[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                ANTITRUST LAWS AND THEIR EFFECTS ON 
                 HEALTHCARE PROVIDERS, INSURERS AND PATIENTS
=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 1, 2010

                               __________

                           Serial No. 111-157

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee               STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
  Georgia                            LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               TED POE, Texas
JUDY CHU, California                 JASON CHAFFETZ, Utah
TED DEUTCH, Florida                  TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       BOB GOODLATTE, Virginia
MIKE QUIGLEY, Illinois               DARRELL ISSA, California
DANIEL MAFFEI, New York              GREGG HARPER, Mississippi
JARED POLIS, Colorado

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel
                            C O N T E N T S

                              ----------                              

                            DECEMBER 1, 2010

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Courts and Competition 
  Policy.........................................................    24

                               WITNESSES

Mr. Richard Feinstein, Director, Bureau of Competition, Federal 
  Trade Commission, Washington, DC
  Oral Testimony.................................................    25
  Prepared Statement.............................................    28
Ms. Sharis A. Pozen, Chief of Staff and Counsel to the Assistant 
  Attorney General, Antitrust Division, U.S. Department of 
  Justice, Washington, DC
  Oral Testimony.................................................    41
  Prepared Statement.............................................    43
Ms. Melinda Hatton, Senior Vice President and General Counsel, 
  American Hospital Association
  Oral Testimony.................................................    72
  Prepared Statement.............................................    74
Mr. Arthur Lerner, Partner, Crowell & Moring LLP, on behalf of 
  America's Health Insurance Plans
  Oral Testimony.................................................    84
  Prepared Statement.............................................    87
Dr. Peter J. Mandell, M.D., Chair of the Council on Advocacy, 
  American Academy of Orthopaedic Surgeons
  Oral Testimony.................................................    98
  Prepared Statement.............................................   100
Dr. Michael P. Connair, M.D., American Federation of State, 
  County, and Municipal Employees, AFL-CIO
  Oral Testimony.................................................   106
  Prepared Statement.............................................   108
Mr. David Balto, Senior Fellow, Center for American Progress
  Oral Testimony.................................................   114
  Prepared Statement.............................................   116

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Howard Coble, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Courts and Competition 
  Policy:
    Prepared Statement of the Honorable Lamar Smith, a 
      Representative in Congress from the State of Texas, and 
      Ranking Member, Committee on the Judiciary.................     4
    Prepared Statement of the National Community Pharmacists 
      Association................................................     7
    Prepared Statement of the American Medical Association (AMA).     9

                                APPENDIX
               Material Submitted for the Hearing Record

Responses to questions posed during the hearing to Sharis A. 
  Pozen, Chief of Staff and Counsel to the Assistant Attorney 
  General, Antitrust Division, U.S. Department of Justice, 
  Washington, DC.................................................   134
Responses to Post-Hearing Questions from Richard Feinstein, 
  Director, Bureau of Competition, Federal Trade Commission, 
  Washington, DC.................................................   136

 
ANTITRUST LAWS AND THEIR EFFECTS ON HEALTHCARE PROVIDERS, INSURERS AND 
                                PATIENTS

                              ----------                              


                      WEDNESDAY, DECEMBER 1, 2010

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:30 a.m., in 
room 2141, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Johnson, Conyers, Gonzalez, Polis, 
Coble, and Goodlatte.
    Staff Present: (Majority) Christal Sheppard, Subcommittee 
Chief Counsel; Anant Raut, Counsel; and E. Stewart Jeffries, 
Minority Counsel.
    Mr. Johnson. This hearing of the Committee on the 
Judiciary, Subcommittee on Courts and Competition Policy will 
now come to order. Without objection, the Chair is authorized 
to declare a recess.
    Welcome to the final hearing of the Subcommittee on Courts 
and Competition Policy in the 111th Congress. I want to start 
by saying how much I have enjoyed working with my colleagues on 
both sides of the aisle these past 2 years. We have had our 
share of healthy differences, but we have also passed a number 
of important pieces of legislation on a bipartisan basis.
    In particular, I can't say enough about the Ranking Member 
of the Subcommittee, the Honorable Howard Coble, and how 
integral his presence and friendship has been to the success 
that we have enjoyed together. Thank you, Howard.
    Now, on today's hearing, doctors are under pressure from 
all sides to find ways to coordinate patient care. Coordinated 
care can help patients by reducing costs and improving 
outcomes. It may involve sharing patient medical data, tracking 
outcomes across a population, or jointly contracting to provide 
a seamless continuum of care. But the question for many doctors 
is: How do you coordinate patient care without violating the 
antitrust laws?
    One of my first acts as Subcommittee Chairman was to write 
a letter to Chairman Leibowitz of the Federal Trade Commission 
regarding the $19 billion in incentives for health industry--
excuse me, health information technology investments under the 
American Recovery and Reinvestment Act of 2009. I asked him to 
provide physicians with clear guidance on how to take advantage 
of these incentives and integrate their practices in a way that 
did not violate the antitrust laws.
    In addition, I asked whether the FTC's enforcement 
practices against physician collective negotiation have 
resulted in any appreciable decrease in patient premiums or 
increase in competition. I was gratified by Chairman 
Leibowitz's prompt response assuring me that the FTC only 
initiates actions against collective negotiations in situations 
where there has been demonstrable harm to consumers in the form 
of reduced competition and higher prices. But I am concerned 
that the FTC and DOJ may be spending their resources going 
after the small, easy cases instead of tackling the larger 
systemic issues which actually result in greater societal harm.
    According to an American Medical Association study, 96 
percent of major metropolitan cities have a concentrated health 
insurance market. While concentration can lead to efficiencies, 
it can also create distortions in the market, resulting in 
fewer choices and higher premiums. I am happy to see that the 
DOJ recently announced an investigation into Blue Cross Blue 
Shield of Michigan's alleged anticompetitive practices. While I 
applaud the DOJ's efforts, I remain concerned about the many 
other areas in this country where a single dominant health 
insurer wields absolute power.
    My goal in many areas as a legislator is to strike a 
balance. I believe that that is the heart of competition 
policy, and should be here as well. I am not blind to the 
concern that providing physicians and hospitals with more 
bargaining power can lead to higher healthcare costs. At the 
same time, if we allow the status quo to continue, we risk 
creating a long-term doctor shortage as physicians are driven 
out of their specialties by the imbalance in bargaining power 
and new doctors are discouraged from entering.
    It is fine and good to say that we should respect the free 
market, but the free market only works if the antitrust laws 
are enforced evenly against both sides. In this past week 
alone, articles in the Wall Street Journal, New York Times, and 
the Washington Post highlighted the challenges and 
opportunities that hospitals and healthcare providers will face 
under the new healthcare laws. How the antitrust laws are 
enforced against all parties involved will, in part, determine 
how successful these initiatives turn out to be.
    I now recognize my colleague Howard Coble, the 
distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Before I close, I must give kudos to my staff, who have 
made me look taller in this Chair than I actually am. I want to 
thank them publicly for their great work.
    Now, Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman. We are all obliged to 
our staff, Mr. Chairman, so I share that.
    I thank you, Mr. Chairman, for your generous words earlier. 
I, too, have very much enjoyed serving as the Ranking Member of 
this Subcommittee and commend you for having been a very good 
Chairman with whom to work for the past 2 years. I thank you 
for that. Thank you as well for calling this important and 
timely hearing.
    Physicians have long been concerned with what they view as 
increasing concentration among health insurers. This 
concentration has led to lower reimbursement rates for 
physicians. That, coupled with the high and continuing rising 
cost of malpractice insurance, has caused many physicians not 
only in my district but I think nationally to consider 
abandoning the practice of medicine.
    To combat these forces, many physicians and hospitals have 
tried various forms of clinical integration to try and help 
contain costs and negotiate better reimbursement rates from 
insurers. Unfortunately, many of these clinical integration 
schemes have come under antitrust scrutiny by the FTC and DOJ 
as potential price-fixing arrangements.
    The FTC and DOJ have provided some guidance on what types 
of arrangements physicians can lawfully employ. However, these 
healthcare guidelines were released in August 1996, and that 
was almost a decade and a half ago. I know that there have been 
a host of changes in medical malpractice since that time. I 
have heard complaints from medical professionals that these 
guidelines no longer reflect market realities. I would like to 
ask Mr. Feinstein and Mrs. Pozen why these guidelines have not 
been revised, and are there plans to do so?
    In addition, it is my understanding that physicians can try 
to obtain a business review letter from the agencies; however, 
it is also my understanding that these letters can take a very 
long, extended time to come to fruition and can cost thousands, 
I am told, in legal fees. And this is not necessarily practical 
for many physicians.
    The discussion is particularly relevant, Mr. Chairman, it 
seems to me, given the Department of Health and Human Services 
is currently devising rules regarding accountable care 
organizations, or ACOs. These ACOs have the potential to reduce 
costs for consumers and to be beneficial for physicians as 
well. However, some have raised concern that the ACOs could 
also be used to facilitate price fixing. Physicians clearly 
want and need clear guidance in this arena, and I am hoping 
that HHS, along with DOJ and FTC, will be able to provide that 
to them.
    Physicians are not the only parties at issue here. The 
guiding principle of antitrust law is that it is supposed to 
promote consumer welfare through competition. This, of course, 
means generally lower prices, better services, and greater 
innovation in products and services. However, I feel that 
patients often get lost in these discussions about healthcare.
    What I would most like to hear from our witnesses, Mr. 
Chairman, is whether they feel that current antitrust 
enforcement truly serves the needs of patients, and, if it does 
not, what can be done to improve that. I look forward to 
hearing the answers to these and other questions, and yield 
back the balance of my time, Mr. Chairman. But before doing so, 
if I may, I would like unanimous consent to have introduced 
into the record statements from the Ranking Member of the full 
Committee Lamar Smith, the statement from the National 
Community Pharmacists Association, and the American Medical 
Association.
    Mr. Johnson. Without objection.
    [The prepared statement of Mr. Smith follows:]
 Prepared Statement of the Honorable Lamar Smith, a Representative in 
Congress from the State of Texas, and Ranking Member, Committee on the 
                               Judiciary








