[Senate Hearing 109-882]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-882
 
               EXAMINING COMPETITION IN GROUP HEALTH CARE

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 6, 2006

                               __________

                          Serial No. J-109-106

                               __________

         Printed for the use of the Committee on the Judiciary


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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma......     2
Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois.......................................................    16
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    86
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga 
  Faculty Scholar, College of Law, University of Illinois at 
  Urbana-Champaign, Champaign, Illinois..........................    14
Kanwit, Stephanie W., Special Counsel, America's Health Insurance 
  Plans, Washington, D.C.........................................    13
Langston, Edward L., Chair-Elect, Board of Trustees, American 
  Medical Association, Chicago, Illinois.........................    11
McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust 
  Division, Department of Justice, Washington, D.C...............     5
Piasio, Mark A., President, Pennsylvania Medical Society, 
  Harrisburg, Pennsylvania.......................................     9
Wales, David P., Deputy Director, Bureau of Competition, Federal 
  Trade Commission, Washington, D.C.,............................     7

                         QUESTIONS AND ANSWERS

Responses of David A. Hyman to questions submitted by Senators 
  Schumer and Specter............................................    24
Responses of Stephanie W. Kanwit to questions submitted by 
  Senator Specter................................................    28
Responses of Edward L. Langston to questions submitted by Senator 
  Specter........................................................    37
Responses of J. Bruce McDonald to questions submitted by Senators 
  Schumer and Specter............................................    41
Responses of Mark Piasio to questions submitted by Senator 
  Specter........................................................    45
Responses of David P., Wales to questions submitted by Senators 
  Schumer and Specter............................................    51

                       SUBMISSIONS FOR THE RECORD

Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga 
  Faculty Scholar, College of Law, University of Illinois at 
  Urbana-Champaign, Champaign, Illinois, prepared statement......    55
Kanwit, Stephanie W., Special Counsel, America's Health Insurance 
  Plans, Washington, D.C., prepared statement....................    63
Langston, Edward L., Chair-Elect, Board of Trustees, American 
  Medical Association, Chicago, Illinois, prepared statement.....    74
McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust 
  Division, Department of Justice, Washington, D.C., prepared 
  statement......................................................    88
Piasio, Mark A., President, Pennsylvania Medical Society, 
  Harrisburg, Pennsylvania, prepared statement...................    99
Wales, David P., Deputy Director, Bureau of Competition, Federal 
  Trade Commission, Washington, D.C., prepared statement.........   101


               EXAMINING COMPETITION IN GROUP HEALTH CARE

                              ----------                              


                      WEDNESDAY, SEPTEMBER 6, 2006

                              United States Senate,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 11:02 a.m., in 
room 226, Dirksen Senate Office Building, Hon. Arlen Specter, 
Chairman of the Committee, presiding.
    Present: Senators Coburn and Durbin.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. Good morning, ladies and gentlemen. The 
Judiciary Committee will now proceed with our hearing on 
Examining Competition in Group Health Care.
    The concern has arisen because there has been concentration 
of coverage by the health insurance industry and significant 
issues as to what the doctors may do by way of joint action 
without violating the antitrust laws.
    We have seen a very substantial rise in health care costs. 
Some contend that the absence of the ability of physicians to 
negotiate with group health insurers is a significant factor 
leading to that rise.
    We have had a considerable number of requests for an 
analysis by the Judiciary Committee on the antitrust aspects. 
In 2004, I convened a hearing in Philadelphia on the issue of 
the balance of negotiating power. This hearing of the full 
Committee is being held to pursue those issues further.
    Our first witness could sit on either side of the dais 
today. Senator Tom Coburn has brought a level of expertise to 
the Committee on medical issues. He is very heavily involved in 
many, many of the complex questions which have come before the 
committee, most particularly in the asbestos field.
    Senator Coburn has had over 20 years of practicing medicine 
in Muscogee, specializing in family medicine, obstetrics, and 
the treatment of allergies. He has a medical degree from the 
University of Oklahoma. He has served three terms in the House 
of Representatives.
    We welcome you, Senator Coburn, Dr. Coburn, Witness Coburn. 
The floor is yours.

STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM THE STATE OF 
                            OKLAHOMA

