The stifling of competition by the antitrust laws: the irony of the health care industry.

• Author: Powers, John A.
• Position: Independent physicians vs. HMOs

INTRODUCTION

In recent years, the health care system in the United States has come to be dominated almost entirely by large health maintenance organizations [hereinafter "HMOs"] (1) and insurance providers. This trend has proven to deprive physicians of their decision-maturing authority when it comes to the administration of care, with the ultimate result of reducing the quality of health care services provided to consumers. The market dominance enjoyed by these entities is primarily the product of the current state and federal antitrust laws, which have effectively tied the hands of independently practicing physicians by preventing them from banding together in their contract negotiations with these types of managed care providers [hereinafter "MCPs"]. (2) As such, a substantive change in our national antitrust laws is required in order to equalize the imbalance of power between physicians and MCPs, and to ensure the availability of the highest quality of care.

The text to follow is intended to provide an overview of the legal basis for the imbalance of power currently inherent to the health care industry, suggesting several reasons for its development. It also provides an outline of the current basis for antitrust liability in this country and describes some possible solutions. The most practical and effective means through which to rectify this imbalance would be to enact new federal legislation that would amend the antitrust laws to allow for limited "unionization" of independently practicing physicians for collective bargaining purposes.

1. REASONS FOR THE IMBALANCE

   1. Lack of Enforcement of Antitrust Laws Against HMOs

      The bargaining position of independent physicians is substantially weakened by the lack of significant enforcement of the antitrust laws by the Federal Trade Commission [hereinafter "FTC"] and the Department of Justice [hereinafter "DOJ"] against managed care and insurance companies. Even in the face of the considerable market dominance in many localities by a single HMO, the federal enforcement agencies charged with the enforcement of the antitrust laws seem reluctant to interfere with their growth. In fact, Robert F. Liebenluft, former assistant director for health care in the FTC's Bureau of Competition, has reportedly stated that the federal agencies "had rarely, if ever, challenged an HMO merger." (3) In some markets, MPCs have amassed more than fifty percent of the health care market, yet the FTC and the DOJ have done little more than rubber stamp the mergers and acquisitions of these large health plans. (4) This apparent lack of enforcement of the antitrust laws against HMOs allows such entities to accumulate even greater dominance in health care and serves to undermine the limited bargaining power that independent physicians enjoy.

   2. Limited Exemption From Antitrust Liability For Insurance Companies

      Insurance companies are also treated in a more preferential light by the federal government in regards to antitrust matters, thereby further weakening the bargaining power of independent physicians and lessening their control over treatment of their patients. In the United States, the regulation and taxation of the insurance business is left primarily to the states. (5) In 1945 the U.S. government enacted the McCarran-Ferguson Act. (6) This legislation served to provide insurance companies with a limited exemption from federal antitrust laws, to the extent that their activity is covered by state law. (7) However, this exemption does not shield insurance companies from federal prosecution for acts that traditionally constitute violations of federal antitrust law, such as boycotts, coercion, or intimidation. (8)

      The Supreme Court has established a three-part test for determining whether the actions of an insurance company should be construed as part of the "business of insurance," and, therefore, exempt from antitrust liability under the McCarran-Ferguson Act. (9) This three-part standard requires the reviewing court to determine: first, whether the activity transfers or spreads the insured's risk; second, whether the activity is an essential or integral part of the policy relationship between the insurer and insured; and third, whether the activity or practice is limited to members within the insurance field. (10) Challenges to the states' power to regulate and tax insurance companies under the Commerce Clause following the enactment of this statute were rejected and the right of the several states to regulate insurance was affirmed. (11)

      This industry friendly legislation has justifiably received some criticism. As previously stated, the McCarran-Ferguson Act only applies to the insurance business, providing insurance companies with statutory immunity under the federal antitrust laws not granted to any other major industry. (12) However, there does not seem to be any valid reason why the insurance industry should enjoy this unique preferential treatment.