                               __________
    [The prepared statement of the National Community 
Pharmacists Association follows:]
  Prepared Statement of the National Community Pharmacists Association






                               __________
    [The prepared statement of the American Medical Association 
follows:]
      Prepared Statement of the American Medical Association (AMA)


                               __________

    Mr. Coble. I thank the Chairman.
    Mr. Johnson. I thank the gentleman for his statement.
    I now recognize John Conyers, a distinguished Member of 
this Subcommittee and also the distinguished Chairman of the 
Committee on the Judiciary.
    Mr. Chairman.
    Mr. Conyers. Thank you, Chairman Johnson, and Members of 
the Committee.
    I can't tell you how important this hearing is not to just 
the Committee, but to the whole question of healthcare in terms 
of the Health Care Reform Act just signed into law and the 
struggle in America to insure some 50 million people that don't 
have a dime's worth of insurance, and all that figures into the 
rising costs of providing healthcare for all Americans.
    Bringing in the Department of Justice and the Federal Trade 
Commission is extremely important because we are in the process 
of understanding just why there is a disparity between the way 
doctors are threatened, or hassled, or prosecuted or threatened 
to be prosecuted and the way, as Mr. Coble said, the health 
insurance--this is the most powerful group of private 
corporations in the country, and they don't have any problem 
coming together to plan for what the rates will be and what the 
rules will be. Nobody says much about that, to my knowledge. So 
what this Committee is going to be doing even into the next 
Congress is getting to understand how come this is so and what 
can be done to make it come out differently.
    Now, maybe somewhere during this hearing today somebody 
will take issue with my saying that there is a disparity in 
prosecutorial treatment, and I hope somebody can prove me 
wrong. But it is pretty obvious doctors, every time they get 
together, they are always worried about the laws, and what can 
happen to them, and have they crossed the line or not.
    But the insurance companies, how do they operate in real 
time? Well, not that anybody here doesn't know, but when they 
set the rates in a region, that is it. You are either in, or 
you are out. And everybody knows it, especially the doctors and 
the hospitals. So why didn't they violate antitrust? Well, 
Chairman, that is just the way it goes. I mean, that is the way 
it has always been.
    As Chairman Johnson has pointed out, these laws, when this 
first started 30 or 40 years ago, the healthcare insurers were 
not as large, powerful, or numerous as they are now. We are 
tracking down some of the merger activities, I think it was in 
Arizona, where they have exceeding control over the way 
medicine and healthcare delivery is practiced, and it is that 
way almost everywhere else.
    So we appreciate your witnesses here. I think we have got a 
great set of panels. And I appreciate what everybody has done.
    And since everybody is saying goodbyes and giving out 
kudos, we are not going out of business, gang. We are just 
going into a new session, and there is new leadership. I would 
like to remind my colleague this has happened before and will 
no doubt happen again.
    Thank you, Mr. Chairman.
    Mr. Johnson. Thank you, Mr. Chairman.
    I can only hope that I can be around for as many years as 
the Chairman so that I can experience the ebb and flow and ebb 
again. Thank you. And I am not sad either. I am just 
reminiscing. Sentimentalism, I guess, is eking out. But I am 
happy for my colleagues on the other side of the aisle.
    And I would ask, are there any other Members who wish to 
make opening statements?
    That being the case, other Members' opening statements will 
be included in the record.
    I am now pleased to introduce the witnesses for today's 
hearing. Today's hearing will feature two panels. On our first 
panel we have Richard Feinstein, Director of the Bureau of 
Competition for the Federal Trade Commission.
    Welcome back, Mr. Feinstein.
    Mr. Feinstein. Thank you, Mr. Chairman.
    Mr. Johnson. Our second witness is Sharis Pozen. She is 
Chief of Staff for the Antitrust Division of the Justice 
Department.
    Welcome, Ms. Pozen.
    Ms. Pozen. Thank you, Mr. Chairman.
    Mr. Johnson. Thank you both for your willingness to 
participate in today's hearing. Without objection, your written 
statement will be placed into the record, and we ask that you 
limit your oral remarks to 5 minutes. You will note that we 
have a lighting system that starts with a green light. At 4 
minutes, it turns yellow, then red at 5 minutes. After each 
witness has presented his or her testimony, Subcommittee 
Members will be permitted to ask questions subject to the 5-
minute rule.
    Mr. Feinstein, would you begin, please?

      TESTIMONY OF RICHARD FEINSTEIN, DIRECTOR, BUREAU OF 
     COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC

    Mr. Feinstein. Thank you very much, Mr. Chairman and 
Ranking Member Coble, Members of the Subcommittee. I am Richard 
Feinstein, Director of the Bureau of Competition at the FTC. I 
very much appreciate the opportunity to testify today on behalf 
of the FTC about the relationship between competition and 
antitrust enforcement on the one hand and lower healthcare 
costs and higher healthcare quality on the other hand.
    I should note for the record that the prepared written 
statement submitted for this hearing represents the view of the 
FTC. My oral statement and answers to any questions today 
represent my own views and not necessarily those of the 
Commission or any individual Commissioner.
    We are at an important point in the history of providing 
healthcare in this country.
    Mr. Johnson. Mr. Feinstein, if I might ask you to pull that 
microphone a little closer.
    Mr. Feinstein. A comprehensive healthcare reform bill has 
become law. No one can foresee exactly how all the provisions 
of the new law will mesh with the current system, but we 
believe a continued effective antitrust enforcement is a 
necessary component of any plan.
    In the Bureau of Competition, protecting and promoting 
competition in the healthcare sector is a number one priority. 
We believe that antitrust enforcement improves healthcare in 
two ways. First, it prevents or stops anticompetitive 
agreements to raise prices, thus saving money for consumers. 
Second, competition spurs innovation that improves care and 
expands access.
    For these reasons, the FTC has a long history of promoting 
competition in the healthcare sector, broadly defined, of 
course, to include not only hospitals and physicians, but also 
pharmaceutical and medical device markets, among others. Just 
this morning, for example, the Commission announced a case 
challenging a clinical lab consolidation in southern California 
which threatens to increase the cost of laboratory services 
paid for by physician groups.
    While the Commission's written prepared statement addresses 
our merger activity in more detail, this morning I will briefly 
describe our activities with respect to joint price 
negotiations by healthcare providers that harm consumers and 
our efforts to provide guidance on accountable care 
organizations and clinical integration.
    Some have suggested that the antitrust laws act as barriers 
to healthcare provider collaborations that can lower costs and 
improve quality. In my view, that is simply wrong. The FTC 
plainly recognizes that joint conduct among healthcare 
providers, such as clinical integration, can foster proconsumer 
innovations in delivery of healthcare services.
    Stated simply, what the FTC seeks to prevent are 
anticompetitive agreements to fix the prices that healthcare 
providers charge without benefits to patients. Such 
arrangements typically involve competing providers agreeing to 
charge the same high prices and collectively refusing to serve 
the health plan's patients unless their fee demands are met. 
These agreements are likely to raise prices for the provider's 
services without improving care, and have routinely been deemed 
to violate the antitrust laws.
    However, we do not want enforcement of the antitrust laws 
to impede new and potentially more efficient ways of delivering 
and financing healthcare services. Antitrust standards properly 
distinguish between price fixing by healthcare providers, which 
is likely to increase healthcare costs, and effective clinical 
integration among healthcare providers that has the potential 
to achieve cost savings and improve health outcomes.
    When analyzing these types of collaborations, we ask two 
basic questions. First, does the proposed collaboration offer 
the potential for proconsumer cost savings or quality 
improvements in the provision of healthcare services; and, two, 
are any price agreements or other agreements among participants 
regarding the terms on which they will deal with healthcare 
insurers reasonably necessary to achieve those benefits? If the 
answer to both of those questions is yes, then the 
collaboration is analyzed under the rule of reason rather than 
the per se rule that otherwise applies to pricing agreements 
among competitors. And as long as the collaboration cannot 
exercise market power, it is unlikely to raise significant 
antitrust concerns, because the collaboration has the potential 
to benefit consumers rather than harm them.
    To aid providers considering these types of collaborations, 
the FTC and the Department of Justice issued statements of 
antitrust enforcement policy in healthcare that provide 
guidance about the antitrust analysis that would be applied to 
various types of healthcare arrangements. The FTC staff also 
issues detailed advisory opinions as well as routinely issuing 
informal guidance on specific proposals when requested.
    The FTC is actively working on policy questions concerning 
accountable care organizations, or ACOs, which are encouraged 
by the new healthcare law to integrate providers in order to 
increase quality care and decrease costs. Many ACOs that will 
be set up to serve Medicare patients pursuant to the Affordable 
Care Act may wish to contract with payers in private healthcare 
markets as well, which may raise competition issues.
    To explore these issues, the FTC, CMS, and the HHS 
Inspector General's Office hosted a workshop on October 5 to 
obtain information from industry stakeholders who have an 
interest in the development and operation of clinically 
integrated healthcare groups. We will continue to work with 
other government agencies, including, of course, our colleagues 
at the Department of Justice, to develop
    workable rules and regulations for ACOs.
    I have just about 5 more seconds, with your permission.
    We want to design rules for ACOs that are flexible enough 
to allow collaboration in healthcare that will improve quality 
and decrease costs without creating undue market concentration 
and price fixing.
    Thank you very much for the opportunity to share the FTC's 
views on these vitally important issues. I, of course, look 
forward to answering your questions.
    Mr. Johnson. Thank you, sir.
    [The prepared statement of Mr. Feinstein follows:]
                Prepared Statement of Richard Feinstein




