Legislature(1999 - 2000)
02/21/2000 01:35 PM Senate HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 256-PHYSICIAN NEGOTIATIONS WITH HEALTH INSURE
SENATOR PETE KELLY, sponsor of SB 256, explained that SB 256
addresses inequities that have grown out of the rapidly changing
health care industry, specifically the merging of 18 leading health
care insurance companies into 6 since 1994, which has given those
companies a dramatic increase in their bargaining power with
individual doctors. No corresponding increase in the ability of
doctors to negotiate with these large companies has occurred.
Doctors are restricted by the antitrust provisions placed on the
states by Congress. The antitrust laws do make provision, however,
for a state action doctrine, which would be created by SB 256. The
doctrine allows doctors to negotiate with health insurance
companies with state oversight.
Number 2018
MR. JIM JORDAN, Executive Director of the Alaska State Medical
Association (ASMA), made the following comments about SB 256.
There has been an aggregation in the health insurance industry in
the last several years. Alaska has never had a great number of
health insurance companies competing in its marketplace. One
merger under consideration by the FTC is Aetna US Healthcare and
Prudential. If that merger takes place, the New York Times has
reported that one in ten Americans will be covered by the new mega-
corporation. Health insurance plans have increasingly incorporated
practices and procedures to manage health care to keep costs down.
Theoretically, the health insurer negotiates discounted fees for
health care for a promise of a more guaranteed stream of patients.
Large group medical practices, none of which exist in Alaska, and
big hospitals have more equal bargaining power with the health
insurers than the typical Alaska physician who is in a small group
practice or works solo. A gross inequity in bargaining power
exists.
There is no conceivable way that any health insurance will bargain
with each individual physician regarding each individual contract
provision. Independent competing physicians are prevented from any
collective action by the federal antitrust laws to which,
ironically, the insurers are not subject. This fact, plus the
market concentration of health insurers, causes the imbalance in
bargaining power. With insurers having such a high degree of
leverage, the balance of interests no longer exists in the market
for health care delivery and finance.
A mechanism is available, however, that permits independent
competing physicians to collectively negotiate with health insurers
in regard to the provisions of physicians' services. That
mechanism requires an act by the legislature to create the state
action doctrine exception. It was first set forth in a 1943 U.S.
Supreme Court case, Parker v. Brown. In general, the state action
doctrine states that antitrust actions do not apply to actions by
a state operating in its sovereign capacity or to private conduct
compelled or approved by the state. In other words, where the
requirements of the state action doctrine are met, behavior that
would otherwise violate the antitrust laws will be exempt from
antitrust scrutiny.
The test to qualify for exemptions varies depending on the identity
of the party performing the action in question. If the party is a
legislature or state court, no further inquiry is required. Where
the party is a state agency or a local government official, further
inquiries are required with respect to whether the action in
question followed a clearly articulated and affirmatively expressed
state policy. When the party is a private party, the test for
qualifying is the strictest. In addition to having to comport with
the clearly articulated and affirmatively expressed state policy,
the action must be subject to active state supervision. Passive
but theoretical power of a state to review a private action in
question is insufficient to meet this standard. Physicians fall
into the category of private parties, therefore collective actions
taken by them would ordinarily be illegal under antitrust laws. In
the instance of independent physicians engaging in collective
negotiations with the health insurer, such actions would only be
exempt from antitrust scrutiny if the requirements for a private
party are met.
SB 256 sets out the clearly articulated and affirmatively expressed
policy in that joint negotiations can only take place when an
insurer has sufficient and substantial market power. The joint
negotiation must be performed for the physicians by an authorized
third party. The process must be supervised by the Commissioner of
the Department of Labor and the Attorney General and it does not
allow for any joint action that would contribute to any form of
boycott of services or a strike by the physicians who are
negotiating. ASMA supports SB 256 with proposed amendments.
DR. GEORGE RHYNEER, a practicing cardiologist from Anchorage, a
member of ASMA, and President of the Alaska Physicians and
Surgeons, stated support for SB 256. ASMA members have suffered
considerably because of their inability to stand up to insurance
companies who have a "take it or leave it" attitude toward
contracts. Physicians want to be able to get together to talk
about real issues such as what constitutes emergency care, what
constitutes the need to be seen by a physician, and what
constitutes good medical care. Right now, physicians are
prohibited from doing so by the FTC. A proposed consent decree for
the Fairbanks' physicians who have the Independent Practices
Association, indicates that talking about such medical matters
constitutes collusion and constitutes a change in the amount of
money that will be spent in the community by the community or the
health insurers. Members of the medical profession have
traditionally enjoyed reasonable discussions, to the betterment of
all patients. The APS feels the situation is out of hand and
allows an insurance company, such as Blue Cross, to tie into the
federal government health care plan, so that federal employees only
get 50 percent reimbursement from non-Blue Cross providers while
they get 100 percent reimbursement from Blue Cross providers. That
policy acts as a bludgeon to force physicians to sign up with a
regular program. There are a number of different issues of this
sort and he is interested in resolving the problem.
