Negotiating With Insurers

The Process Exists, But Will Anyone Use It?

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Cover Story -- September 2000  

By Walt Borges
Associate Editor

An old joke begins with two dogs chasing a car. When the car finally stops, one dog turns to the other and asks, "Now that we've caught it, what do we do with it?"

Texas physicians have been chasing the contracting practices of investor-driven managed care for years, trying to find a way to correct an imbalance in bargaining power that has allowed health insurance plans to dictate how most contracts with individual physicians are structured. In 1999, the Texas Legislature finally halted the managed care contract vehicle, giving Texas physicians a legal means to conduct joint negotiations under limited conditions without running afoul of the antitrust laws. (See "Antitrust Defense," August 1999 Texas Medicine , pp 28-32, and "TMA at the Table," November 1999 Texas Medicine , pp 28-32.)

Senate Bill 1468, known as the physician negotiation law, was signed by Gov George W. Bush over the objections of business and insurance interests. After an almost yearlong process of drafting rules to govern the joint negotiation process, Texas Atty Gen John Cornyn, whose office must authorize negotiations after ensuring that they fall within the limits of the law, issued final rules on May 17. They went into effect on June 6.

If followed correctly, the law provides protection under the "state action doctrine" from an antitrust violation when physicians negotiate and discuss 19 types of contract issues with health plans. They include:

  • Fees;
  • Patient referral procedures, utilization review, and quality assurance procedures;
  • Formulation of reimbursement methodology;
  • Programs to improve the cost-effective delivery of preventive services and to improve health care delivery to women;
  • Clinical criteria relating to disease management programs and clinical guidelines;
  • Programs to enhance patient education and treatment compliance;
  • Methods to detect and prevent fraud and abuse;
  • Physician selection and termination criteria; and
  • Administrative issues, such as timing of payment.

In the first 30 days under the new rules, through July 6, not a single group of physicians filed an application to begin the joint negotiation process. That doesn't worry Texas Medical Association leaders, who worked with the attorney general's staff to revise the rules and who are now urging a slow, measured approach to developing strategies to test the new law. They hope a good first experience will provide strong, positive examples for other Texas doctors and for advocates of national and state legislation authorizing similar negotiations.

"We have a two-track approach within TMA," explained Division of Medical Economics Director Rich Johnson. "Our first track is to provide information to our members about the process and to identify resources they can use. The second track is to figure out how we can best help those who want to pursue joint negotiations and seek to apply."

TMA General Counsel Donald P. Wilcox, JD, says the association initially will play a consultant's role with physicians who want to try the process. "We need to help doctors who want to do this to put a group together and test the law," he said.

Questions about the joint negotiation process are widespread among physicians, health plans, and businesses that pay for their employees' health coverage, and uncertainty about what will happen next is rampant. The uncertainty centers on three key questions:

  • Will there be a preemptive legal challenge to the rules or the process in the Texas courts?
  • Will health plans refuse to negotiate with groups of doctors, as they are able to do under the Texas statute?
  • Will Congress pass a pending bill that would provide physician negotiations with health plans an exemption from federal antitrust law?

The answers to those questions depend on whom you ask.

Preempting the talks  

Mr Wilcox and Mr Johnson say health plans could seek to head off negotiations by challenging the statute in court. "We don't know of any legal challenge, but we have heard that health plans are predicting a challenge," Mr Johnson said.

Mr Wilcox says any court challenge is likely to come once a group of physicians applies to use the joint negotiation statute, not before.

The grounds for a possible legal attack by opponents of joint negotiations were laid out in a letter from Vinson & Elkins, a Houston-based law firm, to Governor Bush in June 1999. In that letter, unnamed lawyers from the firm acting on behalf of unnamed clients unsuccessfully urged the governor to veto the bill.

"The main point was that the act [SB 1468] didn't meet the two prongs of the state action test," said Jeffrey Kloster, JD, of counsel to the health industry section of Vinson & Elkins' Austin office.

The state action test allows private collective activity to be immune under the antitrust laws if the action is the result of a clearly articulated and expressed state policy and is actively supervised by the state itself.

"The act does not appear to require the attorney general to take steps to determine the specifics of any jointly negotiated physician fees, such as reviewing empirical data to determine the reasonableness of the fees," the Vinson & Elkins letter stated. It also said the attorney general would not have ongoing authority to monitor compliance with the negotiated contracts or to track changes in the marketplace that might make negotiated agreements anticompetitive. "This type of static 'supervision' appears to fall short of the type of active supervision required under the state action doctrine," the letter said.

Vinson & Elkins claimed the act violates the Texas Constitution because the legislature did not give the attorney general sufficient direction in delegating to him the authority to supervise the act. The letter cited three policy reasons for killing the bill:

  • Coercive action by doctors would force health plans to raise fees, in turn leading to higher health care costs and health insurance premiums.
  • Groups of doctors within a specialty could control the market for their specialty even while comprising less than 10% of the doctors in the market. (The law permits negotiations only when the physician group comprises no more than 10% of the doctors in the health plan's geographic service area.)
  • Protections against improper collusive action between physicians were inadequate.