                               __________
    Mr. Johnson. Ms. Pozen.

TESTIMONY OF SHARIS A. POZEN, CHIEF OF STAFF AND COUNSEL TO THE 
ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT 
                   OF JUSTICE, WASHINGTON, DC

    Ms. Pozen. Mr. Chairman, Members of the Subcommittee, I am 
pleased to be here today to talk about competition policy and 
antitrust enforcement in healthcare. I will focus on two areas: 
first, the Antitrust Division's role in ensuring that 
coordination and integration among healthcare providers 
encourages innovation and efficiency without harming 
competition; second, the importance of measured and responsible 
antitrust enforcement in the health insurance market. 
Healthcare reform brings both areas to the forefront of 
competition policy.
    The Affordable Care Act allows for the creation of 
accountable care organizations which, will provide integrated, 
more efficient, higher-quality delivery and payment for 
Medicare and Medicaid services and their beneficiaries. The act 
also establishes competitive marketplaces and exchanges where 
individuals and small employers can purchase health insurance. 
The success of exchanges in ACOs will depend in part on 
effective competition both among health insurers and providers.
    Moreover, clear and accessible antitrust guidance will 
contribute to the success of these organizations. The 
Department is committed to providing efficient, quick review of 
any new business model that plans to deliver integrated care.
    ACOs are a good example of how providers might work 
together to deliver more efficient, high-quality care without 
inhibiting competition. ACOs are made up of providers that 
coordinate care for Medicaid beneficiaries with a common set of 
care protocols utilizing health ITs, investing in 
infrastructure, and meeting quality targets. If the ACO meets 
quality of care and cost targets, the ACO then shares those 
savings with the public through reduced governmental 
expenditures.
    The Department is actively working with the Health and 
Human Services and the Federal Trade Commission as the ACO 
regulatory process evolves, and the Department intends to offer 
whatever guidance and clarity may be needed to ensure that ACOs 
do not run afoul of the antitrust laws. The Department will 
provide expedited antitrust review to any ACO requesting our 
assistance.
    The Antitrust Division continues to undertake responsible 
and measured enforcement to prevent
    anticompetitive behavior in the healthcare industry. This 
enforcement is driven by the Division's analysis of evolving 
market forces, structures, and dynamics in the healthcare 
industry. For example, the Department recently reviewed and 
analyzed evidence that demonstrated that entry and expansion in 
the healthcare industry faces strong barriers. This conclusion 
is significant, given that the Affordable Care Act provides the 
opportunity to reduce these barriers through newly formed 
health insurance exchanges, which again offer individuals and 
small businesses more affordable health insurance options.
    The difficulty of successful entry makes it even more 
important to preserve the choices already available, 
particularly as the exchanges are formed. Therefore, the 
Department of Justice will carefully review and challenge 
mergers that are likely to substantially lessen competition in 
the health insurance industry. The Justice Department will 
carefully scrutinize and continue to challenge exclusionary 
practices by dominant firms, whether for-profit or nonprofit, 
that substantially increase the cost of entry or expansion.
    For example, the Division recently filed a civil antitrust 
lawsuit against Blue Cross Blue Shield of Michigan, joined by 
the State of Michigan, alleging that Blue Cross used its 
dominance to impose anticompetitive most favored nations 
provisions in its agreements with approximately half of 
Michigan's general acute-care hospitals; approximately 70 
hospitals. The Blue Cross MFNs require a hospital either to 
charge Blue Cross no more than it charges Blue Cross' 
competitors or to charge the competitors up to 40 percent more 
than it charges Blue Cross. These MFNs raise hospital prices, 
prevent other insurers from entering the marketplace, and 
discourage discounts, which inflate the cost of healthcare 
services and insurance.
    This action is significant for Michigan, but it has broader 
implications. Any time a dominant provider uses
    anticompetitive agreements, the market suffers. This cannot 
be allowed in Michigan or anywhere else in the United States. 
American consumers deserve affordable healthcare and 
competitive prices, and the Antitrust Division will vigorously 
pursue agreements and transactions that stand in the way of 
achieving this goal.
    Enforcement actions such as the Division's lawsuit against 
Blue Cross work hand in hand with our efforts to prevent 
illegal consolidation in the health insurance market. In March, 
the Division informed the Blue Cross and Physician Health Plan 
of Mid-Michigan, the two largest providers of commercial health 
insurance in Lansing and their most significant rivals, that it 
would challenge their plans to merge. The companies abandoned 
the transaction. That transaction would have resulted in 
substantial lessening of competition in the Lansing market for 
commercial group health insurance and in the market for the 
purchase of physician services.
    In closing, the Justice Department believes that antitrust 
has and will continue to play an essential role in healthcare. 
To achieve the goals of healthcare reform, we must ensure that 
are our healthcare markets are as competitive as possible. This 
requires more than business as usual. We must provide 
predictability through clear and accessible guidance to 
healthcare consumers, providers, and payers. And the Antitrust 
Division is up to this task.
    Thank you.
    Mr. Johnson. Thank you, Ms. Pozen.
    [The prepared statement of Ms. Pozen follows:]
                 Prepared Statement of Sharis A. Pozen