SENATOR WILKEN asked Dr. Rhyneer to give an example of this dilemma
in layman's terms.
TAPE 00-06, SIDE B
DR. RHYNEER said Blue Cross recently provided exclusive contracts.
It went to one group of cardiologists in the state and said it
wanted them to take care of all Blue Cross patients for a
predetermined fee. If the cardiologists agreed, Blue Cross would
exclude the other cardiologists from being able to treat Blue Cross
patients. Dr. Rhyneer noted that a small number of cardiologists
practice in Alaska. Before this Blue Cross interruption, all
cardiologists spoke and worked with one another on complex cases
and worked together to recruit new physicians to the state. That
working relationship was destroyed by the promotion of super-
economic competition between the two groups. Blue Cross has done
this with the urologists in Anchorage as well. Communities need to
maintain the collegiality of physicians.
Regarding federal employees, DR. RHYNEER said in times past,
federal employees were covered under federal Blue Cross, which paid
the standard percentage for physicians' visits - the same as it
covered for private Blue Cross plan holders. When physicians
became less interested in signing up with Blue Cross, it was able
to tie in with the federal Blue Cross plan so that federal Blue
Cross patients were not satisfactorily reimbursed for their medical
care by those physicians. Physicians find it difficult to stop
caring for patients who do not get proper reimbursement for their
medical problems so physicians often forgive patients half of the
bill amount.
SENATOR WILKEN asked, in regard to Dr. Rhyneer's first example,
what fee the insurance company offered to pay the cardiologists.
DR. RHYNEER said a fee by procedure by patient.
SENATOR WILKEN asked if the insurance companies provided a list of
procedures with the amount to be reimbursed.
DR. RHYNEER said yes.
SENATOR WILKEN asked if the group that was excluded would not get
any reimbursement.
DR. RHYNEER explained those cardiologists would receive much less
than the standard payment and the insurance company told patients
not to see those doctors because the reimbursement would be much
less. The insurance company also told the other physicians in the
State who were Blue Cross providers to not refer their patients to
the doctors under penalty.
Number 2216
SENATOR WILKEN asked if the allegation is that the insurance
company does that by discipline or whether it is done in a blanket
fashion across a city or state.
DR. RHYNEER said insurance companies have done this in other
states. They first contract with one group and if they lose money
in a year, the fee is reduced by 20 percent.
SENATOR WILKEN asked if the suggested remedy is to allow physicians
to speak to each other and align the charges.
DR. RHYNEER said it would allow physicians to talk to the insurance
companies about what constitutes good medical care, what
constitutes an emergency, what constitutes covered procedures, what
constitutes a reasonable charge, and under what circumstances
discussions about fees can take place.
SENATOR WILKEN asked if physicians are trying to raise the rates.
DR. RHYNEER replied the physicians want to be able to talk as a
group with the insurance companies and propose that insurance
companies cover heart attacks as emergencies, for example.
Physicians need to be able to talk as a group about medical issues
and about payment as well. At this time, he is prohibited, by FTC
antitrust laws, from talking to a physician across the hall.
SENATOR WILKEN asked if the physicians would take a common front to
the insurance company and propose rules for administering medicine
in Alaska which the insurance companies could take or leave.
DR. RHYNEER replied the insurance companies could say take it or
leave it or make changes.
MIKE HAUGEN, Executive Director of Alaska Physicians and Surgeons
(APS), explained that APS's 165 physicians are on the front line of
these contracts. APS currently operates under the "Messenger
Model" which effectively bars it from negotiating on behalf of its
physicians. As executive director, he acts as a go-between among
the carriers and physicians. He can poll his members on their
individual opinions and give aggregated information to the
carriers. While it is true that fees are a component of this
discussion, the discussion includes all kinds of extremely
important patients' rights issues. The IPA believes that enacting
this type of legislation will inject new blood into this State as
far as third party payers go. The traditional players have had the
predominant market share for quite awhile. Many smaller players
are interested in entering this market but doctors are afraid to
talk to them because of the federal antitrust laws. SB 256 will
allow doctors to come together and talk to the smaller players. It
is much more efficient for a smaller player to talk to one entity,
such as the APS, than to create a network of doctors.