    Senator Coburn. Thank you, Mr. Chairman. I appreciate you 
having this hearing. I am going to be rather brief this 
morning.
    First of all, I can strongly identify with the physicians 
who are impacted by the market as we see it today and, I think, 
some insight into the frustration that is out there.
    I do not necessarily agree that the answer of collective 
bargaining or forming is the answer to our health care 
problems, and let me explain that. But let me, first, also say 
how frustrating it is as a group of physicians to be in a box 
in terms of what you can charge.
    Over 50 percent of our practice was Medicaid and Medicare, 
which means the remaining 50 percent is open to negotiation. Of 
that, 80 percent of that is fixed price, based on the fact that 
the only game in town is controlled by two or three groups of 
insurers.
    That is significant in terms of any pricing flexibility. 
What you see as you look at physician practices, is rising 
expenses and lower revenues. At the same time, we are seeing 
health care costs go up, so something is wrong somewhere. Is 
there really a market out there? I would question that there is 
not really a market in health care in our country.
    The second point I would make, is it not just about 
pricing, because the implied pricing comes along with rules and 
guidelines from the insurance companies that add significant 
costs to the individual practice or group practice in terms of 
following the rules and regulations, the permissions, the 
approvals, and the time costs associated with meeting the 
guidelines to be able to service a patient who is represented 
by a certain insurance group or company.
    But more generally, I think we are fixing the wrong 
problem. I think we are tinkering around the edges with a 
problem on health care in our country, and I think if we 
continue to do it, we are going to get more of the same. It is 
like a balloon; you push in somewhere and it gets a bigger 
overall diameter because you pushed in somewhere. I do not 
think we can fix that.
    I think we ought to ask ourselves the question, why is it 
that this Nation spends 16.2 percent of its GDP on health care, 
and yet we are not significantly healthier than anybody else, 
or countries that spend significantly less?
    The average of the western world is less than 10 percent. 
So we are spending 50 percent more than the rest of the world, 
and yet we are not achieving a greater level of health care 
than the rest of the world. Some of those are free market, some 
of those are government controlled, and they control costs by 
rationing. So, I do not believe that is the answer either.
    But fixing the problem, is creating a real market for 
health care. We have done it in every other area of our 
country. Every other area that we are extremely successful in, 
we have allowed the market to allocate resources.
    When I am talking about a market, I am talking about a 
transparent, consumer-driven health care market where every 
person who is a consumer has skin in the game, where the tax 
benefit, where everybody who has health insurance, it is their 
health insurance, it is not their employer's, where they own 
their health insurance and where they go, fixing it.
    One of the things that I have noticed, is the specific case 
where the Department of Justice utilizes a 30 percent rule in 
terms of impact of group health insurance that did not really 
fit. The reason it does not really fit is because most 
practices have a large percentage of their income already fixed 
through Medicare and Medicaid.
    So if you look at 30 percent of the market, you 
automatically cut out the 50 percent that the government 
controls. What you are really talking about is 60 percent of 
any individual physician's or group practices' income is 
controlled if you use 30 percent. So, I think that rule is 
erroneous. I saw the basis for how they came up with it.
    I think the other important point that we miss, even though 
we have this big problem in terms of balance in what we call a 
market today, is the fact that there really is no leverage for 
physicians in terms of quality.
    All you have to do is go and look at who all the large 
insurance groups contract with. They all say ``board 
certified,'' but the bad physicians are getting paid the same 
as the good physicians.
    So we do not have a market that says we are going to reward 
the best and we are going to disincentivize the worst. What we 
have is a fixed-price oligopoly in the health insurance market 
today that the physicians are frustrated with because they have 
no pricing leverage.
    So I understand and identify with it, but I do not think 
fixing that problem by giving them more leverage in a false 
market will solve our greater problem.
    As you know, Mr. Chairman, I have talked a long time about 
the unsustainability of our health care problems within the 
Federal Government in terms of the demographic shifts of 
Medicare and what is going to happen there, and in terms of the 
shifts in terms of health risk, especially obesity and 
diabetes, where we look at 2070 and 50 percent of every dollar 
spent on health care by the government will be spent on 
diabetes alone. I mean, this is a much larger problem. So, I am 
going to maintain myself on the dais today to hear the 
testimony.
    But I think the more important question we ought to be 
asked is, how do we convert this one out of every three dollars 
that really is not given as health care to covering everybody 
in the country and making sure we spend money on prevention, 
and we truly create a transparent, consumer-driven health care 
system where markets actually allocate the scarce resources, 
where markets actually reward quality and punish poor quality, 
where markets reward innovation and punish duplication and 
waste? We do not have that.
    Until we get that right in our country, working around the 
edges by giving pricing power to physicians may solve some of 
the short-term frustrations, but it will lead to increased 
costs--there is no doubt in mind that it will--and we will not 
solve the underlying problem that we have.
    I would just make one point on that. And I am not picking 
on this particular thing. I had my staff pull all of the 10(k)s 
of all of the major insurers. It is interesting.
    I am just going to use one, United Health Group. This is 
their 10(k) for last year. Twenty-two percent of the dollars 
that they took in did not go anywhere to help anybody get well. 
Now, that is one out of five. The national average is one out 
of three.
    But here is a very profitable insurance company. If you 
look at their 10(k), 22.5 percent of every dollar that they 
took in did not go to help anybody to get well. And I am not 
against profit. I am all for profits.
    But the point is, we have this fixed system that is not 
truly a market, and we are taking a lot of dollars out of the 
market and we have 16.2 percent of our GDP that we are spending 
on health care, and yet a third of that is not really going to 
health care.
    So, fixing the problem around the edges I do not believe 
will ultimately solve the problem, and I am grateful that you 
are having this hearing. I agree with a lot about what the AMA 
says about this, and several others, but I do not think it is a 
solution to the problem. I think it is another fix in a 
bureaucratic maze that will relieve some tension, but will not 
ultimately fix the problem.
    With that, I will end my testimony.
    Chairman Specter. Well, thank you, Senator Coburn.
    Do you have any suggestion as to how we reward the good 
physicians and treat the physicians who are not good, at a 
lower end of the financial scale?
    Senator Coburn. Yes, sir, I do. I believe a market will do 
that, but you have to have transparency in it. You have to have 
price transparency that the President has asked for in terms of 
hospitals. There ought to be price transparency in terms of 
doctors. There ought to be outcome transparency. It ought to be 
weighted on the mix of patients that doctors see.
    Performance ought to count in health care as much or more 
than anywhere else that we see in our country. The problem with 
a lot of the stuff that CMS is doing, is the best physicians 
get, routinely, our toughest patients.
    I will give you examples. When I have very complicated 
obstetrical patients, the worst and the toughest I send to the 
one I trust the most. Well, if you measure his outcomes, his 
outcomes are going to be skewed because he has got all the 
tough patients. So how we measure outcomes becomes important.
    But if you have transparency in a market where you know 
price and quality, and consumers get to choose rather than have 
an advocate who controls for them on the basis of 
profitability, not on the basis of quality--and as I said 
earlier, most physicians who are signed up with these insurance 
companies are board certified, but they are not all the best 
and they are not all the worst.
    But we have a system that rewards them each the same. We 
ought to have a transparent system that says the best 
physicians are going to make more and the worst physicians are 
either going to get out or get better training.
    Chairman Specter. Senator Coburn, in the written testimony 
the AMA urges Congress to require health insurers to publicly 
report additional enrollment and financial data. Do you think 
such reporting requirements will be helpful?
    Senator Coburn. Well, I am not sure that it would be 
helpful or hurtful, because I do not think it solves the market 
problem. You have got an agent for patients and you have got an 
intermediary between the patient and the provider. Their goal 
is not health care, it is profit.
    I believe, whether they report that or not, what it ought 
to come down to is, what are the outcomes of the patients that 
are under their insurance? Do they fare better than under 
another insurance company?
    In other words, we ought to look at outcomes and price, not 
enrollment. We ought to see what the outcomes are. We do that 
in every other area except health care and education in this 
country.
    We are failing in education in K-12 in this country because 
we do not allocate dollars based on outcome and quality. We 
allocate dollars based on people. That is what we are trying to 
do in health care. If we change it, the innovation will be 
unbelievable, what will be happening with this excess amount of 
our GDP. We will markedly improve health care and we will 
markedly cut the cost.
    Chairman Specter. Thank you very much, Senator Coburn. 
There are quite a number of other items that you and I could 
discuss, but we have some time constraints. After we scheduled 
this hearing, the Majority Leader announced a vote at 12:00. 
So, we are going to move to our second panel.
    Senator Coburn. Thank you.
    Chairman Specter. I would invite you to join us in your 
customary seat on the dais.
    We turn, first, to Deputy Assistant Attorney General Bruce 
McDonald, who has a portfolio which includes regulated 
industries. He was previously at Baker Botts, where he 
practiced in the Antitrust Group, and before that he had 
antitrust experience with Jones Day. He has a bachelor's degree 
and a law degree with honors from the University of Texas.
    Thank you for joining us, Mr. McDonald. We look forward to 
your testimony.
    We have the clock set at 5 minutes, which is our customary 
time. We are going to have to stick very closely to the time 
limits because we are going to have to conclude this hearing 
shortly after 12:00 noon.

   STATEMENT OF J. BRUCE MCDONALD, DEPUTY ASSISTANT ATTORNEY 
GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, 
                               DC

