Henry Allen, MPA, JD American Medical Association

1. Hospital Employment of Physicians: Labor Law and Antitrust ConsiderationsAAOS Fall Meeting SymposiumPhiladelphia, Pennsylvania Henry Allen, MPA, JD American Medical Association October 19, 2012

2. AMA's Competition in Health Insurance: A Comprehensive Study of U.S. Markets2011 UpdateSummary of Findings Market concentration (HHI) In terms of market concentration (HHI), AMA found the following: • Eighty-three percent (305) of the combined HMO+PPO markets are highly concentrated (HHI>2,500).

3. AMA's Competition in Health Insurance: A Comprehensive Study of U.S. Markets2011 UpdateSummary of Findings Market share In terms of market shares, AMA found the following: HMO+PPO product market • In 95 percent (348) of the MSAs, at least one insurer had a combined HMO+PPO market share of 30 percent or greater. • In 47 percent (174) of the MSAs, at least one insurer had a combined HMO+PPO market share of 50 percent or greater. • In 11 percent (39) of the MSAs, one insurer had a combined HMO+PPO market share of 70 percent or greater.

4. Blocking Health Insurer Mergers DOJ blocked a proposed merger between Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan. The DOJ stated that the acquisition “would have given Blue Cross-Michigan the ability to control physician reimbursement rates in a manner that could harm the quality of health care delivered to consumers.” (2010)

5. Price Fixing - A Per Se Violation of Antitrust Law Doctors typically practice in small firms. Where these firms practice in the same or related specialty and are in the same geographic market, they are competitors. They must not jointly negotiate fees with health insurers unless they are integrated in ways that promise efficiencies and enhanced consumer welfare. Arizona v. Maricopa County Medical Soc., 457 U.S. 332 (1982)

6. Physician “Clinical Integration” Costs Associated With Antitrust Compliance May Be Contributing to the Trend of Physician Hospital Employment Presently, the FTC antitrust guidance on clinical integration requires resources that many physicians do not have but that hospitals do possess. Thus, FTC’s antitrust enforcement policy has the unintended consequence of encouraging and facilitating hospital acquisitions of physician practices and a consolidation of physician markets.

7. Statutory Labor Exemption to Antitrust Law The Clayton and Norris-LaGuardia acts declare that labor organizations are not combinations or conspiracies in restraint of trade. These federal statutes also exempt specific union activities, including boycotts, from the operation of the antitrust laws. Employed doctors may seek recognition as a formal union in part because it provides an exemption from the application of antitrust restrictions on concerted action.

8. Is the Health Insurer/Physician Relationship One of Employment Such That Concerted Activity Is Protected By the National Labor Relations Act (NLRA) and Entitled to the Antitrust Labor Exemption? In AmeriHealth HMO 329 N.L.R.B. 870 (1999), the National Labor Relations Board concluded that physicians under contract with AmeriHealth HMO were independent contractors. They were not employees entitled to the protections of the NLRA. Hence, doctors jointly contracting with AmeriHealth HMO may run afoul of antitrust restrictions on collusive behavior.

9. Is the Health Insurer/Physician Relationship One of Employment? (cont.) In AmeriHealth, the National Labor Relations Board pointed out that in denying the union’s petition seeking to represent all primary care and specialty physicians contracting with AmeriHealth HMO, it was not necessarily precluding a finding that physicians under contract to health maintenance organizations may, in other circumstances, be found to be statutory employees.

10. HMO and Hospital Employed Physicians Have Been Found Entitled to National Labor Relations Act Protection The NLRB has certified physician unions in HMOs that employ rather than contract with doctors. The board has also certified physician unions in hospitals that employ physicians.

11. Must Hospital Employed Physicians Join a Union to be Protected by the National Labor Relations Act? Answer: NO! The NLRA protects non-union as well as union employees in any concerted activity relating to the terms and conditions of employment. See e.g. New York University Medical Center and Association of Staff Psychiatrists, Bellevue Psychiatric Hospital 324 N.L.R.B. No. 139 (1997). (NLRA prohibited hospital retaliation against employed physicians engaging in concerted activities).

12. Hospitals Acquiring Market Power In Facility and Physician Markets In some markets, hospital acquisitions of physician practices have led to significant hospital market power over both facility and physician markets. Because each physician practice acquisition is typically small, this development is occurring largely under the radar of antitrust enforcement.