MR. JORDAN emphasized that SB 256 provides a mechanism that is
voluntary - insurers do not have to participate. SB 256 also
requires active state oversight to ensure that the result of the
actions are fair. Third, this measure would allow a single
contract to contain different levels of fees for physicians of the
same specialty and for different types of physicians. That
provision will allow room for negotiation within the contract. He
stressed that the most important aspect of SB 256 is the fact that
it will allow physicians to speak about some very important issues.
Number 1973
SENATOR KELLY asked if SB 256 passed, and a group of physicians
from Anchorage formed a group and presented a contract to an
insurance provider which was rejected, the insurance provider's
only option would be to negotiate with the group or to do business
with individual doctors.
MR. JORDAN said that is correct.
SENATOR ELTON noted the title of SB 256 refers to physicians,
Section 1 refers to health care providers, and Section 2 again
refers to physicians. He pointed out in Section 1, a health care
provider is described as a person licensed in Alaska or another
state to provide health care services. He questioned whether that
includes chiropractors and dentists and why two terms are referred
to.
MR. JORDAN replied the provisions in Section 1 were taken from HB
211, which pertains to Alaska's patient bill of rights. One
element of HB 211 deals with physicians' services contracts but it
does not necessarily cover contracts that would be negotiated under
the state action doctrine exception that is set forth in SB 256.
SENATOR ELTON asked if, upon passage of SB 256, other health care
providers will have the same rights to collectively negotiate as
physicians will.
MR. JORDAN said no.
SENATOR ELTON asked if the state's self insurance health care
program would be included in the definition in Section 1.
MR. JORDAN said he does not believe so under that definition,
however the State Medical Association has asked that SB 256 be
amended to include all types of health benefit plans. He noted
there is a question about the degree to which a state can regulate
a health and welfare plan under the federal Employment Retirement
Income Security Act (ERISA) of 1974. That Act exempts, to a great
degree, from state regulation health and welfare plans. Until the
last four or five years, that preemption from state regulation has
been absolute. As a result of a recent federal court case, that
exemption is no longer automatic. Those areas regarding health and
welfare plans that states regulate, that deal with quality of care,
are not subject to the ERISA preemption. Those that deal with
quantity of care, such as a mandated type of benefit, do fall under
the ERISA preemption and would not be subject to state regulation.
He contended that SB 256 deals with quality of care.
SENATOR ELTON asked Mr. Jordan if the proposed amendment would
change SB 256 so that the state's self-insurance plan would be
regulated.
MR. JORDAN said yes.
CHAIRMAN MILLER asked for the proposed amendment.
MR. JORDAN replied that conceptually, the amendment would change
the scope from applying to health care insurers to health benefit
plans. AS 21.54.500 contains a definition of health benefit plans.
Number 1633
CHAIRMAN MILLER asked how many other states have taken action
similar to SB 256.
MR. JORDAN replied as of Friday (February 18), two states have
enacted state action doctrine exceptions: the State of Texas which
also allows the negotiation of fees; and the State of Washington.
Legislation is currently under debate in the states of Delaware,
Hawaii, Illinois, Pennsylvania, New York, District of Columbia and
Alaska. Legislation is in the process of being drafted in
California, Florida, Georgia, Michigan, New Jersey, and Tennessee.
CHAIRMAN MILLER asked whether SB 256 covers all actions, including
fees.
MR. JORDAN responded yes.
Number 1562
MR. GORDON EVANS, representing the Health Insurance Association of
America (HIAA), made the following comments. HIAA opposes SB 256
for two simple reasons. First, giving physicians an antitrust
waiver would deny consumers a choice, quality and affordability.
Second, health care costs would increase significantly for both the
public and private sectors.
