House Report 106-625 - QUALITY HEALTH-CARE COALITION ACT OF 2000

[House Report 106-625]
[From the U.S. Government Publishing Office]

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
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).
(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 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 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 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 .............. ..............
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.

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
Health-Care 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 employer-sponsored 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 Benefits 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.

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 increase 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, 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.
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 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, 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 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 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.

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. 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 legislation; 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
Health-Care 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 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 employer-sponsored 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

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 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 re-adjust 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 (On-Budget) 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, 0 128 278 445 494 360 260 189 136 100 73
Direct Spending

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 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 insured 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.
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 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 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.

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 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 Sec. 3 became Sec. 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 Sec. 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
Sec. 2(a).
Subsection 2(c)(1) provides that the exemption provided in
Sec. 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 self-employed 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
Sec. 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
Sec. 2(a) does not apply to any agreement or otherwise unlawful
conspiracy 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. 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
---------------------------------------------------------------------------
\1\ This 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.
---------------------------------------------------------------------------
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
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\
---------------------------------------------------------------------------
\2\ An appendix describing these cases in more detail will be
provided under separate cover.
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
\3\ See 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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------
\4\ 101 F.T.C. 191 (1983).
\5\ Id. at 234-35.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\6\ Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order).
\7\ Commonwealth of Virginia v. Physicians Group, Inc., 1995-2
Trade Cas. (CCH) para. 71,236 (W.D. Va. 1995) (consent decree).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\8\ North Lake Tahoe Medical Group, Inc., FTC File No. 981-0261, 64
Fed. Reg. 14730 (Mar. 26, 1999) (proposed consent order).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\9\ See, 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).
---------------------------------------------------------------------------
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-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\
---------------------------------------------------------------------------
\10\ See, 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).
\11\ See 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).
\12\ The 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).
\13\ The 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 para. 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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\14\ Some 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.
---------------------------------------------------------------------------
Although styled as a labor exemption, the antitrust
immunity that H.R. 1304 would confer has little to do with
established labor 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 employer-employee
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.
---------------------------------------------------------------------------
\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).
\17\ This 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. Sec. 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).
---------------------------------------------------------------------------
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 ill-
fitting 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 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 anesthesiologists 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\
---------------------------------------------------------------------------
\18\ Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order);
Rochester Anesthesiologists, 110 F.T.C. 175 (1988) (consent order).
\19\ See, 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).
\20\ See 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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 industry-wide
increase in input costs will ordinarily raise the price of the
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.
---------------------------------------------------------------------------
\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).
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\24\ Information on HMOs' market shares is most readily available.
\25\ See 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).
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
\27\ Group 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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\28\ The 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) para. 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).
---------------------------------------------------------------------------
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 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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------

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
preferences. 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\
---------------------------------------------------------------------------
\32\ For 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).
\33\ Other 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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\34\ The 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.
---------------------------------------------------------------------------
L 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.
---------------------------------------------------------------------------
\35\ In addition, there are plans to use a government website as a
gateway for consumers seeking information on health care quality.

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.

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 employed by health insurance plans, and thus not
exempt from antitrust scrutiny under existing law, to negotiate
collectively with any health plan over fees and collectively to
refuse to deal with any plan that did not accede to their
demands. Current law already provides an exemption from the
antitrust laws for doctors and other health care professionals
in an employee-employer context. Like other employees, employed
doctors and other health care professional employees may
collectively bargain with their employer without antitrust
scrutiny. But, like all who are not employees, independent-
contractor doctors and other health care professionals in
private practice must satisfy the antitrust laws when
negotiating with those that purchase their services.
This bill would allow non-employee, health care
professionals collectively to raise their fees to health
insurers without fear of antitrust liability and without regard
to competitive market forces fostered by the antitrust laws.
This increased cost ultimately will be borne by consumers.
There is no justification to accord special status to health
care professionals under the antitrust laws, differentiating
them from other professionals and independent contractors such
as architects, engineers, or lawyers. It would be both unwise
and harmful to consumers to grant them a special exemption.
We want to be clear, however, that we have and will
continue to enforce the antitrust laws in this area, and will
rigorously pursue evidence of collusion regardless of whether
providers or insurers are involved.