    Mr. McDonald. Mr. Chairman, Senator Coburn, thank you for 
the invitation to testify.
    Every American knows the importance of affordable health 
care. For the DOJ Antitrust Division, that means working to 
ensure that health care markets are able to respond to consumer 
demand without interference from anticompetitive restraints. We 
use both enforcement actions and competition advocacy to 
protect and promote competition in health care markets.
    Most of us rely on private health insurance to defray the 
cost of health care, and most of us are members of a group 
health plan. The group health care plan model involves 
transactions among several parties.
    Individuals and families receive health care coverage 
through their employment or membership in an association. The 
employer or association contracts with a group health plan, an 
insurer, to provide coverage for the members of the group.
    Physicians, pharmacists, nurses, hospitals, equipment 
manufacturers, and other health care providers supply services 
and products to the insureds and receive payment from the 
insurer.
    By joining together larger numbers of potential patients, 
group health plans obtain services and products on behalf of 
the subscribers at lower cost. Participating health care 
providers offering good quality and competitive rates are able 
to increase the number of patients they serve.
    At any point in these arrangements, an anti- competitive 
restraint can interfere with competitive access or supply, 
ultimately harming consumers. If competing providers were to 
conspire to charge artificially high prices, for example, 
health plans could be forced to raise premiums or curtail 
service, restricting patient access to affordable health care.
    Similarly, if competing health plans were to conspire to 
pay artificially low prices or engage in exclusionary conduct 
designed to obtain or maintain market power, then providers 
could be forced to curtail service or go out of business, 
restricting patient access to affordable health care.
    The Department has brought enforcement actions to enjoin 
unlawful arrangements by, for example, insurance plans that 
impose anticompetitive agreements on providers, or providers 
that form group boycotts to obtain higher fees.
    In addition to looking for anticompetitive conduct, the 
Department examines proposed mergers among hospitals, health 
plans, or provider groups that could reduce competition, 
restrict access and consumer choice, and dampen healthy 
incentives to provide quality health care at affordable prices.
    The Department has brought actions to challenge mergers 
that lessen competition in health care markets, including 
mergers between insurance companies, and between medical 
equipment manufacturers.
    In a competition advocacy role, the Department provides 
technical assistance advice to State regulators on how to avoid 
regulations that undercut competitive markets.
    In 2003, the DOJ and FTC held lengthy hearings on 
competition in health care, after which we issued a report 
describing our findings. Some of my fellow panelists testified 
at those hearings. The report's recommendations reflect the 
fundamental antitrust principal that consumer welfare is best 
served by the operation of free and competitive markets.
    Mr. Chairman, the Antitrust Division fully recognizes the 
critical important of a competitive health care marketplace to 
all Americans. We are committed to preserving competition in 
this marketplace through appropriate antitrust enforcement, and 
we will continue to monitor these markets closely.
    Thank you for the opportunity to testify. I am happy to 
answer any questions.
    [The prepared statement of Mr. McDonald appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. McDonald.
    Our next witness is Mr. David Wales, Deputy Director of the 
Federal Trade Commission's Bureau of Competition. Previously, 
he was a partner of the Antitrust Group at Kedwalter, 
Wickersham & Taft. He also served as counsel to the Assistant 
Attorney General in the Antitrust Division of the Justice 
Department. He has an undergraduate degree from Penn State and 
a law degree from Syracuse.
    Thank you for coming in today, Mr. Wales. The floor is 
yours.

    STATEMENT OF DAVID P. WALES, DEPUTY DIRECTOR, BUREAU OF 
     COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC

    Mr. Wales. Good morning, Mr. Chairman and Dr. Coburn. I 
appreciate the opportunity to appear today to discuss some of 
the Commission's activities to promote competition in health 
care markets.
    Let me first start by saying that my oral presentation 
responses today are my own and do not necessarily reflect the 
views of the Commission or of any Commissioner.
    The FTC has long been actively involved in health care 
markets and health care continues to be a high priority for the 
Commission. The Agency's fundamental goal has not changed: to 
ensure that health care markets operate competitively.
    As in the past, the Agency will bring enforcement actions 
where necessary to stop activities that harm consumers by 
unreasonably restricting competition. At the same time, the FTC 
is not solely a vigilant cop on the beat out to protect 
consumers from anti-competitive conduct.
    The Agency works to promote competition through a variety 
of other actions as well, including providing guidance to 
market participants to help them comply with the law, 
undertaking and publishing studies, public hearings and 
reports, and advising State and Federal policymakers on 
competition issues in health care.
    Indeed, education explaining antitrust policy to the 
industry and the public, is a key part of our mission. There is 
a good deal of misapprehension and misinformation about the 
application of the antitrust laws to the health care 
marketplace and the FTC activities and policies in this area.
    The Agency works hard to keep the lines of communication 
open and our guidance up to date as markets evolve, and to 
provide additional guidance as new market structures and new 
forms of competition develop.
    As part of its law enforcement role for the past 25 years, 
the Commission has challenged naked price fixing agreements and 
coercive boycotts by physicians in their dealings with health 
plans.
    These arrangements largely consist of otherwise competing 
physicians jointly setting their prices and collectively 
agreeing to withhold their services if health care payors do 
not meet their fee demands.
    Such conduct is considered to be, per se, unlawful because 
it harms competition and consumers. Indeed, the anti-
competitive effect from this conduct is not simply felt by 
health plans who are forced to pay more to the physicians. It 
extends to consumers, employers, and governments at the 
Federal, State, and local levels.
    The effects include higher prices for health insurance 
coverage, increased out-of-pocket expenses such as co-payments, 
reduced benefits, fewer choices, and even loss of coverage.
    Not all joint conduct by physicians, however, is improper. 
Physician network joint ventures can yield impressive 
efficiencies. Thus, the FTC committed long ago, using a 
balancing test called the ``Rule of Reason'' to evaluate those 
physician network joint ventures that involved significant 
potential for creating efficiencies through integration.
    Physician joint ventures involving price agreements can 
avoid summary condemnation and merit the balancing analysis if: 
1) the physician's integration is likely to produce significant 
efficiencies that benefit consumers; and 2) any price 
agreements are reasonably necessary to realize those 
efficiencies.
    In this context, it is important to emphasize that 
collective setting of prices in negotiation with health plans 
by physicians does not assure quality health care, and there is 
no inherent inconsistency between vigorous competition and the 
delivery of high-quality health care services.
    Theory and practice confirm that just the opposite is true. 
When vigorous competition occurs, consumer welfare is increased 
in health care, as in other sectors of the economy.
    As noted above, however, it is also important to remember 
that much joint conduct by physicians can be pro-competitive, 
and that neither the antitrust laws nor the enforcement agency 
is treated as an antitrust violation.
    As pressures to control health care costs continue and 
assure quality continues, there has been increasing effort in 
encouraging efforts to achieve the efficiencies that can come 
through cooperation and collaboration.
    Practically every week FTC staff hear about new forms of 
collaborative arrangements in the health care field involving 
various combinations of providers, insurers, and other 
purchasers.
    Although these cooperative efforts often involve factually 
novel arrangements, antitrust analysis is sufficiently flexible 
to distinguish innovative, pro-competitive market responses 
from collective efforts to resist competition.
    The FTC supports initiatives to enhance quality of care, 
reduce or control escalating health care costs, and ensure the 
free flow of information in health care markets because such 
initiatives benefit consumers.
    The Commission has no preexisting preference for any 
particular model for the financing and delivery of health care. 
Such matters are best left to the marketplace. The FTC's role 
is important, but limited to protecting the market from anti-
competitive conduct that prevents it from responding freely to 
the demands of consumers.
    The dynamics of evolving health care markets continue to 
pose challenges for market participants. The FTC is committed 
to working with physicians and other providers to give them 
guidance to avoid antitrust pitfalls as they respond to market 
challenges.
    At the same time, collective action by health care 
providers to obstruct new models for providing or paying for 
care, or to interfere with cost-conscious purchasing remains a 
significant threat to consumers and the Commission will 
continue to protect consumers from such conduct. Thank you.
    [The prepared statement of Mr. Wales appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Wales.
    Our next witness is Dr. Mark Piasio, president of the 
Pennsylvania Medical Society. He practices in DuBois, a 
relatively small community, and is chief of the Department of 
Surgery at the DuBois Regional Medical Center.
    He has his bachelor's degree from Johns Hopkins University, 
a master's in Psychology, and M.D. from Georgetown University.
    We appreciate your coming down today, Dr. Piasio, and we 
look forward to your testimony.

