79–006

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 106–625

QUALITY HEALTH-CARE COALITION ACT OF 2000

MAY 18, 2000.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. HYDE, from the Committee on the Judiciary,

submitted the following

R E P O R T

together with

ADDITIONAL VIEWS

[To accompany H.R. 1304]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 1304) to ensure and foster continued patient safety and quality of care by making the antitrust laws apply to negotiations between groups of health care professionals and health plans and

health insurance issuers in the same manner as such laws apply

to collective bargaining by labor organizations under the National

Labor Relations Act, having considered the same, reports favorably

thereon with an amendment and recommends that the bill as

amended do pass.

TABLE OF CONTENTS

Page

The Amendment ......................................................................................... 2

Purpose and Summary .............................................................................. 3

Background and Need for the Legislation ................................................ 3

Hearings ...................................................................................................... 4

Committee Consideration .......................................................................... 4

Votes of the Committee ............................................................................. 5

Committee Oversight Findings ................................................................. 7

Committee on Government Reform Findings .......................................... 7
2

New Budget Authority and Tax Expenditures ........................................ 7

Congressional Budget Office Cost Estimate ............................................ 8

Constitutional Authority Statement ......................................................... 28

Section-by-Section Analysis and Discussion ............................................ 28

Agency Views .............................................................................................. 30

Additional Views ........................................................................................ 51

The amendment is as follows:

Strike out all after the enacting clause and insert in lieu thereof the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Quality Health-Care Coalition Act of 2000’’.

SEC. 2. APPLICATION OF THE ANTITRUST LAWS TO HEALTH CARE PROFESSIONALS NEGOTIATING WITH HEALTH PLANS.

(a) IN GENERAL.—Any health care professionals who are engaged in negotiations with a health plan regarding the terms of any contract under which the professionals provide health care items or services for which benefits are provided under

such plan shall, in connection with such negotiations, be entitled to the same treatment under the antitrust laws as the treatment to which bargaining units which

are recognized under the National Labor Relations Act are entitled in connection

with such collective bargaining. Such a professional shall, only in connection with

such negotiations, be treated as an employee engaged in concerted activities and

shall not be regarded as having the status of an employer, independent contractor,

managerial employee, or supervisor.

(b) PROTECTION FOR GOOD FAITH ACTIONS.—Actions taken in good faith reliance

on subsection (a) shall not be the subject under the antitrust laws of criminal sanctions nor of any civil damages, fees, or penalties beyond actual damages incurred.

(c) LIMITATION.—

(1) NO NEW RIGHT FOR COLLECTIVE CESSATION OF SERVICE.—The exemption

provided in subsection (a) shall not confer any new right to participate in any

collective cessation of service to patients not already permitted by existing law.

(2) NO CHANGE IN NATIONAL LABOR RELATIONS ACT.— This section applies

only to health care professionals excluded from the National Labor Relations

Act. Nothing in this section shall be construed as changing or amending any

provision of the National Labor Relations Act, or as affecting the status of any

group of persons under that Act.

(d) 3-YEAR SUNSET.—The exemption provided in subsection (a) shall only apply

to conduct occurring during the 3-year period beginning on the date of the enactment of this Act and shall continue to apply for 1 year after the end of such period

to contracts entered into before the end of such period.

(e) LIMITATION ON EXEMPTION.—Nothing in this section shall exempt from the

application of the antitrust laws any agreement or otherwise unlawful conspiracy

that excludes, limits the participation or reimbursement of, or otherwise limits the

scope of services to be provided by any health care professional or group of health

care professionals with respect to the performance of services that are within their

scope of practice as defined or permitted by relevant law or regulation.

(f) NO EFFECT ON TITLE VI OF CIVIL RIGHTS ACT OF 1964.—Nothing in this section shall be construed to affect the application of title VI of the Civil Rights Act

of 1964.

(g) NO APPLICATION TO FEDERAL PROGRAMS.—Nothing in this section shall

apply to negotiations between health care professionals and health plans pertaining

to benefits provided under any of the following:

(1) The medicare program under title XVIII of the Social Security Act (42

U.S.C. 1395 et seq.).

(2) The medicaid program under title XIX of the Social Security Act (42

U.S.C. 1396 et seq.).

(3) The SCHIP program under title XXI of the Social Security Act (42

U.S.C. 1397aa et seq.).

(4) Chapter 55 of title 10, United States Code (relating to medical and dental care for members of the uniformed services).

(5) Chapter 17 of title 38, United States Code (relating to Veterans’ medical

care).

(6) Chapter 89 of title 5, United States Code (relating to the Federal employees’ health benefits program).
3

(7) The Indian Health Care Improvement Act (25 U.S.C. 1601 et seq.).

(h) GENERAL ACCOUNTING OFFICE STUDY AND REPORT.—The Comptroller General of the United States shall conduct a study on the impact of enactment of this

section during the 6-month period beginning with the third year of the 3-year period

described in subsection (d). Not later than the end of such 6-month period the

Comptroller General shall submit to Congress a report on such study and shall include in the report such recommendations on the extension of this section (and

changes that should be made in making such extension) as the Comptroller General

deems appropriate.

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

(1) ANTITRUST LAWS.—The term ‘‘antitrust laws’’—

(A) has the meaning given it in subsection (a) of the first section of the

Clayton Act (15 U.S.C. 12(a)), except that such term includes section 5 of

the Federal Trade Commission Act (15 U.S.C. 45) to the extent such section

5 applies to unfair methods of competition, and

(B) includes any State law similar to the laws referred to in subparagraph (A).

(2) HEALTH PLAN AND RELATED TERMS.—

(A) IN GENERAL.—The term ‘‘health plan’’ means a group health plan

or a health insurance issuer that is offering health insurance coverage.

(B) HEALTH INSURANCE COVERAGE; HEALTH INSURANCE ISSUER.—The

terms ‘‘health insurance coverage’’ and ‘‘health insurance issuer’’ have the

meanings given such terms under paragraphs (1) and (2), respectively, of

section 733(b) of the Employee Retirement Income Security Act of 1974 (29

U.S.C. 1191b(b)).

(C) GROUP HEALTH PLAN.—The term ‘‘group health plan’’ has the meaning given that term in section 733(a)(1) of the Employee Retirement Income

Security Act of 1974 (29 U.S.C. 1191b(a)(1)).

(3) HEALTH CARE PROFESSIONAL.—The term ‘‘health care professional’’

means an individual who provides health care items or services, treatment, assistance with activities of daily living, or medications to patients and who, to

the extent required by State or Federal law, possesses specialized training that

confers expertise in the provision of such items or services, treatment, assistance, or medications.

PURPOSE AND SUMMARY

H.R. 1304 would allow doctors and other health care providers

an antitrust exemption for the limited purpose of bargaining collectively with health insurers and health maintenance organizations.

The core provision of the bill provides that any group of health care

professionals which is negotiating with a health plan shall, in connection with those negotiations, have the same antitrust exemption

that labor unions have.

BACKGROUND AND NEED FOR THE LEGISLATION

In recent years, health insurers and health maintenance organizations (‘‘HMOs’’) have increasingly asserted control over health

care decisions that health care providers and patients once made.

The insurers and HMOs contend that these kinds of controls are

necessary to keep prices low and to keep health insurance coverage

affordable. Providers contend that these kinds of controls invade

the traditional provider-patient relationship and that they keep

prices so low that doctors cannot practice economically. Providers

further contend that in negotiating contracts that establish these

controls the insurers have much greater bargaining power than do

individual providers.

H.R. 1304 arises from this last point. Proponents argue that providers will be able to get a fair deal in these negotiations only if

the law allows them to band together to negotiate with insurers

and HMOs. They argue that providers cannot engage in these
4

kinds of joint negotiations without an antitrust exemption. They

also believe that patients will be better served because the providers will use their greater bargaining power to seek contracts

that allow the insurers less control over patient care.

Critics argue that the bill would harm consumers because it

would allow providers to fix prices and engage in group boycotts

thereby driving up the cost of insurance. To the extent that health

insurance premiums do rise, critics argue that this would cause a

corresponding drop in Federal tax revenue because of the deductibility of such premiums. The bill places no limits on the percentage of providers in a market that could band together. Thus, providers, particularly in smaller markets, could exercise high degrees

of market power. They also contend that under current guidelines

issued by the Federal Trade Commission and the Department of

Justice, providers are free to band together in group practices and

negotiate directly with employers if they do not like the deals they

get with insurers. Ultimately, they argue that the bill would end

the ability of competitive forces to control health care costs and to

improve efficiency.

Because of the disagreement and uncertainty as to how the bill

will work under actual market conditions, the committee adopted

a 3-year sunset provision during its markup. This provision will

allow a short experiment with the bill before any decision as to

whether to continue it. During the third year, the General Accounting Office will conduct a study of how the bill has worked and recommend whether it should be extended.

HEARINGS

The full Judiciary Committee held 1 day of hearings on H.R.

1304 on June 22, 1999. The committee heard testimony from 13

witnesses. In the 105th Congress, the full committee held 1 day of

hearings on similar legislation, H.R. 4277, on July 29, 1998. At

that hearing, the committee heard testimony from six witnesses.

COMMITTEE CONSIDERATION

On March 30, 2000, the Full Committee met in open session and

ordered favorably reported the bill H.R. 1304, as amended, by a

vote of 26 to 2 with one member passing, a quorum being present.

Various amendments were considered as follows. On March 16,

2000, the committee began its consideration of H.R. 1304. Chairman Hyde offered an amendment that made four changes to the

bill. The Hyde amendment: (1) struck the findings section; (2)

added language clarifying the non-strike language in the bill; (3)

added language clarifying that the bill applies only to providers

who are excluded from the National Labor Relations Act and does

not change or amend the NLRA; and (4) added a 3-year sunset and

provided for a Federal Trade Commission study of how the bill is

working during the first 6 months of the third-year of the 3-year

period. The Hyde amendment passed by voice vote.

Mr. Conyers offered an amendment to strike the definitions of

‘‘Medicare+Choice organization,’’ ‘‘Medicare+Choice plan,’’ and

‘‘Medicaid managed care entity’’ from the bill and also delete these
5

terms from the definition of a ‘‘health plan.’’ This first Conyers

amendment passed by voice vote.

Mr. Nadler offered an amendment to provide that the antitrust

exemption provided in the bill does not apply to any agreement

that excludes or limits the performance of services by any other

health care professional or group of health care professionals within their lawful scope of practice. During consideration of this first

Nadler amendment, Mr. Watt asked for and received unanimous

consent to add the language of the Watt-Waters amendment to the

first Nadler amendment. The Watt-Waters amendment provided

that nothing in the bill shall be construed to affect the application

of Title VI of the Civil Rights Act. The first Nadler amendment,

with the Watt-Waters amendment added, then passed by unanimous consent.

After consideration of the first Nadler amendment, with the

Watt-Waters amendment added, the committee recessed with no

amendment pending.

On March 30, 2000, the committee resumed its consideration of

H.R. 1304. At that time, Mr. Nadler offered a second amendment

in lieu of his first amendment. This second Nadler amendment was

identical to the first, including the addition of the Watt-Waters

amendment, except that it added the phrase ‘‘or otherwise unlawful

conspiracy’’ after the word ‘‘agreement.’’ By unanimous consent, the

committee adopted the second Nadler amendment in lieu of the

first Nadler amendment.

Mr. Pease offered an amendment that would have required

health care providers seeking to use the exemption provided by the

bill to get prior approval from the Federal Trade Commission orthe

Department of Justice before beginning collective bargaining. Mr.

Goodlatte offered a second degree amendment to the Pease amendment that would have required preapproval only for groups comprising 20% or more of the relevant market. The committee passed

the Goodlatte second degree amendment by a rollcall vote of 17–

13. Afterwards, Mr. Pease withdrew his underlying amendment. As

a result, neither the Pease amendment nor the Goodlatte second

degree amendment became part of the bill as ordered reported.

Mr. Conyers offered a second amendment that provided that

nothing in the bill shall apply to negotiations between health care

professionals and health plans pertaining to benefits under Federal

health programs. The second Conyers amendment also changed the

Hyde amendment so that the General Accounting Office would perform the study of the bill instead of the Federal Trade Commission.

The second Conyers amendment was adopted by voice vote.

After consideration of the second Conyers amendment, the committee proceeded to vote on the motion to report favorably the bill,

as amended, as described above.

VOTES OF THE COMMITTEE

The committee took two rollcall votes during its consideration of

H.R. 1304.

1. Mr. Pease offered an amendment that would have required

health care providers seeking to use the exemption provided by the

bill to get prior approval from the Federal Trade Commission or
6

the Department of Justice before beginning collective bargaining.

Mr. Goodlatte offered a second degree amendment to the Pease

amendment that would have required preapproval only for groups

comprising 20% or more of the relevant market. The committee

passed the Goodlatte second degree amendment by a vote of 17–

13. Afterwards, Mr. Pease withdrew his underlying amendment. As

a result, neither the Pease amendment nor the Goodlatte second

degree amendment became part of the bill as ordered reported. The

vote on the Goodlatte second degree amendment was as follows:

ROLLCALL NO. 1

Ayes Nays Present

Mr. Sensenbrenner ............................................................................................ X ..................... .....................

Mr. McCollum .................................................................................................... X ..................... .....................

Mr. Gekas .......................................................................................................... X ..................... .....................

Mr. Coble ........................................................................................................... X ..................... .....................

Mr. Smith (TX) .................................................................................................. X ..................... .....................

Mr. Gallegly ....................................................................................................... X ..................... .....................

Mr. Canady ........................................................................................................ X ..................... .....................

Mr. Goodlatte .................................................................................................... X ..................... .....................

Mr. Chabot ........................................................................................................ ..................... ..................... .....................

Mr. Barr ............................................................................................................. ..................... X .....................

Mr. Jenkins ........................................................................................................ X ..................... .....................

Mr. Hutchinson .................................................................................................. X ..................... .....................

Mr. Pease .......................................................................................................... X ..................... .....................

Mr. Cannon ....................................................................................................... X ..................... .....................

Mr. Rogan ......................................................................................................... X ..................... .....................

Mr. Graham ....................................................................................................... ..................... X .....................

Ms. Bono ........................................................................................................... ..................... ..................... .....................

Mr. Bachus ........................................................................................................ ..................... ..................... .....................

Mr. Scarborough ................................................................................................ ..................... ..................... .....................

Mr. Vitter ........................................................................................................... X ..................... .....................

Mr. Conyers ....................................................................................................... ..................... X .....................

Mr. Frank ........................................................................................................... ..................... ..................... .....................

Mr. Berman ....................................................................................................... ..................... X .....................

Mr. Boucher ....................................................................................................... X ..................... .....................

Mr. Nadler ......................................................................................................... ..................... X .....................

Mr. Scott ........................................................................................................... X ..................... .....................

Mr. Watt ............................................................................................................ X ..................... .....................

Ms. Lofgren ....................................................................................................... ..................... ..................... .....................

Ms. Jackson Lee ................................................................................................ ..................... X .....................

Ms. Waters ........................................................................................................ ..................... X .....................

Mr. Meehan ....................................................................................................... ..................... X .....................

Mr. Delahunt ..................................................................................................... ..................... ..................... .....................

Mr. Wexler ......................................................................................................... ..................... X .....................

Mr. Rothman ..................................................................................................... ..................... X .....................

Ms. Baldwin ...................................................................................................... ..................... X .....................

Mr. Weiner ......................................................................................................... ..................... X .....................

Mr. Hyde, Chairman .......................................................................................... ..................... X .....................

Total ................................................................................................ 17 13 .....................

2. The committee voted to adopt the motion to report favorably

the bill, H.R. 1304, as amended, by 26 to 2 with one member passing. The vote on the motion to report favorably the bill, H.R. 1304,

as amended, was as follows:

ROLLCALL NO. 2

Ayes Nays Present

Mr. Sensenbrenner ............................................................................................ ..................... X .....................

Mr. McCollum .................................................................................................... X ..................... .....................
7

ROLLCALL NO. 2—Continued

Ayes Nays Present

Mr. Gekas .......................................................................................................... ..................... X .....................

Mr. Coble ........................................................................................................... X ..................... .....................

Mr. Smith (TX) .................................................................................................. X ..................... .....................

Mr. Gallegly ....................................................................................................... X ..................... .....................

Mr. Canady ........................................................................................................ X ..................... .....................

Mr. Goodlatte .................................................................................................... X ..................... .....................

Mr. Chabot ........................................................................................................ ..................... ..................... .....................

Mr. Barr ............................................................................................................. X ..................... .....................

Mr. Jenkins ........................................................................................................ X ..................... .....................

Mr. Hutchinson .................................................................................................. X ..................... .....................

Mr. Pease .......................................................................................................... ..................... ..................... .....................

Mr. Cannon ....................................................................................................... ..................... ..................... .....................

Mr. Rogan ......................................................................................................... ..................... ..................... .....................

Mr. Graham ....................................................................................................... X ..................... .....................

Ms. Bono ........................................................................................................... ..................... ..................... .....................

Mr. Bachus ........................................................................................................ ..................... ..................... .....................

Mr. Scarborough ................................................................................................ X ..................... .....................

Mr. Vitter ........................................................................................................... X ..................... .....................

Mr. Conyers ....................................................................................................... X ..................... .....................

Mr. Frank ........................................................................................................... ..................... ..................... .....................

Mr. Berman ....................................................................................................... ..................... ..................... PASS

Mr. Boucher ....................................................................................................... X ..................... .....................

Mr. Nadler ......................................................................................................... X ..................... .....................

Mr. Scott ........................................................................................................... X ..................... .....................

Mr. Watt ............................................................................................................ X ..................... .....................

Ms. Lofgren ....................................................................................................... X ..................... .....................