Competition in Health Care: Both Health Insurance and Provider Markets
Need to Function Competitively

As in other markets, the goal for health care markets
should be to ensure that consumers benefit from a competitive
marketplace where neither the buyers nor sellers unlawfully
exercise market power. Policy should focus on ensuring that
there is a competitive marketplace where neither health
insurance plans nor health care professionals are able to
obtain or exercise market power to distort the competitive
outcome. Any other result inevitably will lead to governmental
regulation of the health care market--an outcome that is not
likely to produce desirable results for consumers. We have
learned this lesson over time from other industries and we
should be sure we continue to apply it to health care markets
as well. The injection of competition into health care markets
over the past decade has helped hold down increases in health
care costs.
The preference for market competition over regulation, of
course, is dependent on the assurance that the enforcement of
the antitrust laws will prevent all participants in a market
from obtaining or exercising market power through
anticompetitive means. Thus, federal antitrust enforcement must
ensure that neither health insurance plans nor health care
professionals utilize anticompetitive means to distort the
competitive outcome in the health care industry. The Antitrust
Division has been active in pursuing that important role.
To keep health insurance markets competitive, the Division
carefully scrutinizes mergers and other activities among health
insurance plans that may harm consumers by raising prices or
limiting the scope or quality of care. For example, last year
the Division investigated the proposed acquisition of Humana by
United Health Care. The parties abandoned the transaction
during the course of the review. This week the Division
concluded that Aetna's proposed acquisition of Prudential's
health care business would violate the antitrust laws unless
Aetna undertook substantial divestitures in Dallas and Houston
to eliminate the market power it otherwise would have gained
from the merger.
The Aetna case is an extremely important precedent in this
regard. The Division, after a thorough investigation,
determined that the merger of these health plans was
anticompetitive in two separate ways. First, we believed the
merger would lead to market power in the sale by Aetna of
health maintenance organization services in certain markets.
The combined market share which would have resulted from the
merger in Houston and Dallas were over 63 percent and 42
percent, respectively. We believed this would give Aetna the
ability in those markets to increase its price or lower its
quality of service for its HMO customers. Second, we believed
that the merger would lead to market power in the purchase of
doctors' services by Aetna. The divestiture which we accepted
addressed both of these concerns. This was the first merger
case in which the Division was faced with a concern that a
combination of health plans would give the resulting plan
market power in the purchase of doctors' services. It clearly
establishes the precedent that unacceptable aggregations of
market power by health plans will not be allowed to the
detriment of consumers and health care professionals.
At the same time, we also have pursued anticompetitive
actions by health care professionals, who have sought to use
market power to demand anticompetitive concessions from health
plans. In both our Federation of Physicians and Dentists and
our Federation of Certified Surgeons and Specialists cases
(discussed below), we established that competing doctors took
joint action contrary to the antitrust laws to increase their
reimbursement rates at the expense of consumers' pocketbooks.
Our ultimate goal is the preservation of competition at all
levels of the health care industry. It has become clear over
the years that consumer welfare and patient choice are best
preserved by relying on antitrust principles to assure the
proper operation of health care markets just as they are in
other markets. Permitting providers to form bargaining groups
in response to perceived bargaining leverage by insurers will
not decrease the cost of health care or increase the quality of
patient care.

The Rationales for the Bill Support Neither the Need nor the
Desirability of an Antitrust Exemption

