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104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-646
_______________________________________________________________________


 
             ANTITRUST HEALTH CARE ADVANCEMENT ACT OF 1996

_______________________________________________________________________


 June 27, 1996.--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

                            DISSENTING VIEWS

                        [To accompany H.R. 2925]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 2925) to modify the application of the antitrust 
laws to health care provider networks that provide health care 
services; and for other purposes, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          purpose and summary

    Recent demand to lower health care costs and to improve 
quality of health care services has increased the popularity of 
physician-controlled provider networks. These network 
arrangements promise significant, pro-competitive benefits for 
consumers. But because physicians in networks collectively 
price their services, they are susceptible to a challenge under 
the antitrust laws for illegal price fixing. Physicians and 
other health care providers who wish to form networks, but want 
to do so without violating the antitrust laws, are seeking 
guidance as to how the law will be applied. Current law permits 
price fixing agreements if they are necessary to achieve the 
efficiencies associated with a network of competitors who are 
integrated in a joint venture.
    The Antitrust Health Care Advancement Act of 1996 is 
intended to ensure that health care provider networks which 
bear the indicia of a legitimately integrated joint venture 
will receive rule of reason consideration. Doing so will erase 
the rigid and artificial antitrust barrier to the formation of 
networks other than those described in current enforcement 
guidelines as ``safety zones.'' It will remove the fear of 
criminal penalties, or treble civil damage awards, for those 
who are in good faith attempting to engage in pro-competitive 
ventures. It will bring competition into the managed care 
dominated health care delivery system, and let the marketplace 
determine the contours of provider networks which will satisfy 
the needs of the health care consumer.
    The goal of this legislation is to remove artificial 
antitrust barriers to the formation of new types of delivery 
systems: to encourage the creation of new competitive entities. 
These partnerships will consist of persons with shared economic 
interest, and they will create new efficiencies in the delivery 
of health care. As a subsidiary benefit, the Act will encourage 
the enforcement agencies to revisit current enforcement 
guidelines, and to where appropriate grant rule of reason 
treatment to an expanded universe of network types.

                background and need for the legislation

    Health care provider networks, or ``HCPNs,''--those 
composed of doctors, hospitals, and other entities who actually 
deliver health care services--are potentially vigorous 
competitors in the health care market. Their formation leads to 
lower health care costs and higher quality of care. Costs are 
lower because contracting directly with health care providers 
eliminates an intermediate layer of overhead and profit. 
Quality is higher because providers, and particularly 
physicians, have direct control over medical decision-making. 
Physicians and other health care professionals are better 
qualified than insurers to strike the proper balance between 
conserving costs and meeting the needs of the patient.
    Concern has been raised, however, that the application of 
current antitrust enforcement guidelines is discouraging 
providers from forming networks which would have a positive 
effect on competition. These networks would most likely be 
found legal under the antitrust laws, but physicians--who are 
understandably concerned about potential treble damage 
liability--are unwilling to create them in the absence of pre-
conduct approval from the enforcement agencies. H.R. 2925 
removes this artificial barrier to entry, by conforming agency 
enforcement practices to the manner in which courts have 
interpreted and applied antitrust law.

A. Applicable antitrust law

    Antitrust law prohibits agreements among competitors that 
fix prices or allocate markets. Such agreements are per se 
illegal. Where competitors economically integrate in a joint 
venture, however, agreements on prices or other terms of 
competition that are reasonably necessary to accomplish to pro-
competitive benefits of the integration are not unlawful. See, 
e.g., Broadcast Music, Inc. v. Columbia Broadcasting System, 
Inc., 441 U.S. 1, 19-20 (1979). Price setting conduct by these 
joint ventures is evaluated under the ``rule of reason,'' that 
is, on the basis of its reasonableness, taking into account all 
relevant factors affecting competition.
    The antitrust laws treat individual physicians as separate 
competitors. Thus, networks composed of physicians which set 
prices for their services as a group will be considered per se 
illegal under the antitrust laws if they are not economically 
integrated joint ventures. In the typical provider network, 
competing physicians relinquish some of their independence to 
permit the venture to win the business of health care 
purchasers, such as large employers. These networks promise to 
provide services to plan subscribers at reduced rates. The 
ventures also achieve another central goal of health care 
reform: careful, common sense controls on the provision of 
unnecessary care.
    However, agreements among physicians who retain a great 
deal of independence but set fees for their services as part of 
a network bear a striking resemblance to horizontal price 
fixing agreements. These are the most disfavored and most 
quickly condemned restraints in antitrust jurisprudence. The 
key factual question which would distinguish a network that is 
per se unlawful from one which, upon consideration of the 
circumstances, is acceptable because it is not anticompetitive 
in nature, is the degree of integration of the individuals who 
form the network.
    While the antitrust laws provide substantial latitude in 
the context of collaboration among health care professionals, 
there is an understandable degree of uncertainty associated 
with their enforcement. Because each network involves unique 
facts--differences not only in the structure of the network, 
but also in the market in which it will compete--the ability of 
providers to prospectively determine whether their arrangement 
will be considered legal is limited.

