstvedt, MD, PACP.

services 10 be furnished by the provider could be
tet out either ia the contract or in an exhibit or
‘asachment. An exhibit format frequently allows
flexibility 20d administrative
simplicity when it anends the exhibited portion
Of the agreement, purticularty when the change
requires regulatory approval,
‘Contracts may use the term provider services
0 denote the range of services that is wo be pro

‘The costract seeds to specify to whom the
provider is obligated to furnish services. Al-
though the answer is that the provider farnishes
services to covered enrollees, the contract seeds
tm define wha is meant by covered enrollee. ex-
‘plain bow the provider will leara who is covered,

0p
‘the provider is not available. Some of these func-

Copyright 1996.

Authored


43

Reprinted with permission of Aspen Publishers, Inc., 200 Orchatd Ridge Drive,
Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

(claims for which anctber curiar may be the pet
‘mary payer. A common wey to address this asus
fa.e balanced manser is to allow a 2-tn0nth po-
‘hod for collection from the purported prienary
‘carves. W unseccensful, the managed healt care
‘plan would pay while ewaiting reschution of the

At issue is the time fo which the managed

HH
Gal
tlt
i ifi ut
Wyatt

‘care orgasization to make a good faith effor 10
pay withia 8 specified period. From the
provider's tee weakness ofthis pro-
‘Vision is that a good faith standard is probably
too ambigvous to be enforceable. Some states
‘have laws requiring insurers and HMOs to pay
dgmerest on lase claims.

‘The contract aseds also to address reconcilia-

tons to sccoust for overpayments or waderpay-
mhents. To svoid these iamzes from lingering for
‘23 inordinately tong period of time, some man-
aged heath care plans lint the adjustment po-
lod wo a specified period (e.g, 6 months). Also,
some managed health cere plans wae contract
‘provisions that do not allow for a veccscilistica
the amount in controverny falls below a speci-
Ged amount,

‘The most complex aspects of provider coa-
‘wects are often the rish-sharing armngemests
(oot Chapuers 9, 12, and 14). Risk can be shared
‘with providers in significandy varying éegrecs
depending on the initial amount of risk wans-
ferred, the services for which the provider is at

rytam wre willing wo acoopt percentage of he
managed beak care plan precaium as compen

‘The compensation arrangements typically
‘provide that the PHO will receive » specified


72

Mr. Rust. It has traditionally been the individual and group size,
but in the last 2 years, it has become increasingly the large size
because of the tremendous activity that was set off a couple of
years ago with the introduction of the national health bill.

Mr. CHRISTENSEN. It was either you or Mr. Stocker who made
the comment that it is almost impossible to negotiate individual
contracts?

Mr. Rust. That’s correct.

Mr. CHRISTENSEN. Would you extrapolate on that, please?

Mr. Rust. Yes. Well, first of all, most physicians, as I believe Dr.
McDermott mentioned, do have 70 contracts in their office which
they never have reviewed because they perceive that they will not
get anywhere. And in the few instances where physicians do at-
tempt to do that, there is really only one of two ways to approach
it.

Either I am going to write a set of comments on the agreements
which I try to limit just to those things which are really reasonable
that the other side can focus in on, and the physician can send
them off to the managed care organization and say, Look if you will
make these changes, I will sign it, or they can ask me to call the
attorney directly for the other plan.

In both cases, the managed care organization takes the position
that we just do not change any of the things that we consider ma-
terial to the contract. And what they consider material to the con-
tract is virtually everything but the names of the parties and cer-
tain kinds of boilerplate.

Mr. CHRISTENSEN. What I am really interested in is your nego-
tiation on behalf of the large groups versus the small groups.

How does that differ when it comes to actual substance within
the contract? I mean don’t you see that nondisparagement clauses
end up in the large group practice, as well as your individual group
practice? Aren’t they almost identical?

Mr. Rust. When you say, they end up, what do you mean?

Mr. CHRISTENSEN. As far as the contract language within the
agreement between the providers?

Mr. Rust. Actually, I have not yet seen—well, excuse me, I have
seen once or twice that kind of nondisparagement language and I
counseled the administrator, the executive officer who was nego-
tiating it as to what the problems were and that it should come
out. And he took the view that that was a lesser priority than some
other issues and it never came out.

Mr. CHRISTENSEN. So, you’re saying that in your practice, the
predominant representation that you have given to your clients is
that there is not a nondisparagement type of clause in the individ-
ual practices, would that be correct?

You’re shaking your head.

Mr. Rust. I am not understanding you.

Mr. CHRISTENSEN. Would you say that there is predominantly
not a nondisparagement clause in the individual practices?

Mr. Rust. I would say you see nondisparagement clauses about
one out of every five contracts. They do not all have them.

Mr. CHRISTENSEN. Mr. Stocker, how would your practice and
your experience with this differ from Mr. Rust’s?


23.

24.

25.

27.

134

his respiratory license. He showed me a folded up copy of a copy of a copy of a
respiratory license. His drivers license picture did not look like him and the license
hed been peeled open. We wrote down his drivers license number and his
respiratory license number. The year of birth in his drivers license number did not
match his respiratory license information. We later filed a complaint with the Dept
of Business and Professional Regulation in Tallahassee. They refused to
investigate even though the loca! Miami office had expressed an interest, since
multiple users of a single license are apparently a large problem.

dan. 1994 - Mr. Jarrett came from Davie to our home in South Dade 3 times a day
for the next week, accompanied by a Mr. Hopper of Infusion Therapies, to insist that
Mr. Jarrett did not have to show me an original of his license. | agreed but had to
temind these people that this is MY home and my son. | will NOT be forced to let
just anyone into my house, especially someone whom | consider to be unqualified.

Jan. 1994 - We received a visit from an HRS Child Protective Services investigator
because of an anonymous report that we were purposely denying David needed
respiratory treatments. | am sure that it was Roger H. Strube of AvMed who filed
the false and malicious complaint because he threatened in writing to do the same
thing to Mr. Dennis Peterson, another AvMed member whose son is chronically ill.

March 1994 - At another AvMed Member Appeals Committee, | presented eight
pages of facts to the attending AvMed managers and executives. | have their
names in their own writing. The result of this meeting was an agreement that NO
CHANGES to David's care would be attempted until after a meeting was held
among us, David's primary care physician and AvMed's Complex Case Manager.

April 1994 - AvMed attempted to cease providing David's feeding formula, feeding
bags, and other medically necessary “disposable and consumable" medical
supplies. They attempted this in spite of a Member Appeals Committee agreement
to make no changes prior to the meeting with David's Primary Care Physician.

June 1994- The meeting took place between us, Dr. Jarrett, and Sue Shepper, RN.
of AvMed in the doctor's office. The doctor did not examine David. He merely
stated that since the current care plan was keeping David as healthy as possible,
he did not intend to change it. He also agreed that it was not up to him to decide
WHO provided the care, since Florida law specifies the qualifications required to
perform various levels of medical care.

Sept. 12, 1994 - Roger H. Strube of AvMed sent us a letter claiming to have
“recently received updated orders from bath Dr. Jarrett and Dr. Gusiman,” and that
the case would be transferred to Roche Professional Service Centers, a home care
‘agency whom we had previously fired for incompetence. What happened is clearly
described in a response | received from Karen Nagle, an attorney for Roche
Professional Service Centers, Inc. in New Jersey. "“RPSC was following the
directions of Dr. Strube to create a plan of care for your son and get physician
orders in order to be able to follow through on this plan. It is necessary to obtain
physician orders before rendering service, so that only care ordered by a physician
is rendered.”

Roger H. Strube illegally dictated the orders, (practicing medicine without a
license), Karen Martel, R.N., of Roche wrote the orders and illegally obtained
signatures. (It is illegal in Florida to obtain medical information/orders without prior
written permission of the patient/parent.) Paul M. Gustman, MD, illegally signed a
set of the orders (per Karen Martel's statement and Strube's). He had removed
himself from David's case in February and had on one occasion refused to order
an antibiotic for David when called by the nurse on duty. Is it malpractice for a
physician to sign medical orders for a patient he has not seen in eight months and
whose case he has given up? We filed a complaint against Karen Martel, RN of


127

Federal legislation covering all private and public sector health plans is, therefore, needed
in order to ensure that every patient is adequately protected from these contractual provisions.

ASPRS strongly supports the legislation sponsored by Representatives Greg Ganske
(R-IA) and Edward Markey (D-MA), the Patient Right To Know Act of 1996 (HR 2976). This
bill would render managed care contract "gag clauses” unenforceable and prohibit plans from
contractually interfering with "medical communications" between physicians and their patients,
as well as taking "adverse actions” against physicians.

‘The bill would set the above described provisions as a federal floor and thus preempt
state law in cases where a state sets a lesser standard. Finally, the bill would cover all health
plans, including self-insured ERISA plans and would provide for fines and penalties for violation
of the statute. HR 2976 is necessary to rid the health care system of these egregious contract
Provisions without unduly interfering with the legitimate business practices of managed care
‘companies.

‘Conclusion

ASPRS submits that gag clauses interfering with communications between physicians
and patients should be made legally unenforceable. We strongly support the Patient Right to
Know Act of 1996 (HR 2976), legislation designed to prohibit such clauses as an unreasonable
burden on the health care system. We appreciate the opportunity to comment and are prepared to
work with the committee on this important issue.


5

on one page to deny that a doctor would have the best interests of
a patient at heart. And on another page, they want to keep the fi-
nancial incentives to preserve a competitive advantage. They treat
the patient as if he or she is not capable of understanding the fi-
nancial data, while earlier in the testimony, they say the patient
can understand technical medical options.

Now, managed care is sort of like the stock market crash in
1929. There are some old line blue chips like Kaiser and then there
are a lot of snake oil producers. The industry could use a SEC-type
system, I suppose, of consumer protections that might give patients
more confidence that they are entrusting their health and lives to
reputable groups that meet some minimum standards of decency.
Antigag legislation is just the first step in building those protec-
tions.

As for today’s hearing, Mr. Chairman, I am still inclined to sup-
port the original Ganske-Markey bill. I think it is important for pa-
tients to understand the financial pressures plans place on their
doctors and I would like to hear from witnesses why we should not
go back to the original bill, rather than what I consider a some-
what watered-down version.

I look forward to hearing the testimony today and inquiring with
our witnesses.

Chairman Tuomas. I thank the gentleman.

If you will allow me, the reasons these televisions are here—and
I do not know how your time constraint is, but I will tell the gen-
tleman from Iowa and the gentleman from Massachusetts that,
after you make your opening statements, however you may wish to
inform the Subcommittee, I have an excerpt from one of those Fred
Friendly seminars that we did last fall, lasting about 24% hours.
The title was “Your Money and Your Life: America’s Managed Care
Revolution.”

There is one approximately 5-minute segment in which an ex-
change among Dr. Gail Povar who is a general internist at George
Washington University Medical Center, the moderator, Arthur Mil-
ler and others, framed the question about as well as I have seen
it. So, if you folks would make your opening statements, we will
then show the approximate 5-minute video. Then we can enter into
a dialog either using something from the videotape as reinforce-
ment or as a counterpoint, as you see fit.

Perhaps, in your opening statement, you might anticipate ad-
dressing briefly the gentleman from California, Mr. Stark’s com-
ment about the original bill versus the bill that has been referred
to us on sequential jurisdiction from the Commerce Committee,
since it was marked up and amended in Committee.

So, with that, Hon. Dr. Ganske.

STATEMENT OF HON. GREG GANSKE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF IOWA

Mr. GANSKE. Thank you, Mr. Chairman, for the opportunity to
be here this afternoon. I am looking forward to viewing this video-
tape and, if I may suggest to the Chairman, I also have a video-
tape. It is from “NBC Nightly News.” It addresses this issue spe-
cifically and has some patients in it that appeared before the Com-


129

Samwel Broia
Monika D. Brota
17400 8. W. 113 Court
Miami, Florida 33187
Telephone: (305) 264-9608
Facsimile: (305) 256-0841
Internet E Mail: sambrola@ix.netcom.com

‘August 11, 1996

‘Committee on Ways and Means
‘Subcommittee on Health

U.S. House of Representatives

1102 Longworth House Office Building
Washington, D.C. 20515

RE: H. R. 2976, “Patient Right to Know Act of 1996"
Dear Members of Congress:

11am writing to you in an effort to clarify some issues before you. There are many things @ patient has
the right to know.

1) Patients have both a right and a need to know whether there are treatment plans available other than
the one preferred by their HMO.

2) Patients have both a right and a need to know whether their physician has monetary incentives to
deny medical care and what they are. The attached "AvMed Bonus Letter" and the summary of
experiences with AvMed HMO will show what GREED causes.

3) Patients have both a right and a need to know if their physician is forbidden from telling the TRUTH
by their contract with an HMO.

4) Medicare & Medicaid HMO patients also have a right and a need to know what medical care and
services the government's contract requires the HMO to provide. HCFA has informed me that the
Medicare HMO contract particulars referring to what medical care and services the HMO MUST provide,
are confidential. How absurd!! How is a patienttiaxpayer supposed to know what they are getting for
the billions in tax dollars.

During the Florida Department of Business & Professional investigation of Roger H. Strube, M. D.,
(former Medical Director of AvMed HMO's Miami Plan) a form letter was obtained by the investigator to
show that Roger H. Strube used the M.D. after his name in the conduct of business, without being
licensed in Florida, Nobody apparently read the fetter until | requested a copy of the investigative file,
This letter clearly explains how AvMed uses financial incentives to control their physicians. The fourth
paragraph states: “Patient complaints, member PCP changes, your office's cooperation with
‘AvMed, and your office's compatibility with and support of the AvMed philosophy were used as,
modifiers which either increased, decreased or did not change the above scores.” To me, that
clearly states: DO WHAT WE SAY OR YOU GET NO BONUSII

‘The results of all this secrecy are a direct threat to the life and health of my son. Even the Dade State
Attomey is trying to gag me about what | discovered about AvMed Health Plan. Nobody wants me on
the record because | can prove that HMO personnel who are NOT licensed physicians, routinely practice
medicine within the statutory definition. If this case were to go to trial, it would set precedent across

country. Those persons making decisions at HMOs are practicing medicine, must be ‘cenged
physicians, and are therefore subject to personal malpractice lawsuits Of course, if an HMO employee
can be held reeponsible for his actions, he will be fess cruel and vicious in denying care. That would
hurt the bonuses of the HMO executives as well as the CEO's of the major corporate employers who are,
driving managed care down the people's throats.

Please restore our citizens’ rights by pessing legislation that will eliminate all the SECRECY that
the HMO's use to avoid responsiblity forthe actions. The current situation is not the type of
government ! thought | was defending during my 20 years of military service.

Fllonibas &. Berta


aT

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,
Gaithersburg, MD 20878. ‘The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

‘(Goos where the managed health care plan seeds

period. Many contracts give either party a period
of time tw cure any costrect violations. This tame
period, although asefl to the managed beats
‘care plan if i has allegedly violsted the agree-
‘ment, extends the period of time in which it cam
‘terminate the cootract. Grounds for termination
for cause may be suspension or revocation of &
license, lous of hospital privileges, faiture 10
meet sccreditation and credeatiating require

ton if the provider takes any actions or makes
any eorummenicstions that undermine or could
‘eadermize the confidence of exrcllees in the
quality of cere provided by the managed heaks
ccare plan, This lest clause has been variably ia-
texpreiad by health plans and has bese the sob-
ect of sone sate regulstion. The clause should
‘make clear that a phyzician is free to make medi-
cal recommendations, but fe sot five to dispar-

‘age the plan.
‘The contract shoul! be clear that a provider,

comma should alto be clear thatthe provide i
‘extitied 10 compensation for performing these
services.

‘given to preparing for contract terminations.
‘When the provider aad the managed health care
‘plan exter into « contrac, nde thought is given
to what will cccar whe the contract ends. Of-
tea, elationshipa end acrimoniously, and i i kn
‘both purties’ best interest to consider how their

interests will be protected im the evest that te
‘contract is terminated.

‘Decarations

In deciarations, the parties provide mnswens to
‘8 sumber of “what i” questions. These clams
‘are common to all coneracts.

‘A force majeure clause relieves « pary of m-
spoasibility if an event occers beycad it cxw-

‘events that are beyond 8 party's costo! and
‘those that disadvantage a party but for which tee
party should sill be obligated to perform the
cooras's

‘A choice of law provision identifies the low
‘chat will apply in the event of s dispute. Aborm
violation of public poticy ia the sate question,
a coun will apply the egresd-upoa law. Fre
qoencly, lowyers draft contacts sing the satin
‘which their client is located withoot consider
sce fe svanags ed asap of

located ia the same state, this clacee bas te
relevance.

‘A merger clause epecifis thet only the bar
(guage in the agrocment shall constizuce the con-
(act. Soch 0 clause prevents a party from aps

‘plan to assign the contract. An option is to allow
‘the managed health care plan t0 assign the con-
(eect caly 0 on affiliate or 2 mccessor withost


VI

3

1 SEC. 2, PROHIBITION OF INTERFERENCE WITH CERTAIN

Cem INA He wWDND

wee eB eB Be ee
Auk WN eK SO

17°

MEDICAL COMMUNICATIONS.
(a) IN GENERAL.

(1) PROHIBITION OF CONTRACTUAL PROVI-
SION.—An entity offering a health plan (as defined
in subsection (d)(2)) may not provide, as part of any
contract or agreement with a health care provider,
any restriction on or interference with any medical
communication, as defined in subsection (b).

(2) PROHIBITION OF ADVERSE ACTION.—An
entity offering a health plan may not take any of the
following actions against a health care provider on
the basis of a medical communication:

(A) Refusal to contract with the health
care provider.

(B) Termination or refusal to renew a con-
tract with the health care provider.

(C) Refusal to refer patients to or allow
others to refer patients to the health care pro-
vider.

(D) Refusal to compensate the health care
provider for covered services.

(E) Any other retaliatory action against
the health care provider.

(3) NULLIFICATION.—Any provision that is

prohibited under paragraph (1) is null and void.


64

of the MCO. Physicians are required to abide by rules and regulations incorporated by
reference and contained in a booklet that the physician never receives. Further, those rules
are usually subject to change on little or no notice and violation of the rules are cause for
material breach. Indemnity clauses are common, These clauses require the physician to pay
all awards and costs associated with any liability suit brought against the MCO that was
prompted by the physician’s alleged negligence. Physicians are unaware that their voluntary
agreement to this clause will cause them to be held personally liable for the full amount of
such awards and costs: malpractice insurance will not cover such voluntary obligations.
Most agreements provide that in the event a payor fails to pay or goes bankrupt, the
physician — who is already obligated to refrain from seeking payment from the patient — will
simply assume the loss on all such patients.

I am well aware that this Committee is uninterested in the plight of physicians with
respect to the commercial terms routinely forced on them by MCOs. 1 simpy recount a
handful of them here for your examination as background in explaining why
in no position to spot - tnuch less negotiate out ~ provisions that might uevatively affect
their patients, such as prohibitions or inhibitions on free communication with patients in
written policy or in practice.

But before I turn to that subject, let me describe a related subject. It's the single
most important non-fee related commercial term that most physicians do do understand in
agreements: the “without cause" termination provision.

Virtually every managed care agreement with physicians has a clause that allows the
managed care organization to terminate a physician without cause and without explanation
on short notice. This clause appears to be reciprocal in the sense that the physician may
also terminate on 60 or 90 days notice, but usually the physician is prevented from such
termination if the MCO is experiencing difficulty in replacing him ot her. Even without that
restriction on the physician's ability to terminate, the physician would be prevented ethically
and under the common law from discontinuing seeing the patients covered under the MCO
in the event the MCO failed to pay and could not replace the physician.

This clause is relevant to our discussion today on “gag” policies even when those

application. And since a without cause termination never requires an explanation by the
terminating party, no explanation can be given for this blot on his or her career when the
physician next applies to participate on an MCO panel.

Given these facts, the relative rarity of the crude, overt clause that “gags” the

they ever enforced? In my experience, the answers are: probably not very, and probably
not often.

But the reason the existence of a single such clause generates such a groundswell of
emotion in the physician community is that it perfectly articulates what physicians believe
‘to be the real policy of certain unscrupulous, profit-driven, market-share motivated MCOs:
terminate those physicians who don’t "play ball". They believe MCOs will punish those
physicians who fully discuss with patients the economic limitations on their treatment

physicians have good reason to fear the existence of a gag clause in each such MCO
relationship, whether the ban is explicit or implicit.


19

Finally, the substitute narrows the focus of the bill to the core
patient protections. The substitute protects only medical commu-
nications between providers and patients. This represents a change
from the base bill which also protected statements made by provid-
ers directly to the health plan and to State or Federal regulators.
Significant questions were raised about possible unintended con-
sequences of these provisions and the substitute deletes them. As
Dr. Ganske mentioned in his statement, we changed the test from
substantial to a preponderance of the evidence as well.

Finally, we wanted to get a bill passed, too. That was also one
of the reasons.

Mr. StarK. The part that addresses making statements by pro-
viders to the health plan or to the State or Federal regulators, we
have a couple of lawsuits in California now where plans are refus-
ing to give information to the State as required by State law. These
changes would affect that kind of restriction, so the physicians
would not be able to discuss this with State regulators. Is that one
of the things that was dropped out?

Mr. GANSKE. I think that providers under an inquiry from a
State or a Federal regulator, if the Secretary made an inquiry,
would still be able to provide information as it relates to the gag
clauses. I mean, this specifically deals with banning gag clauses.

Mr. Srark. In other words, the State would have to get the infor-
mation from the plan? They could not get it from one of the physi-
cians working in the plan, in effect? Your original bill would have
allowed them to do that and, as I see it, this newer version is silent
on that.