Ms. Jackson Lee ................................................................................................ X ..................... .....................

Ms. Waters ........................................................................................................ X ..................... .....................

Mr. Meehan ....................................................................................................... X ..................... .....................

Mr. Delahunt ..................................................................................................... ..................... ..................... .....................

Mr. Wexler ......................................................................................................... X ..................... .....................

Mr. Rothman ..................................................................................................... X ..................... .....................

Ms. Baldwin ...................................................................................................... X ..................... .....................

Mr. Weiner ......................................................................................................... X ..................... .....................

Mr. Hyde, Chairman .......................................................................................... X ..................... .....................

Total ................................................................................................ 26 2 1 PASS

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, the committee reports that the findings

and recommendations of the committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

COMMITTEE ON GOVERNMENT REFORM FINDINGS

No findings or recommendations of the Committee on Government Reform were received as referred to in clause 3(c)(4) of rule

XIII of the Rules of the House of Representatives.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

The Congressional Budget Office cost estimate, which appears

below, fulfills the requirements of clause 3(c)(2) of House Rule XIII.
8

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the

House of Representatives, the committee sets forth, with respect to

the bill, H.R. 1304, the following estimates and comparisons prepared by the Director of the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974. The first estimate was prepared on the bill as introduced. The second estimate

was prepared on the bill as reported. The committee has also included correspondence between Representative Campbell and the

Congressional Budget Office relating to the estimates.

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, March 15, 1999.

Hon. HENRY J. HYDE, Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1304, the Quality HealthCare Coalition Act.

If you wish further details on this estimate, we will be pleased

to provide them. The principal CBO staff contact is James

Baumgardner, who can be reached at 225–0810.

Sincerely,

DAN L. CRIPPEN, Director.

H.R. 1304—Quality Health-Care Coalition Act of 1999.

As introduced on March 25, 1999.

SUMMARY

H.R. 1304 would exempt health care professionals from antitrust

laws when they negotiate with health plans over fees and other

terms of any contract under which they provide health care items

or services. Professionals who form coalitions for that purpose

would receive the same treatment under antitrust laws that labor

organizations receive for collective bargaining activities under the

National Labor Relations Act. The Congressional Budget Office

(CBO) concludes that under the bill some health professionals, including doctors, dentists, and pharmacists, would join together and

negotiate for higher compensation and greater flexibility in the provision of care, thereby increasing private and public expenditures

for health care.

The bill would affect both federal revenues and outlays. By increasing costs to private health plans, H.R. 1304 would result in

higher private health insurance premiums. In the case of employersponsored health plans, higher premium contributions charged to

employers would be passed on to employees in the form of lower

cash wages and other fringe benefits. Reductions in those taxable

forms of compensation would lead to lower federal and state tax

revenues. CBO estimates that federal tax revenues would fall by

$145 million in 2001 and by $10.9 billion over the 2001–2010 period if H.R. 1304 were enacted.

H.R. 1304 would also raise the costs of several federal health

programs. Direct spending for the Federal Employees Health Bene-
9

fits Program (FEHBP), Medicaid, and the State Children’s Health

Insurance Program (SCHIP) would grow by an estimated $165 million in 2001 and by $11.3 billion over the 2001–2010 period. Discretionary spending by federal agencies for the FEHBP would increase

by another $0.5 billion over ten years. Other federal programs

could also be affected, but CBO has not yet completed estimates of

those effects.

The bill contains an intergovernmental mandate as defined by

the Unfunded Mandates Reform Act (UMRA), but CBO estimates

that it would impose no significant costs. Thus, its costs would not

exceed the threshold established in that act ($55 million in 2000).

However, state, local, and tribal governments would face higher expenses as purchasers of health care for their employees and as providers of health care under Medicaid, and they would realize lower

income tax collections because taxable income would be lower. The

bill contains no private-sector mandates as defined in UMRA.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary impact of H.R. 1304 is shown in Table

1. The bill would add to discretionary spending by all federal agencies for employee health benefits and would affect mandatory

spending in budget function 550 (health). It would also reduce federal revenues.

BASIS OF ESTIMATE

Under the bill, some health professionals would join together to

negotiate for higher compensation and greater flexibility in the provision of care. CBO assumes that it would take five years for the

bill to have its full effect on the health care market. Once that effect was obtained, CBO estimates that H.R. 1304 would increase

national expenditures on private health insurance by 2.6 percent in

2006 in the absence of any compensating changes on the part of

health plans or other entities.

Allowing health care professionals to bargain collectively with

health plans would result in higher health care expenditures for

two reasons. First, the increased market power achieved by providers who could form and maintain effective coalitions would allow

them to obtain higher fees from the health plans. Second, the

greater flexibility that health professionals would obtain in the provision of care would lead to greater utilization of services.

Effect on Fees for Health Care

For the purposes of this estimate, health care professionals are

separated into three categories: physicians, dentists and other

health care professionals, and pharmacists. Based on projections of

national health expenditures for 2000, private health insurance

spending for physicians will equal an estimated $128 billion, spending for dentists and other health professionals will total $53 billion,

and spending for prescription drugs and related items will be $59

billion.
10

TABLE 1. ESTIMATE OF THE BUDGETARY EFFECTS OF H.R. 1304, THE QUALITY HEALTH-CARE ACT

By Fiscal Year, in Millions of Dollars

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

REVENUES

On-Budget: Income and

Medicare Payroll

Taxes 0 -100 -260 -430 -620 -840 -950 -1,000 -1,060 -1,120 -1,190

Off-Budget: Social

Security Payroll Taxes 0 -45 -110 -190 -280 -370 -420 -440 -470 -490 -520

Total 0 -145 -370 -620 -900 -1,210 -1,370 -1,440 -1,530 -1,610 -1,710

DIRECT SPENDING

Federal Employee

Health Benefits for

Annuitants 0 5 10 20 25 35 40 40 45 50 50

Medicaid 0 150 330 550 805 1,110 1,220 1,340 1,475 1,620 1,780

SCHIP 0 10 20 40 60 75 75 80 85 90 100

Total 0 165 360 610 890 1,220 1,335 1,460 1,605 1,760 1,930

SPENDING SUBJECT TO APPROPRIATION ACTION

Federal Employee

Health Benefits for

Active Workers 0 10 20 30 45 60 65 65 70 75 80

Indian Health Service Not Yet Estimated

Tricare (Department of Defense) Not Yet Estimated

Other Federal Health Programs Not Yet Estimated

NOTE: SCHIP = State Children’s Health Insurance Program.

Physicians. The effect on health care costs of allowing physicians

to form coalitions to bargain with health plans would depend on

the gain obtained by each physician joining a coalition and the

number of physicians who would join.

Based on studies of the effects of unionization on the compensation of employees, CBO estimates that, on average, doctors who

join an effective coalition would secure an increase in fees averaging 15 percent. Only a fraction of all physicians would become

members of such coalitions, however.

Currently 20 percent of physicians are nonsupervisory employees

of a health organization and, therefore, are already eligible to form

a union. (They would not be directly affected by the bill.) Of those

approximately 100,000 physicians, about 40 percent are either

members of unions or covered by a collective bargaining agreement.

CBO expects that fraction to grow over the next several years.

Of the approximately 400,000 practicing physicians who would be

newly eligible to form a coalition under the bill, CBO estimates

that about one-third would join an effective coalition within five

years. (In addition, some physicians who did not join an effective

coalition would benefit from negotiated increases in fees.) Together

with the growing fraction of employee-physicians who are expected

to be union members, we estimate that under the bill almost 40

percent of physicians would be union or coalition members by 2006.

About 30 percent of all physicians would join effective coalitions

because of the legislation. Assuming a 15 percent average increase

in fees, total physician fees would rise by about 4.5 percent. Because physicians represent about one-third of insured national

health expenditures, CBO estimates that the effect of newly eligible

physicians joining those coalitions under H.R. 1304 would be to in-
11

crease total private health insurance expenditures by 1.6 percent

in 2006.

Dentists and Other Health Professionals. Like physicians, dentists and other health professionals who join an effective coalition

under the bill would obtain higher fees from health plans. CBO assumes that those health professionals would secure the same 15

percent average increase in fees if they were able to form effective

coalitions. However, CBO expects that the fraction of dentists and

other health professionals who would maintain an effective coalition would be lower than the proportion of participating physicians.

Also, dentists and other health professionals account for a much

smaller percentage of private health expenditures than do physicians. As a result, CBO estimates that higher fees for dentists and

other health professionals would increase private health expenditures by about 0.3 percent in 2006.

Pharmacists. H.R. 1304 would also make pharmacists eligible to

form a coalition to negotiate with health plans over the net margins received for filling prescriptions. CBO assumes that pharmacists who could maintain an effective coalition would have the

same bargaining power as other health professionals. Thus, on average, they would be able to negotiate an average increase of 15

percent in their net margins. CBO expects that about one-third of

pharmacists would join an effective coalition. CBO estimates that

higher fees paid to pharmacists as a result of H.R. 1304 would increase private health insurance expenditures by 0.1 percent.

Effect on Health Care Utilization

Health care professionals who formed an effective coalition under

the bill would also be likely to bargain with managed care plans

for greater flexibility in the provision of care. Those plans control

costs to a certain extent by regulating the quantity of services performed. Not all managed care plans limit the use of services to the

same extent, however. Preferred provider organizations (PPOs), for

example, control costs by negotiating discounts on the prices of

services and exercise very little management over the use of services. Health maintenance organizations (HMOs), in contrast, often

have tighter utilization controls.

Negotiations allowed under the bill would weaken the utilization

management controls used by some plans. Fee-for-service plans

and PPOs would not be directly affected because they have extremely limited utilization controls. Group- and staff-model HMOs

would also be unlikely to be significantly affected because the physician groups that work in those types of HMOs have a long history

of less costly practice styles, exemplified by lower rates of hospitalization. Also, physicians who are employees of HMOs can already unionize under current law so any behavior they might undertake to increase utilization would not be a direct result of H.R.

1304.

In contrast, other forms of HMOs and point-of-service plans tend

to be staffed by independently practicing doctors who are less integrated into the organization. Those plans have brought about utilization savings through various forms of financial incentives and

administrative requirements. Such control mechanisms could be

partly dismantled as the result of collective negotiations by the

physicians that staff such network plans. For those plans, utiliza-
12

tion management now yields about a 5 percent savings compared

to indemnity insurance. CBO estimates that 50 percent of the utilization savings associated with coalition physicians who contract

with those managed care plans would be lost as a result of the bill.

This increase in utilization by coalition physicians would raise private health expenditures by 0.3 percent.

While CBO believes that professionals who form coalitions would

gain the most flexibility under this bill, the utilization effect might

not be limited to health professionals who are members of a coalition. If professionals in coalitions changed the way they practice

medicine, that would affect conventions of medical practice more

generally. That is, the changes in the way those professionals practice their trade could spill over to the rest of the physician population. The presence of this effect is based on evidence that physicians usually adhere to the norms of practice established by their

peers. CBO expects that such changes in professional practice

would only increase utilization by about one-fifth of the increase in

utilization that would occur in managed care plans whose utilization controls would be weakened through negotiation. This spillover

effect would raise private health expenditures covered by insurance

by an additional 0.3 percent.

Effect on Federal Revenues and Direct Spending

H.R. 1304 would reduce federal revenues and increase direct

spending (see Table 1). By increasing premiums for employer-sponsored health benefits, it would substitute nontaxable employer-paid

premiums for taxable wages and would therefore decrease federal

income and payroll tax revenues. CBO estimates that the bill

would reduce federal tax revenues by $145 million in 2001 and by

$10.9 billion over the 2001–2010 period. Social Security tax revenues, which are off-budget, account for about 30 percent of those

totals.

The legislation would impose additional costs on several federal

health programs because they would be subject to similar price and

utilization pressures. CBO has completed preliminary estimates of

the effects on the Federal Employees’ Health Benefits Program,

Medicaid, and the State Children’s Health Insurance Program

(SCHIP). CBO estimates the bill would not have a significant effect

on spending by Medicare because Medicare’s administered pricing

systems insulate the program from pricing changes in the private

sector. CBO expects the proposal would also increase spending by

the Indian Health Service, Tricare, and other federal health programs, but has not completed estimates of those effects.

CBO estimates H.R. 1304 would increase direct spending by FEHBP (for annuitants), Medicaid, and SCHIP by $165 million in

2001 and by $11.3 billion over the 2001–2010 period. Assuming appropriation of the necessary amounts, CBO estimates the proposal

would increase discretionary spending by federal agencies for the

FEHBP for active workers by $10 million in 2001 and $0.5 billion

over ten years. CBO has not completed estimates of the effect on

discretionary spending for other federal health programs.

PAY-AS-YOU-GO CONSIDERATIONS

Because the bill would affect federal revenues and direct spending, pay-as-you-go procedures would apply. The direct spending and
13

revenue effects are shown in Table 1. For pay-as-you-go purposes,

only the effects in the current year, the budget year, and the succeeding four years are counted.

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

H.R. 1304 contains an intergovernmental mandate as defined by

UMRA, but CBO estimates it would not impose significant costs on

state, local, or tribal governments. By exempting health care professionals from certain antitrust laws, the bill would preempt state

laws that govern similar exemptions under current law, and therefore would be a mandate as defined by UMRA. However, because

the bill would not require states to take action as regulators in

order to comply with the new exemption, and in some cases might

reduce oversight responsibilities, CBO estimates the mandate itself

would impose no costs on state, local or tribal governments.

State, local, and tribal governments would experience an increase

in premiums for health insurance for their employees and would

also incur an increase in Medicaid costs. State expenditures for

Medicaid and SCHIP would increase by $120 million in 2001 and

by $2.3 billion over the 2001–2005 period. At present, CBO cannot

estimate the likely increase in the cost of health insurance for employees of state, local, and tribal governments.

Most states that tax income use the federal adjusted gross income measure as the basis of their tax calculations. Consequently,

substituting non-taxable income for taxable income for federal income tax purposes would have the effect of decreasing state income

tax collections as well.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

The bill contains no private-sector mandates as defined in

UMRA.

ESTIMATE PREPARED BY:

Federal Cost Estimate: James Baumgardner, Karuna Patel, and

Tom Bradley

Impact on State, Local, and Tribal Governments: Leo Lex

Impact on the Private Sector: James Baumgardner and Karuna

Patel

ESTIMATE APPROVED BY:

Robert A. Sunshine

Assistant Director for Budget Analysis

CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Washington, DC, March 16, 2000.

Hon. DAN L. CRIPPEN, Director,

U.S. Congress,

Congressional Budget Office, Washington, DC.

URGENT

DEAR DIRECTOR CRIPPEN: Thank you for the copy of your office’s

cost estimate for HR 1304, the Quantity Health-Care Coalition Act,
14

which I received last night. The bill is to be considered by the Judiciary Committee today.

I write to draw to your attention five points in that analysis on

which I would appreciate your further thought. As this bill is about

to be considered in the Judiciary Committee, and, hopefully, will be

on the floor shortly thereafter, I respectfully request your immediate attention to the following major points.

(1) The analysis estimates an increase in fees paid to doctors. It

assumes 100% of that increase in fees will be passed along to employers. However, the increase in fees that might occur would be

presented to the HMO or the insurer in the first instance, not to

the employer. Under normal economic assumptions of derived demand, unless demand for the insurance product is 100% inelastic,

some of an increase in fees will be borne by the HMO in the form

of lower profit to its shareholders. Your analysis appears to assume

a 100% pass-along, however. May I respectfully ask, on what basis

do you assume an elasticity of derived demand of zero for employee

insurance services by employers?

(2) Your analysis assumes that: ‘‘higher premium contributions

charged to employees would be passed on to employees in the form

of lower cash wages and other fringe benefits.’’ Once again, that assumes a zero elasticity, this time, the elasticity of demand for

health insurance (as opposed to other forms of compensation) by

employees. If, however, there is non-zero elasticity, we would expect some of the higher premium contributions to be absorbed by

a change in the ratio of compensation elements, favoring cash over

health insurance. That effect would actually INCREASE the portion of an employee’s compensation package that is taxable.

May I respectfully ask, on what basis do you assume a zero elasticity of demand for employer-provided health insurance by employees?

(3) On the same point as number 2, you assume the employer

passes along 100% of the higher HMO cost to the employee in the

form of ‘‘lower cash wages and other fringe benefits.’’ However, unless the employer’s derived demand for labor has zero elasticity,

one would expect a sharing of this increased cost, with the employer bearing part of them. The tax revenue result would result

in lower profits for the employer, which would lower tax revenues,

but this would offset the diminished revenue predicted by your

study from lower wages for employees, and I do not know, a priori,

which effect is greater.

May I respectfully ask, on what basis do you assume a zero elasticity of derived demand for labor?

(4) Your study predicts that doctors would receive higher fees

and greater flexibility within HMO’s, and from this your conclude

that employers (including government employers) would have to

pay more for HMO coverage of their employees. However, to the extent HMO’s now become more attractive to doctors, there also

ought to be an effect of a higher percentage of medical care being

delivered through HMO’s rather than under alternative systems

(like fee-for-service, and PPO’s). Since you assume that HMO’s deliver medical care at lower cost than these alternative systems, you
15

ought to have estimated savings from the substitution effect, along

with the higher cost from the price effect.

May I respectfully inquire on what basis you failed to include

any effect from an expected increase in doctors choosing to be part

of HMO’s?

(5) You assume, as a result of HR 1304, doctors will on average

receive higher fees. However, I do not see anywhere in your analysis where you consider the higher personal income tax derived

from those higher fees. Nevertheless, you did include the effect of

paying the higher fees on the revenue derived from employers and

employees. Indeed, that is the principal basis for your conclusion

of revenue loss to the federal treasury.