 STATEMENT OF MARK A. PIASIO, PRESIDENT, PENNSYLVANIA MEDICAL 
               SOCIETY, HARRISBURG, PENNSYLVANIA

    Dr. Piasio. Thank you, and good morning, Mr. Chairman and 
members of the committee.
    My name is Mark Piasio. I am an orthopedic surgeon 
practicing in Dubois, Pennsylvania, and president of the 
Pennsylvania Medical Society.
    First, let me thank you for allowing me to speak with you 
this morning to examine competition in group health care. I 
would like to make it clear that our testimony is not intended 
as a corporate or personal attack on any of the market 
participants and the people who work for them; each of them is 
doing what they think is best. However, each is doing what 
comes naturally in failed markets.
    This, we believe, is the fundamental cause of a host of 
problems and calls for extensive public policy analysis and 
response.
    The lack of competition among health insurers and health 
delivery markets throughout the country and in Pennsylvania, as 
well as the consolidation of health insurers across the Nation, 
raises serious concerns for provision of quality patient care.
    As patient advocates, physicians are often undermined by 
market-dominant insurers and prevented from providing necessary 
care through ``take-it-or-leave-it'' contracts and other 
insurer-imposed cost-cutting mechanisms.
    These dysfunctional markets have produced annual double-
digit health insurance premium increases, physician fee 
schedules that are unilaterally imposed, and have provided 
stagnant or declining compensation and substantial profit 
levels for health insurers.
    In short, market consolidation is also detrimental to 
consumers from a financial perspective. While many large 
Pennsylvania insurers are posting huge profits and surplus 
reserves, premiums continue to skyrocket. Pennsylvania has some 
of the highest premiums in the Nation and patient cost sharing 
increases.
    Physician payment, particularly in the Philadelphia market, 
continues to lag behind other geographic markets. For example, 
evaluation & management services, in some cases, are paying at 
65 percent of the comparable Medicare rate.
    In the meantime, operating costs increased. From 2000 to 
2004, Pennsylvania health insurers increased premiums 40 
percent per enrollee, nearly double the U.S. average, while 
insurers' surplus reserves rose from $5 billion to $6.8 
billion.
    Total annual profits of Pennsylvania health insurers 
increased from $468 million in 2000 to $621 million in 2004. 
Overhead and profit percentages of Pennsylvania health insurers 
increased, despite the fact that much of the revenue increase 
was pure price level change.
    One of the classic hallmarks of a firm with monopoly power 
is the erosion of administrative efficiency. There is no 
evidence that larger health insurers are more efficient. To the 
contrary, published studies show that health insurers exhaust 
their economies of scale at 100,000 to 150,000 enrollees. 
Insurers with 1, 2, 4, or 5 million enrollees are not any more 
efficient and may in fact be more inefficient than smaller 
ones.
    So why are these dysfunctional markets not the subject of 
an antitrust investigation? The Sherman Act has two provisions 
that would appear to apply: prohibitions of 1) monopolization; 
and 2) contracts, combinations, and conspiracies in restraint 
of trade.
    To prove monopolization or monopsonization, it is necessary 
to show that a firm has a dominant market share and has engaged 
in prohibited conduct. The dominant share test is met here.
    The question is whether there is prohibited conduct. 
Conduct that might fall into this category includes: monopoly 
rents, dis-economies of scale, predatory pricing, product tie-
ins, various contract provisions, including the combination of 
all products and most favored payor terms in the 75 percent 
rule.
    Contracts, combinations and conspiracies in restraint of 
trade are evaluated under per se and Rule of Reason standards. 
There are four substantial Blue Cross firms that operate in 
Pennsylvania. Only Independence offers products in the 
Philadelphia region.
    We understand that this is due to a Division of Markets 
Agreement and a non-competition agreement at the national 
level. If this is the case, the full ramifications of the 
agreement bear investigating.
    There are, perhaps, reasonable arguments that the way 
southeast Pennsylvania markets are organized and operate does 
not violate antitrust law. We ask whether, as a matter of 
public policy, good medical care and sound economics, such 
organizations' operation is a public good. If the conclusion is 
that it is not, then changes in the antitrust law that restore 
competitive balance are warranted.
    The AMA each year conducts a study looking at the 
competitive markets in the United States and health care. The 
Herfindahl-Hirschman Index for the national geographic markets 
is evaluated and 1,800 is considered ``highly concentrated''. 
The Philadelphia MSA area is approaching 6,000, four times the 
HHI indicator of little competition.
    Entry into health care insurance markets is not easy. If it 
were easy, much more competition would exist. In large markets 
such as Philadelphia, entry is difficult even for larger 
players such as United.
    As I see my time running short, what we are going to ask at 
this point in time is, there are several options that one can 
use to address failed markets.
    We feel, in Pennsylvania, our markets are failing. Profits 
are increasing and compensation to physicians and hospitals is 
declining, who are bearing the full brunt of the cost drivers 
that are occurring in our health care marketplace.
    We are asking, since health care is an extremely difficult 
commodity to measure with respect to a competitive market and 
countervailing power theories are debatable, we are asking the 
Department of Justice to look a little bit closer at the 
markets in Pennsylvania at least, and probably nationally as 
well, to be sure that competition is providing for good patient 
service and affordable health care for our businesses. Thank 
you.
    [The prepared statement of Dr. Piasio appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Dr. Piasio.
    We now turn to Dr. Edward Langston, a family practitioner 
in LaFayette, Indiana. He serves on the AMA's Board of Trustees 
and will chair the board in 2007 and in 2008.
    He has a medical degree from Indiana University, and has 
bachelor's degree in Pharmacy from Perdue. As a pharmacist, he 
also serves as Assistant Professor at Perdue's School of 
Pharmacy.
    Thank you for being with us today, Dr. Langston. We look 
forward to your testimony.