There are various arguments that supporters of bills like
this one have used to argue their case. On closer inspection,
those arguments often are not aligned with the competitive
realities of the marketplace and do not support the adoption of
an antitrust exemption. Supporters often argue that the
McCarran-Ferguson antitrust exemption lets insurers collude, so
doctors should be allowed to collude as well; that health plans
have all the bargaining power and tremendous market share; that
doctors will only use their power to increase the quality of
care; and that the bill will protect doctors and not increase
costs to consumers, just affect the health plans' profits. Let
me address each of these briefly.
The McCarran-Ferguson Act Does Not Give Insurers Leverage
The bill's ``Findings'' assert that increasing
concentration among health care plans, enhanced by the
McCarran-Ferguson Act, gives insurance companies significant
leverage over health care providers and patients and,
therefore, warrants permitting health care professionals to
negotiate collectively with health plans to create more equal
negotiating power, which will promote competition and enhance
the quality of patient care. The claim that the McCarran-
Ferguson Act (``McCarran''), 15 U.S.C. Sec. Sec. 1011-1015, has
given insurers significant market leverage over health care
providers and patients appears to reflect a widely held
misperception.
McCarran provides insurers with a limited exemption from
the antitrust laws, but twenty years ago the Supreme Court in
Group Life and Health Co. v. Royal Drug, 440 U.S. 205 (l979),
clearly held that McCarran does not exempt insurers' dealings
with health care providers from antitrust scrutiny. To the
extent insurers' dealings with health care professionals are in
violation of the antitrust laws, McCarran provides no obstacle
to prosecution of such claims either by the affected providers
or by state or federal enforcement agencies. When the Division
learns about exclusionary or collusive activities among health
plans, it carefully reviews them, and if necessary, takes
appropriate action. In the past few years alone, the Division
aggressively challenged contractual provisions imposed by
payers on Rhode Island dentists, U.S. v. Delta Dental of Rhode
Island, and Cleveland area hospitals, U.S. v. Medical Mutual of
Ohio, Inc., when it determined that those provisions were
resulting in higher costs and diminished choices for health
care consumers.
Thus, the claim that McCarran gives insurers leverage in
their dealings with health care providers is illusory and
should not support passage of this bill or increasing the
bargaining leverage of health care providers.
Health Plan Bargaining Power
The relative bargaining power of plans and providers varies
tremendously among markets. Although there have been several
mergers of health plans over the last few years, in our view
there still exists a significant number of competing health
insurance plans, none of which dominates, and there has been
new entry into various local markets. Between 1994 and 1997
over 150 new HMOs were licensed across the country. Moreover,
over the last decade, as enrollment in managed care plans has
grown, the market shares of many once-dominant Blue Cross and
Blue Shield plans has eroded, resulting in decreasing, rather
than increasing, concentration among health insurers in certain
markets.
To the extent that there is a concern that mergers will
increase the bargaining power of health insurance plans, our
enforcement in the Aetna case should convincingly establish
that antitrust enforcers will not allow anticompetitive mergers
that will produce market power by health insurance plans in the
market for purchasing provider services.
Quality Concerns Do Not Justify The Antitrust Exemption
The proposed bill makes no attempt to distinguish between
joint negotiations by health care professionals that are
designed to enhance efficiency, reduce costs and improve
quality of care and those designed simply to increase the
providers' income. The American Medical Association, in its
written testimony submitted to this committee last year in
support of the predecessor to H.R. 1304, acknowledged that
``[m]ost studies comparing the quality of care in managed care
plans and traditional indemnity plans have found the quality of
care to be comparable.'' This is not to say that there may not
be problems concerning the quality or scope of services under
managed care that require correction; just that problems of
poor-quality care are not endemic to managed care.
The concern relevant to this bill, however, is whether
doctors will use the power granted them by an antitrust
exemption to increase the quality of patient care. Our history
of investigations, including our recent cases against two
federations of competing doctors involving group boycotts and
price-fixing conspiracies, leads us to have concerns because
the proposed bill provides no assurance that health care
professionals would direct their collective negotiating efforts
to improving quality of care, rather than their own financial
circumstances.
In our Federation of Certified Surgeons and Specialists
case, twenty-nine otherwise competing surgeons who made up the
vast majority of general and vascular surgeons with operating
privileges at five hospitals in Tampa formed a corporation
solely for the purpose of negotiating jointly with managed care
plans to obtain higher fees. Their strategy was a success. Each
of the twenty-nine surgeons gained, on average, over $14,000 in
annual revenues in just the few months of joint negotiations
before they learned that the Division was investigating the
conduct. The participants in that scheme did not take any
collective action that improved quality of care.
In the Federation of Physicians and Dentists case, we
allege that most of the orthopedic surgeons in Delaware agreed
among themselves to boycott Blue Cross Blue Shield of Delaware
after Blue Cross announced it was going to reduce fees paid to
orthopedic surgeons and other physicians. Blue Cross is one of
four major private insurance plans operating in Delaware, and a
number of smaller plans operate there also. Blue Cross's
proposed fees, however, were still higher than those paid to
orthopedic surgeons in Philadelphia, a nearby major medical
center recognized for quality care, and in line with fees paid
to other types of specialists in Delaware. Although the
defendant organization claimed quality-of-care concerns in
directing its member surgeons' collective opposition to Blue
Cross's proposed fee reductions, the surgeons themselves
conceded that they provide the same high quality of care to
their patients regardless of the payment level. Indeed, there
is no evidence that any of the orthopedic surgeons
participating in the alleged conspiracy even sought to evaluate
the impact that Blue Cross' proposed fee reduction would have
on their cost structure or on their ability to provide quality
care.
Both of these cases, as well as many other cases brought by
both the Division and FTC, illustrate the serious harm to
consumers that would result from passage of the proposed bill,
with very limited, if any, concomitant improvement in quality
of patient care.
The Bill is Likely to Raise Costs Substantially to Consumers and