B. Current enforcement standards

    In order to eliminate this uncertainty, and to encourage 
pro-competitive behavior that would otherwise be chilled, the 
Department of Justice and Federal Trade Commission have 
established a mechanism for prospective review of proposed 
networks. In 1993, the antitrust enforcement agencies jointly 
issued ``Statements of Enforcement Policy and Analytical 
Principles Relating to Health Care and Antitrust.'' These 
guidelines, which were amended in 1994, contain safety zones 
which describe provider network joint ventures that will not be 
challenged by the agencies under the antitrust laws, along with 
principles for analysis of joint ventures that fall outside the 
safety zones. A group of providers wishing to embark on a joint 
venture may request an advisory opinion from the agencies. The 
agencies, after reviewing the particulars of the proposed 
venture, then determine whether the network would fall within a 
safety zone, or otherwise not be challenged under the antitrust 
laws.
    The problem is that these enforcement guidelines articulate 
standards that are more restrictive than the realities of the 
agencies' enforcement practices and the current state of the 
law. They treat as per se illegal many more networks than the 
antitrust laws would require, because case law does not single 
out integration exhibited by the sharing of financial risk as 
carrying special weight.
    The guidelines promise rule of reason treatment to ventures 
where the competitors involved are ``sufficiently integrated 
through the network.'' 1994 Guidelines at 90. This is 
consistent with judicial interpretations of the law. See, e.g., 
Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 
441 U.S. 1, 19-20 (1979). In fact, the guidelines state that:

          Physician network joint ventures will be reviewed 
        under a rule of reason analysis and not viewed as per 
        se illegal either if the physicians in the joint 
        venture share substantial financial risk or if the 
        combining of the physicians into a joint venture 
        enables them to offer a new product producing 
        substantial efficiencies.

1994 Guidelines at 71 (emphasis added). It is the Agencies' 
reliance (or lack thereof) on the second prong of this 
statement--relating to joint ventures offering new products--
which leads to a divergence from current antitrust 
jurisprudence.
    Aside from the clause quoted above, the guidelines contain 
no reference to the availability of rule of reason 
consideration to joint ventures which offer new products 
producing substantial efficiencies. This is true despite the 
fact that case law places joint ventures on an equal footing 
with the sharing of financial risk as describing conduct 
eligible for rule of reason consideration. See, e.g., Arizona 
v. Maricopa County Medical Society et al., 457 U.S. 332 (1982). 
Thus, while appearing to accept the idea that something other 
than the sharing of substantial financial risk might result in 
an integrated venture entitled to rule of reason analysis, in 
reality the enforcement of the guidelines have limited a 
showing of integration to the sharing of ``substantial 
financial risk.'' A network which integrates in any other way--
regardless of the extent of that integration, or whether a 
court interpreting the antitrust laws would find it to be 
integrated--would not likely be treated as a legitimate joint 
venture under the guidelines. This means that the agencies 
would not proceed to examine the specific facts of these joint 
ventures to determine their likely impact on competition; the 
arrangement would be viewed as per se illegal.
    This restrictive notion of what constitutes a legitimate 
joint venture discourages pro-competitive ventures from 
entering the health care marketplace, under the guise of 
antitrust enforcement. It excludes potential provider networks 
which would mean an expanded set of consumer choices and 
increased competition (and thereby, lower costs) for health 
care services.

C. Scope of H.R. 2925

    H.R. 2925 overcomes this barrier by requiring that the 
conduct of an organization meeting the criteria of a Health 
Care Provider Network be judged under the rule of reason. The 
result will be to permit a case-by-case determination as to 
whether the conduct of that HCPN would be pro-competitive, and 
thus permissible under the antitrust laws. It is important to 
emphasize, however, that this is not an exemption from the 
antitrust laws. In no event would providers be allowed to set 
prices or control markets if, in doing so, they have an 
anticompetitive effect on the market. The normal principles of 
antitrust law will continue to apply. There could just be no 
automatic assumption that such networks would be per se 
illegal.
    Only an organization meeting specified criteria would 
qualify for the more liberal, rule of reason consideration. The 
network must have in place written programs for quality 
assurance, utilization review, coordination of care and 
resolution of patient grievances and complaints. It must 
contract as a group, and mandate that all providers forming 
part of the group be accountable for provision of the services 
for which the organization has contracted. If these criteria 
are not met, the entity could still be considered per se 
illegal.
    Rule of reason consideration would be extended not only to 
the actual performance of a contract to provide health care 
services, but also to the exchange of information necessary to 
establish a HCPN. An important limitation on the exchange of 
information is that it must be reasonably required in order to 
create a HCPN. Further, information obtained in that context 
may not be used for any other purpose.
    H.R. 2925 delegates to the Department of Justice and the 
Federal Trade Commission authority to specify how rule of 
reason consideration would be implemented under these 
circumstances.
    The Committee is particularly aware of the increased 
certainty gained by implementing this standard through 
legislation rather than enforcement guidelines. The 
``Statements of Enforcement Policy and Analytical Principles 
Relating to Health Care and Antitrust'' are just that--policy 
and principles. They lack permanence because they are always 
subject to possible change by the Agencies themselves. They 
have no binding effect on private parties. Thus, costly and 
time-consuming private treble damage actions could still be 
filed in court against well-intentioned networks that have met 
a test established by guidelines. And most importantly, the 
guidelines are not binding on any court.
    H.R. 2925 is a measured approach to the antitrust issues 
presented by the growth and evolution of the health care 
delivery market. It does not exempt any conduct from scrutiny 
under the antitrust laws. It does, however, ensure that 
legitimate joint ventures will have the opportunity they 
deserve to show that their restrictive practice does not impose 
an unreasonable restraint on competition. See, e.g., Chicago 
Board of Trade v. United States, 246 U.S. 231, 238 (1918).