                               __________

    Mr. Johnson. We will now begin questioning, and I will 
start with the first round.
    What a dominant health insurance company in a market has 
the clout to make a take-it-or-leave-it offer of below-cost 
reimbursement rates, what is a sole practitioner or a small 
physician group supposed to do? And this is a question first to 
Mr. Feinstein and next to Ms. Pozen.
    Mr. Feinstein. Well, I will, of course, defer to Ms. Pozen 
on the premise regarding market power on the insurer side.
    With respect to what physicians can do, there is no 
question that it is difficult for a solo practitioner physician 
to resist that situation alone. I don't think there is any 
dispute about that. And if they choose to collaborate in order 
to address that, there are ways that they can do that fully 
consistent with the antitrust laws. And we have laid out in 
great detail over the years ways that they can do that.
    Mr. Johnson. Would you share with us some of those methods?
    Mr. Feinstein. Well, for example, going back to the 
guidelines that were issued in 1996, there have been--there is 
a fairly extensive description in general terms of methods of 
financial integration, of methods of clinical integration, both 
of which have been elaborated upon subsequently in advisory 
opinions. There are also opportunities for physicians to form 
entirely merged groups, which has happened in many segments of 
the country where individual physicians have formed unified 
practice groups. All of that is genuinely welcomed under the 
antitrust laws and certainly doesn't pose condition concerns. 
What does pose concerns----
    Mr. Johnson. If I might interrupt, how do those measures 
apply to a physician's ability to contest a reimbursement rate 
imposed by a dominant health insurance company in that market?
    Mr. Feinstein. Well, if it could be demonstrated that the 
rate that was being imposed by the insurance company was in 
some sense below cost, if it was going to have the effect, and 
it could be demonstrated that it was going to have the effect, 
of reducing the supply of physician services in a properly 
defined market, that may well be actionable under the antitrust 
laws against the insurance company.
    Mr. Johnson. That would require basically a private 
lawsuit; would it not?
    Mr. Feinstein. It could be a private lawsuit, or it could 
take the form of enforcement by the Department of Justice or by 
a State attorney general. Historically the FTC has deferred to 
the Antitrust Division with respect to enforcement actions 
involving the insurance industry.
    Mr. Johnson. Can you cite to us any case where that has 
occurred?
    Mr. Feinstein. Where what has occurred?
    Mr. Johnson. A small physician group or solo practitioner 
who is told that you will be reimbursed at this rate, and that 
rate is not profitable, it is below cost, and there has been a 
complaint to DOJ or FTC, and action has been taken to address 
the issue.
    Mr. Feinstein. I would have to defer to Ms. Pozen about the 
extent to which that issue has arisen in the form of 
complaints.
    Mr. Johnson. Do you know of any?
    Mr. Feinstein. On those specific facts I think those 
allegations have been raised from time to time, and I suspect 
that they have been the subject of investigation from time to 
time. I am not aware of a case on those particular facts.
    Mr. Johnson. Okay. Well, let us hear from Ms. Pozen.
    Ms. Pozen. Sure. Thank you, Mr. Chairman.
    It is exactly the issue that we came upon when we were 
looking at the Michigan Blue Cross Blue Shield acquisition of 
PHP in Lansing. Not only did we have a concern about the 
commercial group insurance markets because that merger would 
have resulted in a 90 percent market share, by our estimation, 
but we were also concerned about, as you put it, the purchase 
of physician services there. We thought that kind of dominance 
could affect the physicians and the kinds of rates that they 
could negotiate. So that was precisely the issue in that case, 
sir.
    Mr. Johnson. Is that the first time that any action has 
been taken with respect to a reimbursement schedule that was 
published and imposed upon a solo or physician group?
    Ms. Pozen. That potential harm, again, in the context of an 
acquisition, was looked at previously, and again, an 
acquisition of health insurance companies. When Aetna was 
acquiring Prudential, that was part of the allegations in that 
complaint, which ended in a consent agreement, and I believe in 
other mergers.
    Again, just as Mr. Feinstein pointed to, the reason that we 
find this issue and have concerns and try to resolve those 
concerns, just as we did in the Michigan Blue Cross Blue Shield 
acquisition, is because we don't want to create dominant health 
insurance who can then affect physician services.
    Mr. Johnson. Thank you. My time has expired. I will now 
yield to the Ranking Member.
    Mr. Coble. Thank you, Mr. Chairman.
    Good to have you both with us this morning.
    Mr. Feinstein, some physicians complain that the process 
for obtaining business review letters for cost-sharing 
arrangements is too costly and burdensome to be practicable for 
most physician groups. Do you have any practical suggestions as 
to how physicians could obtain a more prompt guidance from the 
FTC?
    Mr. Feinstein. Yes, I do. Thank you, Mr. Coble.
    First of all, I think that there is a substantial amount of 
guidance in the form of letters that have already been issued 
and in the form of informal advice through speeches, through 
inquiries that are made to our healthcare shop. At the 
conference that was held last October, which was focused to 
some degree on accountable care organizations, what I alluded 
to in my opening statement, a number of the representatives of 
physician groups indicated their belief that the guidance that 
is out there right now is well understood. And I believe that 
there are many, many groups of physicians who are able to rely 
on that guidance and go forward without being challenged, but 
also without seeking a formal advisory opinion or business 
review. In some instances, they elect to do that. When they do, 
we have the obligation to make sure we understand the facts 
carefully and issue a reasoned letter.
    But I believe it is frequently the case that organizations 
are relying on the guidance that is out there in going forward 
without seeking formal advisory opinions. And I base that in 
part on my own experience in private practice.
    Mr. Coble. Thank you, sir.
    Mr. Feinstein, does the FTC plan to revise its 1996 
healthcare guidelines?
    Mr. Feinstein. Do we have plans to revise them; is that the 
question? At the moment we do not have plans to revise them 
beyond the extent to which they have already, in my judgment, 
been enhanced through the letters that have been issued over 
the years and the speeches that have been given, et cetera. We 
obviously are open to revising them as that is deemed to be 
appropriate, but when they were written, they were written 
rather broadly, and there is a substantial body of advice that 
has been issued over the last 14 years which I think takes the 
form, in effect, of updating the guidelines.
    Mr. Coble. I thank you.
    Ms. Pozen, let me put a three-part question to you, if I 
may. How many antitrust actions has DOJ brought against 
physicians in the last 10 years; how many actions against 
hospitals; and how many actions against health insurers in that 
same timeframe?
    Ms. Pozen. I don't know that I can give you precise 
numbers, but I can provide your staff those figures if you 
would like them. The Antitrust Division looks at all aspects of 
the healthcare industry. Since I have been at the Division, we 
have brought one case involving physicians and two cases 
involving health insurance companies. We have reviewed many and 
have many ongoing investigations.
    Mr. Coble. If you can give us the detailed numbers, I would 
appreciate that.
    One more question, if I may, Mr. Chairman.
    We have heard complaints from physicians that the messenger 
model is cumbersome and outdated. If you would, Ms. Pozen, 
define the messenger models. And can you give us an example of 
how a lawful messenger model would work, and what benefits 
would a helpful messenger model bring to physicians who use it?
    Ms. Pozen. Sure. I think, as Mr. Feinstein pointed out, 
there are a number of ways that physicians can collaborate and 
work together jointly. One of those ways is through the 
messenger model, as you pointed out. The idea is that 
physicians, like any other entities, are otherwise competitors. 
And so one concern is that when physicians join together in 
ways that abut and run afoul of the antitrust laws, it can be 
considered price fixing.
    The messenger model is one way to avoid such allegations 
and not run afoul of the antitrust laws. The idea is using 
sometimes a third party or another means whereby you can 
negotiate with the insurance companies, but make sure that 
there isn't price fixing among the physicians. So that is the 
messenger model, and that is how it can operate.
    Mr. Coble. Thank you, Ms. Pozen.
    Thank you both.
    Thank you, Mr. Chairman. I yield back.
    Mr. Johnson. Thank you, Mr. Coble.
    Next, we will have questions from Mr. Conyers.
    Mr. Conyers. Thank you.
    Nobody has talked about the concentration of the health 
insurance markets. Would you say something about that?
    Ms. Pozen. The question is to me, sir? I hope I was 
addressing such issues, sir, by ensuring that we vigorously 
enforce the antitrust laws, that we prevent further undue 
concentration in----
    Mr. Conyers. That doesn't say anything about a 
concentration. It tells me how good you think you work over at 
DOJ. Let us talk about the concentration.
    Ms. Pozen. Okay. Well, I think in our Michigan Blue Cross 
Blue Shield MFN case, there we did find undue concentration, 
and we found that there were contracting methods and techniques 
that Blue Cross Blue Shield of Michigan was using.
    Mr. Conyers. Besides that case.
    Ms. Pozen. Well, as I made clear, and I think as we made 
clear when we announced that case, that if we find health 
insurance companies with dominance use
    anticompetitive methods, anticompetitive contracting 
methods, that we will stop them, and we will prosecute. And we 
will try to prevent further concentration through our merger 
enforcement.
    Mr. Conyers. Well, what about is there concentration?
    Ms. Pozen. We have found that there is concentration.
    Mr. Conyers. How much concentration?
    Ms. Pozen. Well, in the particular enforcement actions that 
I mentioned, we found that the----
    Mr. Conyers. Well, that is three.
    Ms. Pozen. There are a variety of studies out in the public 
documenting concentration in the health insurance area.
    Mr. Conyers. What if you came across a statement that said 
there have been over 400 healthcare mergers in the last 10 
years? Would you accept that as correct?
    Ms. Pozen. I would trust you, sir.
    Mr. Conyers. Well, what about you, though? I don't work 
over there with you every day. Matter of fact, this is the 
first time we have ever met. Have you ever heard of that 
statement before?
    Ms. Pozen. Yes, sir, I have.
    Mr. Conyers. Well, then, why haven't you told the Committee 
when I have asked you about four times about the nature of the 
concentration of healthcare insurers in the market, and you 
named three cases?
    Ms. Pozen. Well, since I have been at the Antitrust 
Division, those have been three significant cases that we have 
brought in that area in the time that we have been there. The 
other acquisitions that go on, some of them can raise serious 
competitive issues, and some of them do not. And some of them 