May I respectfully inquire why you did not include any estimate

of higher income taxes derived from the higher fees to medical doctors that your analysis predicts?

Thank you for your consideration of the foregoing five points.

Your response in the earliest possible time-frame would greatly assist in the fair consideration of this bill.

With best regards,

TOM CAMPBELL, Member of Congress.

cc. Hon. Henry Hyde

Hon. John Conyers

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, March 22, 2000.

Hon. TOM CAMPBELL,

House of Representatives, Washington, DC.

DEAR CONGRESSMAN: I am pleased to respond to your letter of

March 16, 2000, requesting additional information on the Congressional Budget Office’s estimate of the budgetary impact of H.R.

1304, the Quality Health-Care Coalition Act.

Your letter raises five points—the first four of which involve the

extent to which increases in health insurance costs resulting from

the bill would cause changes in taxable wages and salaries. CBO

estimates that H.R. 1304 would increase private health insurance

costs by 2.6 percent before accounting for the responses of health

plans and others to the potentially higher prices.

As you point out, health plans, firms, and workers would have

incentives to adjust in a number of ways to this increase in the

price of insurance. Those adjustments would result in reductions in

coverage by employers and employees, changes in the types of

health plans that are purchased, and reductions in the extent of

coverage through increased deductibles, higher copayments, or

other changes in the scope or generosity of benefits. In the short

run, plans and employers might also absorb some of the cost in the

form of lower profits.

CBO assumes that such behavioral responses would offset 60

percent of the potential impact of the bill on workers’ compensation

other than health benefits. We estimate that the remaining 40 percent of the 2.6 percent potential increase, or about 1 percent of private health insurance costs, would be passed through to workers in

the form of reduced compensation (other than health benefits). We
16

further adjust the estimate to account for some reductions in other

fringe benefits.

To illustrate our calculation, consider the estimate for 2006, the

first fiscal year in which CBO projects the full effects of the bill

would be realized. In that year, tax-sheltered, employment-based

health insurance premiums are forecast to be almost $445 billion.

In order to arrive at our estimate of the federal revenue loss, CBO

applies only 40 percent of the 2.6 percent estimated impact of the

bill on private health insurance expenditures to the baseline

amount of $445 billion. After a reduction to account for changes in

other fringes, an average marginal tax rate is applied to give the

estimated revenue loss of $1.37 billion. The estimate would have

been over twice as large if we had not considered the behavioral

changes in response to the increased costs.

Your fifth point addresses the larger issue of the shift of resources into the medical sector that would occur under the bill.

While it is true that more resources would be spent on physicians’

services, fewer dollars would be spent on goods and services outside

of the health services sector. The resulting higher incomes and

taxes in the medical sector would be offset by lower incomes and

taxes elsewhere. National income, overall, would not be affected.

The revenue loss captured in our estimate is due to another effect

of the bill—the shift in workers’ compensation from wages and salaries, which are taxable, to employer-provided health benefits,

which are not taxed.

I hope this information is helpful to you. If we can be of further

assistance, please let us know. The CBO staff contact on this subject is Tom Bradley, who can be reached at 226–9010.

Sincerely,

DAN L. CRIPPEN, Director.

cc: Honorable Henry J. Hyde

Chairman

Committee on the Judiciary

Honorable John Conyers, Jr.

Ranking Democratic Member

CONGRESS OF THE UNITED STATES,

HOUSE OF REPRESENTATIVES,

Washington, DC, April 16, 2000.

Hon. DAN L. CRIPPEN, Director,

U.S. Congress,

Congressional Budget Office, Washington, DC.

DEAR DIRECTOR CRIPPEN: Thank you for your letter of March 22,

in response to my letter of March 16, regarding HR 1304. I had the

benefit of speaking with your associate, Mr. Bradley, following receipt of your letter; and I base this request on facts that I learned

in that conversation. I attach copies of all previous correspondence

for your convenience.

I raised five points in my letter of March 16. Your reply of March

22 responded to four of those five. I understand your reply to my

point number 5 and concede that you are correct. Thank you for

clarifying that for me. My point number 4 received no reply, and

I will turn to that shortly. As to points 1–3, I have a simple request

for clarification.
17

Point A. The health care impact on ultimate consumers is 1% not

2.6%. My points 1–3 were that any increase in reimbursements to

health care professionals would not show up 100% as increases in

health care costs to consumers, because some of the increased cost

will be absorbed by employers (point 1), some will be absorbed by

HMO’s (point 2); and some will be absorbed by employees choosing

less health care in their package of compensation (point 3).

Your original March 15 letter to Chairman Hyde made no mention of these possible effects. Your response of March 22, claims

that you took all of these into account: ‘‘CBO assumes such behavioral responses would offset 60 percent of the potential impact of

the bill on workers’ compensation other than health benefits.’’ However, your letter of March 15, nowhere mentions this 60% offset.

When I spoke with Mr. Bradley, he said to me ‘‘it probably was an

oversight to have omitted the 60%’’ from the March 15 letter. I now

understand, of course, what you meant, but by showing the apparent inconsistency, I hope to elicit from you a clarifying statement.

Here is how the two letters appear inconsistent: 1) March 15,

page 2: ‘‘CBO estimates that HR 1304 would increase national expenditures on private health insurance by 2.6 percent in 2006 in

the absence of any compensating changes on the part of health

plans or other entities’’; and 2) March 22, page 1: ‘‘CBO estimates

that HR 1304 would increase private health insurance costs by 2.6

percent before accounting for the responses of health plans and

others to the potentially higher prices. * * * CBO assumes that such

behavioral responses would offset 60 percent of the potential impact of the bill on workers’ compensation other than health benefits. We estimate that the remaining 40 percent of the 2.6 percent

potential increase, or about 1 percent of private health insurance

costs, would be passed through to workers in the form of reduced

compensation (other than health benefits.)’’ [emphasis in original]

The problem is that, since your March 15 letter said 2.6%, and

never mentioned the 1% number, and because the March 15 letter

never spelled out what the ‘‘compensating changes on the part of

health plans or other entities’’ were, some are inaccurately citing

your March 15 letter for the proposition that HR 1304 will increase

health care costs to individuals by 2.6%.

May I please ask for you to write a letter to me, with a copy to

all shown as cc’s on this letter, that your calculations actually reflect a 1%, not a 2.6%, increase in health care costs to the ultimate

consumers? As you might sympathize—debate on the floor is often

truncated, and I fear that the 2.6% number will be bandied about,

when the correct number is 1%.

Point B. Where did the 60%–40% come from? Secondly, now that

I know you applied an assumption of only a 40% pass through to

ultimate consumers, and I’m glad you did—I need to know where

you obtained that estimate? Neither letter cites any study whatsoever that the combined elasticity effects to which I referred would

have a 40% pass-through effect. When I queried Mr. Bradley on

this, he responded that he was using a ‘‘rule of thumb.’’ Please

check with him, that’s exactly what he said, as I’m sure he’ll tell

you. I asked him if he had any studies to rely on, and he said no,

just the ‘‘rule of thumb.’’ At the least, readers of your March 15 and

March 22 letters should know that your numbers embed a rather

major assumption for which no scholarly or research work is cited.
18

Believe me, I’m glad you used some ‘‘rule of thumb’’ rather than

assuming a 100% pass-through, as I had originally thought, based

on your March 15 letter. But how can any fair critic assess this estimated pass-through, when there is no authority cited for it except

a ‘‘rule of thumb’’?

Point C. The effect of change in behavior by medical professionals.

Lastly, I recur to point 4 of my letter of March 16. There, I raised

a point very different from the elasticity question discussed above.

I said that, since HR 1304 would make HMO’s more attractive to

medical professionals, we could expect more of them joining HMO’s.

Since HMO’s deliver health care at lower cost, on average, than

fee-for-service or PPO’s (an assumption that underlies all your estimates), there should be some cost saving from more doctors entering HMO’s, even as I grant a higher cost per HMO. As you can see,

this is not a question of ‘‘pass through.’’ It is an entirely different

factor. And it was not included in your analysis.

I was very disappointed in Mr. Bradley’s answer on this. He said,

that this, too, was included in the ‘‘rule of thumb.’’ I really must

protest. I can understand using a ‘‘rule of thumb’’ for estimating

elasticities; but to say that that included consideration of this substitution effect as well strains my credibility. Rather, what seems

to me, is that you simply did not consider this factor. That’s ok, if

you can consider it now. But to say, it too, was under the 60%–40%

rubric, without any citation for how much of the estimated 60% offset was due to this effect, and how much to the elasticity effect, is

unacceptable to me. This was made all the more so because I had

concluded the discussion of the ‘‘rule of thumb’’ with Mr. Bradley

before turning to this effect, he had said the ‘‘rule of thumb’’ was

a pass-through estimate, he had made no mention of it also including the substitution effect, but when I pointed out your March 22

letter had simply not responded to point 4 of my March 16 letter,

Mr. Bradley swept this quite different point up into the same ‘‘rule

of thumb.’’ If your ‘‘rule of thumb’’ included this substitution effect,

to what degree? Can you kindly tell me how the 60% offset was calculated—how much for elasticity between medical professional and

HMO, how much for elasticity between HMO and employer, how

much for elasticity between employer and employee, and how much

for the substitution effect as more doctors agreed to enter HMO’s?

Point D. Amendments in Committee to exclude all federal programs. Lastly, you are in receipt of a request, I believe, from Chairman Hyde to update your March 15 letter to reflect the fact that

a Conyers Amendment was accepted in mark-up, following the date

of your March 15 letter, to exclude all federal health programs

from this bill. Turning to page 3 of your March 15 letter, Table 1,

I observe several lines under the categories of ‘‘Direct Spending’’

and ‘‘Spending Subject to Appropriation Action’’ that should be adjusted because of this amendment. Can you kindly let me know

when you have done so?

Director Crippen, despite my disappointment on Point C above,

I do want you to know that I appreciate your sincere efforts to respond to my points, and Mr. Bradley’s patience in dealing with me

on the telephone. Our interests are exactly the same—to provide

the most accurate estimates possible of the fiscal effects of this leg-
19

islation; and I fully recognize the difficulty of your work and the

professionalism with which you and your staff execute it.

Kind regards,

TOM CAMPBELL, Member of Congress.

cc: Speaker Hastert

Chairman Henry Hyde

Chairman Goodling

Chairman Bliley

Chairman Kasich

Chairman Dreier

Chairman Thomas

Ranking Member Conyers

Congressman Goss

Members of the House Judiciary Committee

Parliamentarian Charles Johnson

Mr. Tom Bradley, CBO

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, May 17, 2000.

Hon. HENRY J. HYDE, Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1304, the Quality HealthCare Coalition Act.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact for federal costs and intergovernmental mandates is James Baumgardner, who can be

reached at 225–0810.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers Jr.

Ranking Democratic Member

Honorable Tom Campbell

H.R. 1304—Quality Health-Care Coalition Act of 2000.

As ordered reported by the House Committee on the Judiciary on

March 30, 2000

SUMMARY

H.R. 1304 would exempt health care professionals from antitrust

laws when they negotiate with health plans over fees and other

terms of any contract under which they provide health care items

or services. Professionals who form coalitions for that purpose

would receive the same treatment under antitrust laws that labor

organizations receive for collective bargaining activities under the

National Labor Relations Act. This antitrust exemption would

apply only to negotiations occurring within three years following

enactment. The Congressional Budget Office (CBO) concludes that

under the bill some health professionals, including doctors, dentists, and pharmacists, would join together and negotiate for higher
20

compensation and greater flexibility in the provision of care, thereby increasing private and public expenditures for health care.

The bill would affect both federal revenues and outlays. By increasing costs to private health plans, H.R. 1304 would result in

higher private health insurance premiums. In the case of employersponsored health plans, higher premium contributions charged to

employers would be passed on to employees in the form of lower

cash wages and other fringe benefits. Reductions in those taxable

forms of compensation would lead to lower federal and state tax

revenues. CBO estimates that federal tax revenues would fall by

$145 million in 2001 and by $3.6 billion over the 2001–2010 period

if H.R. 1304 were enacted.

H.R. 1304 would also raise the costs of several federal health

programs. Direct spending for the Federal Employees Health Benefits Program (FEHBP), Medicaid, and the State Children’s Health

Insurance Program (SCHIP) would grow by an estimated $128 million in 2001 and by $2.5 billion over the 2001–2010 period. Discretionary spending by federal agencies for the FEHBP, the Tricare

program of the Department of Defense, and the Indian Health

Service would increase by about $150 million over ten years.

H.R. 1304 contains an intergovernmental mandate as defined by

the Unfunded Mandates Reform Act (UMRA), but CBO estimates

that it would impose no costs on state, local, or tribal governments.

Thus, the costs of the mandate would not exceed the threshold established in that act ($55 million in 2000, adjusted annually for inflation). However, state, local, and tribal governments would face

higher expenses as purchasers of health care for their employees

and as providers of health care under Medicaid. In addition, they

would realize lower income tax collections as a result of lower levels of taxable income. The bill contains no private-sector mandates

as defined in UMRA.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary impact of H.R. 1304 is shown in Table

1. The bill would add to discretionary spending by all federal agencies for employee health benefits and would affect mandatory

spending in budget function 550 (health). It would also reduce federal revenues.

BASIS OF ESTIMATE

Under the bill, some health professionals would join together to

negotiate for higher compensation and greater flexibility in the provision of care. Allowing health care professionals to bargain collectively with health plans would result in higher health care expenditures for two reasons. First, the increased market power achieved

by providers who could form and maintain effective coalitions

would allow them to obtain higher fees from the health plans. Second, the greater flexibility that health professionals would obtain

in the provision of care would lead to greater utilization of services.

Because the bill contains a sunset provision, the full effects that

the antitrust exemption could have on the health insurance market

are likely not to be realized. CBO assumes that it would take five

years for such legislation to have its full effect of increasing annual

national expenditures on private health insurance by almost 2.6

percent in the absence of any compensating changes on the part of
21

health plans or other entities. Although the full effects would not

be realized prior to sunset (three years following enactment), the

effects of the legislation would likely persist beyond the third year

for several reasons: contracts negotiated during the first three

years might extend beyond that period; health plans might go

through an adjustment period while re-establishing utilization controls in the post-sunset period; and, since fee levels for health professionals would have been established at higher levels than would

occur under current law, the market would take some time to readjust once the original antitrust treatment was restored. Because

of the sunset provision, CBO estimates that the increase in private

health insurance premiums, before compensating changes on the

part of health plans and other entities, would rise to 1.5 percent

in 2003 and 2004 and then gradually shrink, reaching 0.1 percent

in 2010.

TABLE 1. ESTIMATE OF THE BUDGETARY EFFECTS OF H.R. 1304, THE QUALITY HEALTH-CARE ACT

By Fiscal Year, in Millions of Dollars

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

REVENUES

Income and Medicare

Payroll Taxes (OnBudget) 0 -100 -255 -430 -505 -410 -290 -205 -145 -100 -70

Social Security Payroll

Taxes (Off-Budget) 0 -45 -115 -190 -225 -180 -125 -90 -65 -45 -30

Total 0 -145 -370 -620 -730 -590 -415 -295 -210 -145 -100

DIRECT SPENDING

FEHBP for Annuitants 0 4 9 15 16 9 5 2 1 1 *

Medicaid 0 115 250 410 455 335 245 180 130 95 70

SCHIP 0 5 12 20 23 16 10 7 5 4 3

Total, On-Budget 0 124 271 445 494 360 260 189 136 100 73

FEHBP for Postal Workers and Annuitants

(Off-Budget) 0 3 7 0 0 0 0 0 0 0 0

Total,

Direct Spending 0 128 278 445 494 360 260 189 136 100 73

SPENDING SUBJECT TO APPROPRIATION ACTION

FEHBP for Active Workers 0 5 11 17 18 10 5 3 1 1 *

Indian Health Service 0 1 2 3 3 2 2 1 1 * *

Tricare (Department of

Defense) 0 5 9 14 14 9 6 4 3 2 1

Total 0 11 22 34 35 21 13 8 5 3 1

NOTES: FEHBP = Federal Employee Health Benefits. SCHIP = State Children’s Health Insurance Program. * = less than

$500,000.

Health plans, firms, and workers would have incentives to adjust

in a number of ways to the increase in the price of insurance that

would occur under the bill. Those adjustments would result in reductions in coverage by employers and employees, changes in the

types of health plans that are purchased, and reductions in the extent of coverage through increased deductibles, higher copayments,

or other changes in the scope or generosity of benefits. In the short
22

run, plans and employers might also absorb some of the cost in the

form of lower profits.

CBO assumes that such behavioral responses would offset 60

percent of the potential impact of the bill on workers’ compensation

other than health benefits. We estimate that the remaining 40 percent of the 2.6 percent potential increase, or about 1 percent of private health insurance costs, would be passed through to workers in

the form of reduced compensation (other than health benefits). We

further adjust the estimate to account for some reductions in other

fringe benefits. With the sunset provision, CBO estimates that an

increase of 0.6 percent in private health insurance costs would be

reflected in reduced compensation.

Effect on Fees for Health Care

For the purposes of this estimate, health care professionals are

separated into three categories: physicians, dentists and other

health care professionals, and pharmacists. Based on projections of

national health expenditures for 2000, private health insurance

spending for physicians will total an estimated $128 billion, spending for dentists and other health professionals will amount to $53

billion, and spending for prescription drugs and related items will

be $59 billion. The following discussion of the basis of CBO’s estimate pertains to the effects that would occur if the antitrust exemption were to attain its full effects. Because of the sunset provision included in the bill, however, those potential effects would not

be fully realized.

Physicians. The effect on health care costs of allowing physicians

to form coalitions to bargain with health plans would depend on

the gain obtained by each physician joining a coalition and the

number of physicians who would join.