    STATEMENT OF EDWARD L. LANGSTON, CHAIR-ELECT, BOARD OF 
   TRUSTEES, AMERICAN MEDICAL ASSOCIATION, CHICAGO, ILLINOIS

    Dr. Langston. Well, thank you very much, Mr. Chairman, and 
other members of the Senate Judiciary Committee.
    My name is Edward Langston. I am a member of the Board of 
Trustees of the American Medical Association, and I do practice 
family and geriatric medicine in LaFayette, Indiana.
    I want to thank you for inviting me to testify today, and 
for holding a hearing on this important subject, competition in 
group health care.
    The AMA has been cautioning about long-term negative 
consequences of aggressive consolidation of health insurers for 
quite some time. We have watched with growing concern as large 
health plans pursue aggressive consolidation and we fear that 
this rapid consolidation will lead to a health care system 
dominated by a few publicly traded companies that operate in 
the interest of shareholders rather than patients.
    The AMA's competition study suggests that our worst fears 
are being realized. Competition has been significantly 
undermined in the majority of markets across the country.
    AMA's study is the largest and most comprehensive study of 
its kind. It has analyzed 294 metropolitan health insurance 
markets against an index used by Federal regulators for 
measuring market concentration. According to the Federal index, 
markets that are highly concentrated have a few competing 
health insurers.
    I would like to highlight a few of those numbers to 
illustrate our concern. Most notably, the AMA competition study 
found that in the combined HMO-PPO markets, 95 percent of the 
metropolitan areas have few competing health insurers. For 
example, in 78 percent of the markets, a single PPO has a 
market share of 50 percent or greater.
    This alarming reduction in competition is extremely 
troubling, not only because competition does drive innovation 
and efficiency in the health care system, but because it does 
not appear to be benefitting patients. Health insurers are 
posting high profit margins, yet patient health insurance 
premiums continue to rise without a corresponding expansion of 
benefits.
    In addition to the compelling results of our study, many 
health care systems across the country exhibit characteristic, 
typical, uncompetitive markets and barriers to entry for new 
health insurance carriers: the ability of large, entrenched 
health insurers to raise premiums without losing market share 
and the power of dominant health insurers to coerce physicians 
into accepting unreasonable and unjust contracts.
    We believe there are significant, immediate steps Congress 
can take to inform the debate about excessive health insurance 
market power and its effects on cost and patient care. For 
instance, we believe that current market distortions warrant 
Congress directing the Department of Justice to exercise its 
investigation power to determine whether plans are, in fact, 
engaging in anti-competitive behavior to the detriment of 
consumers--our patients, your constituents.
    To gauge the severity of the problem, there should be 
public reporting of health insurer enrollment numbers by 
county, by MSA, and by product line. There should be 
standardized reporting of medical loss ratios for nonprofit, 
mutual, and for-profit insurers by State and product line. 
Health insurers should be required to report their financial 
information, including total revenue, premium revenue, profit, 
and administrative expenses.
    Now, all of this information is critical in assessing 
efficiencies and determining how much of the premium dollar is 
going toward actual patient care.
    It is time to address the serious public policy issues 
raised by unfettered consolidation of health insurance markets. 
The AMA study demonstrates the competition has been undermined 
in markets across the country.
    This has real, lasting consequences for the delivery of 
health care and it is time to halt the march toward a 
marketplace controlled by a few health insurance conglomerates. 
It is time to encourage meaningful competition that will truly 
benefit America's patients. Thank you very much, Mr. Chairman, 
for this opportunity.
    [The prepared statement of Dr. Langston appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Dr. Langston.
    Our next witness is Ms. Stephanie Kanwit, Special Counsel 
to America's Health Insurance Plans, a national association 
representing more than 1,300 member companies which provide a 
variety of health care insurance. She was formerly a partner at 
Epstein Becker & Breen, and spent 6 years as head of Health 
Litigation for Aetna. She is a graduate of the Columbia 
University Law School.
    We appreciate your being here, Ms. Kanwit, and the floor is 
yours.

 STATEMENT OF STEPHANIE W. KANWIT, SPECIAL COUNSEL, AMERICA'S 
             HEALTH INSURANCE PLANS, WASHINGTON, DC

    Ms. Kanwit. Thank you so much. Good morning, Chairman 
Specter and other members of the committee.
    America's Health Insurance Plans' testimony this morning 
focuses on two main topics. First, the fact that vigorous 
competition does exist in the health care industry, including 
how that competition has spurred the introduction of new 
products that benefit consumers, and, second, on the issue that 
Senator Coburn addressed, the issue of increasing quality and 
transparency, how we are working with practitioner and employer 
groups to maintain a competitive marketplace.
    Health insurance plans operate in one of the most highly 
competitive industries in this country. The Department of 
Justice and the Federal Trade Commission, in their recent 
landmark report, explored the issue of whether payors, such as 
health insurance plans, possess monopsony, or buyer side power, 
in the U.S. health care market. The resounding conclusion was 
that they do not, nor do they possess monopoly power.
    In fact, employer groups testified repeatedly at those 
hearings that health insurance markets in most areas of the 
country enjoy robust competition, with multiple insurers 
offering multiple product options to employers on behalf of 
their employees.
    Such vigorous competition is critical for all stakeholders, 
including health insurance plans and health care practitioners, 
to increase efficiency and improve patient care and ultimately 
reduce costs for consumers.
    Consumers benefit from that competition. They have wide 
choices in the U.S. health care markets. I cite some of those 
choices in my testimony, including how every major metropolitan 
area in the U.S. has multiple competing health care plans 
purchasing physicians' services, and each of those plans 
offering multiple products to consumers and employers.
    In addition, new types of products, such as consumer- 
directed health plans, which many of you know are HSAs, 
continue to be introduced into the marketplace, affording 
consumers additional choices to the HMO, PPO, and indemnity 
options that we are all familiar with, thus demonstrating the 
vitality of the marketplace.
    Senator Coburn spoke this morning of the need to promote 
greater transparency in health care. We support that goal 
totally. Our members are currently working with a 125-member 
coalition.
    This coalition consists of more than 35 physician groups, 
just for one, the American Medical Association, as well as the 
American Board of Internal Medicine, the American College of 
Cardiology, the American Academy of Pediatrics, as well as 
other provider groups like the American Hospital Association, 
and government agencies like CMS, the Centers for Medicare and 
Medicaid Services.
    What are we doing with this group? We are working to 
develop uniform processes for performance measurement and 
reporting. Two goals. First, to allow patients and purchasers 
to evaluate the cost, quality, and efficiency of health care. 
Second, to enable practitioners to determine how their 
performance compares with others in similar specialties.
    Senator Coburn spoke of the need to improve outcome 
measurement. Exactly right. Toward that end, the AQA, this 
coalition, has endorsed a set of clinical physician-level 
performance measures that are already being incorporated in 
provider contracts.
    Over the next few months, the AQA is working toward 
identifying a set of efficiency measures. We are also receiving 
report from CMS, as well as the Agency for Healthcare Research 
and Quality, and we are carrying out pilot programs in six 
areas of the country.
    Secretary of Health and Human Services Michael Leavitt has 
applauded our efforts on these pilots and he has expressed 
interest in creating more throughout the country. The results 
of this pilot program are going to lead to a national framework 
for measurement and reporting of physician performance.
    Finally, I want to note that health insurance plans are 
designing products to carry out one of the key recommendations 
of the FTC/DOJ health care report, and that is to promote 
incentives for providers to deliver high-quality and efficient 
care.
    We are working with stakeholders across the health care 
community, particularly health care professionals who work on 
the front lines, to develop and improve incentive programs, as 
well as an overall strategy with accountability for the quality 
of care delivered to providers.
    Thank you so much for this opportunity to testify.
    [The prepared statement of Ms. Kanwit appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Ms. Kanwit.
    Our final witness is Professor David Hyman. He is a 
professor at the University of Illinois College of Law, School 
of Medicine. He previously served as Special Counsel at the 
FTC. Before teaching at Illinois, he was a professor at the 
University of Maryland Law School. He has a medical degree and 
law degree from the University of Chicago.
    We appreciate your being here, Professor Hyman, and we look 
forward to your testimony.

  STATEMENT OF DAVID A. HYMAN, PROFESSOR OF LAW AND MEDICINE, 
 GALOWICH-HUIZENGA FACULTY SCHOLAR, COLLEGE OF LAW, UNIVERSITY 
      OF ILLINOIS AT URBANA-CHAMPAIGN CHAMPAIGN, ILLINOIS