provide for efficiencies, and some do not. We will take each 
case as it comes and evaluate it on its facts, and we will 
vigorously enforce the antitrust laws.
    Mr. Conyers. But you look into the past, don't you? I am 
not holding you responsible for the past history. You have been 
in this job a year. Do you believe that there have been over 
400 healthcare mergers in the last 10 years? You don't know for 
sure?
    Ms. Pozen. I would take that as a fact. I don't know the 
precise number, no, sir.
    Mr. Conyers. Well, would you examine that for me?
    Ms. Pozen. Yes, sir.
    Mr. Conyers. And we are going to be writing--there will be 
communication after the hearing--about whether or not there 
have been that many mergers. Does that seem like a large amount 
to you, if it is accurate?
    Ms. Pozen. I wouldn't be able to comment on that.
    Mr. Conyers. You are not sure. But you are going to find 
out for the Committee?
    Ms. Pozen. Yes, sir.
    Mr. Conyers. Okay. Now I will go on to the next sentence. 
The American Medical Association reports that 95 percent of 
insurance markets in the United States are now highly 
concentrated, and the number of insurers have fallen by just 
under 20 percent since 2000. Have you ever heard that statement 
before?
    Ms. Pozen. Yes, I have, sir.
    Mr. Conyers. Do you believe it?
    Ms. Pozen. I don't doubt its veracity in the context in 
which you are raising it, sir.
    Mr. Conyers. Well, now wait a minute. Do you believe it or 
not?
    Ms. Pozen. I don't have the statistics.
    Mr. Conyers. You don't know.
    Ms. Pozen. Exactly.
    Mr. Conyers. You will have to study this.
    Ms. Pozen. Yes, sir.
    Mr. Conyers. And you will include that in our 
communications.
    Ms. Pozen. Absolutely.
    Mr. Conyers. All right. Do you know that the President of 
the United States has said that he would step up and 
reinvigorate antitrust enforcement in the area of healthcare?
    Ms. Pozen. Yes, sir.
    Mr. Conyers. You heard that?
    Ms. Pozen. Yes, sir.
    Mr. Conyers. You know that.
    Ms. Pozen. Yes, sir.
    Mr. Conyers. And you are doing that.
    Ms. Pozen. Yes, sir.
    Mr. Conyers. Because you have cited me three cases 
repeatedly this morning.
    Ms. Pozen. Yes, sir.
    Mr. Conyers. Do you know how many other cases that could be 
prosecuted?
    Ms. Pozen. I don't have those figures. I can tell you the 
cases that come to us, or that we look for, or that we find, 
and that we vigorously prosecute those who violate the 
antitrust laws.
    Mr. Conyers. Well, if you believe that there have been 400 
healthcare mergers in 10 years, and you know that the President 
wants to step up antitrust enforcement, it seems like some of 
those might be subject to review. I mean, what I sense is that 
you are really on the case from this point forward, but you 
sort of act, Ms. Pozen, as if there is no history of antitrust 
law in healthcare, that this is a new subject. And you keep 
citing me three lousy cases as a proof that you are on the job, 
and you brag about the Department of Justice's effectiveness in 
this area.
    Now, what about the mergers--well, let me just close. My 
time has expired. Do you know that there is a concentration of 
merger activity in our economy that has been going on for at 
least a dozen years or more?
    Ms. Pozen. I do, sir, and I have only been at the Antitrust 
Division for a short time in the Obama administration, and as I 
said, we are vigorously enforcing the antitrust laws. We are 
mindful of the past, the present, and the future, and doing 
what we can to ensure that either dominant firms don't abuse 
that dominance or that further dominance doesn't occur.
    Mr. Conyers. Well, just allow me just this one question. 
Thank you very much for this. But if you are vigorously 
enforcing antitrust laws, and you know that we are in the wave 
of an--that mergers are going on, and have been, at an 
unprecedented pace, how can you prosecute if you are not 
reviewing the past cases?
    Ms. Pozen. In terms of the cases that we have looked at in 
the mergers that come forward, we are carefully analyzing them. 
We are looking at the facts and applying the law. Not every 
merger is anticompetitive. I will assure you of that. But I 
will assure you that those that are anticompetitive, we will 
prosecute.
    Mr. Conyers. All right. I thank you very much.
    I will have to send you, Mr. Feinstein, the questions that 
we would have engaged in.
    Thank you, Mr. Chairman.
    Mr. Johnson. Thank you, Mr. Chairman.
    Next, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. Thank you for 
holding this hearing, and I want to thank both of our witnesses 
for being here today.
    Mr. Feinstein, I want to follow up on the questions of the 
Ranking Member Mr. Coble, who asked about some of the concerns 
that doctors have about obtaining business review letters for 
cost-sharing arrangements. How long does it normally take the 
FTC to produce a business review letter?
    Mr. Feinstein. It really depends entirely on the scope of 
the request. We react to specific requests.
    I want to emphasize, by the way, before I address formal 
letters, there is a lot of informal guidance that goes on where 
folks call up our staff and get informal guidance. It may not 
take the form of writing, but they can take some comfort from 
that.
    Mr. Goodlatte. If they are going to make a major business 
decision about whether they can proceed with an arrangement, 
they probably want something more formal.
    Mr. Feinstein. Yes. And when that happens, they have an 
obligation to describe pretty completely the facts surrounding 
their proposal, and we have an obligation to make sure we 
understand those facts. It is an iterative process. Often they 
come to us with a proposal. We may have questions about how it 
is going to be implemented.
    Mr. Goodlatte. Is there an average amount of time?
    Mr. Feinstein. If there is an average amount of time, I 
haven't calculated it.
    Mr. Goodlatte. Could you calculate it and provide it to the 
Committee?
    Mr. Feinstein. We can certainly do that, yes.
    Mr. Goodlatte. This is pretty important because if you are 
making a decision that potentially is going to affect your 
ability to continue your business, redesign your business, 
expand your business, and you need to have guidance about 
whether or not you can do it, you want to proceed quickly. When 
you go in the private sector to get advice from attorneys, and 
accountants, and consultants and so on about the decisions you 
make, you get pretty prompt replies. And it is important that 
the government understand that and the importance of giving 
prompt replies as well. So if you could provide that 
information to the Committee, I would appreciate it.
    Mr. Feinstein. I certainly share that goal of giving prompt 
replies.
    Mr. Goodlatte. Thank you.
    Does the FTC have a role in examining mergers among health 
insurers?
    Mr. Feinstein. No. Historically we have deferred to the 
Department of Justice. I think largely that is because years 
ago most of the insurers, particularly the Blue Cross and Blue 
Shield organizations, were set up as nonprofits originally. 
Some of them have converted to for-profit status. But because, 
as you probably are aware, there are some limitations on our 
jurisdiction with respect to the activity of nonprofit 
entities, over the years a tradition unfolded whereby the 
Justice Department took the lead on health insurance mergers. 
And there have occasionally been matters that the FTC has 
looked at in the last 15 or 20 years, but it has been quite 
rare, and none that I can think of in the last decade or more.
    Mr. Goodlatte. Are there any statutory impediments to 
bringing actions by the FTC with regard to health insurance 
mergers?
    Mr. Feinstein. Other than the one I alluded to, no. We 
enforce section 7 of the Clayton Act. That can be applied to 
health insurance mergers. There is, of course, the
    McCarran-Ferguson exemption for the business of insurance, 
but I think it is pretty widely recognized that that does not 
shield health insurance mergers from antitrust scrutiny by 
either agency.
    Mr. Goodlatte. Does the FTC plan to revise its 1996 
healthcare guidelines?
    Mr. Feinstein. As I said, we don't have current plans to 
revise them. I am not saying that it won't happen, I'm just 
saying we don't have a current plan to do that. The principal 
reason for that is that we believe that it is, in effect, a 
living document with the updating taking the form of the 
advisory opinions that have been issued over the last 14 years. 
That is not to say that there may not be an occasion to do it.
    And I would also note that we are, as both, I think, Ms. 
Pozen and I addressed--we are, of course, looking at the 
question of providing guidance with respect to accountable care 
organizations in real time. That is something that the agencies 
are working together on right now. And I think it is reasonable 
to assume that to some degree that guidance will be relevant to 
clinical integration otherwise, although there are some 
distinctions that will have to be kept in mind.
    Mr. Goodlatte. Let me interrupt you and ask one more 
question here. With regard to the new healthcare bill, what are 
some the antitrust safe harbors that the FTC might be 
considering with respect to the formation of the accountable 
care organizations that have been created by that legislation?
    Mr. Feinstein. Well, that is very much a work in progress. 
I think just as there are safe harbors that are in the current 
guidelines relating to market share, for example, and certain 
types of conduct, those are the types of issues that we and the 
Justice Department are considering. It would be premature for 
me to make a definitive statement about what form that will 
take, because it is literally something that we are discussing 
between the two agencies and with CMS on a weekly basis.
    Mr. Goodlatte. Under the law, when can accountable care 
organizations come into being? Is there a timetable for that?
    Mr. Feinstein. My understanding--and I will defer to Ms. 
Pozen if she has a clearer understanding--my understanding is 
that CMS intends to issue regulations early next year.
    Is that correct?
    Mr. Goodlatte. Could they be formed right now if the 
regulations existed?
    Mr. Feinstein. I assume that the answer to that question is 
yes.
    Mr. Goodlatte. I know there are various phase-ins of 
various aspects of the bill. Your understanding is they could 
occur right now. So, again, the sooner you have information 
available, the sooner these organizations might be formed.
    Mr. Feinstein. Well, I think there is an expectation that 
some of the antitrust issues and the way they will be analyzed 
will be reflected in the regulations to be issued as well an 
additional statement to be made by the antitrust enforcement 
agencies.
    Mr. Goodlatte. Ms. Pozen, do you want to add anything to 
that?
    Ms. Pozen. As I indicated in my statement, we are committed 
to providing guidance and providing expedited review of ACOs. 
We have a business review process that today if an ACO is 
forming, they can come in and seek our guidance on an informal 
or formal basis.
    I hope that answers your question.
    Mr. Goodlatte. Are there regulations that DOJ is going to 
issue at some point that would give guidance as to whether or 
not it is desirable to form one of these in terms of what kind 
of safe harbors, antitrust safe harbors, might be available?
    Ms. Pozen. Well, the ACOs that are being formed to take 
Medicare and Medicaid funding are subject to CMS regulations, 
as Mr. Feinstein indicated. That is an ongoing process and an 
ongoing discussion that we have with CMS and the FTC regarding 