Based on studies of the effects of unionization on the compensation of employees, CBO estimates that, on average, doctors who

join an effective coalition would secure an increase in fees averaging 15 percent. Only a fraction of all physicians would become

members of such coalitions, however.

Currently 20 percent of physicians are nonsupervisory employees

of a health organization and, therefore, are already eligible to form

a union. (They would not be directly affected by the bill.) Of those

approximately 100,000 physicians, about 40 percent are either

members of unions or covered by a collective bargaining agreement.

CBO expects that fraction to grow over the next several years.

Of the approximately 400,000 practicing physicians who would be

newly eligible to form a coalition under the bill, CBO estimates

that about one-third would join an effective coalition within five

years if there were no sunset provisions included in the bill. (In addition, some physicians who did not join an effective coalition

would benefit from negotiated increases in fees.) Together with the

growing fraction of employee-physicians who are expected to be

union members, we estimate that almost 40 percent of physicians

would be union or coalition members by 2006 if there were a permanent antitrust exemption. If there were no sunset provisions in

the bill, about 30 percent of all physicians would eventually join effective coalitions because of the legislation. Assuming a 15 percent

average increase in fees, total physician fees would rise by about

4.5 percent. Because physicians represent about one-third of in-
23

sured national health expenditures, CBO estimates that the effect

of newly eligible physicians joining those coalitions under H.R.

1304 would be to increase total private health insurance expenditures by 1.6 percent in 2006 if the exemption were permanent. Because the bill includes a sunset provision, those full effects on costs

would not be attained.

Dentists and Other Health Professionals. Like physicians, dentists and other health professionals who join an effective coalition

under the bill would obtain higher fees from health plans. CBO assumes that those health professionals would secure the same 15

percent average increase in fees if they were able to form effective

coalitions. However, CBO expects that the fraction of dentists and

other health professionals who would maintain an effective coalition would be lower than the proportion of participating physicians.

Also, dentists and other health professionals account for a much

smaller percentage of private health expenditures than do physicians. As a result, CBO estimates that higher fees for dentists and

other health professionals would increase private health expenditures by about 0.3 percent in 2006 in the absence of the sunset

rules.

Pharmacists. H.R. 1304 would also make pharmacists eligible to

form a coalition to negotiate with health plans over the net margins received for filling prescriptions. CBO assumes that pharmacists who could maintain an effective coalition would have the

same bargaining power as other health professionals. Thus, on average, they would be able to negotiate an average increase of 15

percent in their net margins. CBO expects that about one-third of

pharmacists would join an effective coalition. CBO estimates that

higher fees paid to pharmacists as a result of H.R. 1304 would potentially increase private health insurance expenditures by 0.1 percent.

Effect on Health Care Utilization

Health care professionals who formed an effective coalition under

the bill would also be likely to bargain with managed care plans

for greater flexibility in the provision of care. Those plans control

costs to a certain extent by regulating the quantity of services performed. Not all managed care plans limit the use of services to the

same extent, however. Preferred provider organizations (PPOs), for

example, control costs by negotiating discounts on the prices of

services and exercise very little management over the use of services. Health maintenance organizations (HMOs), in contrast, often

have tighter utilization controls.

Negotiations allowed under the bill would weaken the utilization

management controls used by some plans. Fee-for-service plans

and PPOs would not be directly affected because they have extremely limited utilization controls. Group- and staff-model HMOs

would also be unlikely to be significantly affected because the physician groups that work in those types of HMOs have a long history

of less costly practice styles, exemplified by lower rates of hospitalization. Also, physicians who are employees of HMOs can already unionize under current law so any behavior they might undertake to increase utilization would not be a direct result of H.R.

1304.
24

In contrast, other forms of HMOs and point-of-service plans tend

to be staffed by independently practicing doctors who are less integrated into the organization. Those plans have brought about utilization savings through various forms of financial incentives and

administrative requirements. Such control mechanisms could be

partly dismantled as the result of collective negotiations by the

physicians that staff such network plans. For those plans, utilization management now yields about a 5 percent savings compared

to indemnity insurance. CBO estimates that 50 percent of the utilization savings associated with coalition physicians who contract

with those managed care plans would be lost as a result of the bill.

This increase in utilization by coalition physicians would raise private health expenditures by 0.3 percent if the antitrust exemption

were permanent.

While CBO believes that professionals who form coalitions would

gain the most flexibility under this bill, the utilization effect might

not be limited to health professionals who are members of a coalition. If professionals in coalitions changed the way they practice

medicine, that would affect conventions of medical practice more

generally. That is, the changes in the way those professionals practice their trade could spill over to the rest of the physician population. The presence of this effect is based on evidence that physicians usually adhere to the norms of practice established by their

peers. CBO expects that such changes in professional practice

would only increase utilization by about one-fifth of the increase in

utilization that would occur in managed care plans whose utilization controls would be weakened through negotiation. This spillover

effect would potentially raise private health expenditures covered

by insurance by an additional 0.3 percent.

Effect on Federal Revenues and Direct Spending

H.R. 1304 would reduce federal revenues and increase direct

spending (see Table 1). By increasing premiums for employer-sponsored health benefits, it would substitute nontaxable employer-paid

premiums for taxable wages and would therefore decrease federal

income and payroll tax revenues. CBO estimates that the bill

would reduce federal tax revenues by $145 million in 2001 and by

$3.6 billion over the 2001–2010 period. Social Security tax revenues, which are off-budget, account for about 30 percent of those

totals.

The bill contains a provision maintaining antitrust liability for

coalitions of health professionals in negotiations involving services

furnished to beneficiaries of certain federal health benefit programs, including Medicare, Medicaid, the State Children’s Health

Insurance Programs, the Department of Defense’s program to insure private health care delivered to members of the uniformed

services and their dependents (Tricare), veterans’ health services,

the Federal Employees Health Benefits Program, and the Indian

Health Service. The provision aims to insulate federal programs

from any increased costs resulting from health professional collective bargaining, but CBO believes that the provision would be only

partly successful.

Negotiations between health professionals and health plans that

would be sanctioned by the bill would likely lead to increased compensation for services and a relaxation of some of managed care’s
25

controls over the use of those services. Health plans contracting to

provide services to federal programs would not be able to separate

these effects for federal beneficiaries completely. Higher compensation rates would increase the market price for professional services,

and plans serving federal programs might have to increase their

payment for services to assure an adequate supply to federal enrollees. Reducing managed care plans’ controls over services would

raise community standards for how intensively certain services are

used, and plans serving a federally-sponsored population would

likely need to provide comparable treatment.

The degree to which plans currently distinguish between federal

and nonfederal enrollment groups would also affect the degree to

which the bill’s language aimed at excluding federal programs

would limit federal costs. Industry practice generally distinguishes

Medicare and Medicaid enrollees, but other federal groups, such as

FEHBP and Tricare, may be grouped under the same contract that

covers services provided to employees of private firms. It is likely

that the clause aimed at excluding federal programs would ultimately be subject to litigation, because plans and providers negotiating a contract that covers services provided to employees of private firms would seek to include or exclude federal enrollment in

the covered population, depending on which they feel is to their advantage. Thus, how that clause would ultimately be interpreted or

applied is very uncertain.

CBO expects that, because managed care penetration in federal

health programs is lower than in the private sector, the bill would

have a commensurately lower effect on the costs of federal programs than on costs to the private sector. The provision to retain

the antitrust sanctions for collective bargaining over services to

federal beneficiaries would further reduce, but not eliminate, the

effect of the bill on spending for federal health programs. On the

other hand, behavioral responses for federal programs would not

offset as much of the potential impact of the bill as they would in

the private sector.

CBO estimates that H.R. 1304 would not have a significant effect

on spending by Medicare because Medicare’s administered pricing

systems insulate the program from pricing changes in the private

sector. However, the bill would increase direct spending by FEHBP

(for annuitants), Medicaid, and SCHIP by an estimated $124 million in 2001 and by $2.5 billion over the 2001–2010 period. In the

years of the projected maximum impact (2003 and 2004), the bill

would increase spending by FEHBP, Medicaid, and SCHIP by 0.3

percent. In addition, CBO estimates that spending by the Postal

Service for FEHBP coverage of postal workers and annuitants

would increase by $3 million in 2001 and $7 million in 2002. By

2003, however, CBO anticipates that the service would increase

postal rates and offset those costs. Costs to the Postal Service are

classified as off-budget and would not be subject to pay-as-you-go

procedures.

Assuming appropriation of the necessary amounts, CBO estimates the legislation would increase discretionary spending by federal agencies for the FEHBP for active workers by $5 million in

2001 and $71 million over 10 years.

CBO expects the proposal would also increase spending by the

Indian Health Service and Tricare by about $80 million over ten
26

years. The effect on spending by other federal health programs

would be negligible.

PAY-AS-YOU-GO CONSIDERATIONS

Because the bill would affect federal revenues and direct spending, pay-as-you-go procedures would apply. The direct spending and

revenue effects are shown in Table 2. For pay-as-you-go purposes,

only the effects in the current year, the budget year, and the succeeding four years are counted.

TABLE 2. ESTIMATED PAY-AS-YOU GO EFFECTS OF H.R. 1304

By Fiscal Year, in Millions of Dollars

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Changes in receipts 0 -100 -255 -430 -505 -410 -290 -205 -145 -100 -70

Changes in outlays 0 124 271 445 494 360 260 189 136 100 73

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

H.R. 1304 contains an intergovernmental mandate as defined by

UMRA, but CBO estimates that the mandate would impose no

costs on state, local, or tribal governments. By exempting health

care professionals from state, as well as federal, antitrust laws, the

bill would preempt state law, and therefore would be a mandate as

defined by UMRA. However, the bill would not require states to

take action as regulators in order to comply with the new exemption and in some cases might reduce their oversight responsibilities.

With certain health care professionals exempted from antitrust

laws, state, local, and tribal governments would experience an increase in premiums for health insurance for their employees and

would also see an increase in Medicaid and SCHIP costs. Those

governments, like private entities, could take a number of actions

to adjust to the increased premiums for their employees: reduce or

change coverage options, require higher copayments, or increase

deductibles. Over time, any remaining increase in costs would be

passed through to workers in the form of reduced compensation

(other than health benefits).

The bill would maintain antitrust liability for health professionals who provide services for federal health benefit programs,

including Medicaid and SCHIP. However, those programs would

not be completely shielded from the market changes precipitated by

the bill. Consequently, CBO estimates that state expenditures for

Medicaid and SCHIP would increase by about $90 million in 2001

and by about $1.2 billion over the 2001–2005 period.

Most states that tax income use the federal measure of adjusted

gross income as the basis of their tax calculations. Consequently,

the effect of substituting non-taxable income for taxable income for

federal income tax purposes would have the effect of decreasing

state income tax collections as well.

ESTIMATED IMPACT ON THE PRIVATE SECTOR

The bill contains no private-sector mandates as defined in

UMRA.
27

PREVIOUS CBO ESTIMATE

On March 15, 2000, CBO provided an estimate of H.R. 1304, as

introduced. The estimated costs of the reported bill are lower because they reflect two modifications in the bill. The first modification limits the antitrust exemption to a period of three years. The

second excludes federal programs from the antitrust exemption.

This estimate also includes spending subject to appropriation for

Tricare and the Indian Health Service. (CBO had not completed

those analyses for the estimate of the introduced version of the

bill.) Finally, this estimate displays separately the off-budget component of the change in FEHBP spending (for the Postal Service).

ESTIMATE PREPARED BY:

Federal Cost Estimate: James Baumgardner (225–0810), Karuna

Patel (225–2598), Tom Bradley (226–9010), Charles Betley

(226–9010), Eric Rollins (226–9010), and Sam Papenfuss (226–

2840)

Impact on State, Local, and Tribal Governments: Leo Lex (225–

3220)

Impact on the Private Sector: James Baumgardner (225–0810) and

Karuna Patel (225–2598)

ESTIMATE APPROVED BY:

Robert A. Sunshine

Assistant Director for Budget Analysis

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the committee finds the authority for this legislation in Article I, section 8 of the Constitution.

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

H.R. 1304, as introduced, consists of three sections.

Section 1. Section 1 provides that H.R. 1304 may be cited as the

‘‘Quality Health-Care Coalition Act of 1999.’’

Section 2. Section 2 sets forth congressional findings relating to

the bill.

Section 3. Subsection 3(a) provides that any group of health care

professionals which is negotiating with a health plan shall, in connection with those negotiations, have the same antitrust exemption

that labor unions have. The term ‘‘health care professional’’ is defined in subsection 3(d) to include nurse-practitioners and pharmacists within the exemption.

Subsection 3(b) provides antitrust immunity for actions taken in

good faith reliance on the exemption provided by subsection 3(a).

Subsection 3(c) provides that the exemption provided in subsection 3(a) shall not confer any right to participate in a collective

cessation of services not otherwise permitted by law.

Subsection 3(d) provides definitions of the terms ‘‘antitrust laws,’’

‘‘health plan,’’ ‘‘health insurance coverage,’’ ‘‘health insurance

issuer,’’ ‘‘group health plan,’’ ‘‘Medicare+Choice organization,’’

‘‘Medicare+Choice plan,’’ ‘‘Medicaid managed care entity,’’ and

‘‘health care professional’’ as those terms are used in the bill. The
28

term ‘‘health care professional’’ is broadly defined so that it includes nurse-practitioners and pharmacists within the antitrust exemption provided for in the bill.

H.R. 1304, as reported by the committee, consists of two sections.

Section 1. Section 1 provides that H.R. 1304 may be cited as the

‘‘Quality Health-Care Coalition Act of 2000.’’ The change from 1999

to 2000 was made as a technical correction.

Section 2. Section 2 of the bill as reported now contains the operative provisions of the bill. Section 2 of the bill as introduced contained congressional findings relating to the bill. At the markup,

the findings were deleted and what had been § 3 became § 2.

Subsection 2(a) provides that any group of health care professionals which is negotiating with a health plan shall, in connection

with those negotiations, have the same antitrust exemption that

labor unions have. The term ‘‘health care professional’’ is defined

in § 2(h)(3) to include nurse-practitioners and pharmacists within

the exemption.

Subsection 2(b) provides antitrust immunity for actions taken in

good faith reliance on the exemption provided by § 2(a).

Subsection 2(c)(1) provides that the exemption provided in § 2(a)

shall not confer any new right to participate in a collective cessation of services not already permitted by existing law. The original language read: ‘‘The exemption provided in subsection (a) shall

not confer any right to participate in any collective cessation of

service to patients not otherwise permitted by law.’’ Because unions

are otherwise permitted by law to strike and because this exemption gives health care professionals the same antitrust exemption

that unions have for collective bargaining purposes, some argued

that this language might be circular. The Hyde amendment rewrote this language to read: ‘‘The exemption provided in subsection

(a) shall not confer any new right to participate in any collective

cessation of service to patients not already permitted by existing

law.’’ This amendment was intended to eliminate the circularity

problem and more accurately state the intent of the provision.

Subsection 2(c)(2) provides that bill applies only to health care

professionals excluded from the National Labor Relations Act and

that it shall not be construed as changing or amending the NLRA

or affecting the status of any group under the NLRA. This amendment clarifies that the committee intends H.R. 1304 to exempt selfemployed healthcare professionals from antitrust laws and not to

place them under the jurisdiction of the National Labor Relations

Act or the National Labor Relations Board. This clarifying language was added by the Hyde amendment.

Subsection 2(d) provides that the exemption provided in § 2(a)

shall only apply during the 3-year period beginning on the date of

enactment, but that it shall continue to apply to contracts negotiated under the exemption for one additional year after the end of

the 3-year period. In other words, contracts may be negotiated during the 3-year period. During the fourth year, no new contracts

may be negotiated, but contracts negotiated during the 3-year period may continue to be carried out during the additional year. The

Hyde amendment added this language.

Subsection 2(e) provides that the exemption provided in § 2(a)

does not apply to any agreement or otherwise unlawful conspiracy

that excludes or limits the performance of services by any other
29

1This written statement represents the views of the Federal Trade Commission. Chairman

Pitofsky’s oral presentation and responses to questions are his own, and do not necessarily represent the views of the Commission or any other Commissioner.

health care professional or group of health care professionals within their lawful scope of practice. This language was added by the

Nadler amendment.

Subsection 2(f) provides that nothing in this section shall be construed to affect the application of Title VI of the Civil Rights Act.

This language was originally offered by Mr. Watt and Ms. Waters.

At Mr. Watt’s request, the committee incorporated this language

into the Nadler amendment by unanimous consent.

Subsection 2(g) provides that nothing in the bill shall apply to

negotiations between health care professionals and health plans

pertaining to benefits under certain enumerated Federal health

programs: Medicare, Medicaid, SCHIP, medical care for the uniformed services, veterans’ medical care, FEBHP, and the Indian

Health Care Improvement Act. This language was added by the

second Conyers amendment.

Subsection 2(h) provides for the General Accounting Office to

conduct a study of how the bill has worked during the first 6

months of the third year of the 3-year sunset period. The GAO will

make recommendations to Congress as to whether the exemption

should be extended. The Hyde amendment added this language but

provided for the study to be done by the Federal Trade Commission. The second Conyers amendment amended the Hyde amendment to have the study done by the GAO.

Subsection 3(d) provides definitions of the terms ‘‘antitrust laws,’’

‘‘health plan,’’ ‘‘health insurance coverage,’’ ‘‘health insurance

issuer,’’ ‘‘group health plan,’’ and ‘‘health care professional’’ as those

terms are used in the bill. The term ‘‘health care professional’’ is

broadly defined so that it includes nurse-practitioners and pharmacists within the antitrust exemption provided for in the bill. The

bill as introduced included definitions of ‘‘Medicare+Choice organization,’’ ‘‘Medicare+Choice plan,’’ ‘‘Medicaid managed care entity,’’

but the first Conyers amendment deleted these definitions from the

bill and also deleted these terms from the definition of a health

plan.