Taxpayers
The bill's potential adverse economic impact on consumers
is large. Our investigations reveal that when health care
professionals jointly negotiate with health insurers, without
regard to antitrust laws, they typically seek to significantly
increase their fees, sometimes by as much as 20-40%. For
example, in our recent Tampa case discussed above, the
otherwise competing surgeons, through joint negotiations with
health plans, had succeeded in raising their fees 20-30% prior
to learning of our investigation. Exempting such joint activity
through enactment of H.R. 1304 would permit health care
professionals to negotiate and effectuate such increases in
countless markets throughout the country. In view of the size
of expenditures for health care services and the large number
of patients receiving care, the potential anticompetitive costs
that would be borne by consumers are large.
There appears to be no dispute that the bill will result in
health plans paying higher fees to health care professionals.
At a hearing of this Committee last year on a precursor bill,
Representative Campbell acknowledged that the bill would enable
health care professionals to obtain higher fees from health
care insurers but maintained that such cost increases would be
absorbed by managed care plans, rather than passed on to
consumers. See Transcript of the July 29, 1998 Hearing before
the U.S. House of Representatives Committee on the Judiciary on
H.R. 4277 at 12, 27, 38-40. Conventional economic theory and
business realities lead, however, to the opposite conclusion.
Health insurers will pass on to consumers most, if not all,
cost increases that they would incur in collective negotiations
under H.R. 1304.
Economic theory predicts that an increase in the cost of an
input in nearly every instance translates into a higher output
price. Only in those rare cases where a different input can be
used as a perfect substitute will an increase in the cost of an
input not give rise to a price increase to the consumer. But,
because of both licensing requirements and the nature of
services provided, there are no good substitutes for
physicians, pharmacists, therapists, dentists, or other health
professionals. Consequently, health insurers are virtually
certain over time to pass through to consumers and taxpayers
most, if not all, of the increase in costs for any covered
services provided by health care professionals. See, e.g.,
Wholey, Feldman, and Christianson, ``The Effect of Market
Structure on HMO Premiums,'' 14 J. Health Economics 81, 89, l00
(l995) (finding that increases in provider costs increase
health plan premiums); M. Pauly, ``Managed Care, Market Power,
and Monopsony,'' 33:5 Health Services Research 1439, 1450 (Dec.
1998, Part II) (``In virtually any model of profit-seeking
firms, an increase in marginal cost of an input translates into
a higher equilibrium output price.'').
The realities of the health insurance business also
contribute to our conclusion that health insurers will pass on
most of any cost increases for professional services resulting
from H.R. 1304, services that ordinarily constitute about 40-50
percent of a health plan's total costs. For the last few years,
premiums closely reflected insurers' costs, and a leading
health care policy ``think-tank'' predicts that ``over the
longer term, the underlying cost of health care remains the
dominant influence on the direction of premium trends.'' See
Center for Health System Change, ``Despite Fears, Costs Rise
Modestly in l998,'' Data Bulletin No. 13 (Fall l998) at 2.
Increases in the cost of services provided by health care
professionals resulting from enactment of H.R. 1304 will
undoubtedly have a direct and predictable effect on consumers
and taxpayers, resulting in the transfer of funds to providers
and making health care insurance coverage increasingly
unaffordable for many. Medicare and Medicaid programs, for
example, will incur substantial additional costs to meet
increased premiums from managed care plans. Alternatively,
managed care plans will cease serving Medicare and Medicaid
beneficiaries in high-cost areas or reduce non-mandatory
benefits.
Employers and employees in the private sector also will be
confronted with increased costs of health insurance as a result
of this bill. The inevitable increase in premiums would lead to
more consumers either losing or foregoing their health care
coverage and likely would increase the ranks of our nation's
uninsured. Faced with substantial increases in premiums, more
employers may stop offering their employees health insurance or
will decrease benefits, and more workers who are eligible for
employer-sponsored insurance may nevertheless reject coverage
as their shared costs increase. Such trends also will translate
into additional Medicare and Medicaid costs.
There Is a Better Approach to Deal with Problems Raised by Managed Care
The stated objective of the proposed bill is to ``enhance
the quality of patient care'' and implicitly to resolve some of
the problems attributed to managed care. One of the ways is to
pass a Patients' Bill of Rights that provides critical patient
protections, such as guaranteed access to needed health care
specialists; access to emergency room services when and where
the need arises; access to a fair, unbiased and timely internal
and independent external appeals process to address health plan
grievances; and an enforcement mechanism that ensures recourse
for patients who have been harmed as a result of a health
plan's actions. The Administration continues to urge the
Congress to pass a strong, enforceable Patients' Bill of Rights
in this legislative session. Some of these quality of care
issues and other problems frequently associated with managed
care, however, may be resolved without any legislation since
there are already legitimate ways for physicians and other
health care professionals jointly to influence or make
recommendations on quality of care issues. See, e.g., United
States Department of Justice and Federal Trade Commission,
Statements of Antitrust Enforcement Policy in Health Care,
issued August 28, l996, 4 Trade Reg. Rep. (CCH) para. 13,153,
at Statement 4 (``Providers' Collective Provision of Non-Fee-
Related Information to Purchasers of Health Care Services'')
and Statement 5 (``Providers' Collective Provision of Fee-
Related Information to Purchasers of Health Care Services'').
For example, the American College of Physicians-American
Society of Internal Medicine and 21 other physician groups
recently wrote letters to national managed care organizations
urging them not to adopt mandatory hospitalist programs, that
is, programs requiring primary-care physicians to turn over
care of their patients to hospital-based physicians when a
patient needs hospital care. In response, the health plans
clarified that their hospitalist programs were voluntary.
Legislation should not, as would H.R. 1304, injure the
public by eliminating competition in health care provider
markets in the hope that it will indirectly solve the problems
of managed care facing consumers. Providers have their own self
interests, and our enforcement actions and other experience
suggest that their actions may not be congruent with the
interests of consumers.