                                hearings

    The Full Committee held two days of hearings on H.R. 2925. 
Testimony on the bill was received from Robert Pitofsky, 
Chairman of the Federal Trade Commission, on February 27, 1996, 
and on February 28, 1996 from a panel including Nancy Dickey, 
M.D., on behalf of the American Medical Association; Gayle 
McKay, on behalf of the American Association of Nurse 
Anesthetists; Margaret Metzger, Senior Vice President and 
Corporate General Counsel, Tufts Associated Health Plan, on 
behalf of the Group Health Association of America/American 
Managed Care and Review Association; and Professor Clark C. 
Havighurst, Wm. Neal Reynolds Professor of Law, Duke University 
School of Law.

                        committee consideration

    On March 12, 1996, the Committee met in open session and 
ordered favorably reported the bill H.R. 2925 without amendment 
by a recorded vote of 20 to 4, a quorum being present.

                         vote of the committee

    1. Mr. Conyers offered an amendment to limit coverage of 
the Act to Federal antitrust law. The amendment was defeated by 
a vote of 7 to 17.
        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mrs. Schroeder                      Mr. Moorhead
Mr. Nadler                          Mr. Gekas
Mr. Scott                           Mr. Coble
Mr. Watt                            Mr. Smith (TX)
Ms. Lofgren                         Mr. Schiff
Ms. Jackson Lee                     Mr. Canady
                                    Mr. Goodlatte
                                    Mr. Buyer
                                    Mr. Bono
                                    Mr. Heineman
                                    Mr. Chabot
                                    Mr. Flanagan
                                    Mr. Barr
                                    Mr. Frank
                                    Mr. Boucher
                                    Mr. Reed

    2. The Committee voted, by recorded vote of 20 to 4, to 
favorably report the bill without amendment.
        AYES                          NAYS
Mr. Hyde                            Mr. Conyers
Mr. Moorhead                        Mrs. Schroeder
Mr. Gekas                           Mr. Nadler
Mr. Coble                           Mr. Scott
Mr. Smith (TX)
Mr. Schiff
Mr. Canady
Mr. Goodlatte
Mr. Buyer
Mr. Bono
Mr. Heineman
Mr. Chabot
Mr. Flanagan
Mr. Barr
Mr. Frank
Mr. Boucher
Mr. Reed
Mr. Watt
Ms. Lofgren
Ms. Jackson Lee

                      committee oversight findings

    In compliance with clause 2(l)(3)(A) of rule XI 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 and oversight findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

                new buget authority and tax expenditures

    Clause 2(l)(3)(B) of House Rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               congressional budget office cost estimate

    In compliance with clause 2(l)(C)(3) of rule XI of the 
Rules of the House of Representatives, the Committee sets 
forth, with respect to the bill, H.R. 2925, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 22, 1996.
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 federal and intergovernmental cost 
estimates for H.R. 2925, the Antitrust Health Care Advancement 
Act of 1996. The bill would impose a mandate on state 
governments (see the enclosed intergovernmental mandate 
statement).
    Enacting H.R. 2925 would affect direct spending and 
receipts. Therefore, pay-as-you-go procedures would apply to 
this bill. However, CBO cannot estimate the amount by which the 
federal outlays and receipts would be changed.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