AGENCY VIEWS

Statement of Robert Pitofsky,1 chairman, Federal Trade Commission

Mr. Chairman, the Federal Trade Commission thanks you and

the members of the Committee for inviting us again this year to

present the Commission’s views on a proposed antitrust exemption

to allow physicians and other health care professionals to engage

in collective bargaining with health plans. The basic effect of this

year’s bill is the same as last year’s proposal: to grant independent

health care practitioners the right to agree on the fees and other

terms that they will accept from insurers, employers, and other

third party payers, and to boycott payers who refuse to accept their

demands. This year’s version, however, makes clear that the immunity would apply not just to doctors, but also to pharmacists and

others who supply health care products or services. The Commission continues to believe that such an exemption would be bad
30

2 An appendix describing these cases in more detail will be provided under separate cover.

medicine for consumers. The issues that have been raised regarding patient protection are vitally important, but this proposal is not

the way to address them.

H.R. 1304 would create a broad antitrust exemption that would,

for example, allow all of the physicians in a particular medical specialty in an area to demand a 20% increase in fees and to refuse

to contract with any insurer who refused to pay those rates. The

example mentioned above is not a mere hypothetical. The Commission’s staff currently has an investigation into just such conduct.

Nor is this an isolated case. The Commission has brought numerous actions challenging similar activities.2

The bill, while appealing in its apparent simplicity, threatens to

cause serious harm to consumers, to employers, and to federal,

state, and local governments:

• Doctors and other health care professionals could join together to demand substantially higher fees.

• Pharmacists could insist on higher payments for filling prescriptions. The bill apparently would permit even large chain

pharmacies, such as CVS and Rite Aid, to get together and

demand higher prices.

• Consumers and employers, including government employers,

would face higher insurance premiums.

• Consumers would pay more out-of-pocket and could see their

benefits reduced.

• Medicaid programs that provide services through managed

care plans could be forced to increase their budgets or reduce

services.

• The number of uninsured Americans, and the costs borne by

state and local governments in providing for their care, could

increase significantly.

Supporters of the bill argue that giving this kind of unrestrained

power to private competitors is needed because of concerns about

the changes taking place in our nation’s health care system. That

significant changes are occurring is beyond dispute. Efforts by private employers and government health care programs to address

rapidly increasing health care costs have transformed health service markets. Many doctors are concerned about their ability to care

for their patients in the way they believe is best. Many patients are

dissatisfied with the services they have received from their health

plans; others are worried about the availability and quality of services should they become seriously ill. Press reports of apparent

abusive practices by some health plans abound. But even though

there are serious problems concerning the relationship of HMOs

and other health plans to doctors and patients that deserve to be

addressed, this proposal is the wrong approach.

What do we mean by this? An across-the-board antitrust exemption would allow all doctors in a community or all members of a

particular specialty—for example, specialists already compensated

at $150,000 to $200,000 a year, not to mention pharmacists who

work for large corporate pharmacies—to band together and insist

that they be paid an additional 10 or 20%. Although H.R. 1304 is
31

3See President’s Advisory Commission on Consumer Protection and Quality in the Health

Care Industry, Quality First: Better Health Care for All Americans (1998); California Managed

Health Care Improvement Task Force, Improving Health Care in California (1998). 4 101 F.T.C. 191 (1983).

5 Id. at 234–35.

presented as an extension of the antitrust immunity granted to

labor organizations, the circumstances here are surely very different from the context in which the labor exemption was originally

adopted by Congress.

The Commission’s opposition to the proposed exemption is not

based on any policy preference for HMOs over fee-for-service medicine, or on an assumption that the market, if left alone, will cure

all problems. Nor does it reflect a lack of concern about the special

characteristics of health care markets, or disregard for the strong

sense of responsibility that medical practitioners feel for the welfare of their patients. Rather, our opposition is based on the Commission’s experience investigating the impact on consumers of numerous instances of collective bargaining by independent health

care practitioners.

The bill’s stated purpose is to promote the quality of patient care.

Collective bargaining by health care professionals, however, does

not ensure better care for patients. Two broad-based commissions

recently studied changes in the health care system and recommended numerous measures to protect consumers and promote

quality. But neither suggested that antitrust immunity was appropriate or desirable.3 The Commission believes that measures designed to increase the power of consumer choice will serve patients,

and our nation as a whole, far better than giving providers the collective power to dictate what choices—and, significantly, what

prices—will be available in the marketplace. Government can play

an important role in creating the conditions for effective competition in health care markets, and in addressing specific abuses

through targeted regulation.

I. THE BILL WOULD GRANT BROAD ANTITRUST IMMUNITY FOR PRICE

FIXING, BOYCOTTS, AND OTHER ANTICOMPETITIVE CONDUCT

H.R. 1304, like the proposal before the Committee last year,

would create a broad antitrust exemption for price fixing and boycotts by physicians, dentists, pharmacists, and other health care

professionals. To understand the types of activity that this bill

would legalize, one need only refer to the record of antitrust law

enforcement over the past two decades. The Commission, the Department of Justice, and state attorneys general have brought numerous actions challenging price fixing and boycotts by health care

professionals who sought to obtain higher fees or more favorable

reimbursement terms from third party payers. For example, the

Commission’s early case against the Michigan State Medical Society 4 challenged the Society’s formation of a ‘‘negotiating committee’’

that orchestrated boycotts of the state Blue Shield plan and the

state Medicaid program in order to promote the reimbursement

policies that the Society preferred. Among other things, the Society

opposed vision and hearing care benefits plans negotiated by the

United Auto Workers union, because these programs provided for

different reimbursement levels for participating and nonparticipating providers.5
32

6Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order).

7 Commonwealth of Virginia v. Physicians Group, Inc., 1995–2 Trade Cas. (CCH) ¶ 71,236

(W.D. Va. 1995) (consent decree). 8 North Lake Tahoe Medical Group, Inc., FTC File No. 981–0261, 64 Fed. Reg. 14730 (Mar.

26, 1999) (proposed consent order). 9See, e.g., Mesa County Physicians Independent Practice Association, Inc., Dkt. No. 9284 (May

4, 1999) (consent order); Asociacion de Farmacias Region de Arecibo, Dkt. No. C–3855 (March

2, 1999) (consent order); Ernesto L. Ramirez Torres, D.M.D., Dkt. No. C–3851 (Feb. 5, 1999)

(consent order); M.D. Physicians of Southwest Louisiana, Inc., Dkt. No. C–3824 (Aug. 31, 1998)

(consent order); Institutional Pharmacy Network, Dkt. No. C–3822 (Aug. 11, 1998) (consent

order); FTC and Commonwealth of Puerto Rico v. College of Physicians-Surgeons of Puerto Rico,

FTC File No. 971–0011, Civil No. 97–2466–HL (D.P.R. October 2, 1997) (consent decree); Montana Associated Physicians, Inc./Billings Physician Hospital Alliance, Inc., 123 F.T.C. 62 (1997)

(consent order); La Asociacion Medica de Puerto Rico, 119 F.T.C. 772 (1995) (consent order);

McLean County Chiropractic Association, 117 F.T.C. 396 (1994) (consent order); Baltimore Metropolitan Pharmaceutical Association, Inc. and Maryland Pharmacists Association, 117 F.T.C. 95

(1994) (consent order); Southeast Colorado Pharmacal Association, 116 F.T.C. 51 (1993) (consent

order); Peterson Drug Company, 115 F.T.C. 492 (1992); Southbank IPA, Inc., 114 F.T.C. 783

(1991) (consent order); Pharmaceutical Society of the State of New York, Inc., 113 F.T.C. 661

(1990) (consent order); Patrick S. O’Halloran, M.D., 111 F.T.C. 35 (1988) (consent order); Eugene

M. Addison, M.D., 111 F.T.C. 339 (1988) (consent order); New York State Chiropractic Association, 111 F.T.C. 331 (1988) (consent order); Rochester Anesthesiologists, 110 F.T.C. 175 (1988)

(consent order); Preferred Physicians, Inc., 110 F.T.C. 157 (1988) (consent order); Association of

Independent Dentists, 100 F.T.C. 518 (1982) (consent order).

More recently, the Commission issued a consent order settling

charges that a group of physicians in Danville, Virginia, agreed on

reimbursement rates and other terms of dealing with third-party

payers, agreed to boycott payers that did not meet those terms, and

thereby succeeded in obstructing the entry of new health care plans

into its area.6 One of the victims of the boycott was a health plan

established by Virginia to cover state employees. The Commonwealth of Virginia jointly investigated the case with FTC staff, and

collected $170,000 in penalties and damages for the increased costs

it had to bear in providing health benefits to its employees.7

The Commission’s most recent challenge to providers’ collective

negotiation with health plans involved a group of independent physicians that included between 70 and 80% of the doctors in the

Lake Tahoe area. According to the complaint, the doctors negotiated collectively with all health plans in the area, and forced the

plans to either accept rates much higher than those paid in other

parts of California or Nevada, or abandon plans to contract with

doctors in the area. The physicians asked Blue Shield of California

to raise its premiums to fund increased payments to doctors, and

concertedly terminated their participation agreements with Blue

Shield when it did not comply with their demands.8

These are just a few examples of actions antitrust enforcers have

blocked—actions that meant higher prices for consumers without

any guarantee of improved patient care. There are many more.9

The immediate effect of H.R. 1304 would be to allow such anticompetitive conduct to proceed unchallenged, and it may encourage

health care professionals to undertake such actions.

The bill also could permit physicians to collectively demand

terms from health plans that would disadvantage allied health care

providers or other alternatives to prevailing modes of medical practice. The collective judgment of health care professionals concerning what patients should want can differ markedly from what

patients themselves are asking for in the marketplace. The Commission has taken enforcement action in cases in which provider

groups sought to impede practice by competing alternatives by, for

example, denying, delaying, or limiting hospital privileges of non-
33

10See, e.g., Medical Staff of Memorial Medical Center, 110 F.T.C. 541 (1988) (consent order);

North Carolina Orthopaedic Association, 108 F.T.C. 116 (1986) (consent order). 11See Medical Staff of Broward General Medical Center, 114 F.T.C. 542 (1991) (consent order);

Medical Staff of Holy Cross Hospital, 114 F.T.C. 555 (1991) (consent order). 12The Commission challenged an alleged boycott of a health plan by physiatrists (doctors specializing in rehabilitative medicine) that demanded not only higher fees, but also that the plan

pay for physical therapy services only if the patient was referred by a physiatrist (rather than

a doctor in another specialty). La Asociacion Medica de Puerto Rico, 119 F.T.C. 772 (1995) (consent order). See also Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia, 624

F.2d 476 (4th Cir. 1980), cert. denied, 450 U.S. 916 (1981) (physicians used their control of Blue

Shield to impose payment policies that disadvantaged competing clinical psychologists). 13The courts have immunized certain agreements arising out of collective bargaining between

employers and unions—the so-called ‘‘nonstatutory’’ or ‘‘implicit’’ labor exemption—precisely because it was necessary to effectuate the statutory exemption that protects the bargaining and

related activities of unions and their members. See Brown v. Pro Football, Inc., 518 U.S. 231,

237 (1996). See also P. Areeda and H. Hovenkamp, IA Antitrust Law ¶ 255c at 173 (1997)

(‘‘There seems little warrant in labor law or policy for distinguishing most collective bargaining

agreements from unilateral union activities to accomplish the same result.’’). Courts might well

find similar logic supports immunizing many agreements arising from the collective bargaining

protected by H.R. 1304, including not only agreements about wages, but also agreements that

preserve the ability of physicians to work free from competition by nonphysicians. 14Some types of plans are required as a condition of licensure to maintain a network of providers adequate to provide services to their enrollees; thus, the inability to establish a satisfactory network would force such a plan to leave the market (or prevent it from entering). 15 Enrollees of HMOs would have to pay out of pocket the full cost of services obtained from

non-network providers. PPO enrollees who see non-network providers would have to pay any

amount by which the providers’ billed charges exceeded the plan’s payment allowance. In addition, they likely would have to pay the full charge at the time of service, file a claim for payment, and wait to be reimbursed by the plan, instead of simply paying the copayment and relying on the doctor to collect the remainder of the fee directly from the insurance company.

physician providers 10 or physicians providing services through innovative arrangements, such as the Cleveland Clinic’s integrated

multi-specialty group practice.11 Other cases illustrate how groups

of professionals have attempted to secure health plan payment policies that disadvantage their competitors.12 Although it was suggested at last year’s hearing that the legislation would not grant

antitrust immunity to agreements between doctors and health

plans that disadvantaged competing providers, but would protect

only agreements among physicians on what terms they will accept

from plans, it is not clear that the courts would interpret the law

in that way.13

The differences between this year’s bill and last year’s do nothing

to reduce the Commission’s concerns about the potential harm to

consumers. Indeed, the changes primarily broaden rather than

limit the bill’s scope. The current version includes an expansive

definition of ‘‘health care professional’’ that appears designed to encompass a sweeping array of individuals who provide health care

products or services. This year’s bill also makes clear that state, as

well as federal, antitrust enforcement would be displaced. In addition, although the current bill excludes the ‘‘collective cessation of

service to patients’’ from its protections, this limitation takes virtually nothing away from the coercive power the bill grants to providers. The bill continues to permit physicians and others to collectively refuse to deal with a health plan that refuses their demands

for higher fees. If a plan failed to accede to those demands, and the

group refused to contract, the plan could be forced from the market,14 or patients would be left to pay their medical bills out of

their own pockets.15 Thus, although providers could not collectively

refuse to treat patients, their collective refusal to contract with a

plan could impose formidable financial obstacles to patients seeking care.

Although styled as a labor exemption, the antitrust immunity

that H.R. 1304 would confer has little to do with established labor
34

16 Columbia River Packers Ass’n v. Hinton, 315 U.S. 143 (1942). Accord, Los Angeles Meat

and Provision Drivers Union v. United States, 371 U.S. 94 (1962); United States v. National

Ass’n of Real Estate Boards, 339 U.S. 485 (1950); United States v. Women’s Sportswear Mfg.

Ass’n, 336 U.S. 460 (1949); American Medical Ass’n v. United States, 317 U.S. 519, 533–36

(1943) (rejecting assertions that the labor exemption to the antitrust laws applied to joint efforts

by independent physicians and their professional associations to boycott an HMO in order to

force it to cease operating). 17This distinction between employees and independent contractors is fundamental to the labor

relations scheme established by Congress. NLRA Section 2(3) gives the right to bargain collectively only to ‘‘employees.’’ The 1947 Taft-Hartley amendments to the NLRA included a provision expressly stating that the term ‘‘employee’’ does not include ‘‘any individual having the status of an independent contractor.’’ 29 U.S.C. § 152(3). The House Report accompanying the

amendment stated:

In the law, there always has been a difference, and a big difference, between ‘‘employees’’ and ‘‘independent contractors.’’ ‘‘Employees’’ work for wages or salaries under direct supervision. ‘‘Independent contractors’’ undertake to do a job for a price, decide how

the work will be done, usually hire others to do the work, and depend for their income

not upon wages, but upon the difference between what they pay for goods, materials,

and labor and what they receive for the end result, that is, upon profits.

H.R. Rep. No. 245, 80th Cong., 1st Sess. 18 (1947). Just last month, the NLRB Regional Director

in Philadelphia decided, after having held 14 days of hearings, that network doctors of a New

Jersey HMO were independent contractors rather than employees within the meaning of the

NLRA. AmeriHealth Inc./AmeriHealth HMO and United Food and Commercial Workers Union,

Case 4–RC–19260 (NLRB 4th Region, May 24, 1999).

law and policy. The labor exemption already applies to health care

professionals under the same standards that apply in other sectors

of the economy; that is, physicians who are employees (for example,

of hospitals) are already covered by the labor exemption under current law. The labor exemption, however, is limited to the employeremployee context, and it does not protect combinations of independent business people.16 H.R. 1304 is designed to override the

distinction Congress drew in the labor laws between employees and

independent contractors, and to allow some independent contractors—doctors and other health care professionals operating as independent businesses—to collectively exert economic pressure on

health plans to gain higher fees and other, more favorable, terms

of dealing.17 In addition, it grants the exemption without providing

for any oversight of the collective bargaining process by the National Labor Relations Board.

Moreover, this extension of the labor exemption is being offered

as a way to remedy matters that collective bargaining was never

intended to address. The stated goal of this bill is to promote the

quality of patient care. The labor exemption, however, was not created to solve issues regarding the ultimate quality of products or

services that consumers receive. Collective bargaining rights are

designed to raise the incomes and improve working conditions of

union members. The law protects the United Auto Workers’ right

to bargain for higher wages and better working conditions, but we

do not rely on the UAW to bargain for safer cars. Congress addressed those concerns in other ways. The patient care issues

raised by supporters of the bill deserve serious attention, but an illfitting labor exemption is the wrong approach.

II. THE EXEMPTION WOULD HARM CONSUMERS

It is undisputed that the immediate effect of H.R. 1304 would be

to permit all doctors in a community—indeed, all health care professionals—to bargain collectively with all health plans that contract with independent health practitioners. It would permit those

practitioners to demand much higher fees for their services, and to

refuse collectively to contract with plans that did not meet those
35

demands. What is disputed is the impact the bill would have on

consumers.

At last year’s hearing, there was much discussion about

hypotheticals and theoretically-possible results. The Commission

believes, however, that past experience is a more reliable guide to

what is likely to happen when health care practitioners collectively

bargain with health plans. That experience suggests that the proposed exemption presents substantial risks of harm to consumers,

private and governmental purchasers of health care, and taxpayers

who ultimately foot the bill for government-sponsored health care

programs.