how to provide antitrust guidance in that context so that, just 
as you said, ACOs have guidance going forward in order to 
receive those funds through CMS. So that is an ongoing process 
now, but, as I said, in the interim we have a business review 
process. If ACOs need advice, we are happy to give it to them.
    Mr. Goodlatte. Thank you.
    Thank you, Mr. Chairman.
    Mr. Johnson. Next we will hear from Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. I want to 
thank the witnesses for their testimony. The first question 
is--if you will just answer yes or no, it makes it a lot 
easier--do we have a competitive health insurance industry in 
the United States today? Mr. Feinstein. Just yes or no. And 
remember, I know these are your personal opinions and not the 
Department or Commission.
    Mr. Feinstein. Well, it is hard for me to answer that yes 
or no because my agency doesn't focus on that issue to the 
extent that the Department of Justice does. I think it really 
varies, candidly, market by market. There are some markets that 
are more competitive than others, I would say. I don't know 
that I would be comfortable answering the question on a 
national basis.
    Ms. Pozen. I would echo Mr. Feinstein's answer. I know 
there are some areas where there is vigorous competition and 
there are some areas where I presume there isn't. And if those 
areas are subject to a merger where there will be, you know, 
more concentration created as a result of the merger or a 
dominant firm is using that market power in an illegal way, we 
will prosecute.
    Mr. Gonzalez. I am not sure--the answer for all of us has 
to be no. And that is the reality and that is where we find 
ourselves. And I am not sure that any of us had anything to do 
with the direction things took and where we find ourselves 
today. But it is a precautionary tale maybe going forward. And 
the reason I say that is, what I am looking at, insurance 
market concentration ranked as of 2007. So this is old 
information. I only suggest it has probably gotten worse. But 
if we go State by State, combined market share percentage of 
the top two insurers in every State in this Nation, and I don't 
get to--at 48 percent, where basically two insurers comprise 48 
percent, some may say, Wow, that may be acceptable. I am not 
sure that is really acceptable. But that is like number 40 in 
the ranking. Everyone else has anywhere from 53 to 98 percent 
of the market share by two insurers.
    Now how can anyone in good faith today not answer my 
question as ``no''? I mean, maybe it is just out of necessity 
and that is the way things grew and that is what you are going 
to have. And we have to abandon the goal of competition in 
order to achieve competition. That is the whole thing about--
remember with TARP, we had to abandon free market principles in 
order to save the free market. Well, maybe we do that all the 
time, Mr. Chairman. I am not sure.
    So let's talk about doctors quickly. Doctors are at a 
tremendous disadvantage. My own observation is that they are 
just not as organized as the insurance industry or as the 
hospitals. They are rather busy practicing medicine. That 
occupies all of their time. I also believe that, you know, they 
are not as unified because of the specialties today. But 
nevertheless we are asking them to do something to make health 
care reform a reality. So I am just going to ask you--and I 
know I am going to revisit some of this. But if I was a 
physician and I am looking to be part of these ACOs and I don't 
want to expose myself out there and I don't have all of the 
lawyers and the big firms, lobbyists, advocates, and so on that 
are the organizations but I want to be part of the answer in 
this solution, what assurances can you give these doctors that 
they are not going to run afoul?
    So you are telling me that there is coordination among the 
FTC, the Department of Justice, and the Inspector General over 
at HHS. That is correct, isn't it? Y'all are coordinating your 
efforts. So you are going to provide guidelines. And I strongly 
suggest that guidelines can't be given in some speech or some 
conference or some convention. That just doesn't work in the 
real world. They have to be black letter. They have got to be 
able to see it. Because my fear is, you have a lot of 
discretion and wiggle room to pass judgment on these things 
after the fact.
    To what extent do you provide beyond guidance but something 
more in the manner of preclearance? So I am not familiar how 
you do this or how the HHS and the Inspector General does it. 
But if I am a doctor or a group of doctors and I am trying to 
do this, what assurance can you give me that it is a safe thing 
to do and that I am not going to be penalized down the road?
    Mr. Feinstein.
    Mr. Feinstein. I think there are--and I think you are going 
to see this as a result of the ongoing ACO effort that is 
underway. I certainly think there is certainly a recognition in 
the enforcement agencies that this is a circumstance where safe 
harbors with a clear expression of the boundaries of the safe 
harbors is appropriate, and also a clear expression that 
circumstances that are outside the precise boundaries of the 
safe harbor aren't necessarily going to violate the law. From 
the standpoint of an individual physician, something that I 
think is important to remember is that, you know, if what they 
are hoping to accomplish is something that is likely to lead to 
more efficient delivery of care and higher quality, something 
that is going to serve the interests of consumers, we are not 
going to get in their way. We want that to happen. Where we 
step in are the circumstances where there is nothing going on 
other than increased prices. I am happy to report that in the 
last--you know, in recent years, we haven't seen as much of 
that. We haven't brought as many of the cases. Our resources 
overall in the health care sector are not disproportionately 
directed at the physician segment of the market. We spend a 
great deal more of our time these days on the pharmaceutical 
sector and on hospitals. But that doesn't mean that there 
aren't areas where, just as there may be markets where health 
insurers have market power, there may also be specific markets 
where hospitals have market power or where you know there are 
must-have groups of physicians. That is different of course 
from the individual physician. But I would go back to four sort 
of first principles. If the goal is to do something that is 
going to improve care and ideally even lower costs, we are not 
going to--we are going to bless that as quickly as we can.
    Mr. Gonzalez. Ms. Pozen.
    Ms. Pozen. As I said, we are committed to guidance. We are 
working with CMS, HHS, and the Federal Trade Commission on what 
that guidance will precisely be to address the issues that you 
have pointed out. We want these organizations to go forward, to 
feel comfortable integrating, to feel comfortable innovating 
and not stand in the way and not inhibit that. It is an 
iterative process at this point, as CMS develops its 
regulations, but we do want there to be guidance, potentially 
safe harbors, and an expedited review as part of that.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman, 
for your indulgence.
    Mr. Johnson. Thank you, sir. And with another question, I 
will recognize Chairman Conyers.
    Mr. Conyers. Just a closing question. Had either of you 
heard about the concentration of health insurers in this 
country by State that Judge Gonzalez referred to when he was 
talking with you?
    Ms. Pozen. Yes.
    Mr. Conyers. You had heard about that?
    Ms. Pozen. Yes. And it is one of the reasons, as I 
mentioned in my statement, we wanted to figure out how that 
happened. Just getting to exactly your question. How could that 
happen? And what we found was, when we focused on entry and we 
found that there are barriers, as I indicated in my statement, 
there are barriers to new entry. New insurers can't come in and 
take on some of these dominant players. So that learning that 
we did right off the bat when we got into office is infusing 
all of our thoughts and all of our investigations on this 
issue.
    Mr. Conyers. So why couldn't you answer ``no'' to his 
question? Come on. You can tell us. What is the real reason?
    Ms. Pozen. Well, I think that when you look at health 
insurance markets, you can look at them on a statewide basis, 
you can look at them on an MSA basis, and on a local basis.
    Mr. Conyers. But you end up with the same answer every 
time. They are all concentrated.
    Ms. Pozen. And we are----
    Mr. Conyers. Aren't they, Ms. Pozen? Now, look, this is 
your job.
    Ms. Pozen. I know, and we are trying to figure out why, I 
can assure you of that. And we are trying to do what we can not 
to allow more of it, and we are trying to assure that those 
insurers that are dominant aren't using that dominance in an 
anti-competitive way.
    Mr. Conyers. But why didn't you answer ``no''?
    Ms. Pozen. Why didn't I answer ``no'' to the question of 
whether or not----
    Mr. Conyers. You know what the question was.
    Ms. Pozen. Yeah. Because I hate to say it. We are lawyers, 
and we always want to say it depends. I don't mean to be flip, 
sir. I really am not. I do understand the gravity of the issue 
and respect the----
    Mr. Conyers. Mr. Feinstein, why couldn't you answer ``no'' 
to his question?
    Mr. Feinstein. Let me be clear about my personal view on 
this.
    Mr. Conyers. That is what I want.
    Mr. Feinstein. I accept the proposition that there are some 
markets----
    Mr. Conyers. Do you know of any market not concentrated in 
health insurance?
    Mr. Feinstein. The level of concentration varies from 
market to market.
    Mr. Conyers. Do you know of any market? Just answer the 
question.
    Mr. Feinstein. Do I know of any market that is not 
concentrated? With all due respect, it depends on what you mean 
by concentrated. There are certainly markets that have high 
concentration----
    Mr. Conyers. Oh, I see. I get it. I get it. I get it.
    Mr. Feinstein. But there is variation. The question was 
nationally.
    Mr. Conyers. Let me just close with this. Do you know how 
many people in America do not have insurance? You nod your 
head. What is the answer?
    Ms. Pozen. Millions do not have insurance.
    Mr. Conyers. Millions? How many millions?
    Ms. Pozen. I don't have the exact figure.
    Mr. Conyers. What about you, Mr. Feinstein?
    Mr. Feinstein. I don't know a precise number. I will just 
say too many.
    Mr. Conyers. Okay. Thank you, Mr. Chairman.
    Mr. Johnson. Well, it is true it is about 40 million, isn't 
it?
    Mr. Conyers. 50 million.
    Mr. Johnson. 50 million? 50 million people.
    I would like to thank the FTC and DOJ for appearing before 
our Subcommittee today. You are excused. Thank you very much.
    Mr. Feinstein. Thank you, Mr. Chairman.
    Mr. Johnson. And I will invite the second panel to take its 
place.
    Ladies and gentlemen on our second panel, we have Melinda 
Hatton, Senior Vice President and General Counsel to the 
American Hospital Association. Welcome, Ms. Hatton.
    Next witness is Arthur Lerner, a partner at the law firm of 
Crowell & Moring LLP, on behalf of America's Health Insurance 
Plans. Welcome, Mr. Lerner.
    Next to Mr. Lerner is Dr. Peter Mandell on behalf of the 
American Association of Orthopaedic Surgeons. Welcome back, 
sir.
    Our next witness is Dr. Michael Connair on behalf of the 
American Federation of State, County, and Municipal Employees. 
Welcome, sir.
    Dr. Connair. Thank you.
    Mr. Johnson. And finally we have David Balto, Senior Fellow 
with the Center for American Progress. Welcome back, Mr. Balto.
    Mr. Balto. Thank you very much.
    Mr. Johnson. Ms. Hatton, please proceed with your 
testimony.

