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.