      It arguable that this exemption actually serves to restrict competition by allowing for data sharing and concerted rate determination. This legislation also opens the door to possible collective raising of rates or premiums. The added leverage that the McCarran-Ferguson Act provides insurance companies over individual health care providers and patients has also been noticed by many members of Congress, evidenced by the listing of this effect of the Act in the findings of Congress in the recently proposed bill referred to as the Quality Health-Care Coalition Act of 1999. (13) Essentially, the McCarran-Ferguson Act unnecessarily provides added bargaining power, though limited, to insurance companies, thereby further hampering physicians in contract negotiations.

2. OPPOSITION TO UNIONIZATION OF PHYSICIANS

   1. Basis For Antitrust Liability

      To date, attempts by independent physicians to pool together to lessen this imbalance of power within the health care industry have been met by strong resistance. A principle argument of those opposed to such efforts seems to be that such a unionization of doctors would serve to stifle competition within the health care arena, fattening the pockets of already overpaid physicians and yet not significantly improving the quality of care provided to patients. Fear of striking physicians and the resulting unavailability of medical services, particularly emergency care, undoubtedly to greatly fuel the opposition. Accordingly, physicians' efforts to unite for collective bargaining purposes have been viciously attacked as violations of the antitrust laws.

      The free trade and unrestrained competition are central to American capitalism, and have led to the development and staunch enforcement of the antitrust laws. (14) The Supreme Court of the United States has maintained that faith in the value of competition is at the heart of our national economic policy (15) and described the antitrust laws as the "Magna Carta of free enterprise." (16) These laws reflect the widely accepted belief that competition generally serves to promote the efficient allocation of resources, enabling consumers to have access to the highest quality goods and services at the lowest possible prices. (17) The antitrust laws are also generally thought to ensure greater freedom of choice in the market, promoting increased quality, service, safety, durability, and immediate cost. (18) Consumer preferences, rather than a competitor's abuse of market power, are intended to control the success or failure of one's business. (19)

      Ironically, the antitrust laws were intended to help entrepreneurs compete on a level playing field by condemning anti-competitive behavior. (20) However, today they serve as ammunition against private practitioners within health care, actually preventing them from having the opportunity to compete on the same level as the insurance companies and HMOs, which have come to dominate the industry.

      Antitrust liability was originally a common law concept but has since been codified and thereby incorporated into positive law. (21) The principal federal antitrust statutes are the Sherman Act of 1890, (22) the Clayton Act, (23) enacted in 1914 and substantially amended by the Robinson-Patman Act in 1936, (24) and the Federal Trade Commission Act of 1914. (25)

      The Sherman Act serves to make contracts, combinations or conspiracies in restraint of trade, void at common law, unlawful in the positive sense. (26) It also created a civil cause of action for damages in favor of those injured by the actions of another party that violate its provisions. (27) The act is commonly employed to prevent or estop agreements to fix prices, (28) conspiracies amongst competitors to boycott other parties, (29) and the use of coercion to restrain open competition. (30)

      The elements that must be proven to establish a claim under the Sherman Act are: a contract, combination or conspiracy; which unreasonably restrained trade under the per se rule of illegality or rule of reason analysis; and affected interstate commerce or injured competition. (31) It is also necessary that the plaintiff be able to demonstrate that the injury to his business or property was the direct result of the defendants' actions in restraint of trade, and said damages must be reasonably ascertainable and not merely speculative. (32)

      The Clayton Act is geared more toward preventing the development of unfair market conditions that serve to foster monopolies or deter competition. (33) The United States Supreme Court has interpreted the congressional intent underlining this Act, stating that through enactment of this section, Congress

      sought generally to obviate price discrimination practices threatening independent merchants and businessmen, presumably, from whatever source, and intended to assure, to the extent reasonably practicable, that businessmen at the same functional level would start on equal competitive footing so far as price was concerned. (34) The Act focuses upon...