Thank you. Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from Nebraska wish to
inquire?

Mr. CHRISTENSEN. No.

Chairman THomas. Does the gentleman from Washington wish
to inquire?

Mr. McDermott. Yes, thank you, Mr. Chairman. I have a ques-
tion. Why do you think you need a Federal law to do this? Why
don’t you let the insurance commissioners do it in the 50 States?

Mr. GANSKE. Well, if I may answer that, I think we need a
Federal law because about 50 to 60 percent of people with em-
ployee provided insurance are not covered by State law. We are
talking primarily about ERISA plans. I do feel that managed care
is a legitimate option for people to have. I think that the ERISA
law was set up to provide uniform standards for certain reasons.
Health was folded into those pension issues. There should be a
minimal, I believe, level playingfield.

I would argue, quite frankly, that the established HMO plans
may find themselves at a disadvantage to a more entrepreneurial
type of managed care plan which has these types of restrictions in
it, because you can increase your profit line basically by decreasing
the care. These gag clauses can function to do that. So, quite frank-
ly, it is very similar to, I think, legislation we passed in the

‘ommerce Subcommittee on telecommunications.

I think there is a role for some minimal level of regulation, par-
ticularly when you run into some egregious examples like we have


62

the physician respond. If she tells her patient that the plan might
not pay for such treatment, the patient will ask, which plan does
pay? In that conversation the physician will likely breach her
agreement with the MCO, because the net effect of her answer to
her patient may be that the patient switches into another plan.

Even when such a policy is not contained in an agreement, an
MCO may mean such. physician/patient communications reason
enough to terminate the physician without cause. I believe the
without cause termination provision was employed recently in one
midwestern city to chill patient communications. The MCO ac-
counted for approximately 25 to 30 percent of patients in the city.
It decided unilaterally that it would switch all of its obstetricians
and gynecologists from fee-for-service individualized capitation pay-
ment.

Most physicians do not feel they could afford to lose 30 percent
of their practice. Even if they could, their loyalty to their patients
prevented them from leaving the plan. But, many physicians in-
formed their patients of the new compensation policy of the MCO.
Because it was open enrollment season for most employers, the
MCO began to notice an immediate loss of customers.

In response, the MCO contacted many of those obstetricians and
advised them that it could end the relationship shortly without
having to state a reason. It appeared from my observation that the
advice had its desired effect, the obstetricians discontinued discuss-
ing the matter with patients.

Nothing could be more appropriate than a physician fully disclos-
ing to a patient that he or she now has a financial incentive to not
treat rather than to treat. Nothing could be more appropriate than
a gynecologist advising her patient in advance of a pregnancy that
her plan provides only for a 24-hour stay at the hospital! after labor
and delivery.

The commercial result of such communication, however, may be
that the patient switches plans. In such an event, a physician
should not fear retaliation and in case retaliation occurs, she
should not be left on why it occurred.

Physicians should not be exempt from the normal rules of con-
tract, but written and unwritten policies, whether communicated
directly to the physician or not that chill communication between
physician and patient should be disfavored in the law.

When patients are confused by the relentless news of new thera-
pies and new methods of medical payment, they will inevitably try
to sort these issues out by talking with the party they trust most,
their physician. They should have that right.

Thank you, Mr. Chairman.

{The prepared statement follows:]}


138

of Dismissal/Closing Order for BPR Case 95. | stated clear concise methods to convict
Roger H. Strube without expert witnesses. It is IMPOSSIBLE for Roger H. Strube to prove
that he meets the exception requirements for consultants.

August 6, 1996

Sent fax letter to Katherine Rundle with copy to Paul Silverman, citing the Florida
Constitutional Amendment, Article 1, Sec. 16(b) about crime victims having the right to be
informed, to be present, and to be heard when relevant, at all crucial stages of criminal
proceedings. | demanded to be heard at the motion hearing scheduled for August 19.

August 7, 1996

{ called Paul Silverman to ensure the faxes had been recsived. He confirmed that he had
received them snd informed me that ! would be heard at the hearing. He also informed me
that it would probably be rescheduled for August 16 due to a conflict.

August 8, 1996

t called Paut Silverman to request more information about the Motion Hearing. He
informed me that now there would be NO hearing at all. He plans to present a Nolle
Prosequi to the judge and that will end the case. | asked if | would still be heard. He said
probably not, since once he submits the Nolle Prosequi, the case ceases to exist. |
informed him that there sure must be a lot of people who don't want me to be heard.
Nobody in the State Government wants me "On the Record”.

‘The Statewide Providers & Subscribers Assistance Panel did NOT get a transcript of our
hearing. | had to order and pay for it myself. | have offered to meet with AvMed's
attorneys. They refused. Roger H. Strube's attorneys have chosen to not depose me
because | would then be "On the Record.” Now the Dade State Attorney plans to further
deprive me of my rights. Not only has Katherine Rundle REFUSED to file all charges
against all persons/entities | have accused (and provided documentation for), she now
plans to completely drop the only charge filed without my having a chance to be heard.
Paul Silverman informed me that not only didn't he have to tell me why they were dropping
the case, he didn't have to tell the Court and did not plan to.

Nobody wants my case to go to court because that will require a court ruling that the HMO
medical director IS practicing medicine when he tells physicians what care to order or not
to order. Most state laws are similar in defining “practice of medicine” and this decision
would have national consequences. {f the HMO medical directors, case managers, etc.
are practicing medicine, then they must be properly licensed under the laws of the state
where they are located. But the big thing the HMO's are afraid of is this. Those persons
who would now have to be licensed physicians would also now be personally liable for
malpractice civil suits. When a person is personally responsible for his actions, they are
less likely to be as vicious in denying care as the HMO's want.

It sure seems like the criminals have all the rights while the victims have none. This
is especially true if the criminals are huge corporations, managed care lobbyists, and high
government officials.

That is why the "powers that be" are determined to shut me up.

Js this still the United States of America?


often terminable without cause.

Termination following the end of a term

+ oftc~. for a term of one or more years, The trend in managed care
is a one-year term. At the end of the term, either party can elect to
renew, renegotiate or terminate the agreement. This gives the parties the certainty
of a one-year agreement, but the ability to move away from it if conditions change.

Termination with cause

This allows a party to terminate if the agreement is materially breached. Most
contracts contain these provisions. Generally, a party can terminate an agreement
“for cause” on limited, or without any, notice. Where a breach is curable, contracts
often provide for a cure period. The breaching party corrects the problem and the
contract continues. Where there is a major problem, such as endangerment to the
safety of patients, agreements can generally be terminated immediately.

Non-competition and confidentiality

A non-compete term/clause will typically restrict a physician from practicing within
a geographic area (1 mile to several counties) of the former employer for a period
of time (one year to several years). The scope of these restrictions is often limited
by state law. Non-competes and confidentiality provision often continue after the
end of an agreement. However, sometimes non-compete provisions bind a party only
in certain circumstances. For example, a non-compete may not bind a party if the
other party has materially breached the agreement.

These types of continuing obligations appear in both employment and independent
contractor agreements. The most restrictive provisions are often used by group practices
and physician services companies, When a physician is terminated, the physician must leave
the geographic area because of non-compete requirements, and must often resign medical
staff privileges at the hospital. Physician groups and medical practice companies view their
relationship by requiring physicians that they terminate to leave the patient behind.

Managed care provider agreements may also use these types of continuing obligations.
However, their use tends to be more limited than in the physician employment contract.

Medical Care Decisions

Physician contracts also contain provisions that require the physician to abide by ethical
standards, remain licensed, be board certified, etc. However, these provisions often mirror
governmental and accrediting body requirements. They give the right to terminate the
agreement if the physician fails to meet professional standards. "A physician must continue
to abide by professional standards and requirements: physicians, managed care companies,
and the courts recognize this as an overriding principal. Consequently, communications
between doctors and patients are required to meet ethical standards. These communications
are generally respected by those who contract for physician services.

Medical care decisions are also influenced by malpractice litigation, Physicians are
obligated to provide services that meet community standards of care, and physicians are
legitimately focused on practicing defensive medicine. A physician's obligation to practice

to community standards often influences decision making and will cause a
physician to “do the right thing." This may be a communication to a patient or a referral
to a specialist. In my experience, managed care companies will not "go after" a physician
for making decisions according to community standards. Managed care companies may not
cover the cost of service, but they will typically not “punish” the physician for making the
communication or advocating for the patient.

Lastly, both physicians and the entities with whom they contract with are influenced by
customer and public opinion of quality and service. In a competitive health care
environment, no provider or managed care company wants to be known as a company that
gives bad or inadequate care. Consumers and their employers increasingly make health care


12

be found there, they assume the doctor is free to speak. I would
urge this Subcommittee to look deeper into this issue before draw-
ing such a conclusion.

Dr. Rosabel Young, a Texas neurologist, was reprimanded by her
HMO employer, CIGNA, for recommending a muscle biopsy to one
of her patients even though it was not covered by the plan. She
was told that, “It was a mistake to tell the patient about a proce-
dure before checking to see whether it was covered.” “It was as if
I were a store vendor,” she said “and was only supposed to adver-
tise the products that we offered” as part of their own brand label.
Clearly, CIGNA was trying to keep Dr. Young from giving her best
medical advice to her patients, to gag her, not by invoking a spe-
cific provision in her contract, but by enforcing an oral policy
against discussing treatment options not covered by the plan with
those patients.

The Patient Right To Know Act was approved by the Commerce
Committee last week by a voice vote. I am very pleased, Mr. Chair-
man, that you have been willing to have this hearing in such a
timely fashion. Silence is not always golden. No doctor can practice
good medicine in a muzzle. We must ungag the doctors and give
patients confidence that nothing is preventing their doctors from
telling them the truth, the whole truth, and nothing but the truth
about the health of that individual or their family member. Ameri-
ca’s patients deserve no less.

I thank you, Mr. Chairman and, I look forward to the rest of the
hearing.

[The prepared statement follows:]


29

STATEMENT OF
PETER R. KONGSTVEDT, M.D., FACP, PARTNER
ERNST & YOUNG LLP
Introduction
My nei Pts Koga, MD. EAGE, Lama barat pian flier! Madtin and Flo ofthe Amen
Ces of Phys, Lama pri th Wainy, DC oie ef Era & Young LP, where | serv she Nana Pras
Leads for Care Strategy and Medical forthe firm's {Care Group. Professionally, lead and assist in

te developmen heal care pully ed nstcomaneat tei favre of ait eae chenanelud poe,
Integrated delivery systems, and health plans. also serve as one of Ernst & Young's leaders in the research and development of issues
‘impacting managed care systems. Iam the editor and principal author of The Managed Health Care Handbook, 3 Edition, published

by Aspen ‘This text, and its companion text, The Z of! Health Care, ate the leading texts on managed care
in the country today and are in use in a large suber of graduate programs in health care administration

‘Mr. Chairman, on behalf of Ernst & Young LLP, I would like to thank you for allowing me the opportunity to share with this committee

‘our observations and experiences regarding the nature of physician/halh plan contacting and how this relationship impacts patient

The Issue

“There are largely two issues before the committe today. the physician/heath pln relationship and whet communications if any.
‘should be considered to be "protected medical conununication” between a contracting physician and health plan member By their
very nature, coniractalarrangercots between providers and health plans are complex. These arrangements encompass nunerous
issues, including compensation, plan protocols, and the provision of medical care. AS is apparent in Altactunent I (reprinted with
permission from The Manoged Health Care Handbook, 3 Edition), there area great many contractual terms in mest legal agseernents
between physicians and health plans. Inthe popular press, this issue has been labeled the “gag rule” or “gag clause.” Some groups
have charged that health plans, including health maintenance organizations (HMOs) and preferred provider organizations (PPOs), have
sought to reste, of “gag,” what a contracing provider may and may not discuss with a heath plan member, including discussions
‘elated to the provision of patient care and tothe health plan's business secrets, To remedy these alleged restrictions, some groups are
‘advancing legislation, including H R. 2976, “The Patient Right to Know Act,” sponsored by Representatives Greg Ganske (R-lows)
and Edward Markey (D-Mass), which would define what physitan/ptient communications may be considered to be protected medical
communications and provide penalties for health plans who violate these protections. Using the technique of Orchestrated Outrage, this
‘ssue has been brought tothe publics attention using such examples asthe cover of « widely circulated news magezine featuring 3
photo ofa model wearing surgical scrubs and a surgical mask, ostensibly to represent a “gegged"” physician Using another technique
known as The Mentfiable Victim, others have used anecdotes to describe this issue in terms ofa misfortune that has occurred to an
Andividua, ascribing that misfortune to ths alleged “gag” provision in the contract between the health plan and the physician

‘The Reality

Quite frankly, ia Emst & Young's dealings with abroad representation of the healthcare industry, we have not seen evidence of the
“gag rule” being an istue. The isue at hand appears tobe the Sasquatch of managed care: itis large, ugly, hairy, and scary, however,
producing the actual thing has proven fo be quite dificult. Despite the public discussion, there have been few concrete examples of
‘unedited contracts that support the claim that such inappropriate “gag rules actally exist. fn all honesty, | can say that I have never
seen such a clause, despite having reviewed personally several hundred such contracts in the course of my career Nonetheless, health
plans appear tobe sensitive to even the perception that they “gas test physicians, In e least one well publicized case,» heal plan
was accused of having a “gag clause." While the plan denied that it was their intent to “gag” providers, they changed the clause
anyway.

‘At the same time, there are indeed clauses in these contracts that serve to control certain aspects of eommiuncation between physicians
‘and members of health plans. As illustrated in Attachment 1, there are three coramon forms of such clauses:

‘© those related to business secrets
© those réleted tothe plan’s market position, and
‘+ those related to compliance with a health plan's medical management program

Business Secrets
Itis common in contac berween physicians and health plans to require the physician to respect and maintain the confidentiality of the
‘ousiness secrets ofthe health plan la some eases, these business secrets are the property ofthe heath plan the most common example
of such secrets are Yee schedules or capitation schedules. the financial terms or payment terms between the heath plan and the
physician In oter eases, the busines secrets are the property of third party vendor with which the heath plan has contacted A

‘example of such an would be clinical protocols license from a medical management o disease

‘organization These business seerets are generally to be proprietary because they faster competition between

fealth plans ~ competition which hasbeen found n mary surveys both to lower oveal health eae costs and ininai ot improve the
quality of eae provided

‘The Health Plan's Market Postion

Clauses related to a health plan’s market positon are designed to prevent a contacting physician from taking actions or making
statements that would harm the business nterests ofthe health plan. These clauses have no bearing on the provision of care. A
«amon example ofthese clauses would be a plan restricting «physician fiom encouraging paliens to join a competing health plan
‘ostens bly for reasons of quality, but in fact because the competing health plan pays better.

This clause also encompasses another possibility: in the uncommon event a health plan terminates ts contract with a physician, the
physician may then encourage patients covered by that health plan to change coverage to another plan that will continue to cover
services ofthat physician. Both positions ae quite understandable’ the health plan wishes to protect its memberstup base, while the
physician wishes to protect her or his patient base. in both cases, the reasons for doing this are primasily economic and it is ths harder
to clearly state which party is more deserving economically.

" In the case of sophisticated providers with equity positions or other forms of incentives, this might
include encouraging only healthy patients/members to switch plans, leaving the sick ones behind. This is
generally referred to as Adverse Selection.


49

Chairman THOMAS. Do we have the next speedreader coming on?
(Laughter.]
Mr. Stocker.

STATEMENT OF JOEL STOCKER, SHAREHOLDER, GREENBERG
TRAURIG, MIAMI, FLORIDA

Mr. Stocker. Mr. Chairman, I am Joel Stocker. I am a lawyer
and shareholder with Greenberg Traurig. Greenberg Traurig is a
law firm with 270 lawyers in Florida, New York, and Washington.

I have practiced for over 20 years, concentrating on health care
transactions and regulations. I have negotiated and defended con-
tracts on behalf of individual physicians, hospitals managed care
companies and group practices, including for-profit and nonprofit
entities.

Today, my written testimony focuses on contract terms, various
relationships between physicians and physicians’ managed care
companies and hospitals. Today, I will center my oral testimony on
two key points.

First, I urge you to focus on the purposes of contract terms and
on the importance of the business matters they protect. Contracts
between physicians and purchasers of physicians’ services contain
many terms that could be interpreted to impact physician-patient
communication. However, these terms are designed to protect busi-
ness interests: HMOs are concerned that physicians will convince
patients to switch HMOs in order to further the physician’s
economic interests.

Second, this legislation broadly defines a physician-patient com-
munication and, at least, in my opinion, it will have unintended
consequences, impacting business interest provisions as well as
medical care communications. Physicians today contract with var-
ious entities, hospitals, group practices, physician networks, and
managed care companies. Attached to my written testimony is a
chart describing these contracts.

While physician agreements with different entities contain many
differences, they are similar in several respects. The physician is
required to provide professional services, but also has obligations
to the entity contracting with the physicians. The following are con-
tract term basics: Provisions requiring the delivery of physicians’
services; the physician is required to provide services according to
the rules and ethics of the physician’s profession; provisions on the
scope and price of services; provisions regarding the term of the
contract and its termination; provisions requiring compliance with
quality and other regulations, and provisions protecting the busi-
ness interests of both parties.

Because it is the physician who develops a direct personal rela-
tionship with the patient, the physician often has the ability to in-
fluence health care purchasing decisions. This ability to influence
decisionmaking is sometimes exercised for medical reasons, but
also has been used for personal gain.

Examples include a physician who wants to leave a group prac-
tice for a better offer or who has a better contract opportunity with
a different managed care company. Consequently, the managed
care entity, network, or group practice will include a business in-


15

Chairman Tuomas. I thank the gentlemen, both gentlemen, for
their comments.

As was indicated on the floor, with the legislation going to the
Committees of jurisdiction, we would not in any way inhibit it. I
think it is fairly evident that we are complying with that with the
hearing today. It is the Chairman’s intent that, although we are
going out this week, the first week, no later than the second week
when we come back, we would move to a markup if, in fact, there
seems to be a general feeling that perhaps some language might
be able to improve the legislation.

Prior to going to questions from Members, as we indicated, with
your tape added, Greg, let’s show—about how long is it?

Mr. MarKEY. Three or four minutes.

Chairman THOMAS. Run that tape and then run the excerpts
from the “Friendly” program.

I tell everyone present, this is our small step forward in moving
toward the cyber-Congress. We thought we would go high tech-
nology. [Laughter]

Obviously, Tom Brokaw does not understand the importance of
mentioning sponsors of the legislation. [Laughter.]

Mark, I thought you would have that covered.

Mr. Markey. We have to have a gag rule at the networks on
that. [Laughter.]

Chairman THOMAS. That is right.

The second tape is an excerpt from, as I said, one of those “Fred
Friendly” seminars, in which Arthur Miller roams around with all
the hypothetical questions—hold it. Thanks.

I need to set the setting so that, as you look at this piece, you
will understand what is going on. We had in the room around the
table myself and Henry Waxman, as politicians, Califano, a num-
ber of doctors, others representing hospitals, as is usually the case.
He roams around, as I said, with hypotheticals.

This scenario is about a woman who was in the process of deter-
mining, under an open enrollment season, what health care option
to take. She decided to take the managed care option, although
there is a long discussion about the options between the managed
care and the fee-for-service, about the adverse risk selection, port-
ability, preexisting medical conditions. She makes a choice to go
with the managed care option.

So, in this scenario, Miller is playing the woman who chose the
managed care plan and is carrying out a discussion with the doctor.
The doctor is Dr. Gail Povar, general internist at George Washing-
ton University Medical Center, as I said.

Obviously, if all of the doctors were as aggressive in terms of
supporting the patients as Dr. Gail Povar seems to be, regardless
of what contracts you may have signed, we would have less concern
about this.

So, you get the contrast between the two tapes and I am pleased
that you brought the NBC one, Greg.

Let me ask you a couple of questions which will hopefully frame
it for some of us, because if you are going to be dealing with Fed-
eral regulations governing private contracts, we are all very sen-
sitive about when and how the Federal Government is going to in-


186

is really Marie G. Carolan, RN. She was not using her legal name as it appears on
her license. | informed Mr. deMontmollin that | would continue educating Floridians
to the FACTS about AvMed’s unlicensed Medical Directors (E. Leon Cooper,
Strube's predecessor, was not licensed, either) and if that proved to be a slight
inconvenience for Strube or AvMed, then | would be happy to respond to their
threatened lawsuit. | have heard no more on the matter.

33. Dec 16, 1994 - Alise Moss Vetica, Manager, Corporate Member Relations, sent a
letter threatening to terminate our AvMed membership on January 1, 1995 if we did
not select a new Primary Care Physician for David. (David's PCP, Wentworth
Jarrett, MD, had continued David's old medical orders for an additional 62 days, but
was forced to remove himself from the case. He told us privately that he could not
practice medicine for anyone while AvMed was calling him dozens of times every
day, determined to cut David's care, no matter what.) The above-mentioned letter
also stated: “In the event you do select an AVMED PCP by the above time
frame, please understand that the new plan of treatment will go Into effect on
January 1, 1995. This transition of that new treatment pian will not be placed
on pending status while you appeal to the State of Florida.” Their intention was
to coerce the new physician into signing the orders AvMed and Strube wanted.

34, Dec 27-29 1994 - | called FPL Human Resources to beg for help. It seemed
everyone was powerless to prevent the crimes being committed. Scott Robinson
called me at home and started spouting quotes from Steven Ziegler, Esq., AvMed's
Miami attorney. When he repeated AvMed's LIES about having paid for David's
hospital bed and expensive custom wheelchair, | exploded. | then told him | was
wasting time with him and hung up. He called back, telling me angrily that he didn't
like to be hung up on. | told him | didn't like to ignored when my son's fife was
threatened, and that if he kept defending AvMed’s crimes, | would hang up again.