               congressional budget office cost estimate

    1. Bill number: H.R. 2925.
    2. Bill title: Antitrust Health Care Advancement Act of 
1996.
    3. Bill status: As ordered reported by the House Committee 
on the Judiciary on March 12, 1996.
    4. Bill purpose: This bill would require provider sponsored 
networks (PSNs) to be judged on a case-by-case basis as to 
whether the conduct of such groups is permissible under 
antitrust laws. PSNs are groups composed of physicians, nurses, 
hospitals and other entities who deliver health care services. 
Under current law, physicians are treated as separate 
competitors, making most of their joint ventures automatically 
a violation of antitrust laws. This bill also would require the 
Department of Justice (DOJ) and the Federal Trade Commission 
(FTC) to establish guidelines for evaluating the legality of 
PSNs.
    5. Estimated cost to the Federal Government:
    Spending subject to appropriations.--Based on information 
from DOJ and the FTC, CBO believes that enacting this bill 
would raise the burden of proof required for the enforcement 
and prosecution of certain cases involving PSNs. Consequently, 
additional legal and investigatory resources could be needed. 
Based on information from DOJ, CBO estimates that this type of 
antitrust activity would impose an average cost of about 
$250,000 per case. A typical case could extend over several 
years. It is very difficult to project the extent to which 
enacting this bill would result in the formation of PSNs 
nationwide and to what extent newly formed networks would 
require substantial investigation and ultimately prosecution by 
the federal government. Given the uncertainty with how the 
medical community and marketplace would respond to the 
provisions under this bill, DOJ and the FTC have no basis for 
predicting future caseload. If relatively few cases are 
investigated, the resultant costs to the federal government 
would be less than $1 million each year. If, on the other hand, 
caseload were to increase significantly, we estimate that 
annual costs could total between $3 million and $5 million. Any 
such increase in costs to the federal government would be 
subject to appropriations of the necessary funds.
    As explained below, the bill also would increase 
discretionary spending for federal employees' health benefits, 
but CBO cannot estimate the extent of that increase at this 
time.
    Direct spending and revenues.--By loosening the antitrust 
restrictions on the establishment of provider sponsored 
networks, H.R. 2925 would affect competition in the market for 
health care and could affect the federal budget. On the one 
hand, this provision would encourage the formation of PSNs, 
potentially adding health plans to the market and enhancing 
competition. On the other hand, H.R. 2925 would effectively 
cause the enforcement of antitrust violations by health care 
providers to be relaxed. Health providers seeking to prevent 
managed care networks from gaining strength in certain areas 
could use the exemption to share financial data and develop 
strategies to resist network formation and competition. On 
balance, CBO estimates that health costs would increase, 
raising the costs of government programs and reducing revenues, 
but cannot estimate the magnitude of the impact.
    The bill could affect federal outlays for Medicare by 
relaxing antitrust enforcement and giving a competitive edge to 
provider sponsored health networks. States may begin to license 
PSNs, and Medicare would be likely to accept risk contracts 
with licensed PSNs that apply. This could exacerbate risk 
selection problems in Medicare because doctors in provider 
sponsored networks would be especially able to steer their 
healthy patients to the network and advise their sick patients 
to remain in the traditional fee-for-service plan. Any 
competitive forces spawned by the formation of additional PSNs 
would not lower Medicare costs because Medicare pays all such 
plans based on costs in the fee-for-service program.
    Higher health costs would affect federal outlays for 
federal employees' health benefits. Federal outlays are a 
proportion of total premiums for federal workers, and premiums 
would increase as health costs rose. The increase would affect 
both mandatory and discretionary outlays.
    Revenues would also fall as premiums for employment-based 
insurance rose in response to higher health costs. Higher 
premiums would trigger reactions by nonfederal employers, so 
that health benefits and coverage, other fringe benefits, and 
cash wages would be reduced. To the extent that cash wages were 
reduced, federal income and payroll tax revenues would fall.
    The costs of this bill fall within budget functions 370, 
550, and 750.
    6. Pay-as-you-go considerations: Section 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985 sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts through 1998. CBO believes that H.R. 2925 
would increase federal outlays and decrease tax revenues but 
cannot estimate the amount of these changes.
    7. Estimated impact on State, local and tribal governments: 
The bill would impose a mandate on state governments (see 
attached intergovernmental mandate cost statement).
    8. Estimated impact on the private sector: The bill 
contains no private sector mandates as defined in Public Law 
104-4.
    9. Previous CBO estimate: None.
    10. Estimate prepared by: Federal Cost Estimate: Susanne S. 
Mehlman for justice programs; Jeffrey Lemieux for health 
programs. Private Sector Impact: Bruce Vavrichek.
    11. Estimate approved by: Robert A. Sunshine (for Paul N. 
Van de Water, Assistant Director for Budget Analysis).

   congressional budget office--estimated cost of intergovernmental 
                                mandates