A. The Exemption Would Raise Costs And Threatens To Reduce Access To Care

Without antitrust enforcement to block price fixing and boycotts

designed to increase health plan payments to health care professionals, we can expect prices for health care services to rise substantially. Health plans would have few alternatives to accepting

the collective demands of health care providers for higher fees. The

effect of the bill, however, would not simply be on the health plans

and employers that are forced to pay higher prices to health care

practitioners, but can be expected to extend to various parties, and

in various ways, throughout the health care system:

• Consumers and employers would face higher prices for

health insurance coverage.

• Consumers also would face higher out-of-pocket expenses as

copayments and other unreimbursed expenses increased.

• Consumers might face a reduction in benefits as costs increased.

• Senior citizens participating in Medicare HMOs would face

reduced benefits, because Medicare pays these HMOs a fixed

amount per enrollee. Higher fees for professional services

means health plans would have fewer dollars available to

pay for prescription drug coverage and other benefits that

are not available under traditional Medicare but currently

are provided by many Medicare HMOs.

• The federal government would pay more for health coverage

for its employees through the Federal Employees Health

Benefits Program and military health programs.

• State and local governments would incur higher costs to provide health benefits to their employees.

• State Medicaid programs attempting to use managed care

strategies to serve their beneficiaries could have to increase

their budgets, cut optional benefits, or reduce the number of

beneficiaries covered.

• State and local programs providing care for the uninsured

would be further strained, because, by making health insurance coverage more costly, the bill threatens to increase the

already sizable portion of the population that is uninsured.

These widespread effects are not simply theoretical possibilities.

The record of antitrust law enforcement sets forth the impact of

collective ‘‘negotiations’’ on the public. For example, as described in

the Commission’s complaints, collective bargaining by anesthesiol-
36

18Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Rochester Anesthesiologists, 110

F.T.C. 175 (1988) (consent order). 19See, e.g., Baltimore Metropolitan Pharmaceutical Association, Inc. and Maryland Pharmacists Association, 117 F.T.C. 95 (1994) (consent order); Pharmaceutical Society of the State

of New York, Inc., 113 F.T.C. 661 (1990) (consent order). 20See Peterson Drug Company, 115 F.T.C. 492, 540 (1992). See also Pharmaceutical Society

of the State of New York, Inc., 113 F.T.C. 661 (1990) (consent order). 21 United States General Accounting Office, ‘‘Private Health Insurance: Continued Erosion of

Coverage Linked to Cost Pressures’’ 2–3 (GAO/HEHS–97–122) (July 1997). A more recent study

also concluded that the increase in the proportion of workers who are not covered by private

health insurance, from 15.1% in 1979 to 23.3% in 1995, was due in large part to per capita

health care spending rising much more rapidly than personal income during the period. (Per

capita health spending divided by median income rose from 4.5% in 1979 to 7.3% in 1995.)

Kronick & Gilmer, ‘‘Explaining The Decline in Health Insurance Coverage, 1979–1995,’’ 18:2

Health Affairs 30 (March/April 1999). Another study reported that in 1997, 2.5 million people

refused to accept employer-sponsored health insurance coverage for which they were eligible,

even though they had no other source of coverage. Sixty-eight percent of these employees reported that the high cost of health insurance was the reason they rejected the coverage. Thorpe

& Florence, ‘‘Why Are Workers Uninsured? Employer-Sponsored Health Insurance in 1997,’’ 18:2

Health Affairs 213 (March/April 1999). See also Findlay & Miller, ‘‘Down a Dangerous Path: The

Erosion of Health Insurance Coverage in the United States’’ (May 1999). 22 In 1997, private insurance paid $109.1 billion for physician services, and an additional $43.2 billion for dental and other professional services. This amounts to about 44 % of total private insurance payments, and about 49% of private insurance payments for health services and

supplies. National Health Expenditures 1997, Table 3 (found at www.hcfa.gov/stats/nhe-oact/

tables/t11.htm).

ogists in Rochester, New York, and by obstetricians in Jacksonville,

Florida, forced health plans to raise their reimbursement, and the

result was increased premiums for the HMOs’ subscribers.18 Other

cases have challenged actions by associations of pharmacists who

succeeded in forcing state and local governments to raise reimbursement levels paid under their employee prescription drug

plans.19 In one such case, an administrative law judge found that

the collective fee demands of pharmacists cost the State of New

York an estimated $7 million.20

By raising health care costs and making health insurance less affordable, the exemption threatens to increase the number of uninsured and thus reduce access to care. A 1997 report by the General

Accounting Office concluded that a major reason for declining private health coverage is the rising cost of health insurance. Higher

insurance costs affect employers’ decisions whether to offer health

benefits and employees’ decisions whether to purchase coverage.21

In a country where 43.4 million people did not have health insurance in 1997 (1.7 million more than in 1996), any development that

threatens to increase the proportion of the population that is uninsured is cause for serious concern.

B. There Is No Support For Claims That Consumer Costs Would

Not Increase

In last year’s hearing there was acknowledgment that passage of

the bill could result in higher payments to health professionals.

There has been a suggestion that fee increases imposed on health

plans might not be passed on to consumers, but could simply reduce health plan profits. Such a result is unlikely. Fees for professional services account for almost one-half of private insurance payments for health services and supplies.22 If these costs increase significantly, the most logical assumption is that costs to consumers

would go up substantially. Relying on an assumption that higher

costs will not be passed on to consumers puts consumers at risk of

serious harm. Economic theory predicts that a significant industrywide increase in input costs will ordinarily raise the price of the
37

23 A study published last year concluded that, although health care costs and health insurance

premiums did not increase at identical rates on a year-to-year basis in recent years, ‘‘over a

slightly longer period, the dominant influence on premiums is underlying costs’’ of health care

products and services. Ginsberg & Gabel, ‘‘Tracking Health Care Costs: What’s New in 1998,’’

17:5 Health Affairs 141, 145 (Sept./Oct. 1998). 24 Information on HMOs’ market shares is most readily available. 25See The InterStudy Competitive Edge, Regional Market Analysis 8.1 (June 1998). 26 Indeed, in 1997 the percentage of workers in traditional HMOs fell from 33 to 30%, while

the percentage enrolled in PPOs and point of service plans rose. See ‘‘Wall Street Verbatim;

Wider Networks Need Not Drive New Cost Explosion,’’ Medicine & Health (June 22, 1998). 27Group Life and Health Insurance Co. v. Royal Drug Co., 440 U.S. 205 (1979); see also Union

Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982).

final product.23 Moreover, as noted above, our enforcement actions

provide numerous examples in which health care professionals’ collective demands for higher fees resulted in higher costs to consumers and to government purchasers.

Arguments that consumers would not be harmed by an antitrust

exemption for collective bargaining by independent health care professionals appear to rest on assertions that the bill would balance

the bargaining power between health care professionals and health

plans. These assertions, however, are incorrect. The bill would permit doctors to create monopolies. On the health plan side of the

ledger, the evidence does not support the suggestion that most (or

even many) areas have only one or two health plans. A November

1998 letter to Chairman Hyde from Chairman Pitofsky discussed

in greater length than is possible here the available information on

the extent to which health plans have market power in individual

geographic areas. That information indicates that health plan markets vary widely, and simply does not support suggestions that

most markets have little or no health plan competition. For example, individual HMOs typically face considerable competition from

other HMOs.24 Data on HMO penetration published in June 1998

show that areas in which HMOs as a group have the largest collective market share tend to have a larger number of individual

HMOs in operation and more competitive HMO markets.25 Of

course, HMOs also face competition from other types of health

plans, such as preferred provider organizations (‘‘PPOs’’).26

Nor does the recent number of highly publicized mergers among

commercial health plans suggest that most markets are likely to

have only one or two health plans in the future. The Commission

and the Department of Justice review these transactions, and we

have investigated those that appeared to raise competitive concerns. The Commission is committed to preserving competition in

the market for health plans, as in all markets, and if a proposed

transaction appeared likely to create market power, we would challenge it.

Arguments about equalizing bargaining power also rest on unsupported assertions that the McCarran-Ferguson Act gives insurance companies leverage in bargaining with health care professionals. Although McCarran-Ferguson protects certain types of activities by insurers (to the extent that such activity is regulated by

state law), the Supreme Court has held an insurance company’s

agreements with providers on the fees they will be paid are not

‘‘the business of insurance’’ and thus are not covered by the

McCarran-Ferguson immunity.27 It seems clear, therefore, that collusion among insurers on such agreements likewise would not be

protected by the Act. In fact, complaints about health plans wielding power over doctors appear to have nothing to do with
38

28The statements of antitrust enforcement policy issued by the Commission and the Department of Justice create an antitrust safety zone for health care providers’ collective provision of

non-fee-related information to health plans. See Statements of Antitrust Enforcement Policy in

Health Care 40, 4 Trade Reg. Rep. (CCH) ¶ 13,151 (Aug.1996) (available at www.ftc.gov). 29 ‘‘Aetna’s U.S. Healthcare Unit Revamps Doctors’ Contracts After AMA Criticism,’’ Wall

Street Journal B10 (Oct. 20, 1998).

McCarran-Ferguson or with any statutorily-protected collusion

among insurers. We know of no evidence of insurers colluding in

setting fees or other terms of dealing with providers, and the Commission does not believe that McCarran would protect such conduct. Rather, the complaints revolve around the size and power of

individual insurers relative to individual health professionals.

There is undoubtedly a bargaining imbalance between an individual physician in solo practice and an insurance company. Bargaining imbalances between parties to a commercial transaction

are not uncommon in our economy. But the suggestion that this bill

would not impose higher costs on consumers and others—on the

ground that the exemption would merely create a countervailing

monopoly—is premised on theoretical arguments about market conditions that do not describe most health care markets. These speculative arguments provide no assurance that the bill’s effect would

not be a dramatic inflation in health care costs.

C. No Antitrust Exemption Is Needed To Allow Professional Societies And Others To Discuss Their Concerns About Actions By

Health Plans

In the debate over this proposed exemption, we frequently hear

arguments that the antitrust laws prevent physicians from being

effective advocates for their patients. Indeed, it is often suggested

that any effort by physicians to talk among themselves or with

plans about concerns regarding health plans’ practices would violate the antitrust laws. That is simply not the case. Health care

professionals can and do engage in collective advocacy, both to promote the interests of their patients and to express their opinions

about other issues, such as payment delays, dispute resolution procedures, and other matters. Health care associations have traditionally played an active role in lobbying legislatures and regulatory bodies, such as state insurance commissions, and presenting

issues to the media and the public.

Moreover, the antitrust laws do not prohibit medical societies

and other groups from engaging in collective discussions with

health plans regarding issues of patient care. Among other things,

physicians may collectively explain to a health plan why they think

a particular policy or practice is medically unsound, and may

present medical or scientific data to support their views.28 In fact,

physician groups have presented their views on a number of issues

to payers. For example, the American Medical Association has

issued a Model Medical Services Agreement that explains its views

on appropriate contract terms and on why other contract terms are

inappropriate or harmful. Recent press reports indicate that Aetna

U.S. Healthcare has altered some of its contract terms in response

to communications from the American Medical Association concerning physician dissatisfaction with the contracts.29

The Commission has never brought a case based on physicians’

collective advocacy with a health plan on an issue involving patient

care. Our cases have addressed instances in which physician
39

30 101 F.T.C. at 302–09. 31 Id. at 314; see also Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Rochester

Anesthesiologists, 110 F.T.C. 175 (1988) (consent order). 32For example, a survey conducted by the Center for Studying Health System Change found

large differences in Americans’ willingness to trade lower health care costs for limits on choice

of providers available in the network, and that many people on both sides of the question had

strongly held views. Data Bulletin Number 4 (Fall 1997).

groups (1) negotiated collectively on fee levels or other price-related

issues, or (2) collectively refused to contract with plans, either to

gain acceptance of their price-related demands or to prevent or

delay market entry by managed care plans generally. In all such

cases, the Commission has been very careful to make sure that its

orders do not interfere with the legitimate exchange of information

and views between health plans and health care practitioners. Indeed, in the Commission’s first litigated case involving collective

negotiations by physicians—Michigan State Medical Society—the

opinion emphasized that the antitrust laws do not prohibit health

care providers’ collective provision of information and views to

health plans.30 Specific language was inserted in that order, and

in subsequent orders, to make it clear that bans on anticompetitive

agreements among competing providers do not prohibit the provision of information and views to health plans concerning any issue,

including reimbursement.31

III. THERE ARE BETTER WAYS TO PROTECT CONSUMERS

For all the reasons set forth above, the Commission believes the

proposed antitrust exemption is the wrong approach to solving concerns about patient care, and that it threatens serious harm to consumers. The Commission recognizes the serious concerns that have

been raised regarding the current operation of health care markets.

We do not suggest that the market is performing as well as it

could, or that the market can or will cure all of the problems that

concern this Committee. But recent efforts to examine health care

markets, such as the President’s Advisory Commission on Consumer Protection and Quality in the Health Care Industry, have

produced a variety of concrete proposals for reform. As antitrust

enforcers, we do not seek to endorse any specific proposal. We note,

however, that these studies recommend a number of ways to improve quality and protect consumers, and they do not recommend

antitrust immunity or collective bargaining rights for providers.

Proposals for reform include:

• Increasing Consumers’ Ability To Choose Their Health Plan.

A fundamental concern expressed by health policymakers—and by members of this Committee at last year’s

hearing—is that many consumers lack a choice among different types of health plans. Most consumers obtain health

care coverage as a benefit of employment, and many employers offer only one plan. Consumers have different views

about many aspects of health care service delivery, including

the types of settings in which they want to receive health

care, the kinds of services and health practitioners to which

they want access, how much they are willing to pay for

health insurance, and the value they attach to broader

choices among providers.32 Offering consumers a choice can

help make health plans more responsive to consumer pref-
40

33Other observers have urged actions to make it possible for much greater numbers of consumers to choose their health plans directly, rather than having their range of choice defined

by their employer. The AMA, for example, has proposed moving from an employment-based system of health insurance to a system of individually selected and owned health insurance coverage, in order to permit individuals with varying needs and preferences to choose the plan that

suits them best. As the AMA recognizes, such a system depends on competition among various

plans on price, plan features, and quality, that will place pressure on plans to operate efficiently

and to lower the price of insurance, as well as to be responsive to individual patients’ concerns

about quality. American Medical Association, ‘‘Expanding Access to Insurance Coverage for

Health Expenses’’ (Nov. 1998); American Medical Association, ‘‘Rethinking Health Insurance’’

(Nov. 1998). 34The Presidential Commission concluded that more active involvement by public and private

group purchasers and by consumers in demanding high quality services would increase the industry’s ability and willingness to focus on quality improvement. To this end, it recommended

development of core sets of quality measures for health plans, institutional providers, and individual practitioners, and making valid, reliable and comprehensive comparative quality information widely available. Quality First: Better Health Care For All Americans 3–4 (1998). Much

work already is being done to develop and improve methods for measuring and communicating

information about health plans’ performance and the quality of services they provide. 35 In addition, there are plans to use a government website as a gateway for consumers seeking information on health care quality.

erences. Consumer choice can be increased, for example, by

regulatory changes making it easier for small employers to

participate in purchasing pools that can offer individuals a

choice of health plans.33

Increased consumer choice among health plans also would

be good for doctors. Patients who can choose among plans

are less likely to have to switch doctors when the employer

changes the health plan that is offered, with the result that

doctors likely would feel less pressure to participate in a

large number of plans in order to retain access to their patients.

• Improving Consumer Information.

Several proposals would require health plans to disclose

various kinds of information, including limits on coverage,

use of drug formularies, how procedures and drugs are

deemed experimental, and the types and extent of dispute

resolution procedures. In addition, work also is underway to

develop ways of presenting consumers with comprehensive

comparative quality and performance information about

health plans, to better inform their decision-making.34

The Commission’s Bureau of Consumer Protection has

been active in efforts to improve the information available to

consumers through a federal interagency task force on health

care quality (the Quality Interagency Coordinating Task

Force). The consumer information committee of this group is

working on ways to improve the information that federal

health care plans disclose to consumers, and is considering

the types of information that should be disclosed, the way

the information should be communicated, and development

of a common terminology.35 The Commission’s staff is considering other ways that the Commission can help improve the

quantity and quality of information about health plans available to consumers.

• Regulation of Plan Behavior.

Targeted regulation of certain aspects of health plan behavior may be appropriate in some cases to protect consumers. Numerous bills addressing such things as patients’

access to appeal and review mechanisms are under consideration at both the state and federal levels.
41

The Commission appreciates the desire to avoid detailed federal

regulation of health plan behavior and to rely instead on the market. However, the proposed exemption would not let the market

work. On the contrary, it would severely limit competition among

health professionals and health plans, without any regulatory oversight or other mechanism to protect the public interest.

CONCLUSION

There are no easy solutions to the problems inherent in the simultaneous pursuit of cost effectiveness, high quality, and wider

access to health care services. But allowing doctors and other

health care practitioners to fix prices and other contract terms is

not the answer. The Commission continues to believe that competition among health care providers and among health plans is an important tool for controlling costs, providing consumer choice, and

promoting innovation and high quality. We counsel strongly

against abandonment of competition as a mechanism for promoting

a better health care system, and we urge that every effort be made

to address concerns about quality and patient care while preserving

and strengthening the benefits that competition can provide. The

Commission stands ready to help in any way it can.