    Mr. Hyman. Thank you, Mr. Chairman. Thank you for 
appearing, Ranking Member Durbin, from my home State of 
Illinois.
    Let me start just by echoing Senator Coburn's remarks at 
the outset about the importance of relying on markets and 
health care, and strengthening and improving them. Let me just 
flag a volume that has been mentioned several times over the 
course of this morning, the joint report of the Federal Trade 
Commission and Department of Justice, Improving Health Care: A 
Dose of Competition, issued in 2004, which comprehensively 
surveys the performance, both good and bad, of the financing 
and delivery sides of the health care market, and offers a 
series of recommendations for ways of strengthening and 
improving the performance of the market.
    My academic interests focus on the financing and regulation 
of health care, and I have written a number of articles on that 
subject, including one on the specific issue that we are going 
to be talking about this morning, monopsony power in health 
care financing markets. There is a 2004 Health Affairs article 
on that subject that I would be happy to provide.
    Now, obviously the backdrop for this hearing is the 
complaints of health care providers about disparities in 
bargaining power in dealing with insurance companies. The fact 
that the complaints come from health care providers should give 
us pause for two distinct reasons.
    First, disparities in bargaining power are simply not the 
same thing as monopsony, or buyer side monopoly. Indeed, equal 
bargaining power is very much the exception in most markets. 
But as long as those markets are reasonably competitive, you do 
not need equal bargaining power to get efficient outcomes.
    I can give plenty of examples, including car rental and 
purchase, retail consumer goods and air travel, where there are 
huge disparities in bargaining power, but reasonably efficient 
outcomes.
    Second, is the context of this is that the sellers of a 
service, any service or good, have a natural tendency to 
conflate what is good with them with what is good for society. 
But the interests of consumers and patients do not map 
perfectly onto the interests of health care providers, so we 
should generally discount complaints from providers of 
services.
    We should pay close attention to complaints from consumers 
of services, but discount complaints from providers of 
services, consistent with the maxim that the purpose of 
antitrust is to protect competition, not competitors.
    Now, we have heard a certain amount this morning about the 
emergency of national insurers and the significance of high 
Herfindahl-Hirschman indices in individual States and 
metropolitan areas.
    On the emergence of national insurers, this actually marks 
a de-concentration, not an increased concentration, in the 
markets in many States as we have gotten new entrants from 
national insurers.
    Second, the raw numbers of people covered by national 
insurers is not really important. What is important, is their 
percentage in any given market.
    Now, when you analyze market power, if you do not have 
direct evidence of anti-competitive effects, you usually start 
by trying to identify a relevant product and geographic market 
and calculate the shares of market participants and 
concentration ratios.
    So, let us talk about the HHI in the minute and 43 seconds 
that I have remaining. HHI is a mechanical calculation which 
you do after you have determined the relevant product and 
geographic market.
    HHIs determined in the absence of a sensible market are 
essentially meaningless. I closed my written statement with the 
example that I am the only person at the University of Illinois 
College of Law that does empirical research on medical 
malpractice.
    That means the HHI for researchers in medical malpractice 
there is 10,000, a completely monopolized market, but I can 
assure you, I do not have any monopoly power whatsoever in 
dealing with my dean on any subject. So, you basically have to 
get the market right in order to come up with a sensible HHI. 
That is part one.
    Part two is, even if you have defined the market properly, 
an HHI is simply a screening tool which creates both false 
positives and false negatives for the kinds of things we are 
interested in.
    So all it does, in the context of merger analysis which is 
where it was developed, is mark areas where our index of 
suspicion should be higher or lower for whether there are 
monopoly or monopsony problems.
    It does not define them, it does not identify them. All it 
does is say you should not worry about these sorts of 
transactions, and these other transactions you might want to 
look further in order to determine whether there are monopoly, 
monopsony, and market power problems.
    The final point that I want to make, is the importance of 
factoring in false positives and false negatives in an analysis 
of monopoly and monopsony power. It is not a trivial 
proposition to determine when there is, and the more 
aggressively we look for it, the fewer false negatives we end 
up with. But the more false positives we have, the cost of 
false positives are borne by consumers quite directly.
    Thank you very much.
    [The prepared statement of Mr. Hyman appears as a 
submission for the record.]
    Chairman Specter. Thank you, Professor Hyman.
    Senator Durbin, would you care to make an opening 
statement?