TMA countered the Vinson & Elkins assertions in a letter from Mr Wilcox to the governor. He pointed out that the attorney general is expected to take an active role in reviewing and evaluating not just the process and proposed topics of the negotiations but also the substance and impact of the contracts. He also argued that it was appropriate to give the attorney general -- not the legislature -- the power to interpret the law as it applies to a specific fact situation.

As for the policy questions raised by Vinson & Elkins, Mr Wilcox said the statute forbids coercive action, that adequate protections against collusive action do exist, and that the attorney general can limit the size of negotiating groups to prevent negotiating specialists from controlling more than 10% of a market.

Setting the table  

There is doubt whether physicians will use the joint negotiation process and whether health insurance plans will agree to sit down and negotiate with those who do. "How likely is it that the plans will come to the table? We don't know. Some say they can't because of the antitrust implications," Mr Johnson said.

Mr Wilcox predicts many physicians will be reluctant to use the process because it is cumbersome and because of the health plans' right to refuse to negotiate. He points out that doctors already can use third-party "messengers" to give and receive some information from health plans about contracts. "The messenger process is cumbersome, but not as cumbersome as the joint negotiation process," he said.

Bob Tollefson, executive director of the Nacogdoches Area Physicians Association, says no one from East Texas will be rushing to test the waters of joint negotiation, in part because of uncertainty about how the health plans will respond.

"Our doctors aren't planning to be the first ones to use it," Mr Tollefson said. "You can spend a lot of time and money getting it together, but if you don't have much success getting the plans to sit down and talk to you, it will be money that's wasted."

Jerry Patterson, executive director of the Texas Association of Health Plans, says he has been told by some health plan officials that they will not negotiate with physicians. "They are saying, 'We won't negotiate because we won't do something that will put the physicians at risk under antitrust law.'"

Mr Patterson also predicts physicians will be hesitant to use the joint negotiation process because "it doesn't provide antitrust protection for the physicians who would use it." If a physician group and a health plan were to negotiate a contract, it wouldn't require a complaint from the health plan or competing physicians to prompt the federal government to intervene on antitrust grounds, he explained. The Federal Trade Commission or US Justice Department are empowered to protect consumers and can act independently without waiting for a complaint, he says.

Mr Wilcox says TMA will consider seeking legislation in next year's session of the Texas Legislature to require health insurers to negotiate in good faith with physicians who receive approval from the attorney general to negotiate as a group. He says he expects some use of the law, "when it's to the advantage of both the doctors and the plan" to negotiate contract issues and fees.

Mr Johnson disagrees with Mr Patterson's assessment. "From a physician's perspective, this process can be used by anyone who has a solid case to take into negotiations, but we need a reasonable chance to get them to the table," he said. "I think some of the plans will use it because it's a forum to discuss issues that they can't discuss with groups of doctors" under current antitrust laws.

Mr Wilcox urges physicians who do use the process to watch for pitfalls.

First, the health plan can undermine joint negotiations by cutting deals with individual physicians within the negotiating group and nothing can be done to stop the individual from accepting the contract. "If physicians go this route, they have to observe [antitrust] protocol," he said, warning that they could find themselves open to charges that they have used shared price and fee information accumulated for the joint negotiation. "If they do, they are outside the agreement and subject to the antitrust laws."

Second, estimating the impact of a negotiation or a contract will be tricky. There is no standard source of market information, and estimated impacts will be subject to attack by the health plans or others opposing the negotiations.

TMA will establish pilot programs to provide information and support to groups that are considering joint negotiations. Those programs are expected to be in place by the fall, Mr Johnson says.

Despite his skepticism about the effectiveness of the law, Mr Tollefson says TMA's effort to pass the joint negotiation bill was worthwhile. "The legislation sent a message to managed care plans, and maybe that's all we get out of it at this time," he said. 

Waiting for Campbell  

Mr Kloster says SB 1468 sent a dual message. "First, it was a message [to the plans] that they ought to take [contract] discussions seriously. Second, the message was that this was part of an attempt to take this issue to the federal level."

He also says physicians and other backers of antitrust exemptions granted by Congress will try to use the Texas legislation to leverage federal action. While federal action is pending, Mr Kloster says, a rush on the attorney general's seeking approval for joint negotiations is unlikely.

"I think there will be a wait-and-see period to evaluate what's happening with the federal process," Mr Kloster said.

TMA is monitoring American Medical Association-backed efforts to pass a bill sponsored by US Reps Tom Campbell (R-Calif) and John Conyers, Jr, (D-Mich) that would make negotiating physicians exempt from federal antitrust laws. This is considered important because Texas physicians who negotiate under state rules with the approval of the Texas attorney general would be exempt from state prosecution, but could still face legal challenges from the federal antitrust lawyers and trade regulators. The Campbell/Conyers bill is a modification of labor law, with some antitrust benefits, while the Texas law features the state action doctrine that is a defense against certain aspects of antitrust law. (See "Antitrust Relief," May 2000 Texas Medicine , pp 33-35.)

The Campbell/Conyers bill passed the US House of Representatives on a 276-136 vote on June 30, but opposition from Senate Majority Leader Trent Lott (R-Miss) suggests it will go no farther.