    1. Bill number: H.R. 2925.
    2. Bill title: Antitrust Health Care Advancement Act of 
1996.
    3. Bill status: As ordered reported by the House Committee 
on the Judiciary on March 12, 1996.
    4. Bill purpose: H.R. 2925 would require case-by-case 
determinations about whether health care provider sponsored 
networks (PSNs) are permissible under antitrust laws. PSNs are 
groups composed of physicians, nurses, hospitals, and other 
entities who deliver health care services. Under current state 
and federal antitrust laws, most such joint ventures are 
automatically illegal.
    5. Intergovernmental mandates contained in the bill: H.R. 
2925 would require that states, in enforcing their antitrust 
laws, judge PSNs on a case-by-case basis rather than ruling 
them illegal per se.
    6. Estimated direct costs to State, local, and tribal 
governments:
    (a) Is the $50 Million Annual Threshold Exceeded? No.
    (b) Total Direct Costs of Mandates: CBO estimates that the 
mandate in H.R. 2925 would result in aggregate direct costs to 
state governments of $5 million to $15 million per year. The 
mandate would not directly affect local or tribal governments.
    (c) Estimate of Necessary Budget Authority: Not applicable.
    7. Basis of estimate: Based on information from federal and 
state antitrust officials, CBO expects that H.R. 2925 would 
raise the burden of proof required to enforce and prosecute 
certain cases involving PSNs. State antitrust enforcement 
divisions would need to retain economists and health care 
experts to a greater degree than under current law as well as 
spend more time researching and prosecuting the PSN cases they 
pursue. Based on information from antitrust experts, CBO 
estimates that the cost of prosecuting cases under this higher 
standard would average about $250,000 per case--as much as 10 
times the amount currently spent investigating and prosecuting 
a typical PSN case. A typical case could extend over several 
years.
    According to the National Association of Attorneys General, 
approximately half of the states actively engage in antitrust 
enforcement. To maintain their current level of enforcement 
under the new standard, CBO estimates that these states, on 
average, would incur additional costs totaling about $300,000 
annually. If, as many experts predict, however, H.R. 2925 
results in a substantial increase in the number of PSN cases 
needing investigation, CBO estimates these costs could double 
for many states. Additional costs for all states would total 
between $5 million and $15 million annually.
    Based on information from seven states with aggressive 
enforcement programs, CBO expects that many states would likely 
alter their caseloads to minimize these costs. They would 
become more selective, investigating and prosecuting fewer, but 
more complicated, health care antitrust cases.
    8. Appropriation or other Federal financial assistance 
provided in bill to cover mandate costs: None.
    9. Other impacts on State, local, and tribal governments: 
CBO believes that private health insurance premiums would rise 
if H.R. 2925 were enacted. This, in turn, would have a negative 
budget impact on state, local, and tribal governments. Based on 
a survey of states and health care and antitrust experts, CBO 
assumes that enacting H.R. 2925 would result in less 
comprehensive enforcement of health care antitrust violations. 
While the bill's intent is to encourage PSNs to establish 
themselves in an efficient and competitive manner, we expect 
that the net effect of the legislation actually would be to 
increase anticompetitive behavior.
    These factors would cause health costs to increase 
slightly, raising health insurance premiums as well as the cost 
of government medical assistance programs. The cost of 
increased premiums for covered employees of state, local, and 
tribal governments, however, would be primarily borne by the 
employees themselves and not the government employers. CBO 
estimates that employers providing health care coverage would 
decrease cash wages and fringe benefits to compensate for 
increased health insurance costs. Total compensation paid 
would, thus, remain unchanged in the long run. A decline in 
cash wages would also lead to a decrease in state and local 
government income and payroll tax receipts. At this time, CBO 
is not able to quantify the magnitude of likely increases in 
health care costs or the subsequent budget impacts on state, 
local, or tribal governments.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Karen McVey.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                     inflationary impact statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee estimates that H.R. 
2925 will have no significant inflationary impact on prices and 
costs in the national economy.

                      section-by-section analysis

Section 1

    The Act may be cited as the ``Antitrust Health Care 
Advancement Act of 1996.''

Section 2

    Section 2 of the Act describes the networks and the conduct 
to which the rule of reason, rather than per se, standard is to 
be applied in antitrust cases.
    Section 2(a) provides that in an action under Federal or 
State antitrust laws, the rule of reason standard shall be 
applied to certain types of conduct. First, it shall apply to 
the conduct of a health care provider when it shares 
information relating to costs, sales, profitability, marketing, 
prices or fees of any health care service with another health 
care provider. The provisions of section 2(a)(1) only apply to 
the extent that the exchange of this information is solely for 
the purpose of establishing a health care provider network, and 
is reasonably required for that purpose, and, to the extent 
that such information is not used for any other purpose.
    Paragraph 2 provides that the rule of reason standard shall 
apply to the conduct of a health care provider network in 
negotiating, making or performing a contract, to the extent 
that contract is to provide health care services to individuals 
under the terms of a health benefit plan. The conduct of a 
health care provider who is a member of a network, and acting 
on its behalf, comes within the scope of this paragraph. The 
conduct covered by this paragraph is specifically intended to 
include the establishment and modification of a fee schedule, 
and the development of a panel of physicians.
    Paragraph 3 brings within the rule of reason standard the 
conduct of any member of a health care provider network which 
is intended for the purpose of providing health care services 
under the contract.
    Section 2(a) of the bill provides that the conduct of 
health care provider networks and their members shall not be 
deemed illegal per se, and shall be judged instead under the 
rule of reason mode of antitrust analysis. The Committee 
recognizes that the standards for rule of reason analysis 
evolve through court decisions. The bill is not intended to 
prescribe or codify any particular criteria for the rule of 
reason analysis to be applied to health care provider networks. 
Rather, it would guarantee health care provider networks the 
rule of reason treatment that is accorded to joint ventures 
under Supreme Court precedent. See, e.g., FTC v. Indiana 
Federation of Dentists, 476 U.S. 447, 460 (1985). Rule of 
reason analysis varies depending on the nature of the 
challenged conduct, and the bill is not intended to curtain use 
in appropriate cases of an abbreviated rule of reason analysis 
as established by the courts.
    Subsection (b) defines various terms as used in subsection 
(a).
    ``Antitrust Laws'' is given the same meaning as used in 
subsection (a) of the first section of the Clayton Act, except 
that it also include the portions of section 5 of the Federal 
Trade Commission Act which apply to unfair methods of 
competition.
    A ``Health Benefit Plan'' is defined broadly to cover both 
public and privately funded plans. The contractual relationship 
referenced in this section is intended to be that between the 
patient and the entity which agrees to furnish general health 
care services, not the contract between the health care 
provider network and the entity which contracts with the 
patient for provision of health care services.
    The term ``Health Care Provider'' includes any individual 
or entity that is engaged in the delivery of health care 
services and that is required by State law or regulation to be 
licensed or certified by the State to provide those services.
    A ``Health Care Service'' is one for which payment may be 
made under a health benefit plan.
    Paragraph 5 defines a ``Health Care Provider Network'' as 
an organization which exhibits seven specified traits. The 
Committee believes that, under current antitrust jurisprudence, 
an organization which meets this criteria would be deemed by a 
court to constitute a legitimate joint venture, and would 
therefore be granted rule of reason analysis. The Act merely 
codifies this result.
    The requirement in subparagraph 5(B) that the organization 
be funded in part by capital contributions made by the members 
of the organization is not intended as an indicia of the 
sharing of financial risk. The Committee recognizes that it is 
a matter of fact under each particular circumstance whether any 
particular amount of capital contribution in fact gives the 
members of the organization an incentive to behave pro-
competitively. This requirement was added to distinguish 
members of the organization from other health care providers 
who might provide services through the health care provider 
network, but in the capacity of employees or contractors rather 
than members of the organization.
    Subparagraph 5(C) is intended to ensure that the network, 
rather than its individual members, is in fact the entity which 
has the obligation, and which receives compensation, for the 
health services provided.
    The programs required to be established under subparagraphs 
5 (D), (E), and (F) must cover all health care providers within 
the health care provider network, and all patients being served 
by the network. The Committee did not intend to extend an 
obligation to the network to create programs which would apply 
to services provided by other health care providers or to 
patients participating in a health benefit plan which are never 
served through the network.
    The definition of ``State'' contained in subparagraph (6) 
incorporates by reference the meaning given the term in section 
4G(2) of the Clayton Act.