TESTIMONY OF MELINDA HATTON, SENIOR VICE PRESIDENT AND GENERAL 
             COUNSEL, AMERICAN HOSPITAL ASSOCIATION

    Ms. Hatton. Thank you, Mr. Chairman. I am Melinda Hatton, 
General Counsel and Senior Vice President for the American 
Hospital Association. On behalf of our more than 5,000 member 
hospitals, health systems, and other health care organizations 
and the nearly 200,000 employed physicians, the AHA thanks you 
very much for the opportunity to discuss the impact of the 
antitrust laws on our Nation's hospitals and our hospitals' 
efforts to improve quality and efficiency.
    Our antitrust concerns are twofold. First, we support 
timely, user-friendly guidance from the antitrust agencies on 
how the laws will be applied to clinical integration efforts 
among health care providers. Second, we urge the Department of 
Justice to be increasingly vigilant about anti-competitive 
behavior on the part of health insurers and we commend the 
Department for its recent stepped-up enforcement.
    Our health care delivery system is fragmented. A typical 
Medicare patient sees two primary care physicians and five 
specialists, working in four different practice settings in a 
single year. The numbers escalate greatly for those with 
chronic conditions. Most health care providers work alone in 
small groups or in specialty practices. Most physicians still 
don't work for hospitals. Care is provided in multiple 
locations, from free-standing ambulatory clinics to post-acute 
settings to patients' homes. Some of these settings may be 
affiliated with a hospital while many are not. It is an 
insufficient system that is hard for any patient, particularly 
a sick patient, to navigate. Lack of coordination also makes it 
more likely that tests will be duplicated and adverse drug 
interactions will not be caught in time.
    We know the patients get real benefits when caregivers work 
together to provide more coordinated, more efficient, higher 
quality care. The AHA has, since 2004, been seriously engaged 
in efforts to advance clinical integration among health care 
providers by, among other efforts, tackling legal and 
regulatory barriers. At its heart, clinical integration is 
really teamwork--hospitals, doctors, nurses, and other 
caregivers working together to make sure our patients get the 
right care at the right time in the right setting. To do so 
effectively, we do need user-friendly guidance from the 
antitrust agencies on how the laws and policies will be applied 
to clinical integration.
    A bipartisan group of lawmakers who sit on the Committees 
of jurisdiction have agreed that the best solution to tackle 
these antitrust laws as a barrier to clinical integration is to 
issue user-friendly, officially backed guidance that clearly 
explains to caregivers what issues they must resolve in order 
to embark on a clinical integration program. In three separate 
letters to the antitrust agencies over 7 months, lawmakers 
clearly called for such guidance. We continue to urge those 
agencies to act quickly to provide it.
    In addition to guidance, we have urged the Department of 
Justice's Antitrust Division to be increasingly vigilant about 
anti-competitive conduct on the part of entrenched health 
insurers. In May of 2009, when the Administration first came 
into office, the AHA called upon DOJ to reexamine and bolster 
enforcement as it applies to health care plans. Hospitals are 
held accountable for the care they provide to their 
communities, with quality and patient satisfaction routinely 
measured and publicly reported on a government Web site. 
Hospitals also have been subject to intense antitrust scrutiny 
by the Federal antitrust agencies.
    Conversely, insurers have not faced nearly as much public 
antitrust scrutiny or oversight. Patients receive higher 
quality, more efficient care when caregivers work together. 
That is the path we are on and one that holds the greatest 
promise for fixing a fragmented delivery system. The antitrust 
laws can make a real contribution if the agencies enforcing 
them are willing to exercise the same kind of leadership and 
foresight that led to the issuance of the statements on 
antitrust enforcement and health care in the early 1990's. 
User-friendly guidance for clinical integration and more 
vigilance in the health insurance sector are important steps 
not just for hospitals but for the future health and vitality 
of the Nation's health care delivery system.
    Mr. Chairman and distinguished Members of the Committee, 
thank you for the opportunity to discuss these issues with you 
today. America's hospitals look forward to working with you and 
all of those who are committed to improving the quality and 
efficiency of care for patients in every one of your 
communities. We believe that clinical integration is a proven 
strategy for achieving these aims and that the efforts of 
health care providers to improve delivery should not be impeded 
by unnecessary barriers, like the antitrust laws.
    [The prepared statement of Ms. Hatton follows:]
                  Prepared Statement of Melinda Hatton

                               __________

    Mr. Johnson. Thank you, Ms. Hatton.
    Next, Mr. Lerner.

 TESTIMONY OF ARTHUR LERNER, PARTNER, CROWELL & MORING LLP, ON 
           BEHALF OF AMERICA'S HEALTH INSURANCE PLANS

    Mr. Lerner. Chairman Conyers, Chairman Johnson, Ranking 
Member Coble, and Members of the Committee, I am Arthur Lerner 
partner in the Washington, D.C. office of the Crowell & Moring 
law firm. I am testifying today on behalf of America's Health 
Insurance Plans, a national association representing 
approximately 1,300 health insurance plans, providing coverage 
to over 200 million Americans.
    I was very pleased to be invited to testify today by 
Chairman Conyers. After completing my undergraduate education 
at the University of Michigan, as did both of my parents and 
both my brothers and my wife--I only have one of those--and 
then attending law school, I began my legal career in 1976 in 
the Health Care Division of the Bureau of Competition as an 
antitrust trial attorney. I then worked as an assistant to the 
Director of the Bureau of Competition as attorney adviser to 
FTC Chairman Pertschuk from 1978 until 1981, as Deputy 
Assistant Director and then Assistant Director in charge of the 
FTC's Health Care Antitrust Program from 1981 to 1985 and have 
been in private practice since then. I am former Chair of the 
Antitrust Practice Group of the American Health Lawyers 
Association and of the Federal and Civil Enforcement Committee 
of the Antitrust Section of the ABA.
    I am testifying today on behalf of AHIP and not on behalf 
of any other client or organization. And I am well aware of the 
history of antitrust enforcement in the health care sector, 
since that has been my life for the last 35 years. I appreciate 
this opportunity to testify in enforcement of our Nation's 
antitrust laws and the importance of preserving and expanding 
competition for the benefit of consumers.
    I am going to talk principally about two things. My written 
statement goes on at somewhat greater length. First, antitrust 
enforcement to ensure competition in the health care provider 
community; and second, antitrust enforcement in the health 
insurance marketplace.
    By way of introduction, I think the antitrust laws and 
antitrust enforcements do not and should not take sides, other 
than it being on the side of the consumer. Antitrust 
enforcement should not be and has not been for or against 
health insurance companies or for or against physicians or 
hospitals or any other industry. Whether an entity runs into 
antitrust trouble will and should depend on what it does.
    On the physician side, the discussion today has seemed to 
focus on two things. One, whether physicians should be able to 
band together to sort of level the playing field and get a 
better deal for themselves. And I go into this at somewhat 
greater length in my statement. But it has never been a solid 
defense in the antitrust world to say, Well, I can't get paid 
the rate that I would like to be paid in the marketplace. 
Therefore, I should be allowed to fix prices to deal with that. 
That is a fundamental and blatant antitrust violation and has 
been viewed as such by Administration after Administration, by 
the courts through every Administration going back many, many 
years. On the other hand, if providers are trying to get 
together and work to improve outcomes and to improve health 
care delivery, there is lots of room under the antitrust laws 
for them to do so today. And the FTC and DOJ have given out 
lots of guidance about how that can be done.
    It is a difficult task sometimes to be in private practice, 
to advise clients, and I have advised clients that include not 
only health plans but also health care providers. When 
providers come and say, How much more of this integration stuff 
do I have to do so I can fix prices, it puts the lawyer in an 
awkward spot because the question then is not, How can I 
integrate; and if I integrate, what am I allowed to do along 
with that to make it work? But if the question is, How do we 
raise prices, if that is all it is about, then antitrust has a 
lot to say and properly so.
    On the other hand, if what physicians and hospitals are 
trying to do is to actually expand and increase the quality of 
care to improve health care outcomes to be accountable for the 
costs, there is a lot of room for them to do so under the 
antitrust laws. Health plans are working across the country 
with many provider organizations in various kinds of projects 
both with organizations, you know, that are now being called 
accountable care organizations but for many, many years have 
taken other forms to try to improve health care and reduce 
costs.
    There is always reason for the antitrust agencies to be up 
to date, for the antitrust agencies to look at the evolving 
marketplace and try to decide if clarification of their 
guidance is appropriate. But it would not be appropriate to 
radically alter the guidance that has been out there, so as 
either to permit blatant price fixing or to allow integration, 
which is, in a sense, a good thing to become sort of a talisman 
that allows providers to break the antitrust laws. There is 
room to do the former without having to do the latter.
    On the hospital side, there are a lot of reasons for 
wariness and concern that we just make sure that hospital 
combinations and hospital consolidations do not raise 
inappropriate antitrust problems. The FTC and DOJ have been 
active in policing mergers in that area and need to be able to 
continue to do so.
    Finally, on the health insurance side--I realize I have 
rambled through my time pretty quickly here, but I know that 
you are interested in hearing about health insurance and 
whether the antitrust laws should be enforced there. So if you 
let me, I will go on for another minute or so about that or I 
can wait and take it in questions.
    Mr. Johnson. I think it might be good to let you go ahead.
    Mr. Lerner. I will just talk briefly about it.
    The Federal Trade Commission and the Department of Justice 
had a lengthy 27 days of hearings in 2004 and resulted in a 
conclusion that there is not a significant nationwide problem 
in terms of monopsony or power buying or health plans or paying 
providers less than what it costs to deliver health care. In 
fact, most health plans pay well more than the Medicare and 
Medicaid programs. There is data out there about concentration 
levels in health care. Some of that data is deeply flawed, the 
way it is counted, the way it is measured. But the most 
important thing to take note of is that the vigor of 
competition in some of these markets does not correspond with 
notions of, you know, what are the current shares. Sometimes 
these markets are quite competitive, even if concentrated.
    And the other thing I would probably want to emphasize 
today is that if you look at the mergers that have occurred in 
health care insurance plans, they typically do not account for 
whatever structure we now see in the health insurance 
marketplace. Typically it seems that companies who do the work 
better, have been better at it, have historically been large 
and significant in a local market are still the ones who are 
large and significant in a local market and that mergers have 
not typically involved the creation of the kind of structure 
that we are talking about. And I can say that when we have done 
mergers--and I have represented a number of clients--we get 
investigated extremely thoroughly and extremely acutely by Ms. 
Pozen's staff or the other people at the Department of Justice.
    Sometimes these raise difficult questions, where a merger 
might involve the number eight competitor in a market merging 
with the number six competitor, where neither of them is going 
anywhere in particular, and the number one and two firms are 
very, very strong, so the Justice Department has to make some 
discerning judgments. So in our view, you know, every company 
always wants to think it is going to fare well. But my 
experience has been that the Department of Justice is quite 
thorough in their inquiries into health insurance mergers.
    [The prepared statement of Mr. Lerner follows:]
                  Prepared Statement of Arthur Lerner


                               __________

    Mr. Johnson. All right. Thank you, Mr. Lerner. I am anxious 
to determine whether or not your extensive contacts with the 
State of Michigan will save you from the heat that I expect to 
be generated.
    Mr. Lerner. I am actually from Toledo, so we paid out-of-
State tuition for 12 years without my brother.
    Mr. Johnson. All right. Thank you, sir.
    Dr. Mandell.