 STATEMENT OF HON. RICHARD J. DURBIN, A U.S. SENATOR FROM THE 
                       STATE OF ILLINOIS

    Senator Durbin. Thanks, Mr. Chairman. I will make it very 
brief. I thank this panel for gathering today, and I thank you 
for calling this hearing.
    I listened to the testimony that was given, and as I was 
listening to it I was thinking about how lucky we are on this 
side of your microphones, because we are Federal employees. We 
have a Federal Employees Health Benefit Program and we have an 
agency that sits down with these insurers and bargains with 
them before they can have a chance to sell to 8 million Federal 
employees and their businesses. It turns out that they are 
pretty good negotiators.
    In 2005, the Federal Employees Health Benefit Program 
offered 249 plans. In 2006, it was up to 278 plans, exactly the 
opposite of the experience you are describing; where many of 
your health care providers are finding fewer and fewer 
insurers, we are finding more and more who want to do business 
with us.
    The Office of Personnel Management has the responsibility 
to negotiate with hundreds of insurance companies on our 
behalf. Tom Bernatavitz, vice president of Aetna Insurance, 
recently said pretty tough negotiators are at OPM.
    He said that OPM experts were ``much tougher'' in 
negotiations with insurance companies, which has more than 
250,000 Federal enrollees. Bernatavitz says, ``In general, we 
wanted some more benefit enhancements at some additional 
premium costs that they really wouldn't allow....There was 
definitely a lot of rigor about keeping our premiums down.''
    So, it turns out that we have a pretty good model here, and 
some of us believe that it is a model that ought to be 
expanded. It ought to be expanded so that small businesses all 
across America can have the same basic common market of private 
insurance companies. There are four or five States in this 
country where there is one dominant health insurance company 
that sells to over 70 percent of the market.
    I do not want to dwell on this, Mr. Chairman, other than to 
suggest to Dr. Coburn and my colleague, Senator Specter, that 
if you take a look at what we are doing effectively here to 
represent Federal employees and their families, we do not have 
the problems that they are just describing in the open market 
outside. I hope that you all will take a look at Senator 
Lincoln's bill that I am co-sponsoring.
    Thank you.
    Chairman Specter. Thank you, Senator Durbin.
    We now will turn to the panelists for a five-minute round 
of questioning.
    Ms. Kanwit, I was disappointed that we asked five health 
insurers to testify today and none would agree to do so: 
United, Aetna, Independence Blue Cross, Highmark, and 
Wellpoint.
    So let me ask you, what is wrong with an antitrust 
exemption for doctors to be able to negotiate with these 
companies which have had such an enormous number of mergers, 
some 400 in the last 12 years?
    Ms. Kanwit. Well, a couple of points, Senator Specter. The 
idea of physician collective bargaining has been condemned by 
the Federal Trade Commission and the Department of Justice over 
the course of the last 10 or 15 years for a very good reason, 
the reason being that allowing physician collective bargaining 
or an exemption from the antitrust law allowing them as 
horizontal competitors to bargain collectively with health 
plans, without clinical or financial integration, will 
inevitably raise prices while doing absolutely nothing to 
increase the quality of health care that consumers enjoy.
    Congress, in the last 10 years, has looked at numerous 
bills on collective bargaining and rejected every one of them, 
as, by the way, have many, many States. There are just a 
handful of States that allow physicians, under very strict 
rules, to collectively bargain. That is because it is a bad 
idea.
    Chairman Specter. Let me turn to Mr. McDonald. We only have 
a few minutes, so we are going to have to be brief on the 
responses.
    Only two challenges over 400 mergers in the past 12 years. 
Is there not some suggestion of not quite enough scrutiny, Mr. 
McDonald?
    Mr. McDonald. Mr. Chairman, antitrust analysis is very 
fact-specific. We have investigated a large number of mergers 
and found reason to challenge the ones that you have mentioned.
    Chairman Specter. You have investigated all 400?
    Mr. McDonald. Likely not, Mr. Chairman. But we have 
investigated all those that had any significant possibility of 
presenting an anticompetitive problem.
    Chairman Specter. Dr. Piasio, the Daily and Sunday Review 
from Towanda, Pennsylvania has noted the Pennsylvania Medical 
Society recently cautioned against the impending merger, as 
they put it, of two of Pennsylvania's largest health insurers, 
Independence Blue Cross and Highmark, two companies who have an 
enormous share of the Pennsylvania market. Would you be 
apprehensive or opposed to such a merger?
    Dr. Piasio. Well, certainly we have not seen any 
information yet as to what efficiencies that merger is going to 
bring. Contrary to some of the things you have heard earlier 
though, there may be markets in the country that are working 
competitively. Pennsylvania certainly is not. We enjoy the 
highest premiums, the lowest reimbursement, and the highest 
profit margins and reserves of most insurers in the country.
    I think if you look at the contract provisions under the 
Rule of Reason, we are meeting those requirements of at least 
questionable behavior on the part of our large players.
    But what we would much prefer to see in Pennsylvania are 
the four Blues competing in each other's market as opposed to 
having one Blue now. We do not have national players in 
Pennsylvania. Aetna and United represent extremely minor 
players in our entire State, and even less so.
    So from our perspective, until we see some evidence that a 
merger of that nature is going to bring some level of consumer 
benefit as well as provider and quality benefits, we are 
looking at it extremely cautiously. But as they are operating 
now, we do not particularly see where there is going to be any 
efficiency that the market is going to enjoy.
    Chairman Specter. Professor Hyman, do you not think that 
Dr. Piasio has a point, that all of these mergers have to have 
an impact of lessening competition?
    Mr. Hyman. The question is, who is merging, and are they 
combining market shares in the same market or are they, as the 
rise of national firms would suggest, buying shares in 
different markets? You have to look at them individually. I do 
not know enough about the Pennsylvania market to have an 
informed opinion on that subject.
    Chairman Specter. Mr. Wales, in your written testimony you 
said that ``the antitrust laws allow physicians to act jointly, 
including agreeing on fees, so long as their efforts produce 
significant efficiencies and price agreement is reasonably 
necessary to achieve those efficiencies.''
    Absent that standard, physicians cannot act jointly on 
agreeing on fees. Is that not an extraordinarily difficult 
standard for physicians to try to achieve, putting themselves 
at risk of violating the antitrust laws?
    Mr. Wales. Mr. Chairman, what we have found is that when 
you do not have collective bargaining that is associated with 
pro-competitive benefits and integration, that you do find 
clear consumer harm, whether it be increased prices for health 
care, higher out of pocket expenses for consumers, reduced 
benefits and choices. So I guess we do find that, without that 
integration, that there are clear harms in place.
    What we have tried to do is be very clear with doctors as 
to what types of integrative efficiencies we think would be 
permissible, and have done that through not only guidance with 
our colleagues at Department of Justice in statements, but also 
in advisory opinions and other fora, including our web site and 
enforcement actions, where we try to explain where that line is 
that we do not think doctors should cross.
    Chairman Specter. Well, thank you, Mr. Wales. The red light 
was on during your testimony and I will conclude, and yield to 
the Democratic side, as our alternation provides.
    Senator Durbin?
    Senator Durbin. Thank you, Mr. Chairman.
    So Ms. Kanwit, let me make sure I understand here. By your 
answer to Senator Spector's question about collective 
bargaining as an antitrust exemption for doctors, I take it 
that you are opposed to exemptions for the antitrust law.
    Ms. Kanwit. We are, Senator.
    Senator Durbin. How about the McCarran-Ferguson Act which 
applies to your industry which gives you an exemption so that 
you can share pricing information which some say may lead to 
higher prices and collusion by your own industry? That has been 
on the books a long time.
    Ms. Kanwit. It has.
    Senator Durbin. Do you support that exemption?
    Ms. Kanwit. Senator, the McCarran-Ferguson Act has been on 
the books for about 60 years and it has worked very well. But 
it is not an antitrust exemption. It does allow insurers to 
gather, collectively, actuarial information in the interest of 
consumers. But it specifically does not allow boycotts or 
collusive pricing, so it is not exactly an analogy to physician 
collective bargaining.
    Senator Durbin. But it clearly is an exemption for your 
industry that most businesses do not enjoy. If all of the 
automobile manufacturers had the ability to do what the 
insurance industry has under McCarran-Ferguson, some would 
suggest that it would not be in the best interest of consumers. 
Do you understand that?
    Ms. Kanwit. It is, but it is a very, very narrow exemption 
for rate setting, actuarial rate setting. But the real purpose 
of McCarran-Ferguson, as everyone knows, was to give the States 
authority over the business of insurance, an issue that has 
been litigated over and over for 60 years. This was a minor 
point on it, but it is an extraordinarily narrow exemption.
    Senator Durbin. But it is an exemption.
    Ms. Kanwit. It is.
    Senator Durbin. Thank you.
    Dr. Piasio, so if you were allowed to collectively bargain, 
which many doctors have been seeking for a long time so they 
have some power to bargain as the Federal Government does for 8 
million employees, what is the protection for consumers, I 
mean, in terms of whether or not individual doctors and 
practitioners are going to charge reasonable rates for their 
services?
    Dr. Piasio. I think, first and foremost, we need to 
distinguish, in terms of collective bargaining, it is allowed 
if you are going to be at risk, such as taking risk as an 
insurer, but not in a fee-for-service system.
    I am not sure there are good studies out there that show it 
does not work. I think when you look at what that does, it kind 
of goes into that countervailing power theory of how to balance 
a market competitively that cannot be done economically or 
through political processes.
    At least that seems to work in other markets. If you look 
at the western part of Pennsylvania where there are some 
competitive insurers, we enjoy slightly lower premiums and 
slightly higher reimbursement. At this point, I am not here to 
say that collective bargaining is the solution. It is just one 