Section 3

    Section 3 of the Act provides that within 180 days of 
enactment, the Attorney General and the Federal Trade 
Commission shall issue joint guidelines as to the application 
of the Act. These guidelines are intended to be as factually 
specific as possible, so as to provide certainty to the 
regulated community as to whether particular conduct is likely 
to violate the antitrust laws. The Committee expects that the 
Department of Justice and the Federal Trade Commission will 
provide advisory opinions to interested parties, based on the 
guidelines requires to be promulgated under this section.
                            DISSENTING VIEWS

    We strongly oppose H.R. 2925, which would exempt medical 
provider groups responsible for price fixing and other 
anticompetitive activities from antitrust liability under the 
``per se'' rule of antitrust law.\1\ The legislation removes 
the most effective deterrent to anti-competitive conduct in the 
health care market and poses grave risks to health care 
consumers.
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    \1\ The legislation applies so long as the medical provider groups 
exhibit certain characteristics, such as partial funding by members of 
the network, common contract administration, and review of quality and 
effectiveness of treatment.
---------------------------------------------------------------------------
    The Congressional Budget Office predicts that under the 
legislation, ``health care costs would increase, raising the 
costs of government programs [and] giving a competitive edge to 
provider sponsored health networks.'' \2\ CBO also anticipates 
that as a result of the increased anti-competitive conduct 
under H.R. 2925 there will be a reduction in federal revenue:
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    \2\ Congressional Budget Office Letter to Hon. Henry Hyde, 
Chairman, Comm. on the Judiciary (May 22, 1996) [hereinafter ``CBO 
Letter''].

          Revenues would * * * fall as premiums for employment-
        based insurance rose in response to higher health 
        costs. Higher premiums would trigger reactions by 
        nonfederal employers, so that health benefits and 
        coverage, other fringe benefits, and cash wages would 
        be reduced. To the extent that cash wages were reduced, 
        federal income and payroll revenues would fall.\3\
---------------------------------------------------------------------------
    \3\ Id.

    The legislation is an unnecessary reaction to the 
contention by some physicians and other medical providers that 
the nation's antitrust laws impede their ability to band 
together to compete against HMOs, Preferred Provider 
Organizations (PPOs), and other managed care organizations. 
This Congress has already criticized as being all too willing 
to bend to special interests, and we should not alter the 
antitrust laws at the further expense of consumers. Indeed, 
this specific provision has been criticized by the New York 
Times as constituting part of a package of legislative ``bribes 
for doctors.'' \4\
---------------------------------------------------------------------------
    \4\ New York Times, October 15, 1995 at Section 4, page 14 (``the 
danger with [the Republican antitrust proposal] is that it invites 
doctors to engage in blatantly anticompetitive behavior. [Gingrich] 
would allow doctors who have no intention of going into business 
together to conspire among themselves to impose high fees and 
needlessly expensive treatment practices on health plans using their 
services.'')
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 i. current law is not an unnecessary impediment to the development of 
                        medical provider groups