Statement of Joel Klein, Assistant Attorney General, Antitrust Division, Department of Justice

INTRODUCTION

Chairman Hyde, Ranking Member Conyers and members of the

Committee, I am pleased to be invited here to present the views

of the Antitrust Division on H.R. 1304, the Quality Health-Care

Coalition Act of 1999. I would like to start by briefly summarizing

the importance of competition to the economy. Then I will turn to

the specifics of the bill. In brief, the Division strongly opposes H.R.

1304. We believe it takes the wrong approach to problems raised

by managed care, an approach that will harm consumers of health

care in the future.

For over a century, the United States has committed itself to protecting competition in the vast majority of markets in the economy.

Free-market competition is the engine that has made the American

economy the envy of the world. The Sherman Act, passed in 1890,

has been called the Magna Carta of free enterprise. In general, the

United States operates a free-market economy that allows free and

unfettered competition, subject to the antitrust laws. Time and

again, relying on free-market competition has allowed consumers

numerous benefits, including more innovation, more choice and

lower prices than that of economies where free competition has

been limited.

In particular, our nation’s economic vitality depends upon the

competitive structure of the health care industry. In 1997, the latest year for which data are available, annual revenues of health

care professionals covered by the Sherman Act ranged between

$300–400 billion, about 4–5% of the GDP.

H.R. 1304 would change, for the health-care industry, the competitive system applicable to the rest of the American economy. It

would uniquely authorize health care professionals who are not em-
42

ployed by health insurance plans, and thus not exempt from antitrust scrutiny under existing law, to negotiate collectively with any

health plan over fees and collectively to refuse to deal with any

plan that did not accede to their demands. Current law already

provides an exemption from the antitrust laws for doctors and

other health care professionals in an employee-employer context.

Like other employees, employed doctors and other health care professional employees may collectively bargain with their employer

without antitrust scrutiny. But, like all who are not employees,

independent-contractor doctors and other health care professionals

in private practice must satisfy the antitrust laws when negotiating with those that purchase their services.

This bill would allow non-employee, health care professionals collectively to raise their fees to health insurers without fear of antitrust liability and without regard to competitive market forces fostered by the antitrust laws. This increased cost ultimately will be

borne by consumers. There is no justification to accord special status to health care professionals under the antitrust laws, differentiating them from other professionals and independent contractors

such as architects, engineers, or lawyers. It would be both unwise

and harmful to consumers to grant them a special exemption.

We want to be clear, however, that we have and will continue to

enforce the antitrust laws in this area, and will rigorously pursue

evidence of collusion regardless of whether providers or insurers

are involved.

COMPETITION IN HEALTH CARE: BOTH HEALTH INSURANCE AND

PROVIDER MARKETS NEED TO FUNCTION COMPETITIVELY

As in other markets, the goal for health care markets should be

to ensure that consumers benefit from a competitive marketplace

where neither the buyers nor sellers unlawfully exercise market

power. Policy should focus on ensuring that there is a competitive

marketplace where neither health insurance plans nor health care

professionals are able to obtain or exercise market power to distort

the competitive outcome. Any other result inevitably will lead to

governmental regulation of the health care market—an outcome

that is not likely to produce desirable results for consumers. We

have learned this lesson over time from other industries and we

should be sure we continue to apply it to health care markets as

well. The injection of competition into health care markets over the

past decade has helped hold down increases in health care costs.

The preference for market competition over regulation, of course,

is dependent on the assurance that the enforcement of the antitrust laws will prevent all participants in a market from obtaining

or exercising market power through anticompetitive means. Thus,

federal antitrust enforcement must ensure that neither health insurance plans nor health care professionals utilize anticompetitive

means to distort the competitive outcome in the health care industry. The Antitrust Division has been active in pursuing that important role.

To keep health insurance markets competitive, the Division carefully scrutinizes mergers and other activities among health insurance plans that may harm consumers by raising prices or limiting

the scope or quality of care. For example, last year the Division investigated the proposed acquisition of Humana by United Health
43

Care. The parties abandoned the transaction during the course of

the review. This week the Division concluded that Aetna’s proposed

acquisition of Prudential’s health care business would violate the

antitrust laws unless Aetna undertook substantial divestitures in

Dallas and Houston to eliminate the market power it otherwise

would have gained from the merger.

The Aetna case is an extremely important precedent in this regard. The Division, after a thorough investigation, determined that

the merger of these health plans was anticompetitive in two separate ways. First, we believed the merger would lead to market

power in the sale by Aetna of health maintenance organization

services in certain markets. The combined market share which

would have resulted from the merger in Houston and Dallas were

over 63 percent and 42 percent, respectively. We believed this

would give Aetna the ability in those markets to increase its price

or lower its quality of service for its HMO customers. Second, we

believed that the merger would lead to market power in the purchase of doctors’ services by Aetna. The divestiture which we accepted addressed both of these concerns. This was the first merger

case in which the Division was faced with a concern that a combination of health plans would give the resulting plan market

power in the purchase of doctors’ services. It clearly establishes the

precedent that unacceptable aggregations of market power by

health plans will not be allowed to the detriment of consumers and

health care professionals.

At the same time, we also have pursued anticompetitive actions

by health care professionals, who have sought to use market power

to demand anticompetitive concessions from health plans. In both

our Federation of Physicians and Dentists and our Federation of

Certified Surgeons and Specialists cases (discussed below), we established that competing doctors took joint action contrary to the

antitrust laws to increase their reimbursement rates at the expense of consumers’ pocketbooks.

Our ultimate goal is the preservation of competition at all levels

of the health care industry. It has become clear over the years that

consumer welfare and patient choice are best preserved by relying

on antitrust principles to assure the proper operation of health care

markets just as they are in other markets. Permitting providers to

form bargaining groups in response to perceived bargaining leverage by insurers will not decrease the cost of health care or increase

the quality of patient care.

THE RATIONALES FOR THE BILL SUPPORT NEITHER THE NEED NOR THE

DESIRABILITY OF AN ANTITRUST EXEMPTION

There are various arguments that supporters of bills like this one

have used to argue their case. On closer inspection, those arguments often are not aligned with the competitive realities of the

marketplace and do not support the adoption of an antitrust exemption. Supporters often argue that the McCarran-Ferguson antitrust exemption lets insurers collude, so doctors should be allowed

to collude as well; that health plans have all the bargaining power

and tremendous market share; that doctors will only use their

power to increase the quality of care; and that the bill will protect

doctors and not increase costs to consumers, just affect the health

plans’ profits. Let me address each of these briefly.
44

The McCarran-Ferguson Act Does Not Give Insurers Leverage

The bill’s ‘‘Findings’’ assert that increasing concentration among

health care plans, enhanced by the McCarran-Ferguson Act, gives

insurance companies significant leverage over health care providers

and patients and, therefore, warrants permitting health care professionals to negotiate collectively with health plans to create more

equal negotiating power, which will promote competition and enhance the quality of patient care. The claim that the McCarranFerguson Act (‘‘McCarran’’), 15 U.S.C. §§ 1011–1015, has given insurers significant market leverage over health care providers and

patients appears to reflect a widely held misperception.

McCarran provides insurers with a limited exemption from the

antitrust laws, but twenty years ago the Supreme Court in Group

Life and Health Co. v. Royal Drug, 440 U.S. 205 (l979), clearly held

that McCarran does not exempt insurers’ dealings with health care

providers from antitrust scrutiny. To the extent insurers’ dealings

with health care professionals are in violation of the antitrust laws,

McCarran provides no obstacle to prosecution of such claims either

by the affected providers or by state or federal enforcement agencies. When the Division learns about exclusionary or collusive activities among health plans, it carefully reviews them, and if necessary, takes appropriate action. In the past few years alone, the

Division aggressively challenged contractual provisions imposed by

payers on Rhode Island dentists, U.S. v. Delta Dental of Rhode Island, and Cleveland area hospitals, U.S. v. Medical Mutual of

Ohio, Inc., when it determined that those provisions were resulting

in higher costs and diminished choices for health care consumers.

Thus, the claim that McCarran gives insurers leverage in their

dealings with health care providers is illusory and should not support passage of this bill or increasing the bargaining leverage of

health care providers.

Health Plan Bargaining Power

The relative bargaining power of plans and providers varies tremendously among markets. Although there have been several

mergers of health plans over the last few years, in our view there

still exists a significant number of competing health insurance

plans, none of which dominates, and there has been new entry into

various local markets. Between 1994 and 1997 over 150 new HMOs

were licensed across the country. Moreover, over the last decade,

as enrollment in managed care plans has grown, the market shares

of many once-dominant Blue Cross and Blue Shield plans has eroded, resulting in decreasing, rather than increasing, concentration

among health insurers in certain markets.

To the extent that there is a concern that mergers will increase

the bargaining power of health insurance plans, our enforcement in

the Aetna case should convincingly establish that antitrust enforcers will not allow anticompetitive mergers that will produce market

power by health insurance plans in the market for purchasing provider services.

Quality Concerns Do Not Justify The Antitrust Exemption

The proposed bill makes no attempt to distinguish between joint

negotiations by health care professionals that are designed to enhance efficiency, reduce costs and improve quality of care and those
45

designed simply to increase the providers’ income. The American

Medical Association, in its written testimony submitted to this committee last year in support of the predecessor to H.R. 1304, acknowledged that ‘‘[m]ost studies comparing the quality of care in

managed care plans and traditional indemnity plans have found

the quality of care to be comparable.’’ This is not to say that there

may not be problems concerning the quality or scope of services

under managed care that require correction; just that problems of

poor-quality care are not endemic to managed care.

The concern relevant to this bill, however, is whether doctors will

use the power granted them by an antitrust exemption to increase

the quality of patient care. Our history of investigations, including

our recent cases against two federations of competing doctors involving group boycotts and price-fixing conspiracies, leads us to

have concerns because the proposed bill provides no assurance that

health care professionals would direct their collective negotiating

efforts to improving quality of care, rather than their own financial

circumstances.

In our Federation of Certified Surgeons and Specialists case,

twenty-nine otherwise competing surgeons who made up the vast

majority of general and vascular surgeons with operating privileges

at five hospitals in Tampa formed a corporation solely for the purpose of negotiating jointly with managed care plans to obtain higher fees. Their strategy was a success. Each of the twenty-nine surgeons gained, on average, over $14,000 in annual revenues in just

the few months of joint negotiations before they learned that the

Division was investigating the conduct. The participants in that

scheme did not take any collective action that improved quality of

care.

In the Federation of Physicians and Dentists case, we allege that

most of the orthopedic surgeons in Delaware agreed among themselves to boycott Blue Cross Blue Shield of Delaware after Blue

Cross announced it was going to reduce fees paid to orthopedic surgeons and other physicians. Blue Cross is one of four major private

insurance plans operating in Delaware, and a number of smaller

plans operate there also. Blue Cross’s proposed fees, however, were

still higher than those paid to orthopedic surgeons in Philadelphia,

a nearby major medical center recognized for quality care, and in

line with fees paid to other types of specialists in Delaware. Although the defendant organization claimed quality-of-care concerns

in directing its member surgeons’ collective opposition to Blue

Cross’s proposed fee reductions, the surgeons themselves conceded

that they provide the same high quality of care to their patients

regardless of the payment level. Indeed, there is no evidence that

any of the orthopedic surgeons participating in the alleged conspiracy even sought to evaluate the impact that Blue Cross’ proposed fee reduction would have on their cost structure or on their

ability to provide quality care.

Both of these cases, as well as many other cases brought by both

the Division and FTC, illustrate the serious harm to consumers

that would result from passage of the proposed bill, with very limited, if any, concomitant improvement in quality of patient care.
46

The Bill is Likely to Raise Costs Substantially to Consumers and

Taxpayers

The bill’s potential adverse economic impact on consumers is

large. Our investigations reveal that when health care professionals jointly negotiate with health insurers, without regard to

antitrust laws, they typically seek to significantly increase their

fees, sometimes by as much as 20–40%. For example, in our recent

Tampa case discussed above, the otherwise competing surgeons,

through joint negotiations with health plans, had succeeded in raising their fees 20–30% prior to learning of our investigation. Exempting such joint activity through enactment of H.R. 1304 would

permit health care professionals to negotiate and effectuate such

increases in countless markets throughout the country. In view of

the size of expenditures for health care services and the large number of patients receiving care, the potential anticompetitive costs

that would be borne by consumers are large.

There appears to be no dispute that the bill will result in health

plans paying higher fees to health care professionals. At a hearing

of this Committee last year on a precursor bill, Representative

Campbell acknowledged that the bill would enable health care professionals to obtain higher fees from health care insurers but maintained that such cost increases would be absorbed by managed care

plans, rather than passed on to consumers. See Transcript of the

July 29, 1998 Hearing before the U.S. House of Representatives

Committee on the Judiciary on H.R. 4277 at 12, 27, 38–40. Conventional economic theory and business realities lead, however, to the

opposite conclusion. Health insurers will pass on to consumers

most, if not all, cost increases that they would incur in collective

negotiations under H.R. 1304.

Economic theory predicts that an increase in the cost of an input

in nearly every instance translates into a higher output price. Only

in those rare cases where a different input can be used as a perfect

substitute will an increase in the cost of an input not give rise to

a price increase to the consumer. But, because of both licensing requirements and the nature of services provided, there are no good

substitutes for physicians, pharmacists, therapists, dentists, or

other health professionals. Consequently, health insurers are virtually certain over time to pass through to consumers and taxpayers most, if not all, of the increase in costs for any covered services provided by health care professionals. See, e.g., Wholey, Feldman, and Christianson, ‘‘The Effect of Market Structure on HMO

Premiums,’’ 14 J. Health Economics 81, 89, l00 (l995) (finding that

increases in provider costs increase health plan premiums); M.

Pauly, ‘‘Managed Care, Market Power, and Monopsony,’’ 33:5

Health Services Research 1439, 1450 (Dec. 1998, Part II) (‘‘In virtually any model of profit-seeking firms, an increase in marginal

cost of an input translates into a higher equilibrium output price.’’).

The realities of the health insurance business also contribute to

our conclusion that health insurers will pass on most of any cost

increases for professional services resulting from H.R. 1304, services that ordinarily constitute about 40–50 percent of a health

plan’s total costs. For the last few years, premiums closely reflected

insurers’ costs, and a leading health care policy ‘‘think-tank’’ predicts that ‘‘over the longer term, the underlying cost of health care

remains the dominant influence on the direction of premium
47

trends.’’ See Center for Health System Change, ‘‘Despite Fears,

Costs Rise Modestly in l998,’’ Data Bulletin No. 13 (Fall l998) at

2.

Increases in the cost of services provided by health care professionals resulting from enactment of H.R. 1304 will undoubtedly

have a direct and predictable effect on consumers and taxpayers,

resulting in the transfer of funds to providers and making health

care insurance coverage increasingly unaffordable for many. Medicare and Medicaid programs, for example, will incur substantial

additional costs to meet increased premiums from managed care

plans. Alternatively, managed care plans will cease serving Medicare and Medicaid beneficiaries in high-cost areas or reduce nonmandatory benefits.

Employers and employees in the private sector also will be confronted with increased costs of health insurance as a result of this

bill. The inevitable increase in premiums would lead to more consumers either losing or foregoing their health care coverage and

likely would increase the ranks of our nation’s uninsured. Faced

with substantial increases in premiums, more employers may stop

offering their employees health insurance or will decrease benefits,

and more workers who are eligible for employer-sponsored insurance may nevertheless reject coverage as their shared costs increase. Such trends also will translate into additional Medicare and

Medicaid costs.

There Is a Better Approach to Deal with Problems Raised by Managed Care

The stated objective of the proposed bill is to ‘‘enhance the quality of patient care’’ and implicitly to resolve some of the problems

attributed to managed care. One of the ways is to pass a Patients’

Bill of Rights that provides critical patient protections, such as

guaranteed access to needed health care specialists; access to emergency room services when and where the need arises; access to a

fair, unbiased and timely internal and independent external appeals process to address health plan grievances; and an enforcement mechanism that ensures recourse for patients who have been

harmed as a result of a health plan’s actions. The Administration

continues to urge the Congress to pass a strong, enforceable Patients’ Bill of Rights in this legislative session. Some of these quality of care issues and other problems frequently associated with

managed care, however, may be resolved without any legislation

since there are already legitimate ways for physicians and other

health care professionals jointly to influence or make recommendations on quality of care issues. See, e.g., United States Department

of Justice and Federal Trade Commission, Statements of Antitrust

Enforcement Policy in Health Care, issued August 28, l996, 4

Trade Reg. Rep. (CCH) ¶ 13,153, at Statement 4 (‘‘Providers’ Collective Provision of Non-Fee-Related Information to Purchasers of

Health Care Services’’) and Statement 5 (‘‘Providers’ Collective Provision of Fee-Related Information to Purchasers of Health Care

Services’’).

For example, the American College of Physicians-American Society of Internal Medicine and 21 other physician groups recently

wrote letters to national managed care organizations urging them

not to adopt mandatory hospitalist programs, that is, programs re-
48

quiring primary-care physicians to turn over care of their patients

to hospital-based physicians when a patient needs hospital care. In

response, the health plans clarified that their hospitalist programs

were voluntary.

Legislation should not, as would H.R. 1304, injure the public by

eliminating competition in health care provider markets in the

hope that it will indirectly solve the problems of managed care facing consumers. Providers have their own self interests, and our enforcement actions and other experience suggest that their actions

may not be congruent with the interests of consumers.