35. Dec. 30, 1994 - We selected Leonard Askowitz, M.D. as David's new PCP. He
renewed the old orders. He has since also removed himself from David's case.
Dennis Peterson and | had at that time both filed complaints with the Department
of Business and Professional Regulation. Case numbers:9420668 & 9500489.
After the BPR inspector observed Roger Strube making medical decisions, all three
cases against him were completed. The Chief Medical Attomey of the Florida
Agency for Health Care Administration found that in all three cases, probable cause
exists to believe that Roger H. Strube was practicing medicine without a license and
misrepresenting himself as a licensed doctor. He also finally issued Cease and
Desist Orders for all three cases in February 1995.

At approximately this time, AvMed either fired Roger H. Strube or allowed him to resign.
This despicable individual was then selected by CareFlorida as their Vice President and
Chief Medica! Officer for their operations throughout the entire State of Florida. | then
convinced the Fort Lauderdale Sun Sentinel to publish an article regarding the Probable
Cause findings on Strube. CareFlorida terminated him.

Finally, after dozens of letters to the State Attomey's Office and dozens of phone calls to
Katherine Rundle, a single count of practicing medicine without a license has been filed
against Roger Strube. It is Police Case # 951592, Court Case # F95032394 and is
currently assigned to Herb Andrews at the SAO. His trial has been delayed several times.

Since this case began, our provider, Nations Health Care, and Roche Professional
Services have merged. The pharmacist from Roche who always gave our nurses a hard
time about everything the doctor ordered, is now the pharmacist at our provider. Karen
Martel, R.N., the nurse from Roche who illegally obtained medical orders, is now a
supervisor at this company. FPL, my employer, is undergoing "Strategic Review" (layoffs).
Being self-insured, FPL could save lots of money by laying me off.


82

cost containment and financial gain for shareholders over the well-being of members and
policyholders. Although these reports are anecdotal, they are, nevertheless true and indicative
of a widespread problem. Written contract provisions continue to be of great concern.
However, a number of physicians have also become concerned about the more subtle,
unwritten, plan policies and procedures that are used to impede physicians from
discussing treatment options if the plan does not cover those treatments.

One example of “gag” practices was reported in last week's Washington Post regarding the
Washington area's largest operator of managed health care known as Mid Atlantic Medical
Services (MAMSD). In a recent letter, the health plan, also known as M.D. IPA, Alliance,
Optimum Choice and MAPSI, told participating physicians that “effective immediately, all
referrals from Primary Care Physicians to Specialists may be for only one visit.” The letter
continued, in bold type, “we are terminating the contracts of physicians and affiliates who
fail to meet the performance patterns for their specialty” (see attachments).

In another example, a recent plan bulletin regarding preadmission review guidelines stated that
“effective immediately, all Humana participating providers must telephone the
Preadmission Review Department...before an admission occurs and before conveying the
possibility of admission to the plan member.” Although a follow-up memorandum blamed
“poor wording” in the original announcement for any “misinterpretation” of the bulletin as a
restriction of communication between physicians and patients, the AMA maintains that the
original effect of the announcement is clearly chilling (see attachments).

Another “gag clause” example is provided in the following physician contract provision with
‘Aetna: “Upon notice of termination or nonrenewal, Consulting Physician shall cooperate fully
with Aetna and comply with Aetna’s procedures, if any, in the transfer of Members to other
Providers. In addition, upon notice of termination or nonrenewal, at Aeina’s option,
Members shall not be permitted to select Consulting Physician as their provider of health care
services” (see attachment). The AMA believes such contract provisions are harmful to
patients. This particular provision raises important concerns regarding patient choice and
continuity of care issues. We believe that in instances where the patient-physician relationship
is severed by the plan for non-clinical reasons, there should be rules providing for the
continuity of care for some reasonable period of time to allow for a smooth and satisfactory
transition. These are only a few “gag clause” examples. The AMA would be pleased to
provide further examples of other “gag clauses” and practices.

NOT ALL HEALTH PLANS CONTAIN “GAG CLAUSES”

Some health care plans, such as U.S. Healthcare, Blue Cross/Blue Shield of Kansas City,
ChoiceCare and Health Net of Missouri, have voluntarily removed onerous “gag clauses” in
response to the AMA’s urging to do so last January. We also note that the American
Association of Health Plans, the Washington representatives of the managed health care
industry, adopted a non-binding statement of purpose which suggests that the industry should
“encourage physicians to share information with patients on their health status, medical
conditions, and treatment options.” The Association of Managed Healthcare Organizations
also recently issued a statement in support of “a patient's right to full clinical information
about the physician's recommended treatment and other options for care.” Finally, the
National Committee for Quality Assurance (NCQA) issued a clarification of their standard for
Members’ Rights and Responsibilities which states that “at a minimum, the organization has a
written policy that recognizes the following rights of members to: participate in
decisionmaking regarding their health care and inical di

ent.” We believe these managed care organizations should be
congratulated for understanding the importance of this issue. Clearly, however, more is
needed.

“PATIENT RIGHT TO KNOW ACT OF 1996” (H.R, 2970,

The AMA is on record in firm support of H.R. 2976, the “Patient Right to Know Act of
1996,” a bipartisan measure sponsored by Representatives Greg Ganske (R-IA) and Edward
Markey (D-MA). While we are encouraged by the Commerce Committee's recent and


36

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaitheraburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

berpalning soeagth on the desired effecive done

‘The canaged bea cae pin hot hee 9
master schedule identifying the conracts Gat
‘end tobe entered into and reorwed. This sched-
tle should include time lines that identify dases
‘ty which progress on key contract negotiations
‘should take place. Although such an orderty aye

problems that may arise if is forced 10 operat
(Wichout a contrac or negotiase from weakened

‘Lotier of Letent Compared with & Contract

‘The purpose ofa ener of ircrat is w define the
tesic clement of a contemplated arrangement
‘o vassaction berweee two partes, A lear of
‘eet is used most often whea the negotiation
recess between two parties is expected to be
bei and expensive (6. 8 major svi
‘Sond. A letter of inteat is a preliminary. ncabiad-

ing agreement that aliows the partes © ascertain
‘whether they are able 1 agree on key terms. Uf
(Ge partes agree on 2 eter of intent, the terms of
(Get lenar serve asthe blueprint forthe contract.
‘Sene people confuse a leterof intent wit a let-
(erof agreement. Because a leterof ineeat is not

‘Mreogth is v0 one-sided that ove party can dic
fate the terms to the other party, each party
(oud identify for inelf before beginning aego-

Wations the segodable issues, the party's initial
‘position on sach issue, and the extent to which it
‘will compromise. Because 2 masaged health
(cart plan may use the same contract form as the
‘contract for many providers, the managed health
(care plan needs t keep in miad the iseplications
(of sending cue contract for the ochar counrects
‘hat use the same form,

sof Ramis tore preuand a emfermce

sessions discussing provider contracting and

(Provider relations is the aned to foster a wia-wia
ipaoatip, wis exh pure pris thet
‘they guin from the reizticaship. The
fala cr pln’ sjosve sdb foting
tong-term, mutually

‘mazes of the parties and the legal action takaa,
‘slong with the ransisoe, which contains words
sigsitying that the parties have entered into on
greenest. Thea, the contract actades the recit-
ds, which are bout explained as the “whereas”
(clanses. Thess claueas are act intuaded wo heve
Inga! significance but may become relevant 10
‘recive inconsistencies fa the body of the eoo-
‘eact oF If the drafter inappropriately lacindes
eubeuctive provisions fe them. The ves of the
Shes ey enon sd hss

significance.
‘The next section of the coutract is the defn}
thous section, which includes definitions of all
bhay contract terms. The definitions section pre-


77

club to tell the physician how his defense should operate, what he
should say and what he should do.

And that is why that indemnity provision is important.

Mr. McDERMOTT. My time has expired.

I think this is an issue we are going to come back to.

Thank you.

Mr. ENSIGN. I would like to thank the panel. I think that we
have a couple of goals in common and it is a difficult issue to deter-
mine how we get to those goals. One is that we want the best qual-
ity of medical care that we can give to everybody.

Managed care has come into being because there was nothing out
there controlling costs in the marketplace and so, it was a legiti-
mate niche that managed care came into being. Now, you have to
negotiate that delicate balancing act of controlling costs with pro-
viding the best quality medical care, and we can see the difficulties
in doing that.

I would like to thank the panel and call up the next panel.

I would like to welcome our next panel. Dr. Nelson representing
the American Medical Association and Dr. Nelson is an obstetri-
cian-gynecologist and a deputy director of the Department of
Health, Salt Lake City, Utah and a member of the Board of trust-
ees of the American Medical Association. Dr. Chris Jagmin is vice
president and medical director of Health Affairs, PacifiCare in the
Southwest, Dallas, Texas, on behalf of the American Association of
Health Plans.

Gentlemen, if you would, please keep your statements to 5 min-
utes. And the yellow light means that you have about 1 minute to

go.
So, please proceed, Dr. Nelson.

STATEMENT OF JOHN C. NELSON, M.D., DEPUTY DIRECTOR,
DEPARTMENT OF HEALTH, SALT LAKE CITY, UTAH; AND
MEMBER, BOARD OF TRUSTEES, AMERICAN MEDICAL
ASSOCIATION

Dr. NELSON. Thank you, Mr. Chairman.

My name is John C. Nelson, M.D., and I am a practicing obstetri-
cian-gynecologist from Salt Lake City, Utah. I also serve as a mem-
ber of the Board of Trustees of the American Medical Association
and | as part-time deputy director of the Utah Department of

lealth.

I am a participant in several managed care plans. I see all
comers. I am a participating physician in Medicare and am pleased
to see Medicaid patients, as well. We commend, of course, the Sub-
committee for holding this important hearing on H.R. 2976 about
gag clauses but also about gag practices.

Mr. Chairman, gag clauses strike at the heart of the patient-
physician relationship. They present an inherent ethical conflict of
interest.

As AMA’s CEJA, Council on Ethical and Judicial Affairs recently
stated, “The physician’s obligation to disclose treatment alter-
natives to patients is not altered by any limitations in the coverage
provided by the patient’s managed care plan. Patients cannot be
subject to making decisions with inadequate information. That
would be an absolute violation of the informed consent require-


54

Professional and business obligations sometimes create tension in a business relationship.
However, in my experience, it is generally understood that physicians must abide by the
constraints of their profession and with community standards of care. The business that
contracts with time respects and supports" ‘s not * say that problems don’t exist, but
they are the exception rather than the nv.

Current legislation by Congress focuses on contract terms that protect the business
relationship and terms that describe termination of contractual agreements. More
specifically, the legislative focus is on health plans and contracts with providers. The
following describes how contract terms among the variety of contracts work in practice.

‘Communications between Patient and Physician

As Congress examines contract terms and provider relationships, it is important to

distinguish between communication about business relationships and communications about
medical care. I have never seen a term that restricts communication with respect to medical
care options. While there are some examples of communication restrictions, they are
generally not used in the context of medical care options. There are clauses, however, that
are written to protect business interests.

Contract Terms Protecting Business Interests

practice,
anti-disparagement, and confidentiality of business information.

Managed care companies often include restrictions on disparagement and solicitation of
members. Managed care companies and networks attract employers and patients to their
plans and networks, and have an interest in protecting these relationships. Managed care
companies use these provisions to keep physicians from moving large numbers of patients
to other managed care companies, and from aggressively discrediting their business or
company.

Managed care companies also use confidentiality provision that prohibit the disclosure of
confidential information. Such provisions are intended to protect information about the
managed care company with respect to that company’s costs or fees to physicians, the
company’s member lists, and information about the company’s business methods.
Confidentiality provisions are not generally directed at controlling the flow of information
between doctor and patients.

Inaddition, some agreements contain provisions, Prohibiting a physician or physician network
from entering into agreements with other managed care companies. In my
experience, these provisions tend to be enforced only in egregious cases.

‘These terms are enforced via threat of termination or legal proceedings. Physicians and
group practices generally use non-competes and anti-disparagement clauses to protect the
patient base and the reputation of the group. Whether we like it or not, these entities
entering into agreements have become big businesses and the contracts involve millions of
dollars. We should not think that these agreements focus on a particular patient's
relationship with that patients’ personal physician.

Termination Clauses

When relationships deteriorate, parties begin to think about contract termination. The
issues range from getting out of a bad or undesirable relationship to what happens when the
agreement is terminated. Commonly used concepts include the following:

‘Termination without cause

This allows a party to terminate an agreement for no reason. Generally the right to
terminate without cause is mutual — either party can exercise it’ Physician
employment agreements with group practices or physician service companies are


78

ments. If these clauses are carried out and physicians are subject
to sanction, a reduction of patient quality of care will result.”

Patients must be able to trust and rely on information that phy-
sicians provide to them. Physicians have an ethical as well as a
legal duty to ensure that their patients are fully informed of all op-
tions. Gag clauses place a wedge between patients and their physi-
cian. They wear away at the most fundamental element of the
healing process, trust.

Although gag clauses fall into many categories, they are all de-
signed to control physician behavior and limit patient access to in-
formation. I point out, of course, that the legal responsibility con-
tinues to lie, however, with the physician.

Some in the managed care industry have stated that there aren’t
any gag rules. We strongly disagree. The media has documented a
number of written and, more importantly, unwritten & practices.

For example, last week’s Washington Post reported about a ga;
practice by the Washington area’s largest operator of manage:
health care known as Mid-Atlantic Medical Services or MAMSI.
MAMSI recently told its doctors, “Effective immediately, all refer-
ral from Primary Care Physicians to Specialists may be for only
one visit.” Continuing on in bold print, “We are terminating the
contracts of physicians and affiliates who fail to meet the perform-
ance pattern for their specialty.”

In another example, a recent bulletin regarding preadmission
guidelines stated, and this is at Humana, “Effective immediately
all Humana_ participating providers must telephone the
Preadmission Review Department—before an admission occurs and
before conveying the possibility of admission to the plan member.”
Mr. Chairman, we call those plan members, patients.

Although a followup memo blamed “poor wording” for any “mis-
interpretation” of that bulletin as a restriction of communication,
we think the effect of the announcement clearly is chilling.

Some health care plans, such as U.S. Health Care and Blue
Cross/Blue Shield of Kansas City, have voluntarily removed gag
clauses in response to the AMA’s urging last January.

We believe these managed care organizations should be com-
mended. Clearly, more is needed. As noted in a recent editorial in
the “L.A. Times,” “Today HMOs are less likely to require physi-
cians to sign restrictive contracts than to simply fire them for refer-
ring too many patients to expensive specialists.”

The AMA is on record supporting the Patient’s Right To Know
Act. We are encouraged by the Commerce Committee’s unanimous
vote on the Senate version of the bill. We are concerned, however,
about attempts to dampen support for that bill. These efforts in-
clude advertising by the managed care industry that falsely sug-
gests that the National Governors’ Association is opposed to H.R.
2976. The NGA has assured us that they have taken a position on
H.R. 2976 and do not intend to do so. My own Governor, whose
wife is my patient, Mike Levitt of Utah, told me yesterday the
same thing.

The term “gag clause” should not be viewed in an overly narrow
or restrictive manner. We encourage the Subcommittee to resist
narrowing the bill’s gag clause protections. The Commerce Commit-
tee bill would go a long way toward restoring the patient-physician


113

At least 13 states have enacted legislation addressing the gag clause issue, and a fourteenth state
+has addressed the issue by administrative action. Bills were introduced during the 1995-1996 legislative
session in an additional 12 states, but were not enacted. During the past year, then, at least 26 states
moved to address this issue, and 14 have taken action. These figures are necessarily approximate because
there is not always agreement about whether the provisions of a bill meet the definition of gag clause
Jegislation and because, in some states, more than one bill may address this topic.

In general, these state statutes make clear that providers may not be contractually impeded from
furnishing a patient with information that is relevant to the patient's medical condition, including
information about treatment options that are not covered by the plan. The language used to achieve this
objective varies from state to state; in some cases the statutory language also protects the provider's right
to advocate on behalf of the patient who seeks reconsideration of a plan's decision. The issue of a
provider's financial arrangements with the plan is less frequently addressed, although the language of
some statutes is sufficiently broad to prohibit managed care plan from impeding discussions of this
subject between patient and provider. Relatively few states explicitly address the issues of protection of
trade secrets or contractual prohibitions of disparaging remarks, but the state legislation addressing these
subjects appears to uphold the right of ‘care plans to prevent providers from revealing trade
secrets or from making maliciously critical statements that could harm the carrier.

‘The NAIC discussed at some length the gag clause issue in the course of developing our proposed
Managed Care Plan Network Adequacy Model Act. The provision in our model addressing this issue was
drafted afier much discussion and reflects the experience of regulators from very diverse states. The
NAIC’s effort reflects our recognition that this issue is of critical importance to consumers.

‘At least 3 states already regulate organizations and entities that conduct UR, and some additional
states considered UR legislation during this past session, In 22 of these states, the insurance
commissioner has the regulatory authority. In the remaining states, the health commissioner is usually the
state official having jurisdiction over UR organizations. In rare instances a state official other than the

insurance commissioner or the health commissioner has the regulatory authority

‘Managed Care Plan Standards

‘Over the past two and a half years, the NAIC, in a public process, has been developing reasonable
standards to suggest ways to bolster existing state requirements. The NAIC has either adopted, or is
developing, models in the following areas relating to managed care: quality assessment and improvement,
utilization review, provider credentialing, managed care plan network adequacy, data reporting,
confidentiality, and grievance procedures. At this point, the NAIC members have adopted two of these
‘models, one relating to provider credentialing and one relating to quality assessment and improvement.
The full NAIC, at its Fall National Meeting in September, will consider three of these models, in the areas
of utilization review, managed care plan network adequacy, and grievance procedures. In general, the
NAIC has drafted these standards to apply to all plans performing managed care functions. In some cases,
the provisions apply to other health carriers as well.

“CLEAR”

‘The NAIC’s Regulatory Framework Task Force (the “Task Force”) has been charged with the
development of the above-mentioned mode! laws. The Task Force formed the Health Plan Accountability
Working Group (the “working group”) to undertake the initial drafting. ‘The working group held
‘numerous public meetings to discuss these models. At the NAIC’s June 1995 Summer National Meeting,
‘the working group recommended to its parent committee that the current NAIC model laws governing.
health carriers and other health care organizations be reviewed with an aim toward increased use of
common definitions and common regulations of similar functional and risk-sharing/risk-transferring,
characteristics among health plans. ‘The working group further recommended that the NAIC’s existing
models should be expanded to include, at a minimum, the health plan accountability standards under
development by the working group, and that the effort be coordinated with other NAIC committees, such
fas the Health Organizations’ Risk-Based Capital Working Group, and the Blanks Task Force. This
comprehensive effort has been denominated as “CLEAR.” of “Consolidated Licensure for En
Assuming Risk,” and seeks to promote a more competitive marketplace by ensuring that entities
performing the same or similar functions are subject to a level regulatory “playing field.” In addition, this
effort seeks to clarify that the wide array of entities performing managed care functions fall within the
scope of state regulation

When we complete work on the health plan standards, the first priority will be to analyze the
NAIC’s other current models and begin the process of recommending ways to consolidate existing health
models and incorporate the new standards.

Risk-Based Capital

‘The NAIC’s Health Organizations Risk-Based Capital Working Group (HORBC) is developing a
risk-based capital formula for all health organizations. These requirements seek to provide more flexible
and sound requirements for plans’ fiscal soundness, taking into account organizations’ unique



116

Other provisions of this section establish recordkeeping and related requirements intended to ensure that
the health carrier and the insurance commissioner have appropriate access to the books and records of

Sections 8 and 9 of the model act contain requirements for regulatory filing and oversight of the
health carrier's provider contracts and material changes to those contracts.

‘The NAIC developed this model, along with all of the managed care models, through a public
process in which the working group received and considered significant input from the health insurance
‘and managed care industries, consumer representatives, and health care providers. The regulators
attempted to strike the appropriate balance among the relevant concerns, while maintaining the protection
of health care consumers as the paramount objective.

Utilization Review Model Act

‘The Utilization Review Model Act requires a health carrier to have a written description of its
utilization review (UR) program addressing the issues set forth inthe act. A health carrier must file with
the ioner an annual summary describing its utilization review program activities, and
its UR program must met he operational requirements se fot the model

care issue of prime interest to consumers and providers is the ability of a consumer
to seek the clone and st convenient medial care emergeaie. ‘Consumers and providers are
understandably concemed when managed care plans retrospectively deny coverage for emergency care
that seemed very justified at the time the services were received. The recommendation of the NAIC's
Accidem and Health Insurance (B) Commins for & regulatory approach to this problem reflected
‘consideration and issues. These include the ability of to the
‘existence of a true emergency, heal plan procedures to screen emergencies, and the need to control
‘casual and inappropriate use of emergency rooms. The extensive testimony received by the working
‘group on this issue from representatives of consumers, providers, and plans revealed the importance of
this issue to all partes involved.

Section 12 of the utilization review model addresses emergency services and specifies a standard
to be used by enti
‘The standard requi
covered person, without prior authorization of those services, if a prudent layperson acting reasonably
‘would have believed that an emergency medical condition existed. In addition, a covered person may
obtain care from a non-contracting provider within the service area of a managed care plan for emergency
services necessary to screen and stabilize the covered person, without prior authorization, if a prudent
layperson would have reasonably believed that using a contracting provider would cause a delay
worsening the emergency, or if a provision of federal, state, or local law requires the use of a specific
provider. The NAIC working group adopted this standard after much public debate. The model defines the
terms “emergency medical condition,” “emergency services.” and “stabilized.”