    An examination of current law indicates that collective 
activity among physicians already benefits from a number of 
antitrust doctrines and practices. Under the antitrust laws, 
any joint venture among competitors who ``economically 
integrate'' is subject to antitrust scrutiny only under the 
more lenient ``rule of reason.'' \5\ In addition, the 
Department of Justice and FTC have promulgated health care 
guidelines specifying that the ``rule of reason'' applies to 
any joint venture activity involving physicians and other 
medical providers who share ``substantial financial risk'' or 
create a new product producing ``substantial efficiencies.'' 
\6\ (The rationale behind the court-made rules and special 
guidelines is that risk sharing encourages providers to act 
together to provide genuine efficiencies which can benefit 
consumers, in contrast to naked cartels which merely seek to 
raise prices.)
---------------------------------------------------------------------------
    \5\ See, e.g., Broadcast Music, Inc. v. Columbia Broadcasting 
System, 441 U.S. 1 (1979). The ``per se'' rule applies automatically to 
ban price fixing and other blatantly anticompetitive activities, while 
the more lenient ``rule of reason'' considers the overall pro- or anti-
competitive nature of the conduct.
    \6\ U.S. Department of Justice and Federal Trade Commission, 
Statements of Enforcement Policy and Analytical Principles Relating to 
the Health Care and Antitrust (4 Trade Reg. Rep. (CCH) Par. 13,152, at 
20,791-92).
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    To the extent there is any residual uncertainty regarding 
the antitrust liability of physician groups, they are permitted 
to submit their proposed business plans for expedited pre-
clearance review by the enforcement agencies. Moreover, the DOJ 
and FTC have committed to work with the medical community and 
other affected parties on an ongoing basis to adapt their 
health care guidelines to conform to changing market 
conditions. At the hearing on this issue, FTC Chairman Pitofsky 
estimated that the most recent review would be completed by 
August of 1996 at the latest.7
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    \7\ Health Care Reform Issues, Antitrust, Medical Malpractice, and 
Volunteer Liability: Hearing Before the Comm. on the Judiciary, U.S. 
House of Representatives, 104th Cong., 2d Sess., February 27-28, 1996 
[hereinafter ``1996 Hearings''], Prepared Statement of Robert Pitofsky, 
Chairman, Federal Trade Commission at 22. See also Letter from Robert 
Pitofsky, Chairman, Federal Trade Commission, to Hon. Henry J. Hyde, 
Chairman, Comm. on the Judiciary (April 8, 1996) (``I am pleased to 
report that the project is on schedule and indeed we may be able to 
even beat the timetable that I discussed in my testimony last month''). 
The Administration has also endorsed the approach of allowing the 
antitrust enforcement agencies to revise their guidelines to respond to 
industry concerns rather than through altering the antitrust statutes. 
See Letter from Alice M. Rivlin, Director Office of Management and 
Budget, to Hon. John Conyers, Jr. (April 25, 1996).
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    As a result of the aforementioned rules and procedures, the 
nation has seen an explosion in the development of physician-
operated health care networks in recent years. Since 1991, the 
FTC and DOJ have approved 31 of the 34 proposed provider 
network plans presented to them, hundreds of additional 
physician networks have been formed under the agencies' health 
care guidelines, and many more are in the development 
stage.8 Studies have shown that a full 15% of HMOs and 20% 
of PPOs are provider-owned and more than 9 million people are 
enrolled in provider-owned PPOs.9
---------------------------------------------------------------------------
    \8\ See 1996 Hearings supra note 7, Prepared Statement of Robert 
Pitofsky at 10.
    \9\ Id.
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II. H.R. 2925 Provides an Unjustified Special Interest Exception to Our 
                             Antitrust Laws

    During the House Judiciary Committee's hearing on H.R. 
2925, four out of the five witnesses that testified stated 
unequivocally that there was no compelling justification to 
amend the antitrust laws to provide special preference to 
physicians. A broad and diverse coalition of antitrust 
officials and professionals; 10 consumer groups; 11 
and employers, health professionals, hospital systems, 
physicians group practices, network based delivery systems and 
health plans 12 all oppose the bill as being an 
unnecessary and costly special interest exemption from the 
antitrust laws.
---------------------------------------------------------------------------
    \10\ See Letters from:
---------------------------------------------------------------------------

          (i) Anne Bingaman, Assistant Attorney General, U.S. 
        Department of Justice and Robert Pitofsky, Chairman, Federal 
        Trade Commission to Hon. Pete Stark, Member of Congress 
        (October 10, 1995);
          (ii) Antitrust Committee and Health Care Task Force of the 
        National Associations of Attorneys General to Hon. Newt 
        Gingrich, Speaker of the House (October 26, 1995); and
          (iii) John DeQ. Briggs, Chair, Section of Antitrust Law, 
        American Bar Association to Hon. John Conyers, Jr., Ranking 
        Member, Comm. on the Judiciary (February 26, 1996).
---------------------------------------------------------------------------
    \11\ See Letter from Consumer Federation of America to Hon. Henry 
Hyde, Chairman, Comm. on the Judiciary (February 27, 1996).
    \12\ See Letters from:
---------------------------------------------------------------------------