CONCLUSION

We oppose this legislation which would immunize independentcontractor doctors and other health care professionals in private

practice from antitrust prohibitions. This bill is the wrong way to

deal with problems identified with managed care and will harm

consumers of health care in the future. The bill would hurt consumers and taxpayers by raising the costs of both private health

insurance and governmental programs with no assurance that

quality of care would be improved. The better approach is to empower consumers by encouraging price competition, opening the

flow of accurate, meaningful information to consumers, and ensuring effective antitrust enforcement both with regard to buyers

(health insurance plans) and sellers (health care professionals) of

provider services. Competitive issues are best dealt with in a manner which promotes competition, not retards competition, as this

bill would do if enacted.
(49)

1See Statement of Joel I. Klein, Assistant Attorney General, Antitrust Division, presented on

June 22, 1999; Statement of Robert Pitofsky, Chairman, Federal Trade Commission, presented

on June 22, 1999. In addition to the FTC and DOJ, H.R. 1304 is also opposed by the Consumer

Federation of America, the Antitrust Section of the American Bar Association, and numerous

groups representing employers, health plans and non-physician providers.

ADDITIONAL VIEWS

We have concerns regarding the possible effect of H.R. 1304, the

‘‘Quality Health Care Coalition Act of 1999.’’ This legislation gives

to health professionals in their negotiations with health plans similar treatment under the antitrust laws that is given to employees

in bargaining units that are recognized under the National Labor

Relations Act. Under the current provisions of the bill, we are concerned that health care professionals could engage in price fixing

that otherwise would be per se illegal under Federal and State

antitrust laws.

The special exemption created by this legislation would apply indiscriminately throughout the country, allowing bargaining units to

form that could include up to 100% of the providers in a geographic

area. They could negotiate with health plans of all sizes, including

plans that have very small market shares or that have recently entered an area. They would be allowed to negotiate with respect to

all types of issues, including financial terms such as prices and reimbursement levels.

As the Department of Justice (‘‘DOJ’’) and the Federal Trade

Commission (‘‘FTC’’) who oppose the bill have testified, H.R. 1304

could result in higher health care costs for consumers, employers,

and Government health care programs.1 One study conducted by

Charles River Associates estimated that the cost of H.R. 1304

would range from $35 billion—$80 billion annually.

More recently, the Congressional Budget Office (CBO) analyzed

the effect of this legislation on public and private health insurance

programs. CBO found that the bill would increase direct Federal

spending and reduce Federal revenues by substantial amounts.

Federal spending on Medicaid, State Child Health Insurance Program (SCHIP) and the Federal Employees Health Benefits Program (FEHBP) would increase by $11.3 billion over 10 years if

H.R. 1304 were enacted, according to CBO. Federal revenues would

decline by an estimated $10.9 billion over the same period, largely

due to the fact that health insurance premiums would rise by an

estimated 2.6 percent, according to the CBO analysis.

The results of higher premiums are only too familiar—an increase in the number of Americans who lack health insurance.

These effects will be felt especially by the children of the working

poor. Under the SCHIP program, the Federal Government provides

a fixed sum of money to States, which provide health insurance

coverage to children in low-income families. By increasing the costs
50

of insuring children, H.R. 1304 could decrease the number of children who obtain insurance under the program.

The committee’s decision to adopt a ‘‘sunset’’ provision will, of

course, force CBO to assume that doctors will not be able to form

these associations after 3 years and, therefore, reduce CBO’s estimate of the costs. While this will appear to mitigate the worst effects of this bill, it will not eliminate those effects. Indeed, a sunset

may serve to encourage health care providers to form associations

more quickly than they otherwise would (in order to beat the deadline) and to make greater demands with respect to their fees and

other contractual provisions. Additionally, it is indeed rare for Congress not to extend programs beyond the date of their ‘‘sunset.’’

Despite the evident adverse effects of this bill on health care consumers, some have argued that the bill is necessary in order to

allow physicians to negotiate collectively in order to improve the

quality of patient care. In fact, the exemption that the bill grants

is not needed to permit physicians and other health care professionals to raise legitimate quality of care issues or to organize in

ways that will benefit consumers. In guidelines issued in 1996, the

DOJ and FTC explained that under existing antitrust laws, providers can discuss collectively with health plans issues involving legitimate quality of care concerns, as long as they do not engage in

boycotts or other joint activity that could limit the choices available

to consumers. The guidelines also explain how providers can organize networks and joint ventures that enable them, under existing

antitrust laws, to negotiate collectively with health plans.

This legislation has been opposed by many non-physician provider groups that are concerned that it will remove the protection

that they currently have under the antitrust laws against attempts

by physicians to limit their role in the health care delivery system.

While the committee voted to adopt an amendment offered by Mr.

Nadler that was aimed at addressing these concerns, the American

Nurses Association, the American Academy of Nurse Practitioners

and the American College of Nurse Midwives believe that the

amendment will be ineffective and they continue to strongly oppose

the bill.

Unlike bargaining units under the National Labor Relations Act,

or negotiating agents under State laws that grant a State action

exemption for joint physician collective negotiations (such as in

Texas under Texas S.B. 1468), H.R. 1304 provides for no oversight

of the negotiation process by any Federal or State agency. During

the Judiciary Committee’s consideration of H.R. 1304, Mr. Pease offered an amendment that would have given to the FTC and DOJ

some degree of oversight responsibility over these collective negotiations. Under the amendment, health care professionals that

wished to gain the exemption under H.R. 1304 would first have to

obtain prior approval from the FTC or DOJ based on their determination that the exemption would promote competition and enhance the quality of patient care. Failure of the FTC or the DOJ

to act within 180 days would result in the application being

deemed approved. It is only reasonable to require those seeking

special and unprecedented treatment under the antitrust laws to

undergo some review to ensure that their arrangements will benefit consumers. However, as an indication of our continuing good
51

faith efforts to find an appropriate balance between competing legitimate concerns, the amendment was withdrawn, and further discussions on the matter will continue.

The American public is best served by a health care system that

relies on competition to spur innovation, reduce costs, and improve

quality. H.R. 1304 takes a step backward by giving to one component of the health care system—doctors and other health care professionals—the right to form bargaining units with the market

power to obtain whatever they might demand. The result could be

much higher health care costs for everyone, and reduced access to

health care by those who can least afford it. We believe H.R. 1304

should include provisions allowing Government oversight authority

in the bill’s final version.

EDWARD A. PEASE.

GEORGE W. GEKAS.

(53)

1See Milt Freudenheim, Concern Rising About Mergers In Health Plans, N.Y. Times, January

13, 1999, at A1. 2See Deborah J. Chollet et al., Mapping Health Insurance Markets: The Group and Individual

Health Insurance Markets in 26 States (October 1997). The report noted that in North Dakota,

Blue Cross Blue Shield controlled 93% of the market in 1995 and that in Illinois the largest

insurers held 60% of the individual market in 1995. Id. at ii, 13, 21. 3 AMA Socioeconomic Monitoring Survey: Physician Marketplace Statistics (1997). 4See Steven Greenhouse, Angered by H.M.O.’s Treatment, More Doctors Are Joining Unions, N.Y. Times, January 13, 1999, at A1. 5 H.A. Artists & Associates, Inc. v. Actors’ Equity Association, 451 U.S. 704, 717 (1981) (where

union members customarily secure employment through negotiating agents whose fees are calculated as a percentage of union members’ wages, agents not considered independent contractors, but a genuine labor group exempt from antitrust violations); Columbia River Packers Association v. Hinton, 315 U.S. 143 (1942) (arrangement by which fisherman’s union acted as a bargaining agent for selling fish to packers and canners found not to be exempt because the fishermen were independent businessmen and the dispute involved the sale of fish rather than wages,

hours, or other conditions of employment). However, the exemption will apply in cases where

the individuals are truly comparable with and competing with other groups of employees. See

e.g., American Federation of Musicians v. Carroll, 391 U.S. 99 (1968) (independent contractor

Continued

FURTHER ADDITIONAL VIEWS

H.R. 1304, which is sponsored by Congressman Tom Campbell

and myself, gives health care professionals immunity from antitrust laws when they negotiate as a group with health maintenance organizations (‘‘HMOs’’) and other large health plans. This

legislation responds to the unlevel playing field facing independent

physicians engaged in negotiations with health insurers and other

third party payers. H.R. 1304 enjoys bipartisan support and is

strongly supported by a wide array of health care professional and

trade organizations, including the National Medical Association,

the American Medical Association, the American Federation of

State, County and Municipal Employees, the National Community

Pharmacists Association and the AFL–CIO Health Fields Division,

among others.

The health provider market is heavily concentrated among

health insurance companies, preferred provider organizations,

HMOs and other third party payers, such as Blue Cross Blue

Shield.1 A recent study of market concentration by the Robert

Wood Johnson Foundation found that ‘‘both the group and individual [health insurance] markets are heavily dominated by relatively

few large insurers.’’ 2 At the same time, many doctors have opted

to work directly for these insurance companies, rather than compete with them directly, with 56% of physicians currently treated

as employees.3 The remaining doctors operate independently, but

many have entered into contractual relationships with third party

payers whereby they agree to work under specified fees, terms, and

conditions in exchange for being placed on preferred physician lists.

These physicians are often subject to one-sided ‘‘take it or leave it’’

contracts with insurers which not only offer inadequate fees, but

severely limit their ability to service their patients.4 Since the case

law has generally provided that medical professionals are not entitled to any benefit under the statutory labor exemption,5 H.R. 1304
54

band leaders treated as labor group because where there was job or wage competition or some

other economic inter-relationship affecting legitimate union interests between the union members and the independent contractors).

With regard to the health care field, see e.g., Michigan State Medical Society, 101 F.T.C. 191

(1983) (FTC found that Michigan State Medical Society in encouraging its members to withdraw

from Blue Cross and Blue Shield of Michigan as a method of pressuring Blue Cross during negotiations over its reimbursement policies violated antitrust; La Association Medical, 60 Fed. Reg.

35, 907 (FTC July 12, 1995) (resolving claims that a medical association, its psychiatry section,

and individual physicians conspired to organize a concerted boycott by psychiatrists of a government insurance program in an attempt to obtain higher reimbursement rates and adoption of

exclusive referral rules). 6 Because Congress was concerned with using capital in an anticompetitive manner, rather

than labor, it has enacted a statutory exemption to the antitrust laws with respect to labor activities. In 1914, Congress enacted section 6 of the Clayton Act providing that ‘‘labor . . . organizations, or the members thereof, shall not be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws.’’ In 1932, Congress further strengthened

the exemption through the Norris-Laguardia Act which clarified the Clayton Act’s prohibition

against the issuance of injunctive relief in labor disputes and specified that activities such as

creating unions, nonviolent picketing, and strikes do not violate the law. 7See generally, The Quality Health Care Coalition Act of 1999: Hearing on H.R. 1304 Before

the House Comm. on the Judiciary, 106th Cong. (1999) (statement of Ratcliffe Anderson, Jr.,

M.D., Executive Vice President and Chief Executive Officer, American Medical Association)

[hereinafter Quality Health Care Coalition Act Hearing].

responds by giving them the same statutory antitrust exemption

that ordinary employees receive when they collectively bargain.6 I

support this legislation for several reasons which I outline below.

I. AN UNLEVEL PLAYING FIELD EXISTS.

First, an unlevel playing field exists between large insurance

companies and independent health care providers. It is unrealistic

to expect a local doctor to have anywhere near the financial capacity or legal wherewithal to negotiate fair or reasonable contract

terms with a multibillion dollar health insurer. Because of current

antitrust interpretations, physicians cannot even communicate

with each other to discuss the one-sided contract terms which are

being proposed to them. The result is that physicians often have

little choice but to accept one-sided, non-negotiable service agreements. Along these lines, I would note that independent health

care providers, although technically ‘‘independent contractors’’ are

not in a significantly different position from ordinary ‘‘employees’’

negotiating with large employers in other industries because HMOs

and other managed care companies exert an enormous amount of

control over their practice of medicine.

A corollary problem is that these one-sided agreements are slanted in a manner which works to the disadvantage of patients. Such

contracts include clauses which, among other things: (1) limit a

doctor’s ability to discuss medical issues and options with their patients (known as ‘‘gag clauses’’); (2) discourage appropriate specialist referrals; (3) set forth unreasonable administrative barriers

to appropriate tests and prompt and reasonable care; and (4) provide financial incentives which reward physicians for not treating

patients.7 I agree with Representative Campbell who has stated

that if they are given greater negotiating power, ‘‘first on the list

of contractual terms that health-care professionals will demand is

a greater right to prescribe and care for patients as they see fit.’’

II. H.R. 1304 ALSO BENEFITS NON-PHYSICIAN PROVIDERS.

In addition to protecting physicians, the legislation will also

apply to protect other health care professionals who face unfair ne-
55

8See generally, Quality Health Care Coalition Act Hearing (statement of John Rector, Vice

President, National Community Pharmacists Association). 9The particular concern alleged was regarding contract terms: (1) that require a physician to

be present for certain procedures, even though non-physician providers can furnish the procedures independently under State and Federal law; (2) that impose ‘‘quality’’ standards that forbid or discourage referrals to non-physician providers; (3) that mandate certain educational or

experience requirements that typically can be met by most physicians, but by only few or no

non-physician providers; or (4) that establish reimbursement rates that are so low for non-physician providers that it is not viable for any of them to participate with health plans as independent providers. This kind of anti-competitive behavior may threaten to raise prices of health

care services and to restrict consumer choice of those services. 10Sec. 2(e).

gotiating positions vis-a-vis the health insurance industry. For instance, community pharmacists have complained that they are not

permitted to mutually discuss or respond to insurance company demands because they are independent, but that chain stores, representing thousands of outlets, can agree or disagree together when

a third-party payer presents a contract to them.8

Additional non-physician providers, such as nurse practitioners,

nurse anesthetists, nurse midwives, physical therapists, optometrists, osteopaths, psychotherapists, and chiropractors, that practice independently, may encounter difficulties very similar to those

encountered by independent physician providers when negotiating

contract terms with health insurers. Thus, these providers may

also benefit from this legislation. There were, however, concerns

raised by these groups that H.R. 1304 could permit groups of physicians to negotiate unfair agreements with health plans that could

put non-physician providers at a competitive disadvantage.9

To address this issue, Representatives Nadler, Frank, and Jackson Lee offered an amendment at the Full Committee markup

which stated that ‘‘nothing in this section shall exempt from the

application of the antitrust laws any agreement or otherwise unlawful conspiracy that excludes, limits the participation or reimbursement of, or otherwise limits the scope of services to be provided by any health care professional or group of health care professionals with respect to the performance of services that are within their scope of practice as defined or permitted by relevant law

or regulation.’’ 10 The amendment clarifies an important point in

connection with the legislation to which it is attached: that H.R.

1304 does not exempt from the antitrust laws negotiations which

lead to agreements or conspiracies to exclude or limit the role of

competitive health care providers in managed care and insurance

arrangements. More specifically, it does not, in the name of ‘‘collective bargaining’’ or otherwise, enable some classes of health care

professionals to attempt to exclude others from access to health

care markets, or to deprive consumers of the choice of and access

to the wide range of high quality and cost-effective health care professionals. This should address the concerns raised by non-physician health care providers.

Over the years, the antitrust laws have, in fact, been enforced in

various cases to prohibit specific anti-competitive actions of physicians or other health care professionals. I regard it as essential

that the antitrust laws remain effective to maximize consumer

choice among all segments of the health care provider community,

and this will clearly be the case under H.R. 1304.
56

11 In reaction to United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944),

holding that the insurance industry was a business in interstate commerce subject to the Sherman Act, Congress enacted the McCarran-Ferguson Act, which created a statutory antitrust exemption for insurance companies. In order to qualify under the McCarran exemption from Federal antitrust liability, the insurance company must be able to prove that the challenged activity

is a part of ‘‘the business of insurance,’’ the activity is regulated by State law, and the activity

does not constitute an agreement or act to boycott, coerce, or intimidate. Although many thought

the exemption was intended to be temporary, it has continued unabated for more than 50 years.

Health insurers also benefit from an exemption from liability suits for their failure to provide

care because of ERISA law as well. Courts have consistently held that ERISA preempts State

law medical malpractice claims against entities involved in the administration or delivery of

health care benefits under an ERISA plan. Thus, while an injured person typically sues an

HMO in State court, arguing that it is an ordinary malpractice case, the HMO typically removes

the case to Federal court, arguing that it is governed by the Federal law on employee benefits.

The HMO contends that it makes ‘‘benefit decisions’’ (rather than medical decisions) in the

course of managing employee benefit plans and that it, therefore, should not be held responsible

for any negligence by a physician. 12See H.R. 9, approved by the committee in 1994 and 1992. Neither bill was taken to the

House floor. 13Fitzhugh Mullan, A Look at . . . Unionizing Doctors; I Joined Once. Now I’m Not So Sure,

The Washington Post, July 18, 1999, at B3.

III. CURRENT LAW FAVORS INSURANCE COMPANIES.

Finally, I support H.R. 1304 because current law unfairly favors

insurance companies. Not only can insurance companies require

health care professionals to sign unfair contracts, but they also

benefit from the 1945 McCarran-Ferguson Act, which partially exempts the insurance industry from the Federal antitrust laws.11

This law, which this committee had voted to scale back under

Chairman Brooks,12 means that huge insurance companies may be

permitted to conspire together to limit health care competition, but

that the independent physicians cannot develop any sort of coordinated response.

CONCLUSION

As Dr. Fitzhugh Mullan wrote in an issue of The Washington

Post, ‘‘No one is in a better position than medical professionals to

point out where the system is being stretched thin, where health

plans are stinting on patient care or where people lack care altogether. . . . . Physicians are ideally placed to serve as monitors

and watchdogs of the commercial forces that determine so many

clinical decisions these days.’’ 13 Under H.R. 1304, health professionals will have the right to collectively bargain with health care

service plans and the ability to reach more equitable and fair

agreements with HMOs for the purpose of achieving improved

health care for the American consumer. For the reasons discussed

above, I strongly support this legislation.

JOHN CONYERS, JR.

Æ