The Antitrust Coalition for Consumer Choice in Health Care ("the Coalition") is a diverse group of employers, health plans, providers, and others involved in the purchase, management, and delivery of health care services. While Coalition members are not traditional legislative allies on some important health care policy issues, they have come together to oppose H.R. 1304 because of the serious threat it poses to health care cost containment, quality, and access.

Competition has reduced health care costs, improved quality, and expanded access. Reliance on competition in recent years has paid off in dramatically curtailing health care cost increases that once threatened to overwhelm both the public and private sectors. Importantly, these cost savings are not associated with a negative effect on the quality of care. In fact, competition and increased managed care enrollment has led to improvements in quality. For example, managed care enrollees are more likely to receive preventive screening services than those in fee-for-service plans, and care for patients with chronic illnesses is more likely to be coordinated.

Competition also has been important in controlling costs and expanding access in the Medicare and Medicaid programs. For example, 6.2 million, or 16.4% of all Medicare beneficiaries, are currently enrolled in a managed care plan. Medicaid relies even more on managed care arrangements to control costs and expand access. In 1998, 16.6 million, or 53.6%, of all Medicaid beneficiaries were enrolled in managed care plans.

Antitrust enforcement is needed to protect competition and ensure consumer choice. As early as 1943, the Supreme Court concluded that the American Medical Association ("AMA") had violated the antitrust laws by coercing its members to refuse employment with a group health plan. Since then, federal and state enforcement agencies have challenged numerous efforts by otherwise independent health care providers to use collective action to increase (or resist reductions) in their fees or reimbursement levels, or to restrict competition from non-physician providers. Examples include:

• Puerto Rico physician boycott to increase reimbursement under a program to provide health care to the indigent. This effort culminated in an eight-day strike in 1996 during which many physicians closed their offices and refused to provide nonemergency services.
• Joint negotiations and price-fixing by Florida surgeons that raised their average annual revenues by more than $14,000.
• Boycott of New York State Employees Prescription Plan by retail druggists. The Federal Trade Commission ("FTC") obtained a consent decree against five pharmacy chains for conspiring to refuse to participate in the state's reduced-rate reimbursement initiative, costing the state an estimated $7 million.
• Conspiracy by a hospital medical staff to reduce competition by denying hospital privileges to certified nurse-midwives.
• Boycott by the AMA to prevent medical physicians from referring patients to or accepting patients from chiropractors.
• Conspiracy by anesthesiologists to eliminate competition by certified registered nurse anesthetists.
• Charles River Associates has estimated that the annual total dollar impact of H.R. 1304 would range from $35-$80 billion in increased expenditures for personal health care services financed by the public and private sectors.

The FTC and Department of Justice ("DOJ") have issued Health Care Antitrust Guidelines that make it clear that:

• Providers can express their concerns about patient and quality of care issues. Providers need not fear an antitrust challenge based on communications or discussions concerning quality of care, patient care, or other non-fee issues. And, indeed, the agencies have never brought an enforcement action involving such conduct.
• Providers can communicate with each other, and to health plans, about health plan contract terms and fee-related issues. Thus, for example, providers seeking higher reimbursement rates may jointly furnish health plans information about their historic costs, charges, or reimbursement amounts. They also can present views about prospective fee-related issues as long as they make independent decisions concerning their participation with health plans.
• Providers can share information with each other so they can better understand the terms and conditions of health care contracts. Thus, for example, providers can employ an agent who gives them objective information by comparing the reimbursement rates and other terms offered by health plans in their community. Providers also can share information that helps them interpret health plan contracts.

• Forming larger practice groups that enable physicians to achieve economies of scale and other efficiencies.
• Collaborating with each other without merging their practices, for example, by forming independent practice associations ("IPAs"). The Health Care Antitrust Guidelines were revised in 1996 to respond to concerns raised by some providers that previous guidelines were too restrictive with respect to the types of ventures that the agencies were willing to approve. The revised guidelines were widely hailed for making it clear that the antitrust laws do not pose an impediment to provider joint ventures that allow providers to negotiate collectively with health plans.

There is no foundation to the core assumption underlying H.R. 1304 that a fundamental change is needed to "level the playing field" so that health care providers will have sufficient leverage to negotiate with health plans.

Health plans do not have "monopsony power" over providers. Economists use the term "monopsony" to describe a situation in which a buyer has the market power to depress the prices at which it buys goods or services to a level that is below what would prevail in a competitive market - this requires at least a 60%-70% market share. It is unlikely that a health plan in any market has a share that even remotely approaches this level. For example, a review of the 20 largest MSAs showed that, with two exceptions, the share of the largest HMO in each MSA fell below 20% of the area's population, and in many cases below 10%.

