By Christopher Guadagnino, Ph.D

Published June 1999

OTHER COVERAGE OF PHYSICIAN UNIONS

• Physician unions take root in Pa.

• Surgeons fight Blue Cross rate cuts

• Medical society explores regionalization and MD unions

• Legal issues of physician unionization

• Physician unions gain steam

• AMA collective bargaining program

• A Pennsylvania physician guild

• Building a physician union in the Delaware Valley

• The legalities of physician unions

• Prospect of physician unions in Pa.

• React to this article in the Discussion Forum.

Legislative Initiatives

• Washington state measure implemented in 1995 allows competing physicians to negotiate jointly with health plans over contractual issues not including fees.

• Texas Legislature passed measure last month to allow physicians to negotiate jointly with health plans over contractual issues including fees.

• Pennsylvania Medical Society is drafting legislation similar to the Texas bill for possible introduction this fall.

• Campbell Bill introduced in U.S. House would confer upon competing physicians the right to collectively bargain with health plans under the NLRA.

In southeastern Pa., Independence Blue Cross and Aetna U.S. Healthcare have a combined market share of 80 percent, the Philadelphia Inquirer noted. And in western Pa., Highmark Blue Cross and Blue Shield alone has a 60 percent to 85 percent market share. Chairman and CEO John S. Brouse said, "We're going to gorge ourselves," with mergers and acquisitions to achieve greater economies of scale, including a possible alliance with Capital Blue Cross and other Blues plans, reported the Central Penn Business Journal.

"The severe imbalance of power between health plans and physicians has reached critical, even dangerous levels, giving health plans the power to determine what kind of medical care a doctor may render to a patient," says AMA trustee Donald J. Palmisano, M.D., J.D. "Health plans dictate contract terms to physicians and offer them 'take it or leave it' choices, while physicians have no bargaining power," he adds.

A radical and little-known approach to redress the problem, namely, allowing competing physicians to communicate and negotiate jointly over health plan contractual terms without fear of antitrust violation, may seem like a pipe dream but has quietly been in effect in Washington state since 1995 and is being seriously considered in a number of other states, including Pennsylvania.

The Texas legislature passed a bill (SB 1468) in late May that permits joint communication among independent physicians about key provisions in health insurer contracts and would permit, with state attorney general consent and oversight, groups of physicians to negotiate fee and non-fee terms with health insurers jointly through appointed third parties.

The bill was drafted from model legislation that the AMA developed in February, based on actual legislation implemented in Washington state in 1995, that grants antitrust exemption to joint negotiation among private physicians if active state supervision is provided.

Pennsylvania is working on a similar bill, which could be unveiled as early as this fall, according to Pennsylvania Medical Society (PMS) General Counsel Ken Jones.

At the federal level, a bill in the U.S. House introduced by Rep. Tom Campbell (R-CA) would grant physicians exemption from antitrust laws under the National Labor Relations Act and would confer upon them the right of collective bargaining with health insurers.

Progress in Texas

In Texas, the first state to pass an HMO liability law two years ago, SB 1468 first passed in the Senate in late April and in the House in late May. The bill was on Gov. George W. Bush's desk at press time.

The bill is remarkable in that it permits physician negotiation patterns long recognized to be felonies under antitrust law that are punishable by stiff fines and prison. It offers the rationale in its opening article that "joint negotiation by competing physicians of certain terms and conditions of contracts with health plans will result in procompetitive effects," so long as physicians do not boycott or strike against health plan participation, which the bill prohibits.

The bill is based on model legislation rooted in the "state action doctrine," first set forth in a 1943 Supreme Court decision, indicating that antitrust laws do not apply to action by a state operating in its sovereign capacity, or to private conduct compelled or approved by the state.

The bill authorizes, with state attorney general consent, competing physicians to communicate with each other with respect to a variety of health plan contract terms and to appoint a third party to negotiate with health plans on behalf of the physicians. The contract terms include:

• Clinical practice guidelines and coverage criteria.
• Administrative procedures, including methods and timing of physician payment for services.
• Dispute resolution procedures.
• Patient referral procedures.
• Formulation and application of physician reimbursement methodology.
• Quality assurance programs.
• Health service utilization review procedures.
• Health benefit plan physician selection and termination criteria.
• Inclusion or alteration of contract terms and conditions subject to government regulation prohibiting or requiring them.

The list was amended in the House version to include practices and procedures to assess and improve preventive health care services, illnesses in children, women's health care, patient education and treatment compliance, fraud prevention, outpatient surgery and clinical criteria for disease management programs.

The House also added language that prohibits physicians from using their clout to inhibit other health care professionals from contracting with health plans and disallows physicians from jointly negotiating with health plans solely over "tied products" contract provisions, which require physicians who sign a health plan contract to be on the panel for all of the health insurance products offered by that company.

