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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

    The estimated budgetary impact of H.R. 1304 is shown in 
Table 1. The bill would add to discretionary spending by all 
federal agencies for employee health benefits and would affect 
mandatory spending in budget function 550 (health). It would 
also reduce federal revenues.

                           BASIS OF ESTIMATE

    Under the bill, some health professionals would join 
together to negotiate for higher compensation and greater 
flexibility in the provision of care. Allowing health care 
professionals to bargain collectively with health plans would 
result in higher health care expenditures for two reasons. 
First, the increased market power achieved by providers who 
could form and maintain effective coalitions would allow them 
to obtain higher fees from the health plans. Second, the 
greater flexibility that health professionals would obtain in 
the provision of care would lead to greater utilization of 
services.
    Because the bill contains a sunset provision, the full 
effects that the antitrust exemption could have on the health 
insurance market are likely not to be realized. CBO assumes 
that it would take five years for such legislation to have its 
full effect of increasing annual national expenditures on 
private health insurance by almost 2.6 percent in the absence 
of any compensating changes on the part of 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.
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    \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.
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    \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.
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                  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.''
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    \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].
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          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\
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    \8\ See generally, Quality Health Care Coalition Act Hearing 
(statement of John Rector, Vice President, National Community 
Pharmacists Association).
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    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\
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    \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.
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    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.
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    \10\ Sec. 2(e).
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    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.
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    \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.
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                               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.
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    \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.