of the potential solutions in trying to bring back competition 
to a market that does not seem to exist, at least in my State.
    Whether it will work or not, I leave it up to the gentleman 
to the right to study and get back to us as to whether they can 
make it work. Certainly when you are looking at trying to put 
in efficiencies such as electronic records and quality and 
value metrics, which we have not even started discussing yet as 
to how you can do that, it is difficult to integrate, but you 
can do it unless you are at risk. That is just something that 
we are not experienced enough to do.
    Senator Durbin. Professor Hyman, thank you from being here 
from Illinois. But let me ask you this question. You seem to be 
skeptical about whether or not there is a concentration of 
power here to the disadvantage of these providers and 
consumers.
    But most people you speak to would agree with the following 
statement: ``It seems like every year the premium costs for 
health insurance goes up and the coverage goes down. I have to 
pay more out of pocket for less coverage each year.'' So, this 
is a consumer's point of view in this picture.
    Then when you step back and you look at it in a global 
context, you say the end result here, the health care result 
that comes out of this, is not as good as we might expect. 
There are countries that spend a lot less per capita on health 
care and get a lot better results, in terms of life expectancy, 
for example.
    Do you quarrel with those conclusions?
    Mr. Hyman. Well, I certainly would quarrel with drawing a 
causative line from one to the other. I think the quality 
issue, which I touch on very briefly at the end of my written 
statement, is a very important issue.
    I do not see, even if we by fiat de-concentrated the 
insurance market, we would see the kinds of quality 
improvements that we would want to buy and that we, in fact, 
are already paying for. I think that is something we need to go 
after directly.
    It is certainly clear that the costs of health care have 
gone up, and go up every year. But drawing a causative line 
between that market concentration, actually, there are a bunch 
of other things going on. There is an increase in the number of 
elderly people receiving care. They have higher intensity of 
services.
    We can do more things for more people that cost more. The 
retail prices of some things have gone up. You have seen 
consolidation on the provider side as well, something we have 
not mentioned so far, and then you can get the sort of 
bilateral monopoly problems. There are a lot of things going 
on, would be my short answer.
    Senator Durbin. Thank you.
    Thanks, Mr. Chairman.
    Chairman Specter. Thank you, Senator Durbin.
    They have started the vote, but we are going to complete 
the round of questioning with Senator Coburn.
    Senator Coburn. Thank you, Mr. Chairman.
    I just would wonder, how many of you all really think there 
is insurance out there versus pre-paid expense that is paid for 
by an agent? How many really believe there is an insurance 
market in this country? I am talking, risk spreading market 
versus pre-paid health care expense. Does anybody want to 
answer that?
    Mr. Hyman. I guess my short answer is, there is a huge 
amount of pre-payment, but there is some risk pooling for 
catastrophic expenditures.
    Senator Coburn. But the vast majority is pre-paid medical 
expense.
    Mr. Hyman. I would probably say a majority. I am not sure 
``vast''.
    Senator Coburn. The point is, we are paying a very 
expensive fee to have pre-paid health care expense. The other 
question that I had, for anybody that wants to answer it, who 
is the consumer? I have heard the word wielded about a bunch. 
The consumer I see is not my patients or the individual. The 
consumer is whoever has the power.
    Senator Durbin talked about the FEHBP that went up 6.7 
percent this year, versus 8 percent last year. That is the 
largest purchaser in the country, 8 million people, and it 
still went up that much. Yet, the costs to the providers, the 
reimbursement to the providers who are caring for the people, 
is not rising at all in terms of numbers.
    So the question goes back to the 16.2 percent of our GDP. 
What are we getting for it? Doctor?
    Dr. Langston. Yes, Dr. Coburn. It is not necessarily a free 
market because there are middlemen involved. Our concern is 
that we are raising the red flags on some of these issues 
because we are seeing the change in the number of coverage and 
the increase of 6.8 to 8.6, yet premiums are rising in the 
double-digit areas.
    All we know is, in 2004 and 2005, the insurance industry 
spent nearly $55 billion in consolidating and in acquisition, 
so there is something going on. We know the profits are higher. 
As a physician, our reimbursement is not changing.
    I think we are unjustly accused of being the driver, which 
indirectly says we are getting more payment for what we are 
providing, where in fact what we are doing is providing, I 
believe, increased quality of care because of technology, drug 
expenses, and other institutional and system expenses.
    So we are raising the red flags and we really appreciate 
the opportunity to talk about that because we think it needs to 
be explored. We, too, call for transparency. That is why we 
said we need the data, just as you do, to make public policy 
decisions on what are the real costs within that industry, and 
is there really any risk there. We certainly advocate the 
quality measures because that is ingrained in us as 
professionals, and we support that, quite frankly.
    Senator Coburn. Let me go to one other point. We have 
almost 47 percent of our health care paid for by the 
government.
    Dr. Langston. Right.
    Senator Coburn. That is off the table. So that leaves 52 
percent, of which about 12 percent is not covered through some 
type of insurance program. What do we get for the one in four 
dollars of that? That is $1.9 to $2.3 trillion, somewhere 
between that. There is 45 percent of that, so you have got $1 
trillion.
    For the $250 billion that does not ever get into health 
care at a minimum, what are we getting for that in terms of 
quality? And the reason I raise that question, is Mr. 
McDonald's statement said that doctors can increase the 
patients that they serve. Well, they cannot. They are maxxed 
out.
    What is happening, is the arc of medicine is declining and 
the quality of medicine--the first thing you are taught in 
medical school is to listen to your patient.
    That is not happening any more because doctors cannot 
afford to pay for the receptionist, the insurance filing 
clerks, and their malpractice, and at the same time see the 
same number of patients.
    So what is happening, one of the reasons we are with the 
16.2 percent, we are not seeing this markedly increasing 
quality that we should be because we are spending 50 percent 
more than anybody else in the world, is because we are jamming 
the very people.
    So what is the response? The response is, well, I will 
order a test rather than listen to the patient. What we do 
know, is about a quarter of a trillion dollars of tests are 
ordered every year that are not necessary. That is one of AMA's 
own studies. They are not necessary because they do not have 
the time to listen to the patient.
    So I want to go back to my opening statement and just let 
people comment. Why do we not take and let consumers, the real 
consumer, be the decider of value about their health care, and 
why do we not let everybody own their own health insurance 
rather than their employer own it? Why do we not give the tax 
benefit to the individual rather than to the employer? Any 
comments on that?
    Ms. Kanwit. Senator, I would like to comment on that. We 
are working hard, as I mentioned in my comments here, to make 
value-based information available to consumers so that they can 
make choices. You raise an excellent point. The Federal Trade 
Commission and Department of Justice, in their recent study, 
said exactly the same thing.
    Senator Coburn. Well, the problem with that is, most people 
who come under one of your insurance companies do not have that 
choice because their employer made that choice for them. They 
do not get to make that choice, so they have a proxy making 
that choice.
    What I am saying is, why would we not want individuals to 
make that value judgment rather than their employer, and let 
individuals decide what is in their best interests in terms of 
their care rather than some proxy for them? Let them squeeze 
out this one in three dollars out of the health care system to 
either increase quality and lower premiums.
    Somebody else? Yes, sir. Doctor?
    Dr. Piasio. Yes. I would also just like to comment. At 
least in Pennsylvania, when you are looking at trying to get 
the transparency with respect to the quality, and now the new 
value metric, those are going to be determined by the sole 
insurer.
    We do not have the bargaining power to even participate in 
those discussions as to even determine what those metrics may 
be. So in the transparency issue of what is quality and what is 
value, we have very little input on exactly how we are even 
going to measure what we are doing.
    Senator Coburn. All right. Thank you.
    Chairman Specter. We have only nine minutes left on the 
vote.
    Well, thank you all very much for coming in. This is a 
panel to be continued.
    In concluding the hearing, let me call to the attention of 
the regulators, Mr. McDonald and Mr. Wales, the impending 
merger of the two big companies in Pennsylvania. Independence 
Blue Cross collected 28 percent of the $28 billion spent on 
health insurance premiums; Highmark collected 27 percent of the 
$28 billion.
    I would join Dr. Piasio and Dr. Langston--even an Indiana 
AMA guy speaks for Pennsylvania, in part--in taking a very 
close look at that situation. When they talk about 
efficiencies, one last question. I would like you to provide it 
in writing for me.
    They talk about efficiencies. Why not hold them to a 
specific determination of what those efficiencies are, pulling 
down cost and the commitment that they are going to reduce 
premiums by that amount? Let me address that to the regulators, 
the Department of Justice and the FTC.
    But let me ask that of you, too, Ms. Kanwit, since you are 
here representing all of these companies. We only surveyed five 
of them, who would not come in. That is not a very good sign if 
the Senate Judiciary Committee wants to have an antitrust 
hearing on this issue not to have companies be willing to come 
in and respond to some questions.
    Chairman Specter. But this is a big, big issue. We all know 
the costs of health care. Everywhere I go, it is a question. I 
spent last week traveling in Pennsylvania, and everywhere I 
went the question comes up repeatedly, especially among small 
business men and women, what are we going to do?
    Thank you all very much. Sorry the vote intervenes, but I 
think we pretty much covered the ground.
    That concludes our hearing.
    [Whereupon, at 12:11 p.m. the hearing was concluded.]
    [Questions and answers and submissions for the record 
follow.]

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