Another provision of the Utilization Review Model Act prohibits the compensation to any

individual or entity that provides UR services to a health carrier from containing incentives to make
inappropriate review decisions. The provision specifies that the compensation of these individuals and
entities may not be based on the quantity or type of adverse determinations that they render.
‘As with its other health plan standards, the NAIC developed its Utilization Review Model Act through a
public process that included extensive participation from representatives of the insurance and managed
care industries, health care provider groups, and consumers. These participants included the Utilization
Review Accreditation Commission (URAC), the National Committee on Quality Assurance (NCQA), and
the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO). ‘The NAIC's working
group made every effort to ensure that our model was consistent with the requirements of these other
organizations,

In general, the NAIC's Utilization Review Model Act builds upon the authority already granted
the insurance commissioner to regulate UR organizations, but provides a more detailed regulatory
framework. As with all NAIC models, states are free to adapt this model to accommodate existing law
‘and other circumstances. For example, some states may choose to alter the model for adoption as a
regulation ot may use the substantive provisions of the model, but enact a statute authorizing the health
commissioner to regulate UR activities rather than the insurance commissioner.

Grievance Procedures Model Act

‘The NAIC committees drafting the Health Carrier Grievance Procedure Model Act recognized the
importance of providing enrollees with a clear and accessible mechanism for addressing their complaints
‘and appealing health plan decisions. ‘This model contains standards for the procedures used by health
carriers to resolve grievances submitted by covered persons. “Grievance” is broadly defined and includes
complaints about the availability, delivery, or quality of health care services, including a complaint about
aan adverse determination made in the UR process. The term also includes complaints about claims
payment, handling, or reimbursement issues, or about any matter pertaining to the contractual relationship
between a covered person and a health carrier.



23

Family Practice Management. I looked at a number of these book-
lets that outline do’s and don'ts.

For example, read the contract is the first thing that they say.
Understand that there are supportive documents to the contract;
read those, too. When you look at words, do not assume you know
what they mean. If they are capitalized, you need to understand
the definition. It is that kind of advice that they are giving. They
then give examples, in fact, they have a sample contract.

I was just trying to understand what level of information was
being provided to doctors on do’s and don'ts. I found on page 12 of
this particular document a recommendation from the attorneys
that doctors do not sign any contract requiring you to provide the
highest quality or best care. It says, “Do not sign any contract re-
quiring you to provide the highest quality or best care.” Perhaps,
we need to, at a different time, spend some time finding out why
folks are so concerned about making sure that the Patient Right
To Know Act covers the physician or the medical provider’s ability
to communicate to the patient but that all of the documents in fair-
ly bold language say do not sign a contract requiring the doctor to
provide the highest quality or best care available. I need to know
and understand that provision.

Have you had a chance to look at the bill that Mr. Markey re-
ferred to in his comment to the gentleman from Washington, the
legislation that has passed both the assembly and the Senate and
is on Governor Wilson's desk? It is recommended that he sign it.
I wanted to call your attention to section D, which I believe, in
reading this section—and on line 16, the last word there is peer,
peer review. I believe if your legislation became law, this would not.
be allowed to go into effect in California.

I would like your reaction, either in terms of why it would weak-
en your legislation or why you would recommend that it not be in-
cluded in your legislation since it passed both the assembly and the
Senate in California and probably will go into effect in California
if Governor Wilson signs the bill.

Mr. GANSKE. Well, Mr. Chairman, I have just briefly looked this
over.

Chairman Tuomas. I understand.

Mr. GANSKE. I need to review it in more detail. It appears to me
that this is not a prohibition against economic credentialing, and
that is also protected in my bill. It also appears to allow sanctions
of providers who fail to follow legal standards. That is also consist-
ent with H.R. 2976.

Chairman Tuomas. Well then, I would very much like to sit
down, with some more time available to us.and, review this Califor-
nia legislation to see where it is in conflict or would be less strin-
gent in protecting, as you would say, the patient’s right to know
so that we could use that as an example. My information is, the
Governor is about ready to sign it.

Does the gentleman from California wish to—

Mr. Stark. Yes, thank you, Mr. Chairman. I want to ge back,
Mr. Markey and Hon. Dr. Ganske, here for 1 minute. Mr. Markey,
in the statement you made about the major changes, the original
bill protected statements made by providers directly to State or
Federal regulators. I am picking the words out there.


on Aw ek WH

xI

8
(2) RETALIATORY ACTIONS.—Subsection (a)(2)
shall apply to actions taken on or after the date of
the enactment of this Act, regardless of when the
communication on which the action is based oc-
curred.
(3) NULLIFICATION.—Subsection (a)(3) shall

apply to provisions as of the date of the enactment
of this Act.
le


131

‘Samuel Brola
Monika D. Brola
17400 S. W. 113 Court
Miami, Florida 33157
Telephone: (305) 254-9608
Facsimile: (308) 256-0841
internet £ Mail:

August 9, 1996
RE: Our history with AvMed HMO, Miami Plan
Patient: David Lee Bissonette, born March 5, 1976

David is unable to walk, stand, or sit alone. He has little or no functional use of his
extremities. He is totally dependent on others in all areas. He cannot feed, clothe or
bathe himself and cannot speak to ask for assistance or to describe his pain.

Diagnoses: Cerebral palsy, spastic quadriplegia, anoxic encephalopathy, microcephaly,
scoliosis (partially corrected by CD rods on spine), esophageal reflux (partially corrected
by fundoplication surgery), seizure disorder, chronic pulmonary disease (right lung tested
5% function - no blood circulation).

None of these is curable, nor will they improve substantially. While David is severely
physically handicapped, he is not a vegetable. He is very aware of his surroundings and
communicates by eye-pointing and answering questions by yes and no head movements.
His facial expressions communicate more than most people's words.

HISTORY WITH AVMED:

We are covered by AvMed through my employer, Florida Power & Light, which is
self-insured. Our enrollment in AvMed was effective on January 1, 1991. The contract
covers all pre-existing conditions immediately and has no financial cap limiting costs. We
thought we had found a tremendous blessing. We did not know that a seemingly unending
nightmare was just beginning.

1. July 5; Aug 30; Sept 27, 1991 and Jan. 18, 1992 - Letters delivered to us at Miami
Children's Hospital on Friday evening stating that David's hospital benefits would
terminate either at midnight or the next day. The intent was to coerce families to
discharge their children without being able to contact anyone at AvMed, or in some
cases, their physician.

ALL OF THE ABOVE LETTERS WERE SENT BY AVMED WITHOUT CONTACTING
DAVID'S PHYSICIAN, HIS FLOOR NURSES, OR THE HOSPITAL'S RESIDENT
PHYSICIANS TO INQUIRE ABOUT HIS CONDITION!

2. After one of his many hospital admissions, David was discharged to Greenbriar
Nursing Home in Kendall. We were forced to accept this arrangement. After only
12 days at Greenbriar, the situation was:

a. There was no air conditioning in David's room (approx. 86 degrees), David
had a 104.2 degree fever, and he was on oxygen. He was on a heated air
bed dressed only in a diaper. He had a huge fan blowing on him. The
nursing home's personne! had not called to inform us that he was sick.

b. Even after four phone calls, Dr. Grijalva, the Nursing Home physician,
refused to come. He told my wife that David's blood test (CBC) showed a
white cell count in the normal range (approx. 7,000 to 9,000) and that it was


139

‘STATEMENT OF RENEE MCLEOD, MSN, RN, CS, CPNP
PRESIDENT
NATIONAL ASSOCIATION OF PEDIATRIC NURSE ASSOCIATES AND PRACTITIONERS

As president of the National Association of Pediatric Nurse Associates and Practitioners
(NAPNAP), I am submitting testimony on behalf of over 5,000 Pediatric Nurse Practitioners
(PNPs). We are health care providers dedicated to the care of children. We urge your swift
action in support of legislation to prohibit "gag rules," restrictions on communication between
health care providers and patients.

It is imperative that providers be allowed, if not encouraged, to share all treatment information
with patients, even treatment options which may not be "covered" by a certain health plan. ‘This
is particularly important when children are concerned because children represent so much
potential for life.

The Patient Right to Know Act, H.R. 2976, would prohibit health plans from having a policy
which restricts medical communications between providers and patients. The bill would protect
the right of the health care providers to speak freely and openly about the patient's physical and
mental condition and/or treatment options. While we also believe that the patient has a right to
know information relating to the financial arrangements between health plan and provider, we
strongly support H.R. 2976 as passed by the House Commerce Committee.

Managed care health plans are doing a great deal to address one of the biggest problems in our
health care system: rising costs. We recognize this, and agree that managed care can be a very
positive option for millions of Americans. However, health care providers have a responsibility
to look critically at health care systems, and work to make improvements wherever possible. We
‘must make sure that above all else, the health and well-being of patients are given the highest
Priority and quality of care. ‘The Patient Right to Know Act is a necessary step toward putting
patients first. Communication between provider and patient is the first part of high quality care.

PNPs specialize in providing prevention education, routine physical exams and sick care for
children. When a child has an illness that may require a specialist, communication with parents
is critical. We have the benefit of experience and knowledge, and what we share with these
parents about the kind of treatment options available can be the difference between life and death.
Our efforts to share all the information available should not be affected by the health plan which
employs us. If we cannot share information because a treatment option is not covered by the
patient's plan, but may be covered by another, we are not fulfilling our commitment to that child,
to those parents who put their trust in us. Communicating openly and freely with patients and
parents is perhaps the greatest power we have as PNPs.

‘Communication is so important, not just for PNPs, but for all providers, patients, consumers, and
for the future of the greatest health care system in the world. Yes, it is important to cut the
rising costs of health care, but we must never forget the mission of health care providers, to
provide the best care possible for patients.

‘The Patient Right to Know Act will ensure that the needs of patients come first, and that health
care providers can fully address those needs regardless of health plan. We strongly support this
legislation, and thank the Committee for holding this hearing. We urge you to move quickly in
support of this important legislation. Patients, providers, and health plans all agree that open
‘communication between providers and patients on medical treatment is in everyone’s best interest.
Please act on this opportunity to bring the Patient Right to Know Act one step closer to law.

10)


38

Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

Gaithersburg, MD 20878. The Managed Health Care Handbook, 3rd Edition. Authored
by Peter R. Kongstvedt, MD, FACP. Copyright 1996.

‘Table of Contents

‘Aithough a table of contents has no legal sig-
ssificance, the reader will be greatly assisted in
fading pertinent sections ia a long consract by
referring w the table of contents. One common
falling in contract renegotiations is neglecting to
‘update the table of contents after the contract has
‘been amended.

‘terms that merit amplification and explanation.
‘The use of 8 definition, although requiring the
reader to refer back to an earlier section for a
‘weaning, simplifies greatly the discussion in the
tbody of the agreement. A poorly drafted contract
‘will define unnecessary serms or define terms in
‘ammanner thet is inconsistent with their use inthe
‘body of the agreement
Defined terms are frequently capitalized in
‘contract to alent the reader that the word is de-
fined. Definitions are almos. ssential in many
contracts, but their use may complicate the un-
derstanding of the agreement. Someone who
smads a contract will firs read a definition with-
out knowing its significance. Latet, when be
(© the reads the body of the contract, be or she
‘may bo longer recall «term's meaning. For this
feason, someone reviewing 8 coatract for the
first time should read the definitions twice: ini-
hy sn tent coment of ach ws we.
‘Definitions sections tend to err on the side of
‘ccotaining too many definitions. A term that is
tovd nly once laa conenct aeed wa be fined
(On the other hand, critical reader of « contract
‘will identify instances in which the contract
could be improved by the use of additional defi-

353
Ia reviewing 0 coneract, managed health care
‘organizatioes and: sabould tot woderes-

Starts Oe imposes of éefiions of te pare

‘An occasional defect in some contracts is that
‘the drafter inctudes substantive contract

‘woder the cootract. In this case, who is a payer
and bow a payer is selected and removed be-
‘come important to the provider. The defisition
of member or enrolise ia also imporant. The
‘contact should convey clearly who is covered
‘under the agreement, but it should be clesr as 10
‘whom the managed bealth care organization can

contracts (c.g., the group enrolment agree-
went).

Provider Obligations

‘Provider Services
Because the purpose of the agreement it to


7

eare providers under the plan shall be considered,

for purposes of this section, to be an entity offering

such health plan.

(e) NON-PREEMPTION OF STATE Law.—A State may
establish or enforce requirements with respect to the sub-
ject matter of this section, but only if such requirements
are more protective of medical communications than the
requirements established under this section.

REBBRA

(f) CONSTRUCTION.—Nothing in this section shall be

construed as—

(1) as requiring an entity offering a health plan
to enter into or renew a contract or agreement with
any willing health care provider, or

(2) preventing an entity from acting on infor-
mation relating to treatment actually provided to a
patient or the failure of a health care provider to
comply with legal standards relating to the provision
of care.

(g) EFFECTIVE DaTES.—

(1) ContTRacTS.—Subsection (a)(1) shall apply
to contracts or agreements entered into or renewed
on or after the date of the enactment of this Act,
and to contracts and agreements entered into before
such date as of 30 days after the date of the enact-
ment of this Act.


32

MANAGED

Health Care Handbook

Third Edition

Peter R. Kongstvedt, MD, FACP
Partner
Ernst & Young LLP
Washington, DC

&

AN ASPEN PUBLICATION®
Aspen Publishers, Inc.

Gaithersburg, Maryland
1996


12

provision. The advantage of allowing each state some flexibility highlights the strength of state-based
insurance regulation.

For example, Wisconsin has a different experience and a different managed care climate than that
in many states, We have had language in our laws that equates to a restriction on gag rules for over 20
vyears. As this debate began to grow nationally, I requested that my market regulation bureau review the
history of complaints, market conduct exams, and provider contracts for gag-rule provisions. In
Wisconsin, not only have no HMOs implemented a gag rule in Wisconsin, but we have received no
complaints from providers on this issue.

‘Obviously. this approach works for Wisconsin. In fact, our state has the lowest uninsured rate in
the country, according to the U.S. Census Bureau. [am proud of the climate of innovation fostered by
Wisconsin Governor Tommy Thompson, who has helped our state advance significant small employer
insurance reforms. Working together, we have created a regulatory structure that works for Wisconsin
and we have a thriving managed care industry.

Wisconsin's experience, however may be the exception and not the rule. Many key factors in the
development of our managed care industry may have affected the relationship between HMOs and
providers in our state. As a bit of background, Wisconsin does have a very sound managed care market.
HMOs cover 53 percent of the stales’s insured group business, and cover an even higher percentage in
urban areas. Nineteen of our 27 HMOs were founded by providers, creating a tradition of a strong
relationship between providers and insurers. In addition, Wisconsin is the only state that requires HMOs
to be licensed as insurers, which offers a different regulatory focus than most states where HMOs fall
‘under a separate insurance licensure structure.

‘Our regulatory structure has worked for Wisconsin, and managed care has thrived with high
satisfaction Jevels. That does not mean that our structure would work well in other states. ‘The strength of
state regulation is that each state is able to adapt to its environment and establish strategies most likely to
work, H.R. 2976 recognizes that strength and enhances it.

‘On a technical note, the NAIC Committee recommends clarifying the scope of the preemption
language by replacing the term “subject matter of this section” with the specific topics intended, such as
“medical communications and health plan requirements relating to such communications.” Such a
clarification would assure that the scope of the provision is not construed to include subject matter not
intended to be affected by the legislation.

‘The enforcement of H.R. 2976's requirements is to occur through the imposition of federal civil
money penalties. However, as noted above, the preemption language also clarifies the states’ ability to
enforce more stringent requirements. In the past, the NAIC Committee has supported certain federal
minimum standards relating to insurance, as long as state flexibility and the states’ role as primary
regulators and enforcers of insurance law is maintained. The NAIC Committee commented favorably
upon the portability provisions within H.R. 3103, as adopted by the House and Senate respectively, and
appreciated Congress’ retention of the states’ role as prime regulators of insurance within those sections
of the bills. The NAIC Committee would recommend a similar division of enforcement authority within
this bill, with federal enforcement for plans regulated by ERISA and state enforcement for those regulated
under state law. Therefore, even in states which choose (0 not adopt standards that are more stringent
than the requirements of the bill, the states" role as primary enforcers of insurance law should be retained,
Such a division of authority may have been intended by the legislation, in which case we would simply
recommend clarifying language

Laws Ac “ 7 lization Review
‘The proliferation of so-called gag clause legislation around the country this year is one indication
of tremendous public attention to issues raised by the growth of managed care, The term “gag clause,”
‘which refers to clauses in the contracts that managed care plans have with providers, particularly
physicians, is used to describe at least four distinct situations. ‘The term most commonly refers to clauses
that prohibit or impede a provider from discussing with a patient all possible medical treatments,
including those not covered by the plan. This type of gag clause is addressed by H.R. 2976 and by most
‘enacted state laws, The second meaning of the term refers to limitations on a provider's freedom 10
discuss the compensation and other financial arrangements that the provider has with the patient's
managed care plan, A particularly sensitive issue is the extent to which a provider's compensation can be
adversely affected by hospitalizations of their patients, referrals to specialists, and the prescribing of
‘expensive diagnostic tests or treatments. A third meaning of the term refers to contractual provisions
prohibiting a provider from revealing a plan's proprietary information or trade secrets. Finally, the term is
sometimes used to mean a broader contractual provision preventing a provider from making disparaging
remarks about the specific plan or about HMOs and managed care in general.

HAR. 2976 and most state legislation are directed primarily at eliminating any constraints on the
provider's ability to discuss all treatment options with the patient, regardless of the plan's policy with
fespect to coverage of that treatment. However, the public’s concem about full and fair disclosure of all
available treatment options is a symptom of the more general concem that managed care creates
incentives for plans and providers to withhold necessary health care services.



ll

Chairman THOMAS. Thank you very much. If I did not say so, ob-
viously without objection, any written statement that either of you
have will be made a part of the record.

The gentleman from Massachusetts, Mr. Markey.

STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. MarKEY. Thank you, Mr. Chairman, and I thank you for
holding today’s hearing on this important legislation.

Gag rules restricting medical communications between doctors
and their patients enforce a code of silence on doctors that makes
informed consent impossible. Such an attack on this most basic pa-
tient protection simply cannot be tolerated in a free society. When
you are a patient, what you do not know can hurt you. That is why
Dr. Ganske and I joined forces last February to introduce the Pa-
tient Right To Know Act of 1996, which protects medical commu-
nication between health care providers and their patients by ban-
ning the use of Bae, rules by health plans.

That is why the House must pass this bill this year and we must
send it to the President’s desk before the end of the session.

Our bipartisan proposal has over 140 cosponsors from both sides
of the aisle and every part of the political spectrum. It is supported
by a wide range of health care and consumer groups, including the
American Medical Association, the American Nurses Association,
the Consumer Federation of America, and the Consumers’ Union.
The American Association of Retired Persons and the American
Heart Association both have written letters to us expressing their
support for the bill as well.

Incidentally, contrary to the implication of an advertisement
which ran in one of the local newspapers last week, the National
Governors’ Association has not taken a position on the Ganske/
Markey bill. That ad, which was paid for by the managed care in-
dustry, reflected the managed care industry's view of H.R. 2976,
not the position of the National Governors’ Association on our bill.

My mother always told me to consider the source when I hear
something I am not sure about. In this case, I would strongly urge
my colleagues to do the same.

During the recent markup of this bill by the Commerce Commit-
tee, my friend from Iowa offered a substitute amendment that ad-
dressed several of the main concerns about the bill that had been
raised by the managed care industry. Specifically, it protects pro-
prietary data from disclosure, eliminates the second higher tier of
civil penalties imposed by the original bill, and delays the effective
date by 60 days to give plans adequate time to comply.

In addition, the substitute includes a provision explicitly stating
that the bill does not protect communications made by doctors to
their patients that are made solely for the doctor’s own financial
gain. This provision should silence once and for all those who op-
pose the bill for other reasons, but seek to undermine it by claim-
ing that it is a provider protection bill rather than a patient protec-
tion bill.

I want to touch on one more point before I close. Some who have
looked at this issue have focused their attention exclusively on
what is written in the doctor's contract. If a clear gag clause cannot


6

merce Committee. It is not very long and maybe we could view that
also.

Mr. Chairman, there is significant evidence that some managed
care plans are gagging their health care providers, thereby keeping
patients from full and complete access to information they need to
make critical decisions. These gags, whether spelled out in a con-
tract, a written policy statement, a letter, or communicated orally,
eat like a cancer at the trust between a doctor and a patient.

Earlier this year, Mr. Markey and I introduced the Patient Right
To Know Act, which would prohibit the enforcement of gag rules
in health care contracts. The Commerce Subcommittee on Health
held a lengthy hearing in May. We explored these issues with pa-
tients, physicians, and managed care plans. The Subcommittee
marked up the bill last month and I worked very hard with Mem-
bers and other interested parties to address concerns about pos-
sible unintended consequences of the bill and the need for health
plans to protect proprietary data from disclosure.

The result was an amendment that was approved by the Sub-
committee 22 to 0 and by the Full Commerce Committee by unani-
mous voice vote 6 days ago. It is supported by groups like AARP,
the Center for Patient Advocacy, Citizen Action, Consumer Federa-
tion of America, Consumer Union, the American Academy of Fam-
ily Physicians, the American College of Surgeons, the American
Dental Association, the American Nurses Association, the AMA,
the American Physical Therapy Association, Podiatric Medicare,
and a host of organizations. It has over 130 bipartisan supporters,
including many Members of this Subcommittee.