The bill also authorizes, at the discretion of the state attorney general, competing physicians who constitute no more than ten percent of physicians in a health plan's defined geographic service area to meet and communicate for the purposes of jointly negotiating:

• Fees or prices for services, including those arrived at by any reimbursement methodology procedures.
• Conversion factors in an RBRVS reimbursement methodology or similar methodologies.
• The amount of any discount on the price of physician services.
• The dollar amount of capitation or fixed payment for physician services.

Joint negotiation of fees is authorized only when the state attorney general determines that the health plan in question "has substantial market power and those terms and conditions have already affected or threaten to adversely affect the quality and availability of patient care."

Criteria to determine market power is to be determined by the attorney general. He is given the authority to collect and investigate the average number of covered lives per month per county by every health care entity in the state and the annual impact of joint fee negotiations on average physician fees in the state.

The physicians and their negotiator are required to demonstrate to the attorney general that "the likely benefits resulting from the joint negotiation or proposed contract outweigh the disadvantages attributable to a reduction in competition that may result." To that end, the physicians' third party representative is required to file with the attorney general information about the proposed subject matter of the negotiation, the expected impact of the negotiations on the quality of patient care, the benefits of a contract between the health plan and physicians in question and a copy of any proposed contract agreed upon by the health plan and the physicians' negotiator. The attorney general has 30 days to approve or disapprove an initial filing or a proposed contract and is required to explain how any deficiencies in a disapproved filing or contract could be corrected.

The final version of the bill does not permit joint physician negotiation with Medicaid managed care plans or children's health plans, a concession made to alleviate one of the key concerns raised by legislators that the bill might compromise access to health care by indigents or children.

The AMA's model state legislation includes provisions that are more favorable to physicians but did not make it into the Texas bill, such as adding malpractice liability to the list of negotiables and establishing a market cap of 30 percent of physicians who may jointly negotiate with a health plan having less than five percent of the market.

SB 1468 provoked a vigorous lobbying campaign by both sides. Medical societies in Texas promoted the bill as limited state protection to allow physicians to negotiate fairly with health plans rather than be subject to "take it or leave" contract abuses that might be bad for their patients and their practices. Emphasis was placed on the importance of the bill in promoting highest quality patient care, including the ability for physicians to refer and prescribe according to their best medical judgment.

In a statement to the Texas House of Representative Committee on Insurance, Palmisano said: "Large health plans actually use the threat of federal antitrust law enforcement to bully physicians and networks into accepting contracts that they believe adversely affect patient care, all to save the health plans money. And so, while a dominant health plan has little or no fear under the antitrust laws, two or more physicians do."

A statewide poll commissioned by the Texas Medical Association found that 73 percent of Texans believe that doctors need the right to negotiate with HMOs in order to protect patients' rights. Seventy-eight percent said that HMOs have too much power and influence in health care decisions and 76 percent said HMOs are more interested in making money than in caring for their patients.

The Texas business community lobbied heavily against the bill. Their chief objections were that it would allow physicians to leverage higher fees out of health plans, resulting in health insurance premium increases, more small businesses dropping health coverage and rising numbers of uninsured in the state, according to Jerry Patterson, executive director of the Texas Association of Health Plans (TAHP). Texas has the nation's third highest population of uninsured, 26.7 percent.

The business community would have accepted a bill that protected physicians from antitrust violation for meeting and communicating among themselves on issues of health care quality, but not one that protects joint negotiating, especially about fees, notes Patterson. "This is a money fight and the biggest loser is the consumer," he adds.

Opponents have also been critical of the lack of precision in the bill's language. Health plan market power is not defined, nor are the criteria for the attorney general to make that determination, notes Bob Leibenluft, a Washington, D.C. attorney hired by TAHP and former assistant director for health care in the FTC's Bureau of Competition. The bill is stricter about the conditions governing negotiations over "fee items," but many "non-fee" terms have a substantial impact on physician costs, e.g., reimbursement methodology and utilization issues, Leibenluft says. Physicians can aggregate by specialty and wield a de facto monopoly force if they demand terms which no HMO can agree to, he claims.

Opponents of SB 1468 also characterized it as a physician union measure. An earlier version of the bill used the phrase, "collective negotiation" throughout, which was changed to "joint negotiation" before the Senate vote. But the difference is more than cosmetic. Unlike unionized collective bargaining, in which participants could find themselves involuntarily bound to conditions agreed to by majority vote, SB 1468 gives each physician the option whether or not to agree to be bound by the terms and conditions negotiated by the third party. In that respect, the Texas Medical Association argued, the bill is not a physician unionization measure and may even be seen as a retardant to physician enthusiasm for the more binding requirements of collective bargaining. Health plans can, on the other hand, also decline to negotiate with the appointed third party, unlike NLRA-protected union negotiations where parties are required to negotiate.