          (i) American Optometric Association to Hon. Henry Hyde, 
        Chairman, Comm. on the Judiciary (March 8, 1996); and
          (ii) American Chiropractic Association, American Association 
        of Nurse Anesthetists, American Federation of Home Health 
        Agencies, American Occupational Therapy Association, 
        Association of Private Pension and Welfare Plans, Aetna, Cigna, 
        HealthCare COMPARE, Corp., Health Insurance Association of 
        America, Northwestern National Life, Opticians Associations of 
        America, The Principal Financial Group, U.S. Healthcare, Inc., 
        American Group Practice Association, American College of Nurse-
        Midwives, AmHS/Premier/SunHealth, American Optometric 
        Association, American Association of Health Plans, Blue Cross 
        and Blue Shield Association, Deer & Co., Healthcare Leadership 
        Council, Independence Blue Cross, Pan American Life, The 
        Prudential, United Health Care, Wausau Insurance Companies to 
        Members, U.S. House of Representatives, Comm. on the Judiciary 
        (March 11, 1996).
    Eliminating potential liability for antitrust violations 
under the ``per se'' rule ignores the fact that the rule 
provides a bright line against blatantly anticompetitive 
conduct and avoids expensive and protracted litigation. CBO 
estimates that ``rule of reason'' cases cost an average of 
$250,000 per case, or 10 times the cost of a typical ``per se'' 
case.13 As recently as 1991, the FTC used the ``per se'' 
rule to halt a physician boycott aimed at preventing the 
Cleveland Clinic from establishing a high quality practice in 
Florida.14 And in 1988, a successful ``per se'' action was 
brought against a group of physicians engaged in a group 
boycott against competing nurse anesthetists.15 Nurses-
midwives have experienced similar boycotts.16
---------------------------------------------------------------------------
    \13\ CBO letter, supra note 2.
    \14\ Medical Staff of Broward General Medical Center, 114 F.T.C. 
542 (1991) (consent order).
    \15\ See Oltz v. St. Peter's Community Hospital, 861 F.2d 1440 (5th 
Cir. 1988).
    \16\ See Medical staff of Memorial Hospital Center, 5 Trade Reg. 
Rep. Par. 22,508 (January 28, 1988); See also Nurse-Midwifery 
Association v. Hibbit, 918 F.2d 605 (6th Cir. 1990).
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    H.R. 2925 has also been justifiably criticized by the 
Department of Justice and FTC as being unnecessarily rigid and 
for failing to require any substantial risk sharing or the 
creation of any economic efficiencies.17 Chairman Pitofsky 
has noted that characteristics required by the bill to receive 
``rule of reason'' treatment are not adequate to differentiate 
between joint ventures offering genuine efficiencies from those 
seeking to fix prices and impede competition.18 Moreover, 
the Majority's own witness, Duke Professor Clark C. Havighurst, 
acknowledged that the bill ``would overregulate physician 
networks--even more than they are overregulated under the 
current enforcement guidelines [and] would not protect many 
physician networks that equally deserve consideration under the 
rule of reason.'' 19
---------------------------------------------------------------------------
    \17\ Letter from Anne Bingaman, Assistant Attorney General, U.S. 
Department of Justice and Robert Pitofsky, Chairman, Federal Trade 
Commission to Hon. Pete Stark, Member of Congress (October 10, 1995) 
(legislation is ``unnecessary to protect any legitimate activity [and] 
would immunize a broad range of anticompetitive activities that could 
harm consumers and raise health care costs'').
    \18\ For example, the presence of characteristics such as 
credential review programs referenced in the legislation have been 
present in networks that merely served as vehicles to increase prices. 
See 1996 Hearings supra note 7, prepared statement of Robert Pitofsky 
at 18.
    \19\ See Letter from Clark C. Havighurst, Professor, Duke 
University School of Law, to Hon. Henry J. Hyde, Chairman, Comm. on the 
Judiciary (March 8, 1996).
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    Another problem with the legislation is its failure to 
preserve traditional state antitrust prerogatives in the health 
care enforcement area.20 CBO has certified that provisions 
in the legislation preempting state antitrust laws constitute 
an unfunded mandate which would ``double'' state antitrust 
enforcement costs. CBO also believes that the state law 
preemption provisions ``would result in less comprehensive 
enforcement of health care antitrust violations'' by the 
states.21 Republicans claim to have run on a platform of 
returning power to the States, but all too often in this 
Congress they have been willing to say that the federal 
government knows best when it comes to protecting the special 
interests.
---------------------------------------------------------------------------
    \20\ An amendment offered by Mr. Conyers to eliminate the provision 
in H.R. 2925 preempting state antitrust laws failed by a vote of 7 to 
17.
    \21\ CBO letter, supra note 2.
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    In the one hundred years of the development of the 
antitrust laws, no industry has received a specific exemption 
from prosecution from ``per se'' antitrust liability for price 
fixing activity.22 To the extent there is any perceived 
problem that the antitrust laws unnecessarily impede 
development of physician groups, the enforcement agencies are 
fully capable of addressing the matter through guidelines. We 
urge opposition to this unneeded exemption.
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    \22\ The National Cooperative Research and Production Act of 1993 
(15 U.S.C. 4301-06), often cited by proponents as precedent for H.R. 
2925, specifically excludes marketing and price activities from its 
coverage. Mandating that ``rule of reason'' be applied to price fixing 
agreements, as H.R. 2925 does, would be unprecedented.

                                   John Conyers, Jr.
                                   Robert C. Scott.
                                   Patricia Schroeder.
                                   Howard L. Berman.