13. FTC Antitrust Enforcement Against Hospitals Acquiring Physician Practices “The Federal Trade Commission, which has filed several recent suits to block hospital acquisitions, is also closely watching hospitals’ purchases of doctor groups, and mergers that combine physician practices, Richard Feinstein, Director of the FTC’s Bureau of Competition, said.” Wall Street Journal, Sept. 14, 2012

14. In the Matter of Renown Health,Federal Trade Commission (2012) Renown Health is based in Reno, Nevada, and operates general acute care hospitals and commercial health plans which serve the Reno area. It is the largest provider of acute care hospital services in northern Nevada.

15. In the Matter of Renown Health, (cont.) As a result of the acquisitions of two cardiology groups (and the employment of the physicians affiliated with those groups), Renown Health now employs approximately 88% of the physicians providing cardiology services for adults in the Reno area.

16. Alleged Anticompetitive Effects in Renown Health According to FTC, the consolidation of the competing practices into a single cardiology group controlled by Renown Health led to the elimination of competition based on price, quality, and other terms. In addition, the consolidation increased the bargaining power that Renown Health has with insurers.

17. Remedy In Renown Health Renown Health has agreed to an order temporarily suspending the non-compete provisions currently in place with its cardiologists. During this time, the cardiologists now working for Renown Health will be able to seek other employment, including positions with other hospitals in the Reno area.

18. FTC Blocks Hospital System From Acquiring Two Cardiology Practices in Spokane Federal Trade Commission has blocked Providence Health & Services from acquiring Spokane Cardiology and Heart Clinics Northwest in Spokane, Washington (2010).

19. Reported FTC Investigation of St. Luke’s in Boise, Idaho The FTC and the Idaho attorney general are reportedly investigating Boise-based St. Luke’s System’s proposed acquisition of Saltzer Medical Group.

20. Is St. Luke’s Proposed Acquisition of Saltzer Medical Group Anticompetitive:Does it foreclose the market for physician services? “St. Luke’s CEO, Pate says St. Luke’s recruits high-demand specialists from other states but doesn’t usually recruit doctors locally. It does respond to invitations to buy physician practices, he said. That helps keep doctors in Idaho who have similar beliefs in the way health care should be done, he said." Idaho Statesman, Sept. 16, 2012

21. Is the Physician Service Market National? “There's a physician shortage around this country. St. Luke’s Pate said. These physicians can find jobs in other states where they will give them income protection and that kind of stuff with no problem at all. They can go anywhere they want, basically.” Idaho Statesman, Sept. 16, 2012

22. Is Proposed St. Luke’s/Saltzer Merger Anticompetitive? There are almost no independent cardiologists in Boise now, according to state licensing records. Idaho Statesman, Sept. 16, 2012

23. How Do Hospital Mergers That Lead to Monopoly Injure Consumers? Hospitals compete for physician referrals, using such enticements as the quality of its facilities, equipment, and support services. Hospital mergers leading to market power reduces hospital incentive to compete on these factors, allowing the merged hospitals to provide lower-quality care. See Vogt WB, Town R and Williams CH “How Has Hospital Consolidation Affected the Price and Quality of Hospital Care?:, The Synthesis Project, Issue 9, (February 2006).

24. Hospital Mergers May Lead to Monopsony Power In Physician Markets Where hospitals compete, a physician considering hospital employment may weigh alternative offers and negotiate an competitive employment agreement.

25. Hospital Mergers May Lead To Monopsony Power In Physician Markets (cont.) Once a hospital is allowed to acquire monopsony power through an unchallenged anticompetitive merger, employed physicians have no bargaining power and the antitrust laws offer no post-merger remedy. (The AMA has had much experience dealing with the analogous health insurer monopsony power that the DOJ now recognizes as harmful to the quality and quantity of physician service.) 

26. Hospital Monopoly Injures Physician Facilities Anticompetitive mergers of hospitals adversely affect the markets for facility services. Physician-owned facilities---cancer, ambulatory surgery and imaging centers, as well as specialty hospitals---may be particularly vulnerable because they are generally small and offer less than a full range of hospital services. They therefore need the protection of the antitrust laws.