Conclusion

We oppose this legislation which would immunize
independent-contractor doctors and other health care
professionals in private practice from antitrust prohibitions.
This bill is the wrong way to deal with problems identified
with managed care and will harm consumers of health care in the
future. The bill would hurt consumers and taxpayers by raising
the costs of both private health insurance and governmental
programs with no assurance that quality of care would be
improved. The better approach is to empower consumers by
encouraging price competition, opening the flow of accurate,
meaningful information to consumers, and ensuring effective
antitrust enforcement both with regard to buyers (health
insurance plans) and sellers (health care professionals) of
provider services. Competitive issues are best dealt with in a
manner which promotes competition, not retards competition, as
this bill would do if enacted.
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.
---------------------------------------------------------------------------
\1\ See 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.
---------------------------------------------------------------------------
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 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 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.
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 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.
---------------------------------------------------------------------------
\1\ See Milt Freudenheim, Concern Rising About Mergers In Health
Plans, N.Y. Times, January 13, 1999, at A1.
\2\ See 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).
\4\ See 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 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.
---------------------------------------------------------------------------

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.''
---------------------------------------------------------------------------
\7\ See 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].
---------------------------------------------------------------------------

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 negotiating 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\
---------------------------------------------------------------------------
\8\ See generally, Quality Health Care Coalition Act Hearing
(statement of John Rector, Vice President, National Community
Pharmacists Association).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\9\ The 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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\10\ Sec. 2(e).
---------------------------------------------------------------------------
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.

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.
---------------------------------------------------------------------------
\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.
\12\ See H.R. 9, approved by the committee in 1994 and 1992.
Neither bill was taken to the House floor.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
\13\ Fitzhugh Mullan, A Look at . . . Unionizing Doctors; I Joined
Once. Now I'm Not So Sure, The Washington Post, July 18, 1999, at B3.

John Conyers, Jr.