The average physician earns only a minority of his or her revenue from all managed care contracts combined, and far less from any single health plan. This not surprising given the importance of Medicare, which remains predominantly a fee-for-service payer, to most physicians' practices.

The shares of health plans vary dramatically from one area of the country to the next, and can change significantly over time. While there has been consolidation of health plans in some markets, others have been marked by growing competition and new entry. Physicians, hospitals, and other health care providers have started numerous health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and other arrangements. Employers in some areas have explored direct contracting with providers, bypassing health plans altogether. Nationwide, the number of HMOs and PPOs has grown from 566 in 1990 to 651 in 1998. The number of PPOs has grown from 571 in 1990 to 1,035 in 1997.

In some markets, health care providers have considerable leverage. In many geographic areas, providers have obtained superior negotiating leverage through growth and acquisitions. Some IPAs and multispecialty groups include hundreds and even thousands of physicians. Much smaller provider groups also can exert considerable negotiating leverage. For example, a health plan may find it virtually essential to contract with a group with only a couple dozen physicians who are all in a single specialty for which there are few substitutes.

Physician income has continued to rise under managed care. In general, physician income has continued to rise at a healthy pace, even as managed care arrangements have grown. For example, between 1985 and 1996, median physician net income increased 77% to $166,000. This compares to the average median full-time worker income that increased only 43% to $25,480. Moreover, despite claims that managed care is forcing physicians to accept unreasonably low reimbursement schedules, average HMO reimbursement rates in almost all large markets remain substantially higher than those of Medicare.

H.R. 1304 is not needed to balance the McCarran-Ferguson exemption for insurers. This argument is a red herring. The McCarran-Ferguson Act does not exempt from antitrust scrutiny agreements among health plans regarding their contracts with providers, nor does it shield health plan mergers from antitrust review.

The health plan market is extremely competitive and is constantly evolving to meet the demands of customers. Purchasers of health plans are very price sensitive, and plans that do not pass along savings to their customers (who include employers as well as individuals who typically must share in the cost of premiums and deductibles) will quickly lose market share.

As a result of this competitive environment, health plans and have not been a particularly profitable sector of the economy. During the early- to mid-1990s, the median profit margin for HMOs was between 2%-3%, substantially lower than the average Fortune 500 company. This slipped to less than 1% in 1995, and was negative in 1996 and 1997.

If health plans are faced with higher costs, they will have no choice but to pass such costs directly on to their customers. In the case of H.R 1304, those affected by cost increases will include private and public employers (who pay the largest share, by far, of health care costs), Medicare and Medicaid (whose managed care plans are specifically targeted by H.R. 1304), and consumers (who would be forced to pay higher premiums and larger deductibles and copayments).

In addition, H.R. 1304 would severely affect access to health care coverage. Both employers and government programs, when faced with higher costs, will likely have little choice but to respond by limiting the availability of health care coverage to the working poor and others who cannot afford health care insurance.

H.R. 1304 would give health care professionals special treatment available to no other workers. Other workers, if they wish to engage in collective bargaining, must establish that they are subject to the supervision and control of their employers. If health care providers were truly under the supervision and control of health plans, as those criteria are applied to all other workers, then they, too, would be eligible for the existing labor antitrust exemption. But the claim that independent physicians are employees of health plans is difficult to sustain. And that is the reason why they seek passage of H.R. 1304 - to obtain a "backdoor" exemption that is unavailable to any other type of worker.

H.R. 1304 would give health care professionals the benefits of a labor exemption without any of the NLRA safeguards or oversight that apply to other workers. The National Labor Relations Act ("NLRA") establishes a substantive and procedural framework that governs all aspects of the collective bargaining process between employees and their employers. None of this would apply to negotiations between health care professionals and health plans under H.R. 1304. Moreover, under H.R. 1304, health plans and insurers could not negotiate jointly as a multiemployer group as they could under the NLRA.

Competition is crucial to keeping health care costs under control in the private sector, as well as in the Medicare and Medicaid programs. And it is through such cost-control efforts that broader health care access can be given to lower income families and individuals. Competition also is prompting innovative means of improving and measuring quality.

H.R. 1304 would jettison competition among health care providers by allowing them to engage in price-fixing, boycotts, and market allocation agreements that otherwise would be per se illegal under the antitrust laws. It would allow them to collectively seek to raise their fees to plans targeted at the working poor, and to resist efforts that would control costs to such patients. In short, H.R. 1304 would eliminate any meaningful attempt to use competition to control health care costs, improve quality, and expand access. It should be soundly defeated.