Mr. Chairman, I want to be very clear on one point. No written
contract accurately describes all the functions of a complex busi-
ness enterprise. Much more occurs through policy manuals, infor-
mal practice, and oral statements. While the language of the con-
tract can be partly instructive, the Subcommittee should directly
focus, on three issues. First, how the contract language is used.

For example, a nondisparagement clause is not automatically ob-
jectionable if it is used to prevent bad-mouthing of the plan. We
added into the substitute that passed something specifically to ad-
dress this issue. A physician could not use this bill as a way to fi-
nancially improve his situation. But, the clause is a problem if it
is used to keep a doctor from telling his patient that he needs a
treatment the plan is refusing to pay for.

A Tulsa neurologist was reprimanded for “disparaging the plan”
when he advised a patient that she needed a test the plan was not
willing to pay for.

Second, plans generally include in their contracts a provision re-
quiring the provider to follow manuals and policy bulletins. Con-
sider this letter from the south Florida Office of the Prudential
Health Care System to participating doctors. The plan’s medical di-
rector wrote: “If you believe a member may require transplantation
or other sophisticated and experimental care, we request that be-
fore discussing treatment options with the member, you call us to
discuss the member’s eligibility for the treatment ‘and to discuss
the appropriate institution. Failure to do so may result in treat-
ments | that are not covered by benefits and, therefore, unhappy
members.”


CoN AH kW HN

1
12
13
14
15
16
17
18
19

2
22
23
24

Vil

4
(b) MEDICAL COMMUNICATION DEFINED.—In this
section, the term “medical ecommunication”—.

(1) means any communication, other than a
knowing and willful misrepresentation, made by the
health care provider—

(A) regarding the mental or physical
health care needs or treatment of a patient and
the provisions, terms, or requirements of the
health plan or another health plan relating to
such needs or treatment, and

(B) between—

(i) the provider and a current, former,
or prospective patient (or the guardian or
legal representative of a patient),

(ii) the provider and any employee or
representative of the entity offering such
plan, or

(iii) the provider and any employee or
representative of any State or Federal au-
thority with responsibility for the licensing
or oversight with respect to such entity or
plan; and

(2) includes communications concerning—

(A) any tests, consultations, and treatment

options,


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Prk Bact
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AMERICAN — reves S480
COLLEGE of 9111 OU Georpeeown Rood 800.253.4636

Bethenks, MD 20814-1699 Fax: 301-897-9745

CARDIOLOGY USA hapulwwmaccone

July 29, 1996

‘The Honorable
Bill Thomas

Chairman, Ways and Means Committee Member
United States House of Representatives
‘Washington, D.C. 20515

Dear Mr. Chairman:

Please include this letter in the record for the July 30 hearing to be held by the House
‘Committee on Ways and Means on H.R. 2976, the Patient Right to Know Act. The
American College of Cardiology (ACC) strongly supports H.R. 2976 and urges the
members of the Committee to act favorably on this legislation on behalf of our
patients.

‘As amember of the Patient Access to Specialty Care Coalition, the ACC believes
strongly in empowering patients to make the best possible health care decisions. Such
decisions can only be made in an atmosphere that allows maximum communication
‘between physicians and patients. We believe that H.R. 2976 would guarantee -
unequivocally - that such an environment exists in all practice settings and would
enhance the quality of health care in this country.

The American College of Cardiology is a 23,000 member non-profit professional
medical society and teaching institution whose purpose is to foster optimal
cardiovascular care and disease prevention through professional education, promotion
of research, and leadership in the development of standards and formulation of health
care policy,

Please do not hesitate to contact Marie E. Michnich, Dr.P.H., Senior Associate
Executive Vice President, at the ACC if we can be of any additional assistance.

Sincerely,

aA gam

Richard P. Lewis, M.D., F.A.C.C.
President


102

Indeed, many of our clients, and I suspect a large number of
HMO enrollees, currently choose their HMO because their doctor is
in the network. They believe that they can trust their doctor to dis-
close their best health care options and they should be able to trust
their doctor without fear that their medical advice has been
censored by the HMO.

Second, many HMOs prohibit providers from disclosing financial
incentives that may influence provider decisions about the care
they deliver. Without information about physician financial incen-
tives, patients cannot make informed choices about their health
care.

While a patient may choose an HMO because it covers a particu-
lar treatment, HMO financial incentives may discourage physicians
from providing this care in all but the rarest of instances. Medical
practice is a regulated industry analogous in some ways to the dis-
tribution of pharmaceuticals. As a matter of longstanding public
policy, the government requires comprehensive warnings to accom-
pany the sale of pharmaceuticals in order to ensure that consumers
understand the risk they are taking when they use particular
drugs.

The medical policies and practices of HMOs merit similar scru-
tiny because they have a direct bearing on people’s health and well-
being. At the very least, a Patient Right To Know Act should pro-
tect the ability of physicians to disclose how HMO financial incen-
tives can discourage delivery of costly specialty care.

While constraints on physician disclosures may serve HMO busi-
ness interests, none serve any legitimate health care interest. They
only undermine consumer choice about which HMO to join and
what kind of care they need. None of these constraints have any
place in our health care system and, indeed, many States already
outlaw one or more of them.

If Congress sincerely wants informed consumer choice, it should
pass H.R. 2976, as originally introduced, and outlaw HMO con-
straints on physician disclosure about treatment options and finan-
cial incentives, as well as nondisparagement clauses in HMO con-
tracts.

However, even this legislation will not serve its purpose unless
Congress addresses the ability of HMOs to terminate physician
contracts for any reason. You have heard testimony earlier today
about this issue. Even if Federal law forbids HMOs from restricting
some or all types of physician communications, HMOs can, none-
theless, terminate doctors because of their communications. This
ability to terminate physician contracts without cause has perhaps
the greatest chilling effect on patient-physician communications.

In order for the Patient Right To Know Act to achieve its desired
objective, informed health care decisionmaking, in order for pa-
tients to take responsibility for their health care, Congress must
forbid HMOs from terminating physicians for disclosing treatment
options, financial information, and any other information that
bears on the quality of care the HMO delivers.


61

Chairman THomas. Mr. Rust.

STATEMENT OF MARK E. RUST, PARTNER, KAMENSKY AND
RUBINSTEIN, CHICAGO, ILLINOIS

Mr. Rust. Thank you, Mr. Chairman and Subcommittee Mem-
bers. I am pleased to testify before you today and I commend the
Subcommittee and Chairman Thomas for holding this important
hearing on an issue of great concern to physicians and their pa-
tients.

My name is Mark Rust and I am a partner in the law firm of
Kamensky and Rubinstein in Chicago and Lincoln Wood, Illinois.
We represent some 3,000 physicians throughout the country, either
individually or in groups. I might also add that, I am the former
chair of the American Bar Association’s Medicine and Law Commit-
tee, in the tort and insurance practice section. Accordingly, I have
had the opportunity to review a wide variety of managed care ar-
rangements.

Mr. Chairman, the managed care contract, when running be-
tween an MCO and an individual physician or a small physician
group, is a virtual contact of adhesion. It is between two parties of
grossly unequal bargaining power. Further, the contract is filled
with arcane jargon. Physicians rarely ask their attorneys to review
these agreements prior to signing them. They perceive that there
is little likelihood that the MCO will be willing to change anything
but the most minor items. In my experience, that expectation is
reasonable.

As a result, these agreements contain a variety of clauses to
which most sophisticated commercial parties would never agree. I
describe them more fully in my written statement in order to illus-
trate why physicians are in no position to spot, much less negotiate
out provisions that might negatively affect their patients.

In addition to clauses that allow an MCO to terminate for a
breach, such as a gag clause, virtually every such agreement with
physicians has a clause that allows the MCO to terminate a physi-
cian without explanation on short notice. Given the existence of the
without-cause termination provisions, the relative rarity of the
crude clause that gags the physician from fully communicating to
his or her patient is not striking. The existence of a single such
clause generates emotion in the physician community because it ar-
ticulates what physicians perceive the be the unwritten policy of
certain MCOs to punish those physicians who discuss with patients
the economic limitations on their treatment options.

Given the power virtually all plans have of terminating the phy-
sician on 60-days notice for no reason, physicians fear the existence
of a gag policy in each MCO relationship whether the ban is ex-
plicit or implicit. Sometimes, such policies are explicit, though not
nearly as bold as those that have recently been reported and that
we have seen just a moment ago.

One common example is the provision that forbids a physician
from counseling a member to sign up with another plan. At first
blush, this clause sounds commercially reasonable. Consider, how-
ever, this dilemma. When a patient asks her physician whether the
physician will be able to provide cutting edge cancer treatment in
the event the tests show the patient has breast cancer, how should


16

tervene to either provide an advantage in a negotiating arrange-
ment with one side or the other.

In addition to that, a number of States are beginning to move in
this area and the legislation says no State can do legislation that
is less restrictive than what we have in the bill. So, notwithstand-
ing the agreement and the comfort level in the State, this Federal
legislation may disrupt those relationships as well. So, we are very
sensitive about it.

To what extent is it fair to say that contracts—you can pick some
of the most egregious examples that you might in terms of what
you call a gag rule—if signed by a doctor would require them to

esitate based upon their Hippocratic Oath? Are we dealing with
contracts that doctors would feel, in fact, violate what they believe
to be their commitment to the Hippocratic Oath?

Mr. GANSKE. I believe that you are going to get testimony that
physicians in general would feel that these kinds of contracts are
unethical. The situation, depending on whether a physician signs
a contract with these in them or not, is something that I cannot
defend. The fact is, we have ample evidence that the contracts exist
and that they are affecting a patient’s ability to get the information
they want.

I should emphasize, Mr. Chairman, that this——

Chairman Tuomas. I guess I was trying to drive you to the most
extreme position I could think of, not that it might interfere, not
that it might be inconvenient, but that you would be forced to
make decisions that would be inconsistent with your professional
ju ent as it is determined in the Hippocratic Oath.

ir. GANSKE. I will answer that, but let me just first say, I firmly
believe the primary purpose of this is not for physicians, but it is
for patients. That is why groups like Citizen Action and the Amer-
ican Heart Association and the American Lung Association, AARP,
Consumer Union have all come out endorsing this bill.

Are there situations where the economic forces in the market
could place an exceedingly heavy load on a physician to sign one
of those contracts? I think that there are. There are situations de-
veloping where consolidation has occurred in the managed care in-
dustry where a few players have a very large share of the market.
It may mean whether a physician can stay in that locale, as to
whether they sign a contract or not.

So, there definitely can exist a very significant conflict of inter-
ests, both in terms of fulfilling your Hippocratic Oath, but also in
terms of whether you are going to practice in that community
where your kids are going to school and where you may have set
down roots 20 years ago.

thairman THOMAS. On the NBC tape and the Fred Friendly
tape, it was primarily focused on physicians. Your comments are fo-
cused on physicians and quite rightly the end result is informing
the patient, as you indicate with the findings. The very first finding
you have in the bill is the patient’s right to know.

But in the bill, you define health care provider—the term health
care provider means anyone licensed under State law to provide
health care services. The scope of that definition is obviously, I
think we all agree, far broader than physicians. It would extend to
not only physicians’ assistants, but nurses, nurse practitioners,


28.

34.

185

Roche with BPR. They deciined to investigate. We filed a complaint against Pau!
M. Gustman, MD, in May 1995. It has FINALLY been investigated and the report
was sent to Tallahassee in February 1996. | wrote dozens of letters to legislators
‘and to the Board of Medicine and BPR. Finally, a legislator told me to cal! Randolph
Collete, an attorney at BPR who had closed all three Strube cases. When his
secretary gave me the run-around, | informed her that | had already called the FBI
‘once to accuse AvMed of having undue influence on regulators. | stated | was
going to call the FBI again with my belief that Randolph Collette was the contact
point for the improper influence. Within three hours, we received a call from a BPR
investigator in Miami that had been assigned the case. Case #95-15826 has been
assigned to Dahna Schaublin in Miami since Nov. 1995. | have begged the Dade
State Attorney to file charges of Criminal Conspiracy against Roger H. Strube,
Karen Martel, RN, and Paul M. Gustman, MD. So far, those charges have not been
filed although the evidence is clear, documented, and compelling. We have reason
to fear retribution from Karen Martel since she is now a Supervisor at Nations
Health Care, the medical provider that has David's case.

Sept. 22, 1994 - After being told that it was a Federal requirement that employers
have an effective appeals process for complaints, | called and then wrote Scott
Robinson at Florida Power & Light's Human Resources Department in Juno Beach.
| sent him some 60 pages of documentation of the abuse we were taking from
AvMed. | also informed him that | believed that Roger H. Strube was practicing
medicine without a license. | did not even receive a phone call in response. FPL
is self-insured, so this is not a big surprise.

‘Oct. 25, 1994 - When I tried to call Scott Robinson, FPL HRC/JB, | was told that he
had been replaced by a Julie Barone. She confirmed that Mr. Robinson had
received my complaint. | sent her a copy of BPR's certified statement that Roger
H. Strube had never been licensed in Florida. | did not hear from her again.

Nov. 2, 1994 - We attended a Member Appeals Committee Meeting at AvMed. We
do not believe it met contract requirements. The contract describes a Member
Appeals Committee as a FORMAL PROCEDURE. The bold print and capital letters
are direct from the contract. We requested that the Case Managers and Karen
Martel, R.N. be present. We also requested that we be allowed to bring a Court
Reporter to record the minutes and prevent confusion in the future. AvMed refused
‘on both requests, in writing. At this meeting, we obtained a copy of a "Case
Summary" dated 10/28/94 which we believe shows that AvMed had already decided
to ignore our appeal. | requested that each of the attending executives sign an
‘attendance log and then gave each of them a copy of my eight page presentation.
In this presentation we accused Roger H. Strube of Practicing Medicine Without a
Licanse and misrepresenting himself as a ticensed medical doctor. (We were not
yet aware of the 1993 BPR case.) Roger Strube's response was: “You can take it
to the top if you want, Mr. Brota, and one of two things will happen, ha ha, either Ill
be VERY secure in my position, or I'll get a great severance package.” | informed
the AvMed executives that he (Roger H. Strube) was “going down" and that it was.
up to them if they wanted to be accessories to his criminal activities.

Nov. 3, 1994 - AvMed sent us the MEMBER APPEALS COMMITTEE
DETERMINATION stating: "The Committee determined that the new plan of
treatment ... as outlined in the September 12, 1994 letter from Roger H. Strube,
M._D., AvMed Medical Director, is appropriate for David's medical condition and
AvMed will only authorize payment for that plan of treatment effective January 1,
1995." In other words, we are reducing your son's care in spite of the law.

Dec 8, 1994 - AvMad's Vice President & General Counsel, Stephen J. deMontmollin
sent us a letter threatening to “seek a legal remedy” if | did not cease informing
‘AvMed's physicians about unlicensed medical professionals in AvMed's Miami
Office. tt tumed out that Marian Carolan, RN (Complex Case Manager) of AvMed,


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH
FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943
July 23, 1996
‘No, HL-22

Thomas Announces Hearings on H.R. 2976,
the "Patient Right to Know Act of 1996"

Congressman Bill Thomas (R-CA), Chairman of the Subcommittee on Health of the
Committee on Ways and Means, today announced that the Subcommittee will hold a hearing
on H.R. 2976, the "Patient Right to Know Act of 1996." The hearing will take place on
Tuesday, Jaly 30, 1996, in room 1310 of the Longworth House Office Building,
beginning at 1:00 p.m.

ral testimony at this hearing will be heard from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the printed record of the
hearing.
BACKGROUND:

On June 27, 1996, the Subcommittee on Health and Environment of the Committee on
‘Commerce unanimously approved H.R. 2976. As reported by the Subcommittee, the bill
would probibit health plans from restricting medical communications between physicians and
patients in their provider contracts. The introduced version of H.R. 2976 would have also
prohibited plans from using standard contract language pertaining to physician compensation
and incentives and non-disparagement clauses.

The rules regarding any limits on physician-patient communications by health plans,
which are raised by the consideration of H.R. 2976, fall into three categories: those that
restrain disclosure of treatment options; those that restrain disclosure of payment and financial
incentive arrangements; and nondisparegement clauses. These limits or restraints are
‘commonly referred to as "gag rules." Many physicians argue that contract provisions exist
between health plans and providers that allegedly prohibit providers from disclosing all
treatment options with patients. H.R. 2976 would prohibit such cinuses. This term is being

to “inappropriate restraints on care." The health plans argue that provisions such as
Proprietary compensation arrangements and nondisparagement clauises are necessary to protect
competition and prevent providers from steering patients to better paying plans.

Many States are moving forward with their own legislation in this area. Twelve States
have passed some form of patient disclosure or specific rules. Other States have legislation
pending and two States have defeated patient disclosure legislation.

‘The hearing will focus on legal contracting issues involving managed health care
Key i

and contract contect language conse ison piyeian patient communications by Beals plane


188

home to take him to. They said the hurricane was not their problem, that we should
seek public assistance if we had no home, and that they would immediately stop
Payment for David's care if we did not discharge him. They also stated that
Greenbriar was no longer an option. | told them Greenbriar would NEVER be an.
option and that we would discharge David WHEN we had a home to take him to
(AND when AvMed had arranged for resumption of his nursing and respiratory care.

14, Sept. 10, 1992 - After days of phoning, found a rental house in North Miami Beach
and discharged David with home nursing care and respiratory therapists.

15, Jan/Feb, 1993 - AvMed attempted to curtail respiratory treatments and drug
deliveries by phone calls. We demanded a Member Appeals Committee.

16. March 1993 - Result of Member Appeals Committee was that AvMed would NOT
attempt to cease providing care without prior written notification to us with sufficient
time for us to appeal. We were accompanied by Attorney Arthur Garcia.,

It was around this time that Roger H. Strube, M.D., became the Medical Director of AYMed
HMO in Miami. He is licensed in Wisconsin and indiana but has never been licensed in
Florida. His license record in Wisconsin reflects that he accepted a disciplinary entry on
his license record that he had improperly prescribed amphetamines over a seven year
period. ‘This is on his record with his acquiescence and that of his attomey. It was also
placed in his record without the cooperation of the patients involved. The average person
would have to question his ethics and judgement. AvMed may or may not have known,
about his lack of license or the discipline in Wisconsin.

If AvMed did not know about his past, it means that a huge medical corporation hired a top
executive at a large salary and gave him responsibility for the medical care of 110,000
AvMed members in Dade County WITHOUT the most cursory background check. | believe
that constitutes: reckless endangerment of the members by IMPROPERLY HIRING an
executive with questionable (at best) background. | believe that AvMed did do a
background check and decided that Roger H. Strube had EXACTLY the ethical behavior
pattern they desired. | stated this belief clearly at our hearing before the Statewide
Providers & Subscribers Assistance Panel in early 1995. The Panel was made up of

tives from the Florida Department of Insurance and the Florida Agency for
Health Care Administration.

17. July 1993 - AvMed tried to terminate respiratory services without a change in
medical orders or prior notice. Mr. Garcia prevented AvMed's action.

18. Oct. 1993- Unknown to us at the time, a patient filed a complaint against Roger H.
Strube with the Department of Business and Professional Regulation, Case No.
93-1811. Roger Strube was notified of the complaint and was requested to sign
a Cease and Desist Agreement. The Investigative Report shows Stephen J.
deMontmallin to be Strube's attomey. Stephen J. deMontmollin is Vice President
and General Counsel of AvMed.

19. Jan. 9, 1994.- The medical home care provider, Infusion Therapies, fired their
‘subcontracted respiratory therapists, Greg Lane and Associates. Mr. Lane received
the letter on Saturday which told him to cease providing care to all of his patients
on Monday. This incident coincided with the visit to Miami AvMed of Infusion
‘Therapies’ Chief Operating Officer from Atlanta

20. Jan. 12, 1994 - A Mr. Thomas P. Jarrett from Infusion Therapies came to bring a
new pulse oximeter. He informed our nurse that he would be taking over David's
respiratory treatments the next day.

21. Jan. 13, 1994 - Mr. Jarrett did not show up for David's 8:00 a.m. and 12:00 noon
treatments. When he finally arrived for David's 4:00 p.m. treatment, | asked to see


21

I was listening to your answer to the Chairman about the issue
of breadth of the bill versus narrowness. I think I would have an-
swered that question a little differently or a little bit more em-
phatically, that you want a broad bill if you are on the side of the
patient. If you are on the side of the HMO industry, you want a
narrow bill. So, only psychiatrists can make referrals about psy-
chiatric issues and only belly surgeons can talk about belly issues
and neurologists only about nerves. Nobody can stray out of their
very narrow constraints. .

The problem, it seems to me, in trying to write any definition
that gets narrow is going to be that, you have nurse practitioners
and you have physicians’ assistants who are operating in broad
areas as well as, physicians who operate in broad areas. I think if
you try to narrow this, I would be very careful in any kind of nego-
tiations you make in terms of narrowing, because you will always
take away information from the patient that they do not know
about.

Even if it is a physical therapist who says, Well, I saw a case
like this once and J thought this worked. Then the patient goes to
the plan and says, Well, why cannot they do this. I think this
might make my back feel better or whatever.

That information that comes from whatever level of practitioner
is for the patients—at least gives the patient a little bit more un-
derstanding of what is going on. I would be—in your negotiations
the Chairman is talking about, I would be wary of narrowing the
definition.

Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from New York wish to
inquire?

Mr. HouGuTon. Yes, just a very quick question.

Gentlemen, it is great to see you. Thanks very much for being
here and pushing this bill.