"I just don't think that is something we should be moving toward," Senator Lott said at a press conference . "I don't think we need more lawsuits in America, and I don't think we need more labor unions, and that's basically what we're trying to do."

Passage of the Campbell/Conyers bill in the Senate faces "only two problems," noted Harold Freeman, TMA lobbyist . "There's no Senate sponsor, and we have to find a way around the Senate majority leader."

Concerns over Campbell and 1468  

It's no surprise that insurance companies and managed care entities are leading the charge in opposing the Campbell/Conyers bill. Nor is it surprising that business groups such as the US Chamber of Commerce joined the opposition to prevent what they claim will be a domino effect of price increases for physician services, followed by increases in the cost of treatments, followed by rising rates for health insurance.

Nursing groups, who fear doctors will use their ability to jointly negotiate to restrict the roles of nonphysicians in providing quality care to patients, also are mobilized against the Campbell/Conyers bill.

Some consumer advocates and governmental watchdog agencies have found common ground with the insurance industry and business on the antitrust issue. Antitrust officials from the US Department of Justice and the Federal Trade Commission have voiced opposition to the Campbell/Conyers bill. The Consumer Federation of America charges that physicians are trying to improve their economic position, not the quality of patient care.

But AMA maintains the bill contains safeguards to ensure that patients' interests would remain primary. "It would forbid any collective cessation of patient care, contains a sunset provision that would limit the duration of the legislation to 3 years, and requires a study of its impact before reauthorization by Congress," an AMA statement said. "In addition, health plans would not be forced to accept terms sought by health care professionals, and any potentially anticompetitive behavior would remain subject to antitrust challenge by the Department of Justice and the Federal Trade Commission."

Concerning the Texas physician negotiation law, Lisa McGiffert, a health issues specialist for the Southwest Regional Office of Consumers Union, says the organization did not take a position. But after its passage, Consumers Union is concerned that physicians could abuse the law if proper oversight isn't forthcoming through the Texas Attorney General's Office.

She echoed one of the concerns expressed by Vinson & Elkins in its letter to Governor Bush. While the law limits negotiating groups to less than 10% of the physicians in a given market, Ms McGiffert says price-fixing could occur in smaller physician groups, especially those of doctors in a single specialty.

She predicts that joint negotiations will be sought most often by small groups of specialists to negotiate fees for service, and therein lies the rub. "If all the neurologists in Dallas come together, they wouldn't be 10% of the medical population, but there will be antitrust and pricing concerns."


Requirements of joint negotiations

In a May 17 letter to physicians, Texas Atty Gen John Cornyn said he will not sue competing physicians who discuss forming a negotiating group and seeking approval under the 1999 joint negotiation statute. But he warned that physicians should not share or discuss specific fee-related information until his office approves the negotiation group. Before approval, discussions of fees and related issues should be limited to "general expressions of dissatisfaction" and evaluation of whether a negotiation group is warranted.

Physicians who form a group will be required to submit information concerning their practices and fees as part of the application. Under antitrust law, fee and pricing information cannot be shared by competitors. The attorney general suggests that the competing physicians choose a third party to collect the information and manage the application process. The representative should avoid sharing the information with the group members until the group is approved. For that reason, Mr Cornyn recommends that the group choose a representative who is not one of the competing physicians.

Mr Cornyn also warned that fee information exchanged among competitors before approval should be at least 3 months old and sufficiently general to make it impossible to identify fees for individual practices.

By the same reasoning, physicians should not discuss what fees or reimbursement rates are sought by the group until the joint negotiation application is approved. If the approved negotiations fail or are discontinued, doctors should cease discussions within the group, or they could face antitrust scrutiny.

Paying for the process  

The attorney general's office will charge $2,000 to review an application for a joint negotiation group if the proposed negotiations are for contract provisions other than fees. It will collect an additional $500 for reviewing a contract produced by the negotiations.

Groups proposing to negotiate fees will be charged $5,000 -- $4,000 to review the application and $1,000 to scrutinize the fee contract. And that's before the costs of lawyers and other group representatives are tallied.

Attorney General Cornyn says he will act upon the application within 30 days after it is completed. The contract should be submitted for review within 2 weeks of reaching agreement and at least 30 days before the contract takes effect. The parties will not be allowed to begin the contract until the attorney general approves the contract in writing.

Should a health plan reject negotiations, a portion of the fee that has not been expended in processing the application will be refunded to the physician group, says Asst Atty Gen Mark Tobey, chief of the antitrust section of the Consumer Practices Division.

Providing information  

Building the application for a joint negotiation will require a physician group to provide the attorney general with detailed information about its practices, the local market for health care, and its contracts. In the application, the group must specify which provisions it wants to negotiate and provide a time estimate for the negotiations.

The group will also have to estimate the impact of the negotiations and submitted contractson the quality of patient care, consumers, and competitors. The benefits of a contract and the identity of other physicians who share the risk of the contract also must be provided.

For negotiations involving fees, the physicians' group will be asked to show how fee-related contract terms have already affected or threaten to adversely affect the quality and availability of patient care.

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