Federal Legislation

A federal bill entitled, The Quality Health Care Coalition Act, introduced in Congress by Rep. Tom Campbell (R-CA) for the second consecutive year, goes in the other direction. It would grant any health care professional, including private physicians, antitrust exemption under the NLRA to engage in collective bargaining with health plans, but does not confer on physicians "any right to participate in any collective cessation of service to patients not otherwise permitted by law." The bill is endorsed by the AMA, 25 national specialty societies, 47 state medical societies, including the PMS, as well as the AFL-CIO-affiliated Federation of Physicians and Dentists.

Palmisano says the bill is the only effective way to redress onerous health plan contract provisions that the AMA argues are potentially damaging to patients, such as limiting the definition of medical necessity to lowest cost services essential to improving a beneficiary's health, which rules out coverage for services that the physician believes are likely to improve a patient's condition but may cost more than less effective alternatives.

Physicians cannot afford to decline contracts with health plans that often control 40 percent or more of a practice's commercial covered lives, Palmisano says, yet must indemnify health plans against malpractice lawsuits, agree to steep price concessions, grant the plan the unilateral right to change fee schedules at will, accept "all products or no products" policies and termination agreements that heavily favor the health plan.

"No business or any other person would agree to such terms unless they had absolutely no leverage," Palmisano declares.

The Campbell bill would have another benefit to the medical community. If HMOs were to claim that they could not pay higher provider fees, the bill's collective bargaining framework would require them to "open up their books" through an impasse mechanism drafted to resolve disputes in front of an administrative law judge or impartial third party, notes Jack Seddon, executive director of the Federation of Physicians and Dentists, who testified in behalf of the bill last year.

The Campbell bill was opposed last year by the FTC, which testified to the House Judiciary Committee that physicians do not need broad exemption from antitrust laws to express concerns over health plan practices and "can organize joint ventures and negotiate collectively with health plans under existing antitrust laws as long as they produce procompetitive benefits for consumers." The FTC also claimed that the bill, by allowing physicians jointly to agree to raise their fees, would harm competition and consumers.

The Campbell bill was put on the back burner last year, says Palmisano, because of impeachment proceedings against President Clinton. The bill currently has 75 co-sponsors in the House and a parallel version expected to be introduced in the Senate, where eight senators have indicated an interest in it, according to Seddon. House Judiciary Committee hearings on the bill are scheduled for June, he adds.

Prospect In PA

Texas bill SB 1468 has brought the promise of state action doctrine legislation to the attention of other states, including Pennsylvania and New Jersey. The Pennsylvania Medical Society is working on a draft bill that general counsel Ken Jones says he would like to see introduced this fall.

Pennsylvania's version of the state action doctrine bill, if approved by the PMS Board of Trustees, would authorize one of three state agencies, or a combination thereof, to supervise joint physician negotiation with health plans: the Insurance Department, the Department of Health or the Pa. attorney general, Jones explains.

Jones believes that the ability to negotiate fees should be part of the legislation and that no limit should be placed on the size of the physician groups eligible to participate in those negotiations, or no real change is effected against HMOs that may control huge segments of their markets. Jones would also like to see a more detailed definition of "market" drafted into the bill to make it easier for physicians to comply with antitrust laws.

Passage of a state action doctrine bill in Pa. is feasible, Jones argues, given the much greater concern by legislators and the public over managed care abuses than five years ago. The Texas legislature was successful in passing the bill because of a well-organized grassroots campaign among Texas Medical Association physicians, who TMA lobbyist Kim Ross believes are more politically active than in most states. The bill also drew statewide allies because of the galvanizing effects of abuses by Aetna U.S. Healthcare, which received national publicity, he adds.

Washington state has had little success with its version of the legislation, which was the only surviving portion of a broad health care reform initiative in 1993 that resembled the managed competition program unsuccessfully championed by President Clinton.

Implemented in 1995, the Washington measure encountered little opposition by the business or health insurance communities because it was a far less radical than the broader reform measure, which called for replacing health insurance companies with state-certified health plans, says John Arveson, director of professional affairs of the Washington State Medical Association (WSMA).

The Washington measure allows physicians to negotiate jointly through a third party service set up by the WSMA on non-fee items only, overseen by the state's executive branch. Since the measure specifically excludes the right of physicians to negotiate jointly over fees or price information and even warns about the anticompetitive effects of such practices, the measure attracted relatively little physician participation, 2700 physicians to date, and failed to create a critical mass large enough to induce health plans to engage in any negotiations with the WSMA negotiation service, according to Arveson.

It was only after the WSMA complained publicly and to the state Insurance Department about an egregious contract required by an HMO in the region that events changed. A flood of supportive letters from consumers, labor groups and employers prompted the Insurance Department to order the HMO to make significant changes in its provider contracts, says Arveson, and the WSMA has since been able to utilize its joint physician negotiation service with that HMO.

Ultimately, the long-term need for joint negotiation relief for physicians afforded by state action bills and the Campbell bill will decrease as patients take more control of their health coverage, believes Palmisano. The AMA's long-term vision, he says, is patient ownership of health insurance, funded by defined contributions from employers. Under that system, Palmisano notes, "Customers can walk. Health plans must cater to customers, not to employers."