New York has just passed a bill, just about a week or so ago,
doing the same thing, prohibiting gag clauses. I am not quite sure
of two things, one, how your bill will fit into that. Maybe you do
not know what the bill is. The other thing is, Is there a difference
between written and oral communications here?

Mr. GANSKE. Well, let me answer that. I think that this bill is
needed, because even if New York passes this law, about 50 per-
cent of the residents in New York with health insurance will not
be covered, because they are covered by ERISA plans that. would
be exempted from State regulation.

I believe that it is very important to leave oral communications
in this bill, because we had ample testimony that it is not just the
written contract that is a problem. It is a phone call from the medi-
cal director not recorded on paper that says, “If you keep making
these referrals for this type of treatment, you are off the panel.”

Picture your wife with a breast cancer and she has a lump in her
breast and she goes in to her physician and he has signed one of
these contracts with these gag clauses. He does her history and

hysical exam and there are four commonly accepted treatments.
fe says, Excuse me, and he leaves the room and gets on the phone
and says, Can I tell the patient about these four types of treatment
for this breast lump? That is what we are talking about in this bill.


90

+ Selection of a defined, fully credentialed network of providers who can work together on.
delivery and quality issues.

+ Delivery of comprehensive services across the spectrum of inpatient and outpatient settings,
providing a fall range of quality interventions.

. Clinical and fiscal accountability for the health care of a defined population — allowing
population-based data collection, analysis, intervention, and monitoring — and establishing
‘accountability for bealth plan

‘A comprehensive review of the literature published from 1980-1994 appeared in the May 18, 1994
Joumal of the American Medical Association. It analyzed 167 studies comparing quality of care in
HMOs with care provided to similar populations in other settings. The study concluded that HMO
quality is better than or equal to the fee-for-service results on 14 of 17 measures. People cared for
in HMOs consistently receive more preventive care — such as breast, pelvic, rectal and general
physical examinations — as well as more health promotion counseling. Some specific examples of
studies on quality of care in HMOs are outlined below.

+ Elderly HMO members with cancer are more likely to be diagnosed at an early stage than those
in the fee-for-service system, according to a HCFA study that compared Medicare records for
12 different types of cancer. Breast, cervical and colon cancers, along with melanomas, were
diagnosed significantly earlier in HMOs than fee-for-service. The largest difference was for
cervical cancers: almost 60 percent of HMO members were diagnosed at the earliest stage,
compared with just 39 percent of fee-for-service patients (American Joumal of Public Health,
October 1994),

=| Women in HMOs were more likely to obtain mammograms, pap smears and clinical breast
‘exams than women in fee-for-service settings. For example, 62 percent of women HMO
members age 50-64 had a mamraograrm within the past year, compared to 50 percent of women
with fee-for-service coverage (CDC/NCHS Advance Data No. 254, August 3, 1994).

+ Finally, HMO members ~ elderly and non-elderly ~ are more satisfied overall with their health
plan than fee-for-service enrollees. For example, # survey of 19,000 elderly Americans by the
National Research Corporation found those enrolled in HMOs aad higher satisfaction levels
than traditional fee-for-service Medicare enrollees for every level of health status,

‘AtPacifiCare we measure member satisfaction in several ways. One measure is the Member
Satisfaction Tracking System (MSTS). This program involves a telephone survey of a statistically
valid sampling of members for each of our contracted medical groupe/IPAs. For example, the most
recent results for 4 months ending 5/96 show that 97% of Secure Horizons members in San
‘Antonio are satisfied on an overall basis and 98% said they would recommend PacifiCare. Also,
the survey results indicate that 100% of Secure Horizon members of Tulsa are likely to continue
coverage.

‘The second measure of satisfaction (or dissatisfaction) is the number of complaints. This has
consistently been low, and currently is less than 5 complaints per thousand members per year for all
complaints related to clinical care or service. In 1995, we estimate there were over 1,000,000
doctor-patient visits in our system. During this same period, there were less than 500 complaints
related to quality issues (less than .05% of visits). Of these, less than 50 were found to represent
‘true quality-of-care issues. This represents less than .005% of visits. All complaints are carefully
reviewed and action plans developed when appropriate. Unlike fee-for-service, HMOs have
‘systems in place to address problems with the objective of preventing their recurrence.

Pethaps a more important indication of satisfaction than enrolment rates is disenrollment rates.
People can join a plan, but that means very litle if they disenroll in a short period of time due to
dissatisfaction. to a recent stady based on Health Care Financing Administration
(HCFA) data, only 4% of Medicare beneficiaries enrolled in HMOs return to fee-for-service plans.


10.

182

“normal” for “these kids" to “sometimes spike a temperature". My wife

informed him that, having raised David at home for 15 years, she knew it was
not normal for David. The doctor still did not come. He said he would stop
by “later this evening”.

c. When | arrived, | called David's pulmonologist, Morton Schwartzman, M.D.
He told me to get David to Miami Children's Hospital emergency room right
away. | instructed the nursing home's nurse supervisor to call an
ambulance to transport David. She REFUSED. | called 911 for an
‘ambulance for transport. When David arrived at Miami Childrens’ Hospital,
he was evaluated and then admitted to the Intensive Care Unit. His white
cell count was now over 20,000, quite contrary to Dr. Grijalva’s "diagnosis".

In October 1991, after David's hospital admission caused by the nursing home's
neglect, AvMed tried to have David discharged to the same nursing home. We
refused and David was finally discharged with 12 hours per day of nursing care in
our home. We were abie to keep him out of the hospital for ail of two months.

On December 4, 1991, David was again admitted to Miami Children’s Hospital with
serious pulmonary infection and pleural effusion, including abscesses and fluid in
and around the right lung. David failed to respond to many different treatments
and, by mid-January, 1992, we thought he would die any day.

January 18, 1992 - Letter delivered to us at the hospital stating that David no longer
required treatment in an acute care facility and could be discharged to Greenbriar
Nursing Center. His doctor said that he was nowhere near ready for discharge
AND we would not return him to Greenbriar, since they had nearly killed him.

Jan. 30, 1992 - Letter delivered to us at Miami Children's Hospital threatening not
to pay for David's care unless we agreed to transfer him back to Greenbriar. They
had obtained a “second opinion” about David's suitability for Greenbriar. The
so-called "second opinion” was from Dr. Grijaiva, the physician from Greenbriar
who had refused to come when David was there. We again refused to transfer
David to Greenbriar AND refused to discharge him from the hospital.

After several weeks, AND after obtaining the services of an attorney, AvMed
provided David with nursing, respiratory therapy, etc., at home as a substitute for
hospital care. David has a RIGHT to high quality care provided by licensed medical
professionals. AvMed has continually attempted to curtail care without changes in
medical orders and to do so without our prior knowledge. To date, we have kept
them from reducing his care to dangerous levels.

June 1992 - AvMed attempted to cease providing licensed respiratory therapists
by calling the home care agency telling them to stop sending therapists, but not to
tell us in advance. We notified the company that there had been no change in the
medical orders and that they and AvMed would be liable if care was stopped.

Aug. 23, 1992 - David admitted to hospital with pulmonary infection.

AUGUST 24, 1992 - HURRICANE ANDREW - My wife, Monika, stayed at the
hospital with David while | endured the northem eye walll of the storm in our master
bathroom with my daughter, father-in-law, sister-in-law, and my nephew. We all
huddled there while most of the rest of our house came apart. We experienced the
‘eye wall of Andrew for hours without injury, but our home, was destroyed.

Aug. 31 - Sept. 10, 1992 - When we were finally able to retrieve telephone
messages from the Southern Bell message service, we heard AvMed threatening
to disenroli us if we did not immediately have David discharged from the hospital.
| called to inform them that there had been a hurricane and we no longer had a


83

unanimous vote on the amended version of this important measure, we are concerned about
attempts by the for-profit managed care and insurance industries to pare back this legislation to
the point where it may become unrecognizable from the bill as originally introduced. ‘These
efforts include placing advertisements in well read publications that falsely suggest that the
National Governors’ Association (NGA) has taken a position in opposition to H.R. 2976, We
urge Congress to be cautious not to mistake these calculated attempts by the managed care
industry to leverage the reputation of a prominent group such as the NGA. In fact, the NGA
has assured us that they have not taken a position on H.R. 2976, the “Patient Right to Know
‘Act” and do not intend to do so in the near future (see attachment).

In general, the AMA believes that the term “gag clause” should not be viewed in an overly
narrow, legalistic or restrictive manner. The AMA maintains that a more common sense
approach to this issue should prevail because of the fact that “gag clauses” often go beyond the
mere elements of contract law and include a pattern of practice that is limiting to physician-
patient communications. We encourage the Subcommittee to resist the urge to narrow the
ion of “gag clause” protections. The AMA believes that narrowing the important
ns of the bill would allow plans to neglect those concerns reported by physicians and
others in the actual delivery and practice of health care. While we are confident that, in the
end, we would also prevail on the merits of such provisions, narrowing these provisions at this
time would affect patient care in the interim.

We believe that the bill passed by the Commerce Committee would go a tong way toward
restoring the patient-physician relationship, which has been damaged by “gag clauses.” We
also believe, however, that if patients are to be truly free to make informed medical decisions,
the legislation should be strengthened to reflect the following concerns:

“GAG” CONTRACTS AND PRACTICES SHOULD BE BANNED. The legislation should
be amended so that health plans would no longer be allowed to “gag” their physicians through

ici i , Which intimidate physicians and interfere with a patient's
ight to receive essential medical information. As reported from the Committee on
Commerce, Section 2 (a)(1) is both unclear and potentially harmful to patients. In short, this
provision would merely prohibit health plans from including written or oral “gag clauses,”
thus leaving it questionable whether those well documented cases in which a physician has
been “gagged” by a plan's own internal procedures would, indeed, be prohibited by the bill.
Patients need to be protected from plans retaliating against their doctors for advocating on
their behalf and following ethical medical practices;

THE DEFINITION OF “MEDICAL COMMUNICATIONS” SHOULD BE EXPANDED.
The Amendment's definition of “medical communications” is narrow and limits what patients
should be allowed to know. For example, the original “Patient Right To Know Act” expressly
stated that physicians would be free to inform patients about the “basis or standard for the
decision of [a health plan} to authorize or deny health care services or benefits.” The original
bill also specifically protected medical communications between physicians and patients
regarding “the process used by [a health plan] to determine whether to authorize or deny
health care services or benefits.” Physicians should be free to inform patients if and when
certain health services will be covered by the plan. The definition of “medical
communication” contained in the original “Patient Right To Know Act” should be restored;
and,

HEALTH PLANS SHOULD NOT GET MORE THAN ONE BITE AT THE APPLE.
Another provision in the Substitute bill would let health plans off the hook if they only
occasionally use gag clauses. Under the amended version, civil money penalties could be
leveled against a health plan only if the physician has been “gagged” as a part of a “pattern”
or practice of the plan. Thus, a plan that gags physician communications on “an occasional”
basis would be immune from punishment. The effects of “gag clauses ” are too dangerous to
the health, safety and welfare of patients to be allowed more than one bite at the apple.

Although we would prefer that the amended “Patient Right To Know Act” be restored to its
original form, we are pleased that the amended bill would set the ground rules for physician-
patient communications and would cover all health plans, including self-insured “ERISA”


Any person or organization wishing to submit a written statement for the printed
record of the hearing should submit at least six (6) copies of their statement, with their
address and date of bearing noted, by the close of business, Tuesday, August 13, 1996 to
Phillip D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of
‘Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this purpose to the
‘Subcommittee on Health office, room 1136 Longworth House Office Building, at least one
hour before the hearing begins.

EQRMATTING REQUIREMENTS:

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‘mtecal saeco slaty foe Geren to he Member, te pres andthe pubic Caring the comme oo ube eering may be amid fn
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‘Note: All Committee advisories and news releases are now available on the World Wide
Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/’ or over the Internet at
*GOPHER.HOUSE.GOV’ under "HOUSE COMMITTEE INFORMATION’.

teen


89

as well as design studies in collaboration with PacifiCare to improve the health of our members.
We eurently have 52 practicing physicians — including specialists — actively participating in our
monthly quality improvement efforts.

‘A major objective of our quality program isto assure that each of our members receives the best,
‘most appropriate care for his or her particular case. As you may know, there is a great deal of
variation in physician practice across the country, with the residents of some areas being two or
three times more likely to receive a particular trestment — such as an angioplasty ~ than those in
other parts of the country. These variations strongly suggest that, under fee-for-service medicine,
some patients are receiving treatment that is inappropriate for their case. A Rand study, for
example, reports that 25% of carotid endartectomies and coronary artery bypass surgeries are
probably unnecessary or inappropriate, PacifiCare’s quality improvement mechanisms are
designed to assure that patients are not over-treated or under-treated — that they receive the care
they need. Working with physicians to develop and refine practice guidelines and utilization
management techniques, we have been able to reduce the incidence of inappropriate care and its
associated risks. In one case, for example, heart bypass surgery successfully averted the need for a
‘more serious and risky beart transplant; in another, a patient whose physician initially
recommended a kidney transplant was found instead to need a more complex — and costly —
kidney-pancreas transplant.

Itis likewise important to note that there may be several treatments available for the same
diagnosis. Prostate cancer is an example. Current treatments include radical surgery, standard
radiation therapy, brachytherapy (seed implants), cryoablation (freezing), hormonal therapy, or
watchful waiting. Choice of treatment must be based upon the full clinical picture ~ the stage of
cancer, its aggressiveness the age ofthe patient, andthe values or preferences ofthe patient. In
these, and in fact all circumstances, we believe that patients need the most complete, unbiased
information available to assist them in making the right choices for them. We do not believe in

physicians’ discussion of patients’ choices or of other information important to helping
patients make decisions about their care. We do not believe either thet physicians are always
unbiased in their treatment recommendations. It might be unusual, for example, for a radiation
oncologist to recommend surgery to a prostate cancer patient. He/she would be much more likely
to recommend radiation therapy. Our approach is to encourage patients to make these choices
‘when all the information has been provided to them.

PacifiCare believes that we need to be accountable for these activities. To that end we have
published HEDIS data for three years. ‘We have targeted quality improvement sesvites ongoing in
the following clinical areas:
Congestive Heart Failure

<
Hirsi Immounizati
Mammography

Pap smears
Depression (study in collaboration with the Rand Institute)
Pediatric Asthma

‘These measurement and improvement activities will allow us both to improve the care and
‘outcomes of these populations and to report our results. A GHAA survey of 125 HMOs in 1994
indicated thst 96 of them have implemented programs to improve childhood immunizations — even
though immunization rates already are higher in HMOs than in fee-for-service. Others have
programs in asthma, arthritis, and other diseases. These efforts are in addition to other quality
improvement initiatives which might be directed st improving record keeping systems, developing
missed appointment tracking systems, or improving follow up of aboormal lab/x-ray results.

a HMOs are organized systems for financing and delivering health care. They provide a

teria fates ht fs compreieaiveapproch to quay, ‘These include:


94

communications between health plans and physicians, creates several problems. First, the bill
would create the potential for litigation based on & provider's misinterpretation of a casual
comment. Second, the bili does not make clear who is a “representative” of the health pian or who
is responsible for the plan's oral communications. Is the representative solely a health plan
administrator, or do physicians also speak as representatives of the plan? If a physician suggests to
one of his colleagues that he should conduct more tests before revealing a diagnosis to a patient,
‘would this be interpreted as prohibited communication under this bill?

Further, in a dispute on the issue between a plan and a provider, it would be the language of the
written agreement between them which would govem. Oral siatements made by a plan to a
provider which restricted or prohibited medical communication would violate the written contract.

Finally, regulating “oral communications” would force bealth plans to document all oral
communications that they have with providers to protect themselves from future litigation.
Informal conversations about medical care, for example between a medical director and a plan
physician would be difficult, as remarks would have to follow an approved script. Maintaining
daily records of every interaction would be tremendously laborious and administratively
burdensome. Moreover, it would inhibit the free flow of information between medical
professionals that is vital to providing high quality care.

Conciuding Comments

‘While the record of network-based care in terms of quality, choice, affordability, information,
partnership and prevention is an impressive one, we certainly recognize that there is always room.
for improvement. Due to the complexities of modem medicine, the best outcome is not always
achieved in every circumstance — regardless of the type of delivery system. Press reports critical of
HMOs and other network-based health plans focus on anecdotes without even mentioning the
‘numerous studies reporting that quality of care in network-based plans is equal to or better than care
in fee-for-service plans. It is this evidence -- and not anecdotes -- that should drive our policy
discussions. Moreover, such stories fail to acknowledge that the very same problems can and often
do occur in fee-for-service plans.

‘We intend to continue to support efforts for continuous quality improvement, to

dissemination of comparative plan dt, ato respond promptly to identied problems. At the
same time, we urge those who have the responsibility for public policy-making to reject legislation
or regulation that would reduce network-based care plans’ ability to deliver quality, affordable care.
Regrettably, all too often opponents of HMOs, PPOs and other similar plans have tried to use
legislation to unnecessarily burden health plans and thereby limit consumers’ choices.

‘We know there are tens of millions of very satisfied consumers enrolled in PacifiCare and other
AAHP member plans. What they illustrate is that as Americans have direct contact with network-
based care plans, they recognize and appreciate the advantages these plans provide. Each and every
day our member plans focus on improving or maintaining the health of their patients as well as
making health care more affordable. HMOs, PPOs and other network-based plans have been at the
center of efforts to reform our health care system for decades and as study after study shows, they
hhave done it with high quality at lower costs and with high levels of patient satisfaction.

‘Thank you very much for this opportunity to be a part ofthis hearing. I would be pleased to
respond to any questions that you or other members of the Committee may have.


110

network adequacy, data reporting, confidentiality, and grievance
procedures.

In addition, the NAIC’s CLEAR, Consolidated Licensure of Enti-
ties Assuming Risk, initiative seeks to promote a more competitive
marketplace by ensuring that managed care providers are subject
to a level regulatory playingfield.

As another example of the progress the States are making is
Ohio’s proposed Managed Care Uniform Licensure Act. This legis-
lation would comprehensively rewrite existing managed care laws.
Ohio, like other States, is engaged in an intensive effort to define
the role and scope of the new provider organizations which are
being created everyday.

Ohio’s bill includes financial quality and utilization review re-
quirements. It streamlines financial regulation and oversight of all
managed care operations, placing them all under one chapter law.
These organizations, of course, include HMOs, PPOs, provider
sponsored networks, and multiple employer welfare arrangements
or MEWAs.

I would like to return for just a moment to the subject of ERISA.
The NAIC has stressed repeatedly that all consumers of health cov-
erage should have the benefit of crucial consumer protections. In
our white paper, “ERISA: A Call For Reform,” and in testimony be-
fore Congress, we have emphasized that a significant portion of the
health care market, including the managed health care market, is
outside the jurisdiction of State law.

In previous testimony I have discussed my State’s and all the
States’ inability to assist the thousands of consumer complaints we
receive each year—from those covered by ERISA plans who do not
know that they are covered by ERISA plans, and those who have
no recourse or effective due process.

We recommend that when the opportunity arises, you consider
additional protections for consumers of such plans in order to
afford similar levels of security.

Again, let me urge you to maintain the States’ ability to imple-
ment innovative and effective protections for the reform of the
health insurance market. By doing so, in H.R. 2976, you have rec-
ognized the expertise of the States in regulating the health insur-
ance market and in dealing with health insurance reform.

I want to thank you for the opportunity to testify, and I would
be pleased to answer any of your questions.

[The prepared statement follows:]


57

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63

STATEMENT OF MARK E. RUST
PARTNER, KAMENSKY & RUBINSTEIN
CHICAGO, ILLINOIS
TO THE SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIONS,
RE: PATIENT RIGHT TO KNOW ACT OF 1996
JULY 30, 1996

MR. CHAIRMAN:

My name is Mark E, Rust. I am an attorney who concentrates his practice in health
Taw, qurresonking primarily physicians and physician groupe hroughous he midwest. also
am the former Chair of the American Bar Association’s Medicine and Law Committee of
the Tort and Insurance Practice Section. In addition, 1 am a member of the Standing
Committee on Legislation of the Tilinois State Bar Association, which will be considering a
measure similar to the one before the Subcommittee for recommendation to the Illinois
legislature this fall.

I am a partner in the law firm of Kamensky & Rubinstein in Chicago and
Lincolnwood, Illinois, We represent some 3,000 physicians, either individually or in groups
of varying size. Accordingly, I have had the opportunity to become quite familiar with a vide
variety of managed care contracts and have gained an understanding of the difficulties
physicians encounter under such contracts. I am pleased to have the opportunity to testify
before you today about managed care contracting arrangements that have the effect of
inhibiting physician-patient communications. 1 commend the Subcommittee and Chairman
‘Thomas for holding this important hearing on an issue that is and has been of great concern
to physicians and their patients.

I understand that H.R. 2976 is intended to help resolve the so-called "gag clause”
controversy in managed care/physician contracting. 1 would like to describe for the
Committee why enactment and enforcement of laws banning the prohibition on free
communication between physician and patient, whether those prohibitions are written or
unwritten, is so important to physicians. As a preliminary matter, however, it may be helpful
to explain the general nature of contracts between managed care organizations, which I will
call MCOs, and physicians from the perspective of an attorney who represents physicians.

The managed care contract, when running between an MCO and an individual
physician or a small physician group, is a virtual contract of adhesion. I am well aware that,
because it is between two sophisticated parties, the contract is unlikely ever to be deemed
a contract of adhesion as a matter of law. But in most other respects, it is. It is between
two parties of grossly unequal bargaining power. With managed care penetration at an all
time high and rising, most physicians can ill afford to reject offers to join MCO plan panels.
Further, the contract is filled with arcane jargon. Interpretation of the finer points of these
agreements can be difficult for attorneys who do not specialize in health care law, and
virtually impossible for physicians reading the agreement on their own. The non-price terms
are rarely brought to the physician’s attention after execution. Accordingly, most such
agreements remain in file drawers, unexamined, for years.