In the past year there has been significant debate at both the
federal and state level about physician collective bargaining or
physician antitrust waivers. Despite differences among the various
proposals, there are four incontrovertible facts. First, quality
is not the driving force behind the physician collective bargaining
movement - it's economics. Legitimate mechanisms already exist
within the boundaries of current antitrust law under which health
care providers can and do collaborate and negotiate with health
plans, patients and others on clinical or quality of care issues or
other concerns. Second, consolidation among health plans has been
and continues to be subject to rigorous antitrust scrutiny at both
the state and federal levels. Third, antitrust waiver legislation
is anti-competitive and would raise costs for health care programs,
financed by both the public and private sectors through Medicare
and Medicaid and other government programs, as well as employer and
union sponsored plans. Fourth, legislation at either the state or
federal levels will be costly. For example, if legislation such as
that proposed at the federal levels which is HR 1304, were to
become law, health care premiums in the private sector would
increase by six to 11 percent. On the national level, total annual
personal health care spending would rise up to $80 billion
annually. These added costs would be paid for by consumers,
employers, and taxpayers without any improvement in the quality of
patient care. Alternatively, 1.2 to 2.4 million more Americans
could be uninsured if their employers chose not to insure because
of the extra cost.
Physicians who are already among the nation's highest paid
professionals are among the least likely Americans to need the
benefits of unionization. Over the last decade, as managed care
has grown, physician incomes have increased more than 77 percent
with a median net income of 1977 of $199,600. Antitrust waivers or
some other form of special treatment that they are seeking through
SB 256, would effectively allow physicians to further increase
their salaries. Moreover, the reality is that physicians are not
seeking to form real unions. Rather, they seek to form unrestricted
collective bargaining units without the regulatory oversight that
all unions are subject to. Physicians are asking state and federal
governments for unique legal rights to engage in conduct that would
otherwise be per se illegal under the antitrust laws. Granting
physicians special waivers to collectively bargain and set prices
without regulatory oversight is unwarranted and detrimental to
consumers. Physician collective bargaining legislation is opposed
by the Chairman of the Federal Trade Commission, Robert Pitofski.
Under current law, consolidation among health plans and insurers is
subject to rigorous antitrust scrutiny at both the state and
federal levels.
The health insurance industry continues to remain very competitive,
making it improbable for any one plan to be able to exercise
significant market power in its negotiations with health care
providers. In conclusion, collective bargaining for physicians
would serve to benefit the few at the expense of consumers and
taxpayers.
SENATOR ELTON said he reads the bill to require that, with the
advice of the attorney general, the commissioner can approve or
disapprove of contracts which is a perfect definition of approval
by the state.
MR. EVANS commented that only applies to the contracts put together
by physicians.
SENATOR KELLY indicated that subsection (e) on page 7 enumerates
the state's involvement.
MR. EVANS pointed out subsection (e) applies before physicians
engage in any collective negotiations.
SENATOR KELLY thought the bill makes it clear that the parameters
of the contract must be presented to the State before the parties
can enter into the contract.
MR. EVANS noted that is a change from the Texas law. Texas allows
a boycott which SB 256 does not.
MR. EVANS pointed out for the record that Blue Cross is not a
member of HIAA.
MR. JEROME SELBY, speaking via teleconference on behalf of
Providence Health Systems of Alaska, asked legislators to fine tune
the legislation and pass it into law. Three items are of concern.
Providence Health Systems employs about 3,000 people so an
increase in the cost of insurance is of concern. Second, Section
1(4), regarding publishing of compensation rates, will continue to
cause a problem in relation to federal antitrust law. He suggested
that section be deleted if it is in violation of a federal
requirement. The third concern has to do with community size.
Section 1(c)(7) on page 7,line 2, could negatively impact smaller
communities because the community may have few physicians so the
percentage factor may not work well. He suggested applying that
subsection to communities with a larger population.
GARY SCHWARTZ, a management consultant from Fairbanks, stated he
works with the Independent Practice Association which consists of
78 physicians in Fairbanks and a number of insurance carriers and
made the following comments. He believes the anti-competitive
environment with insurance carriers can be alleviated with SB 256.
Small carriers do not have adequate resources and infrastructure to
individually contract to work with physicians. There are 37 small
practices in Fairbanks - small carriers are unable to come to
Fairbanks and negotiate agreements. Also, the willingness of
physicians to perform a number of the administrative services that
are requested by those small carriers could be in fact supported
and endorsed with the passage of SB 256. By administrative
services, he means groups of physicians who credential providers,
provide quality assurance programs to improve care, do utilization
review, and identify medically appropriate coverage criteria.
Finally, he believes the provision of usual and customary fee data
for independent physicians in SB 256 is appreciated and would be
valued by the small insurance carriers when preparing their fee
offers.
CHAIRMAN MILLER announced that the committee must adjourn due to
schedule conflicts. He asked that those people who suggested
changes and amendments work with the sponsor so that a proposed
committee substitute can be prepared and brought before the
committee next Wednesday. He noted his intention to take action on
the bill at that time. He adjourned the meeting at 3:05 p.m.
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