Physicians rarely ask their attorneys to review these agreements prior to signing them.
They perceive that it is not worth paying the fees associated with such reviews because there
is little likelihood that the managed care organization will be willing to change anything but
the most minor, ministerial items. In my experience, that expectation is reasonable.
Further, most physicians do not have attorneys who understand a great deal about managed
care. It follows that what little legal advice they do obtain is unhelpful.

Asa result, these agreements are filled with a variety of clauses that most reasonably
sophisticated commercial parties would never agree to. Methods of payment are often
stated to be at a certain rate, subject to change on little or no notice in the sole discretion


8

Mr. Chairman, as passed by the Commerce Committee, the
Patient Right To Know Act is a balanced bill that addresses a real
problem in the health care market. I look forward to working with

you and other members of the panel on this important issue and
thank you very much.

[The opening statement follows:]


91

Contracting Tames
Before commenting on H.R. 2976, Mr. Chairman, we want to underscore one vital point. We
firnly believe that there should be open communication between health professionals and their
patients about health status, medical conditions, and treatment options. Such communication is key
to prevention and early treatment, which AAHP member plans bave long emphasized as an integral
‘part of network-based care. Likewise, the full participation of patients in decisions affecting their
treatment helps to assure that they receive quality, cost-effective care. Viewed from this
perspective, such communication is in the best interests of the patient, the physician, and the health

are provided through selected panels of providers. Contracts are how our plans hold these
Providers accountable, how they make clear the respective roles and responsibilities of the provider
and the plan, and how they codify the payment arrangements between the provider and the plan. AS
such, they protect all of the parties involved.

Legislation prohibiting so-called “gag” clauses in these contracts is unnecessary because ~ despite
all the recent headlines and news articles — available information suggests that bealth plans rarely -
- if ever — use provider contracts to restrict communications on patient care. Although some may
find this surprising, itis fully consistent with plans’ strong incentive to encourage — not stifle —
such communications.

Provider Contracts
‘Legislation regulating provider contracts is unwise because it would launch the federal government
dowm the long and unprecedented road of deciding what private contracts may and may not contain
dln soaeof be esonoy tats 30 complex wai caging th ny fs fo ban
specific arrangements will almost certainly produce unintended consequences. As introduced, for
‘example, H.R. 2976 would effectively nullify two types of contractual provisions ~ “anti-
disparagement” clauses and confidentiality clauses -- that in no way restrict treatment-related
communications between doctor and patient. Because these types of clauses have been
misconstrued as “gag clauses,” would like to briefly discuss them.

Anti-disparagement clauses

‘The primary purpose of an anti-disparagement clause is simply to prevent a provider from
involving patients in disputes and disagreements between physicians and health plans. Patient care
~ not a physician's disagreements with the plan — should be the focus of a member's encounters
with the health care delivery system. Ifa provider disagrees with a health plan decision, he or she
should seek to resolve the matter directly with the plan, not by enlisting patients to do the job. Such
disputes do not belong in the examining room. These types of disputes relate to communication
between a provider and a plan, not a provider and a patient.

Anti-disparagement clauses are also designed to assure that a provider who has contracts with more
than one health plan does not use his or her position to encourage patients to switch from one plan
to another simply because that plan’s contract is more advantageous to the physician. Itis
important to remember that many physicians are affliated with multiple health plans with quite
different compensation srrangements.

‘Asa medical director, I believe that a physician who has some knowledge or understanding of the
system in which he/she works has an obligation to work within the system to correct it. The system
~ within network-based plans — has a number of avenues that a physician can pursue. First, a
physician can bring the concem to the medical group or IPA's medical director or administrator. If
the individual problem still cannot be resolved, then individual doctors may utilize an appeal
mechanism directly to PacifiCare. PacifiCare engages its physician providers at a variety of levels
‘0 permit this to happen. Concems may be brought to the Physician Advisory Committees.
PacifiCare also has a separate provider appeal mechanism available to physicians in the network.


13

STATEMENT OF REP. ED MARKEY
ON HR 2976, THE PATIENT RIGHT TO KNOW ACT
BEFORE THE COMMITTEE ON WAYS AND MEANS

Iuly 30, 1996

Mr. Chairman, I want to begin by thanking you for holding today’s hearing on this
important legislation.

“Gag rules” restricting medical communications between doctors and their
patients enforce a code of silence on doctors that makes informed consent
impossible, Such an attack on this most basic patient protection simply cannot be
tolerated in a free society.

When you're a patient, what you don’t know can hurt you. That's why Rep.
Ganske and I joined forces last February to introduce the "Patient Right to Know
Act of 1996,” which protects medical communications between health care
providers and their patients by banning the use of “gag rules” by health plans.
‘That’s why the House must pass this bill, this year, and we must send it to the
President’s desk before the end of the session.

Our bipartisan proposal has over 130 co-sponsors from both sides of the aisle and
every part of the political spectrum. It is supported by a wide range of health care
and consumer groups, including the American Medical Association, the American
Nurses Association, the Consumer Federation of America, and Consumers Union.
The American Association of Retired Persons and the American Heart Association
have both written letters to us expressing their support for our effort.

Incidentally, contrary to the implication of an advertisement which ran in
Washington Times last week, the National Governors Association has not taken a
position on the Ganske-Markey bill. That ad, which was paid for by the managed
care industry, reflected the managed care industry’s view of HR 2976, not the
position of NGA on our bill. My mother always told me to “consider the source”
when I hear something I’m not sure about -- in this case, I would strongly urge my
colleagues to do the same.

During the recent mark-up of this bill by the Commerce Committee, my friend
from Iowa offered a substitute amendment that addressed several of the main
concems about the bill that had been raised by the managed care industry:
specifically, it protects proprietary data from disclosure, eliminates the second,
higher tier of civil penalties imposed in the original bill, and delays the effective
date by 60 days to give plans adequate time to comply.

In addition, the substitute includes a provision explicitly stating that the bill does
not protect communications made by doctors to their patients that are made solely
for the doctor’s own financial gain. This provision should silence, once and for all,
those who oppose the bill for other reasons but seek to undermine it by claiming
that it is a “provider-protection”-bill, rather than a “patient-protection” bill.

I want to touch on one more point before I close. Some who have looked at this
issue have focused their attention exclusively on what's written in the doctor’s
contract. Ifa clear gag clause can’t be found there, they assume the doctor is free
to speak. I would urge this Committee to look deeper into this issue before


Reprinted with permission of Aspen Publishers, Inc., 200 Orchard Ridge Drive,

The Managed Health Care Handbook, 3rd Edition. Authored
Copyright 1996.

Gaithersburg, MD 20878.
by Peter R. Kongstvedt, MD, FACP.

insurers and HMOs, as payers, a limited right of
‘sccess to medical records. This right may arise if
the managed health care organization is per-
forming utilization review on behalf of an en-
‘ollee. Managed health care plans should review
‘their state law provisions on this issue and their
procedures for obtaining the appropriate con-

‘art of the initial enrollment materials. These
consents could also be obtained at the time
‘health services are rendered.

Managed health care organizations frequently
include provisions in contracts in which the pro-
vider acknowledges that the managed health
‘care organization has the right of access to en-
tollee records. The provider should be reluctant

the right of access mey make it easier to per-
tuade a reluctant provider to release an
‘enrollee’s medical records, the managed health
‘care plan needs to remember that that statement,
‘or for thar maner similar statements in the group
‘enrollment agreement, do not confer that right.
Finally, the contract should state explicitly that
the provisions concerning access to records sur-
vive the termination of the agreement.
‘Arelated provision almost always included in
‘provider contracts is a requirement that the pro-
vider maintain the confidentiality of medical
records. A common clause is a provision that the
(provider will only release the records in accord-
nce with the terms of the contract, in accord-
ance with applicable lew, or upoo appropriate,
consent. State law will frequently allow disclo-
sore of information without patient identifiers
for purposes of research or education. Managed
bealth care plans and providers need to be sensi-
tive to confidentiality concerns with regard to

‘A medical record issue may arise when a
‘managed bealth care plan wants the right to per-

42

857

form cenain medical tests outside the hospital
before an enrollee's admission. The contract be-
tween the managed healthcare plan and the hot-
pital may allow for such tests and the inclusion
Of the test results into the hospital's medical
‘record. The hospital may insist thatthe resus of

the duties performed shall be consistent withthe
proper practice of medicine,

Payment

‘The payment cerms of the agreement often
the most important provision for both

‘quently set forth in an exhibit appended to the
Contract and are cross-referenced in the body of | -
the agreement. A number of payment issues
should be covered in the contract. For example,
‘who will collect the copayments? I the managed
health care plan pays the provider oa a fee-for-
service basis, a provision needs to state chat un-
‘authorized or uncovered services are not the re-

may say ¢ atthe provider must inform the mem-
ber that a service will not be covered by the
health plan before providing the service. In addi
tion, the contract may preclude the provider
from ever billing an enrollee when the managed
health care organization has determined that the
service is not medically necessary.

From the provider's perspective, be o she
needs aclear understanding of what is necessary
for a service to be authorized. If the provider
submits claims to the managed health care plan,
‘the conaract should set out the manner in which
‘the claim is to be made and either identify the
‘information to be provided in the claim or give
the maneged health care plan the right to desig
inate oF revise that information im the fumure. If
the contract specifies the information to be in-
cluded in a claim, the managed health care plan


87

What PacifiCare and other plans understand is that if you offer
high quality care at an affordable cost, members will remain in
your plan. While the record of network-based care in terms of the
quality of choice and affordability is impressive, we are always
striving to better fulfill our aim. Together we make lives better.

Thank ye very much for this opportunity to be a part of this
hearing. I would be pleased to respond to any questions that you
and other Members of the Subcommittee have.

[The prepared statement follows:]


25

However, we are not at all—I am, at least, not adverse to moving
it on further if you want to give additional communications protec-
tions. Understand, we did it in the context of the Commerce Com-
mittee as it existed circa 1996. We think that this is a very good
bill in terms of at least giving the patient the ability in their con-
versations with their doctor to be able to have their rights fully
protected. If I could go further, of course, I would have gone fur-
ther. That is a limitation. I accepted it.

Mr. Stark. I appreciate the answer from both of you.

Thank you very much, Mr. Chairman.

Chairman THOMaS. The gentleman from Washington.

Mr. McDermott. Mr. Chairman, I have always believed that
everything good or bad starts in California. [Laughter.]

So, when you bring me an assembly bill, I would call to your at-
tention——

Chairman THOMAS. We are pleased that water runs downhill and
we really do look forward to Washington’s water.

Mr. McDeERmotr. So far, the Columbia has not.

In the bill from the assembly, they use the term “the ability of
a physician, surgeon, or other licensed health care provider.” I
think the breadth of that is basically the breadth that is used in
this bill. I think that is primarily because most States have a licen-
sure law under which you have about one hundred things licensed
these days.

Chairman THomas. I understand that. Even pulling out specific
titles from the general health care provider, I think, does give an
emphasis that we may want to talk about, notwithstanding the list
both being universal. The way in which they describe it at least
places an emphasis in terms of importance of role, perhaps. It is
an area to discuss.

I want to thank both of you. Normally, as you know, members
come, make a statement and there is almost a silent understanding
that you would not subject them to any questions about their own
legislation. We feel fairly comfortable in doing that, one, because
obviously the gentleman is not only knowledgeable from a theoreti-
cal point of view, but he is also very knowledgeable from a realistic
point of view. The gentleman from Massachusetts has been
involved in this area for some time.

In addition to that, if we are going to go with sequential referral
and the bill originated in your Committee, given the shared juris-
diction that we have, I think it is extremely important and valu-
able for us to talk with each other from the two Committees in a
way in which we can inquire of a substantive nature.

So, I want to thank both of you, not only for making the histori-
cally usual visit, but also for allowing us to ask you some ques-
tions, which I think will help us in framing how we may approach
the bill from our Subcommittee’s jurisdiction.

Mr. MaRKEY. May I say, Mr. Chairman, I understand and appre-
ciate the fact that congressional expert is an oxymoron, if we are
describing a Congressman. The next panel is one of real experts
and I have just had the good fortune, however, of testifying with
someone who happens to also have the benefit of being an expert
and a Congressman at the same time on this subject.

Chairman THomas. We thank both of you for your contribution.


125

STATEMENT OF

AMERICAN SOCIETY OF PLASTIC
AND RECONSTRUCTIVE SURGEONS

to the

‘Committee on Ways and Means
United States House of Representatives

July 30, 1996
RE: Patient Right to Know Act (HR 2976)

The American Society of Plastic and Reconstructive Surgeons (ASPRS) represents 97%
of the nearly 5,000 board certified plastic surgeons in the United States. Plastic surgeons
provide highly skilled surgical services which improve both the functional capacity and quality
of life of our patients. These services include the treatment of congenital deformities, burn
injuries, traumatic injuries, and cancer.

‘We commend Committee Chairman Bill Archer for holding this important hearing, and
wish to thank the Ways and Means Committee for the opportunity to submit this written
statement about “gag clause" provisions commonly found in many of today's managed care
contracts.

Gag clauses undermine a physician's ability to provide his or her patients with the best
possible care. The inclusion of these provisions in contracts between physicians and managed
care entities also raises significant ethical concerns for physicians. We maintain that patients
should receive the most complete information available about their health care options from their
physician without interference from third parties. In many situations, gag clauses have been
written so broadly that any communication between physician and patient could be interpreted to
fall within the provisions of this clause, including medical treatment options and whether a given
health plan meets the needs of a given patient. These onerous medical "gag clauses" violate
sound public policy and should be made unenforceable by Congress.

Types of “Gag Clauses”

Generally, gag clauses are written explicitly in health care contracts. The language is
designed to limit the communications between physicians and their patients by prohibiting some
or all of the following types of communications:

1) discussion of treatment options which have not been authorized for payment by
the plan;

2) making critical comments about the plan, its policies, or quality standards to
enrollees or other physicians; .

3 communicating with plan patients in the event the physician is deselected (raising
concerns of continuity of patient care);

4) discussing financial incentives to reduce care, including capitation and utilization
review procedures; and,

5) referring patients to specialists or facilities that are not included in the plan's
network.


Statement of Rep. Greg Ganske
Hearing on Managed Care "Gag Rules"
Committee on Ways and Means
Subcommittee on Health
July 30, 1996

‘Mr. Chairman, thank you for the opportunity to appear before you this afternoon.

‘There is significant evidence that some managed care plans are “gagging” their health
care providers, thereby keeping patients from full and complete access to the information they
need to make critical decisions. These gags--whether spelled out in a contract, a written policy
statement or letter, or communicated orally~eat like a cancer at the trust between a doctor and a
Patient. .

Earlier this year, Congressman Ed Markey and I introduced H.R.2976, the Patient Right
to Know Act, which would prohibit the enforcement of gag rules in health care contracts. The
Commerce Committee Subcommittee on Health held a lengthy hearing in May which explored
these issues, The panel heard testimony that gags exist and pose very real dangers.

Before the Subcommittee marked-up the bill last month, I worked very hard with
Members and other interested parties to address concerns about possible unintended
consequences of the bill and the need for health plans to protect proprietary data from disclosure.
The result was an amendment that was approved by the Subcommittee 22-0 and by the Full
Commerce Committee by unanimous voice vote six days ago.

The version of the bill adopted by the Commerce Committee represents a compromise
which fairly balances the interests of patients, providers, and health plans.

Mr. Chairman, I want to be very clear on one point. No written contract accurately
describes all the functions of a complex business enterprise. Much more occurs through policy
manuals, informal practice, and oral statements. While the language of the contract can be partly
instructive, the Committee should more directly focus on three issues:

First. How the contract language is used. For example, a non-disparagement clause is
not automatically objectionable if tis used to prevent public bad-mouthing of the plan,
But it is problematic if it is used to keep a doctor from telling his patient that she needs a
treatment the plan is refusing to pay for. A Tulsa neurologist was reprimended for
“disparaging” the plan when he advised a patient that she required a test the plan was not
willing to pay for.

Second. Letters and policy bulletins. Plans generally include in their contracts a
provision requiring the provider to follow manuals and policy bulletins. Consider this
letter from the South Florida office of the Prudential Health Care System to participating,
doctors. The plan's medical director wrote, "If you believe a member may require
transplantation or other very sophisticated and possibly experimental care, we request

that BEFORE DISCUSSING TREATMENT OPTIONS WITH THE MEMBER, you call
us to discuss the member's eligibility for that treatment and to discuss the appropriate
institution. Failure to do so may result in treatments that are not covered by benefits, and
therefore unhappy members."

Or what about a bulletin issued by Humana stating that, “Effective immediately, all
‘Humana participating providers must telephone the Preadmission Review

before an admission occurs and before conveying the possibility of admission to the plan
member." It is my understanding that public scrutiny led to a change in this policy, but I
think the dangers are very clear.


Contract Terms

Physicians have a variety of relationships with these entities, Sometimes physicians are
employed and provide their services to a single entity (physician ~ ¢ group
practice); and sometimes they are independent Contractors that have cowracts with multiple
managed care companies, hospitals, networks and/or IPAs. While there are a lot of
differences between the types of contracts that are underwritten, they all cover certain basic
contract terms.

Scope and Price of Services

‘These contract sections describe the services the physician is responsible for and how much
the physician is paid. There is a greater variety in provisions governing the scope of services
and the method of payment. Approaches vary depending on the structure of the provider
network and the capabilities and objectives of the parties. We are seeing creative
approaches to these issues being proposed by both physician groups and managed care
companies. These approaches often include bundling services (physician, hospital and other
Services) and risk sharing.

Term and Termination

‘These contract provisions set forth the duration of the agreement and the conditions under
which the agreement can be terminated. Some agreements contain no set term — they are
terminable at will. However, others contain a term of one or more years. Early termination
covers such issues as material breach, loss of license, etc.

Protection of Business Interests

These provisions protect the relationship of the contracting party with the physician.
Generally, the contracting party, rather than the physician, is responsible for obtaining the
patient. For example: A patient is generally insured as a result of the marketing efforts of
a managed care plan to an employer group. Because the physician develops a direct,
personal relationship with a patient, the physician often has the ability to influence health
care purchasing decisions. This ability to influence decision making is sometimes exercised
for medical, but has often been used for personal gain - the physician wants to leave a group
practice fora better offer or has a better contract opportunity with a different managed care

pany. Consequently, the contracting party (group practice, IPA, managed care company,
ttc), includes contract provisions to restrict the physician's ability to move and take the
patient.

Quality, Regulatory Compliance and Other Issues

Agreements contain a wide variety of requirements to ensure compliance with quality,
licensing requirements, and other regulations. These terms vary depending upon the nature
of the agreement. For example, physician provider agreements between managed care
companies peering sn generally contain numerous provisions to ensure quality and

regulatory compliance. ician employment agreements with hospitals often contain
provisions regarding ‘loonie and board certification.
Similarities Between Agreements

While physician agreements with different types of entities contain many dissimilarities, they
also are becoming remarkably similar in certain respects: the physician is becoming more
like other professionals that are employed by large enterprises, such as large scale law,
accounting and engineering firms. The physician continues to provide professional services
(and is bound by the ethics and rules of the physician’s profession), but also has obligations
with which the physician contracts. The entity retaining the physician has developed a
business, and business relationships with third parties (consumers and other purchasers of
health care services) and has an interest in protecting those relationships.


122

you would find out in retrospect what was covered. I think that
this is where we may confuse informed consent and knowledge of
coverage issues.

I think the issue of informed consent and the ethics and the code
that is related to informed consent is a very important one. Physi-
cians are required to discuss treatment options, and I would say it
is the physician’s responsibility not to sign a contract that violates
his or her code of ethics.

Now, I realize there are market pressures, and maybe we need
to address some of those, including termination without cause. I
think the Code of Ethics ought to separate sort of the wheat from
the chaff in this issue. Physicians are required to behave according
to their code of ethics.

The third point that I would caution us against confusing are is-
sues related to employment law. In the high-tech industry, employ-
ees are restricted by noncompletion clauses. Employees are fre-
quently, or can be, fired for issues of disparagement or disloyalty.
We have to avoid confusing informed consent issues with issues re-
lated to proprietary information. We have to be careful not to hog-
tie the HMO and the managed care industry from achieving what
we want them to achieve. As you pointed out earlier, there is a bal-
ancing act between cost containment and what we want in terms
of quality care. There exists employment law. I think we need to
focus and not to overstep in that arena.

The area of a patient’s right to know his or her treatment options
is a critical one. Some of the other areas related to proprietary in-
formation in terms of capitation rates and others, are business is-
sues, and I would caution us to be careful to separate them. That
is why I like this version of H.R. 2976 more than the prior one.

I also found out the definition of “provider” in our managed care
act, our HMO model act. “Provider” means a physician, hospital, or
other person licensed or otherwise authorized to furnish health
care services.

Mr. CHRISTENSEN. Thank you.

Ms. Archer.

Ms. ARCHER. Yes. I would just like to urge you, the Subommittee,
to remember that there really is not a level playingfield here. That
it is the HMOs with all the power and as powerful as we may be-
lieve the doctors to be or the consumers to be, we just do not have
the leverage that the HMOs have right now. And the HMOs are
out there rightly promoting what they have to offer. And as I said
before, I think a lot of it is very good. They are giving the positive
spin on everything and they should because they want to sell their
product.

But just as we require cookie companies to discuss their fat con-
tent, I think that because we want the public to understand that
the cookie isn’t only as delicious as the company says it is, but is
made up of certain ingredients and has certain nutritional values,
we should want the HMOs to make public and disclose what they
are really doing, what product they are selling. And a piece of that
is to have the physicians able to tell the patients what is being
sol


106

Mr. CHRISTENSEN. Thank you, Ms. Archer.
Ms. Craft.

STATEMENT OF LISA BRITTS CRAFT, EXECUTIVE DIRECTOR,
BLUE RIDGE REGIONAL HEALTH CARE COALITION,
ROANOKE, VIRGINIA; ON BEHALF OF NATIONAL BUSINESS.
COALITION ON HEALTH

Ms. CrarFtT. Mr. Chairman, Members of the Subcommittee, good
afternoon. I am Lisa Craft, executive director of the Blue Ridge
Regional Health Care Coalition, a business group on health rep-
resenting 80 employers in the Blue Ridge Mountains of Southwest

‘irginia.

Iam here today to represent the interests of many employers, all
members of health care coalitions across the United States with re-
gard to H.R. 2976. Health care coalitions nationally include more
than 7,000 employer members and represent more than 35 million
employee lives.

Because of the many negative implications to employer sponsored
health plans and managed care, I strongly oppose this legislation
and any legislation that does not provide for uniformity in the rules
affecting benefit plans. The bill is intended to protect communica-
tion between patients and providers regarding available treatment
options from undue contractual restrictions and employers do not
oppose this. I repeat, employers do not oppose the intent of this

Lt.

As written, however, the bill reaches far beyond this purpose to
affect written agreements and oral communications between health
plans and providers. H.R. 2976 poses a serious threat to managed
care contracting, as well as to the delivery of high-quality afford-
able health care.

Employers are opposed to this bill for many reasons, but I will
focus on three. Implications to ERISA, communication issues, and
erosion of managed care from both quality and cost standpoints.

First, H.R. 2976 does not provide for any uniformity in the rules
affecting health benefit plans that contractors have agreements
with any type of provider, comparable to uniformity provided by
ERISA. H.R. 2976 fails to ensure uniformity by granting States au-
thority to impose their separate and mutually inconsistent stand-
ards. Since ERISA does not supersede other Federal laws, this ef-
fectively modifies the ERISA preemption in a manner that is unac-
ceptable to employer plan sponsors.

In addition, the bill also creates a new enforcement role for the
Department of Health and Human Services, a role which we do not
feel HHS is prepared to fulfill.

Health and Human Services will determine violations and im-
pose civil penalties on health plans which could affect a broad
range of the various provisions, terms, and other requirements of
an employee welfare benefit plan and third party administrator.

Second, the overly broad prohibitions on health plan communica-
tions create ambiguities which will lead to increased litigation.
Health plans support open discussion of treatment options by pro-
viders with patients. However, this bill subjects more than the
terms and agreement of the contract to the prohibition on protected
medical communication. The bill includes any provision of a con-


108

Mr. CHRISTENSEN. Ms. Musser, we are going to have to go and
vote. We have two votes and it is going to be 25 minutes or so. If
you would go ahead and start your testimony and if we have to
break off and come back for questions, that’s what we will do.

So, we are pleased to hear your testimony at this time.

STATEMENT OF JOSEPHINE MUSSER, VICE PRESIDENT,
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS;
AND CHAIR, SPECIAL COMMITTEE ON HEALTH INSURANCE;
AND COMMISSIONER, OFFICE OF THE COMMISSIONER OF
INSURANCE, STATE OF WISCONSIN

©. Ms. Musser. Thank you, Mr. Chairman, and Congressman
‘ardin.

My name is Josephine Musser, and I am the vice president of the
National Association of Insurance Commissioners and the chair of
the NAIC special committee on health insurance. I am also com-
missioner of insurance for the State of Wisconsin.

Celebrating its 125 anniversary this year, the NAIC is the Na-
tion’s oldest association of State government officials. Its members
are the chief insurance regulators from the 50 States, the District
of Columbia, and the 4 US. territories. On behalf of Governor
Thompson and the NAIC, I thank you for the opportunity to
address you here today.

H.R. 2976 addresses the important issue of communication be-
tween patients and their doctors. As you may know from my back-
ground biography, in one of my former lives I was a nurse, a pa-
tient advocate, an educator. My ethics are ingrained with informed
consent and patients bill of rights.

Consumers need reassurance that a provider will discuss all
treatment options with them, even when a plan’s policy might not
cover that treatment. The NAIC Managed Care Plan Network Ade-
quacy Model Act proposes to protect these communications and
offers other consumer protections.

As always, the NAIC encourages the inclusion of provisions al-
lowing for State flexibility. We are pleased to see this proposed leg-
islation give States the authority to establish or enforce more strin-
gent requirements.

Further, we applaud the fact that the bill applies to both State-
licensed and_ERISA-governed plans, thereby, creating in fact a
level playingfield with respect to its requirements.

The advantage of State flexibility highlights the strength of
State-based insurance regulation. My home State of Wisconsin, for
example, has a different experience and a different managed care
climate than many other States.

For example, we enacted a statute more than 20 years ago that
has the effect of prohibiting restrictions on provider communica-
tions. We have a very sound managed care market; 53 percent of
our insured market is enrolled in managed care. This is due, in
part, to the development of a strong relationship between providers
and insurers, and the large number of provider-based plans. In
Wisconsin, 19 of the 27 HMOs in Wisconsin were founded and
owned by providers. And Wisconsin is the only State which re-
quires HMOs to be licensed as insurers. This regulatory approach
is different from other States’ approaches.


Cem dY A HW e Bw H

srs

13

VIL

5

(B) any risks or benefits associated with
such tests, consultations, and options,

(C) variation among any health care pro-
viders and any institutions providing such serv-
ices in experience, quality, or outcomes,

(D) the basis or standard for the decision
of an entity offering a health plan to authorize
or deny health care services or benefits,

(E) the process used by such an entity to
determine whether to authorize or deny health
care services or benefits, and

(F) any financial incentives or disincen-
tives provided by such an entity to a health care

provider that are based on service utilization.

(c) ENFORCEMENT THROUGH IMPOSITION OF CrvIL

MONEY PENALTY.—

(1) IN GENERAL.—Any entity that violates

paragraph (1) or (2) of subsection (a) shall be sub-

ject to a civil money penalty of—

(A) up to $25,000 for each violation, or

(B) up to $100,000 for each violation if
the Secretary determines that the entity has en-
gaged, within the 5 years immediately preceding

such violation, in a pattern of such violations.

HR 2976 IH


85

Mr. ENSIGN. Dr. Jagmin.

STATEMENT OF CHRIS L. JAGMIN, M.D., MEDICAL DIRECTOR,
PACIFICARE IN THE SOUTHWEST, DALLAS, TEXAS; ON
BEHALF OF AMERICAN ASSOCIATION OF HEALTH PLANS

Dr. JAGMIN. Thank you, Mr. Chairman.

Mr. Chairman, and Members of the Subcommittee, I am Chris
Jagmin, medical director at PacifiCare in the Southwest. Today, I
am testifying on behalf of PacifiCare and the American Association
of Health Plans. PacifiCare and the American Association of Health
Plans believe that physicians must be free to discuss all appro-
priate treatment options with their patients. We believe this infor-
mation should be complete, unbiased, and presented to patients in
a language they can understand.

PacifiCare uses no contract clauses which limit a physician’s abil-
ity to discuss treatment options with his or her patients. PacifiCare
in the Southwest is a network model HMO. We have 290,000 mem-
bers and 75,000 Medicare members. We are the largest Medicare
risk contractor in Texas and Oklahoma. Of our 8,200 contracting
physicians, approximately 1,800 are primary care physicians and
6,400 are specialists.

Because of our strong commitment to the patient-physician rela-
tionship, PacifiCare does not use contract clauses that limit a phy-
sician’s ability to discuss treatment options with his or her patient.
Contracts with physicians and other providers are a key feature of
network-based care. Contracts enable plans to hold physicians ac-
countable, set out physician and plan roles and responsibilities and
set payment arrangements. They protect all the parties involved.

Legislation prohibiting so-called gag clauses is unnecessary be-
cause, despite all the recent headlines and news articles, available
information suggests that health plans rarely, if ever, use provider
contracts to restrict communications on patient care.

Although some may find this surprising, it is fully consistent
with the plans’ strong incentive to encourage, not stifle, such com-
munications.

Legislation regulating provider contracts is unwise because it
would launch the Federal Government down the long and unprece-
dented road of deciding what private contracts may or may not con-
tain. This will almost certainly produce unintended consequences.

There has been a lot of confusion around the issue of what is a
gag clause and I would like to address two types of clauses that
have been erroneously labeled as gag clauses—antidisparagement
clauses and proprietary information clauses.

The purpose of an antidisparagement clause is simply to prevent
a physician from involving patients in disputes and disagreements
between physicians and health plans. Patient care, not a physi-
cian’s disagreement with the plan, should be the focus of a mem-
ber’s encounters with the health delivery system.

As a medical director, I believe that a physician who has some
knowledge or understanding of the system in which he or she
works has an obligation to work within the system to correct it. At
PacifiCare, a member physician can pursue a number of avenues.
First, a physician can bring the concern to the attention of the
medical group’s or IPA’s medical director or administrator. If the


30

‘Compliance With Medical Management Programs
Contracts health plans and contain ly requiring the to comply with the
plan’s medical management program. Such medical management programs, which ae the hallmark of managed care, usually focus on
Ulization management and on quality management. Its perhaps inthis area that mucb ofthe confusion by both physicians and health
plans occurs.

‘This clause (or section ofthe contract) may be broadly defined, leaving the specifics of the medical management program to an
appendix ofa policy and procedure

management program such as credentialing criteria or allowing the health plan to have access to clinical record for peer review.

(Where problems may arise is when a physician and a health plan disagree about a course of treatment, or when a physician or patient
‘want to use a particular provider or hospital, but the health plan does not use that provider or hospital, In those cases, the physician is
‘most likely to tell the patent thal the health plan has aot approved a particular provider or hospital (for payment only, of course, the
health plan cannot control what the patient actually does, only for what the health plan will pay). Most well-run health plans have rapid
dispute resolution policies to resolve these disagreements ina timely manner, but its possible and likely that some health plaas do not
‘amy out that activity with alecrity

{ personally know of no health plans that deliberately and/or systematically deny medically necessary services to members, although the
‘ongoing debate about the definition (and therefore coverage) of experimental and investigational medical services makes this issue an
‘ever-changing one. Iti notin the best business interests — to say nothing about the moral, ethical, and legal interests ~ of ether @
Inealth plan or the physician it places “at rsk” to deny needed care: ifcare is tnly needed and not provided, the patient gets sicker and
is likely o become more expensive to treat inthe future. Additionally, if either the plan or its providers engage in such systematic or
deliberate behavior, the effect on their marketing and sales would be quite detrimental ~ something that managed care plans can ll-
afford in this curent environment of intense market competition Many employers have used managed care to reduce their exposure to
spiraling nealth care cost increases. These employers are holding health plans accountable for the quality ofthe services they provide,
Indeed, many employers require health plans to adhere to strict quality guidelines, such as those developed by the National Committee
for Quality Assurance (NCQA), an independent, not-for-profit organization which credentials HMOs. With respect to "gag clauses,”
the NCQA Accreditation Slandards specifically prohibit managed care organizations from placing any “restrictions on the clinical
dialogue between practioner and patient

‘Health plans, as illustrated in Attachment 1, usually have contract clauses tht expressly state thatthe health plan is not in the practice
‘of medicine, and that the physician is obligated to undertake the proper clinical course of action, In other words, if @ dispute cannot be
‘resolved, the physician must take appropriate clinical action, The physician and health plan can argue the financial issues later without
involving the patient. Health pians routinely include such clauses for several reasons, not the least of which isto lower their exposure
under Joint and Several Responsibility and/or Respondeat Superior. A "gag clause” would undermine that risk-management aspect of
the contact

Moreover the conflict between provider and health plan may not be legal or contractual, bul rather ie in the insplememtation of
‘mutually agieed upon contractual terms. 1 would be the first to acknowledge that itis more Unan possible that som: health plans and
some medical directors could be inept at carrying out their functions, whatever the actual policy and position of the healthpian is. I
those cases, it is possible that an incompetent medical director could communtcate an adverse coverage rung in such 9 way as to make
‘a network provider perceive a threat to their status asa contracting provider, or Worse yet, actually threaten provider with termination
from the plan despite having no contractual or policy grounds for sucha threat

Likewnse, itis more than possible that there are some physicians who are using this issue to try and solve via legislative means what
‘they cannol solve inthe marketplace, There are certainly some physicuns who do nol hike managed care in any form, and who do not
“wish ( see any organization involved in changing the way they practice medicine — even ifthe care they provide is net appropriate
‘reatment, 1s not performed inthe right setting, is of questionable quality, and i ultimately unaffordable Its also possible that there
are some physicians who are hearing what isnot being said about managed care or who are very worried about the emergence of
sanaged care, even if they have not actually experienced it themselves,

Lastly, the heath care marketplace is witnessing the rapid growth of provider-based integrated delivery systems These organizations
seck nat only to provide reical care, but to manage the financial aspects of that care as well. In these systems, this very same issue of
“ga clauses” and provider/pntient communications arises However, its not the health plan that is managing the communications, it
1s the providers themselves. These systems have the very same needs for compliance wilh medical management prograins, protection of
business sectets, and protection oftheir market share. The needs ofthese provider-sponsored systems wil create these same issues
being discussed here today In fact, one increasingly populas approach for many large and sophisticated health plans i to espitale
slobally integrated delivery and financing systems, and have those systems manage these aspects of the plan.

Unintended Consequences

“There is always risk when Congress contemplates legislative ation, especially when that action is taken to deal with something that has
‘high talk-toreality ratio Global responses to discreet and scatered problems raise the possibility of unintended consequences. |
respectfully caution Members ofthis comunitize that the potentsl for these unintended consequences is both real and genuine,
Examples germane to this discussion could include (depending on the type of legislation being considered)

‘+ Increased litigation by physicians, members, and others based on a “creative” interpretation of the law,

‘+ Physicians may “lobby” patients under the guise of “medical communications” about health plan selection for reasons that may
‘be self-serving to the physician, and detrimental 1o the health plan,

‘+ Areduction or removal of incentives for physicians to comply with medical management policies of health plans

‘Physicians who have been terminated from the health plan (which 1s not common, but clearly does occur, not every one of the
‘oves 650,000 physicians in the U.S. going to be a good physician or be able to practice n a managed care

‘+ envionment) would be permitted to claim tht the oly bass for termination was commmuntatons ~ a claim that could easily be
created by the physiian amply talking at peat length other patients abot the physician's complains,

* 1996 NCQA Review Guidelines, Members Rights and Responsibilities standard 1.1.3.


117

‘The model requires alf health carriers To provide a “first level grievance review.” These reviews
enable a covered person to submit written material to a health carrier, but do not include the right to have
‘a meeting with representatives of the health carrier. However, the model requires the cartier to provide a
‘written decision within a specified timeframe, and the decision must comtain certain information specified
by the model.

In addition, the model requires a health carrier that offers managed care plans to establish a
“second level grievance review" process. A second level review provides a covered person with the
‘option of appearing in person before authorized representatives of the health carrier. If a face-to-face
‘meeting is not practical for geographic reasons, the health carrier must provide and pay for the option of
‘communication between the covered person and the reviewers by means of technology, such as a
conference call or a videoconference. The health carrier must also provide a written decision containing
specified information within a prescribed time period.

‘The grievance model also specifies the appropriate grievance procedures for a complaint involving
4,UR decision. ‘These seins are intended o be completely consistent with similar provisions inthe
ization Review Model Act.

Quality Assessment and Improvement Model Act

“The Quality Assessment and Improvement Model Act establishes criteria for the quality
assessment activities of all health carriers that offer care plans. It also establishes additional
‘riteria for the quality improvement activities of carriers issuing “closed plans,” which are essentially
HMO-type managed care plans. The model requires health carriers to develop quality assessment and
quality improvement programs and to file a written description of these programs with the insurance
commissioner or other appropriate regulatory authority.

“Quality assessment” is defined as “the measurement and evaluation of the quality and outcomes
‘of medical care provided to individuals, groups or populations.” “Quality improvement” means “the
effort to improve the processes and outcomes related to the provision of care within the health plan.”

‘The mode! requires a health carrier to include a summary of its quality assessment and quality
improvement programs in its marketing materials and to describe them in its certificates of coverage. The
health carrier must also make available each year to providers and covered persons the findings from its
quality assessment and improvement programs and information about the carrier's progress in meeting
internal goals and extemal standards. In addition, a health carrier must give covered persons the
‘opportunity to comment on the quality improvement process.

Health Care Professional Credentialing Verification Model Act

‘The Health Care Professional Credentialing Verification Model Act requires all health carriers that
offer managed care plans to establish a “credentialing” verification program to ensure that the
professionals participating in the carrier's managed care plans meet specific minimum standards of
professional qualification. “Credent
information about the professional’s education, current licensure status, board certification, hospital
privileges, and other qualifications. The act requires a health carrier to verify specified credentials when a
professional first applies to participate in the carrier's managed care plan and to reverify the
professional's credentials at least every three years. ‘The act specifies that the credent
separate from the selection process that a health carrier may use to choose its participating providers.
Carriers may use separate or additional criteria to choose their providers. The act also establishes the
right of the health care professional who is the subject of the credentialing verification process to review
information obtained to satisfy the requirements of this act and to submit corrected or supplemental
information.

Health Information Confidentiality Model Act

‘The NAIC has essentially completed its work on the five models just described. Over the next six
months, the NAIC will devote considerable attention to our draft Health Information Confidentiality
Model Act. This draft model is in a preliminary stage. The model requires a health carrier to provide
‘written notice of its information practices to all applicants and covered persons. The draft also requires
health carriers to provide an individual with access to his or her own recorded personal information. Also,
the draft specifies a procedure for an individual to request a health carrier to amend the individual's
recorded information. The act also limits the circumstances under which a health carrier may disclose
personal or privileged information.

‘The NAIC is aware of congressional interest in legislation addressing the confidentiality of health
formation. The (EX) Special Committee on health insurance has commented on S. 1360, “"The Medical
Records Confidentiality Act”, sponsored by Senator Bennett and others and has highlighted issues raised
by the bill in the areas of state flexibility and regulator access to information. The NAIC Committee also
appreciated that the provisions within H.R. 3103, as passed by the House, relating to Administrative
‘Simplification, specifically allow states to enact different confidentiality standards for health information
from the federal standards. as long as the state standards are more stringent.

We hope to obtain the advice and panicipation of experts from the federal government and
representatives of consumer groups as we work on our Health Information Confidentiality Model Act. We



92

Permitting physicians to criticize the health plan irresponsibly is Protecting

‘making incorrect and misleading statements is not a retional solution, and in fact, would
undermine the premise that patients should be given complete, accurate and unbiased information.
Further, such protection would be unprecedented, and would afford bealth care providers protection
not available to any other contractors.

Disclosure of Proprietary Information

‘When used, confidentiality clauses are intended primarily to protect against disclosure of
proprietary information. We believe that patients should be informed about how their bealth plan
‘works, and why, in their specific case, particular treatment options are appropriate or inappropriate.
Likewise, patients should be filly informed about how their health plan made a decision about
‘whether a particular service was covered, bow to appeal that decision, and in general terms what the
plan’s financial arrangements are with the health professionals who provide patient care.

Health plan contracts with providers often contain legitimate requirements that providers not
an unbhiradvactge, roe any compeitve advsige tins achive nein the inontve 0

products, plans from requiring
their affliated providers to respect this confidentiality will make it difficult, if not impossible, to
comply with such obligations and to protect intellectual property appropriately.

Releasing proprietary decision procedures will do little to help patients understand the particulars of
their case, These documents are frequently highly complex, sometimes voluminous, and almost
always involve extremely technical terminology. More importantly, disclosure of precisely how
much a physician is paid per member per month will do little to help patients answer the question
‘that is foremost in their minds: Am I receiving the appropriate health care services needed for my
disease or illness?

Asa recent article in the New England Journal of Medicine points out, network-based health plans
have developed highly sophisticated mechanisms for paying physicians — mechanisms that take
‘nto account patient satisfaction and other measures of quality, as well as practice profiles, in order
to avoid both under- and over-utilization of services.' The article reports, for example, that “more
than half of the group or staff roodel HMOs and the network or IPA HMOs adjusted payment
{physician compensation] on the basis of patients’ complaints and measures of the quality of care.”
‘Thus, simply telling a patient that her plan pays a physician $X per month for her care fails to tell
the whole story. In fact, it can be misleading if the patient does not understand that the plan is also
‘paying the physician a similar amount each month for an entire group of patients, many of whom do
not need any care ~ or if the patient does not know that the physician bas “stop-loss” protection
for high cost cases, as is frequently true. However, patients should know how the decisions
affecting their care are made and how they can appeal any decisions with which they
disagree.

PacifiCare and “Gag Clauses”

PacifiCare believes categorically that physicians must be free to discuss all appropriate treatment
‘options with their patients. We believe that this information should be complete, unbiased, and
‘sensitive to the patient's own values. Patients should have information presented to them in ways
they can understand and in language that they can understand.

‘As a medical director, I'd like to point out that not all physicians may be aware of all treatment
options. There is much changing in the practice of medicine and new treatments are available all

* Gold, Hurley, Lake, Ensor, and Berenson, “A National Survey of the Arrangements.
Managed Care Plans Make with Physicians,” New England Journal of Medicine, vol. 333, No.
25 (December 21, 1995), pp. 1678-83.


33

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