 TESTIMONY OF PETER J. MANDELL, M.D., CHAIR OF THE COUNCIL ON 
       ADVOCACY, AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS

    Dr. Mandell. Chairman Conyers, Chairman Johnson, 
distinguished Members of the Committee, thank you for having me 
here this morning. I am Pete Mandell, Chair of the Council on 
Advocacy of the American Association of Orthopaedic Surgeons. I 
am also a practicing orthopedist on the San Francisco Peninsula 
and have done that for about 35 years now. On behalf of our 
organization and my orthopedic surgeon colleagues across the 
country, thank you for inviting us to talk about antitrust laws 
as interpreted by the U.S. Department of Justice and the 
Federal Trade Commission and their effects on patients and 
physicians.
    As we talked about all morning, health insurance markets 
are highly concentrated; and for the most part insurers possess 
market shares that are associated with monopsony power, the 
ability to present physicians with take-it-or-leave-it 
contracts that harm the quality and supply of physician 
services in this country. Moreover, because health insurers are 
virtual monopolies, whatever savings are generated by those 
take-it-or-leave-it contracts are not provided to the 
beneficiaries of their insurance, also known as our patients.
    Because of these indisputable facts, AAOS believes that the 
antitrust laws should be changed to allow physicians to 
collectively negotiate with health plans and that the McCarran-
Ferguson Act should be amended to change the anti-competitive 
practices of insurance companies and establish negotiating 
equity among health plans and physicians. The fact that health 
insurers possess monopsony power and the physicians are 
powerless in their negotiations with health plans should not be 
news to anyone. For a decade now, the AMA has provided studies 
that report that unequivocally, physicians across the country 
have virtually no bargaining power with dominant health 
insurers, and those health insurers are in a position to exert 
monopsony power.
    Antitrust enforcement by the DOJ and FTC has been 
ineffective in halting health insurer market concentration. 
However, it has been effective in preventing physicians from 
jointly negotiating with insurers. In this way, antitrust 
enforcement has actually augmented the negotiating power of 
insurers. Physicians, we think, should be allowed to share 
information and negotiate collectively with health insurance 
plans.
    Currently, the DOJ and FTC allow a restrictive form of 
bargaining that we talked about a little while ago called the 
third-party messenger model which has been used with only 
spotty success around the country. It is labor-intensive, 
cumbersome, and costly to implement safely. It has also proven 
an easy target for insurers because they know that the DOJ and 
FTC have a low threshold for alleged physician collusion and 
for initiating expensive antitrust investigations and 
litigations.
    Let me give you two examples. In Delaware, a dozen years 
ago, a health insurance plan unilaterally instituted massive 
cuts. Almost all the 47 orthopedic surgeons and many other 
physicians in that State dropped out of the plan. The 
physicians negotiated, using a union and using the third-party 
messenger model. While the insurer reversed the cuts, the DOJ 
ultimately investigated and prosecuted the physicians and the 
union. Approximately 80 subpoenas were issued. Depositions were 
taken in four States. The union itself incurred about $1.5 
million 1998 dollars in legal fees. It is more like $2 million 
now. In the end, the consent decree allowed the use of the 
third-party messenger model anywhere in the United States 
except for Delaware and by anyone in the United States except 
for that union for a period of 5 years. One orthopedic surgeon 
colleague lost his partnership in a medical practice. Another 
was threatened with imprisonment by the DOJ.
    The second example involves a case that was finalized 
earlier this year in Idaho where the Idaho Orthopedic Society 
and other orthopedists were charged by the DOJ with antitrust 
violations. Although resolved by consent decree, the defendants 
incurred more than $1 million in legal fees and expenses. 
Several Idaho colleagues report that the final decree bears no 
resemblance to the actual events that went on in Idaho, which 
they found quite frustrating. For example, at no point during 
the investigation were the accused physicians interviewed or 
deposed.
    Antitrust laws send a clear message of what fair 
competition means--or should send a clear message of what fair 
competition means. Instead, the message we hear, as physicians, 
loud and clear is the Hobson's choice of ``just lie down and 
take it.'' If physicians object, they are exposed to charges of 
antitrust violation.
    This is why the AAOS supports legislation like the Quality 
Health Care Act of 2000, sponsored by Congressman Conyers and 
former Congressman Tom Campbell. Such an act would extend to 
all health care providers--not just doctors, but all health 
care providers--the right to collectively negotiate with health 
insurance companies.
    AAOS supports the Subcommittee's efforts to address the 
issue of equal application of antitrust laws to both physicians 
and health insurance plans.
    AAOS is pleased to have had the opportunity to share with 
you our thoughts but, more importantly, the experiences of our 
colleagues on the effects of DOJ and FTC antitrust enforcement. 
Maintaining quality care while ensuring fair competition in 
today's market should be our ultimate goal, and we thank you 
for giving us the opportunity to present this morning and look 
forward to working with you further on this in the future.
    [The prepared statement of Dr. Mandell follows:]
                 Prepared Statement of Peter J. Mandell



                               __________
    Mr. Johnson. Thank you, Dr. Mandell.
    Next, Dr. Connair.

 TESTIMONY OF MICHAEL P. CONNAIR, M.D., AMERICAN FEDERATION OF 
        STATE, COUNTY, AND MUNICIPAL EMPLOYEES, AFL-CIO

    Dr. Connair. My name is Dr. Michael Connair. Thank you for 
this honor. And thank you, Peter, for your comments, with which 
I agree.
    Mr. Johnson. And if you would pull that microphone up. Is 
it on?
    Dr. Connair. It is not on.
    Mr. Johnson. There is a button down there.
    Dr. Connair. I am an orthopedic surgeon in solo practice in 
Connecticut, and I am the Vice President of the National Union 
of Hospital and Health Care Employees and the Federation of 
Physicians and Dentists, both are affiliates of AFSCME. I speak 
to you this morning as a physician and from a labor union 
perspective.
    Unions represent the largest block of organized consumers 
in the Nation and have a significant stake in the quality of 
health care. Too often, the quality has been compromised 
because insurers, rather than physicians, inappropriately 
dictate the care a patient receives. Contracts between insurers 
and physicians of course regulate reimbursement for physicians 
but, more importantly for consumers, greatly affect the quality 
and availability of care that we, physicians, provide for our 
patients every day.
    For the past 14 years, my unpaid union role has been to 
educate physician members in lawful ways to obtain fairer 
contractual terms from insurers. Physicians in three of the 
groups that I helped organize, alluded to by Dr. Mandell, were 
sued by the Department of Justice for alleged antitrust 
violations despite Herculean efforts to follow the third-party 
messenger model outlined by the DOJ FTC. The doctors in these 
three groups had simply refused to be coerced into contracts 
that would have resulted in a 20 percent or more decrease in 
reimbursement. The contractual relationship of doctors to 
insurers is similar to the weak position that unorganized 
service workers face when they are up against an employer 
intent upon maximizing profit.
    There is much more at stake though in physician insurance 
contracts than physician finances. Bad contracts give insurers 
the legal right to limit care and impose substandard care on 
patients. As a practical matter, insurers possess monopsony 
power in virtually all U.S. markets, and doctors have no choice 
but to participate in these contracts or go out of business.
    The ability of a physician to obtain a fair contract from 
an insurer grows more difficult every year. A lack of antitrust 
enforcement against insurers and prosecution of about 35 cases 
against physicians have made insurers downright dictatorial in 
their treatment of physicians and patients.
    This is a stack of 33 of the 35 cases either description or 
consent decree. Typically, these cases are about physicians 
seeking to unfix insurance company price fixing. Insurance 
consolidation and the Federal antitrust enforcement pattern has 
had a chilling effect on physicians' willingness to resist 
substandard provider agreements either for their own financial 
survival or to protect the quality of patient care. The 
unprecedented antitrust enforcement has allowed insurers to 
intimidate physicians into accepting low fees or even giving up 
the practice of medicine altogether.
    There is a pressing need to grow the ranks of primary care 
providers, but insurance company practices are inhibiting this 
growth by undervaluing the work of these doctors, often paying 
them less for a visit than a plumber or a vet.
    When it comes to physicians and patients, insurers act with 
impunity because they perceive they have immunity. Insurance 
companies get a free pass on antitrust with respect to 
physicians and a free pass from patient lawsuits under ERISA.
    Health care benefits are provided in lieu of additional 
wages. Unopposed monopoly pricing of insurance products robs 
workers and employers of value. When a third of health care 
dollars are diverted away for patient care, workers are 
shortchanged.
    A false semblance of market stability results when 
intimidated doctors stop fighting and begin signing substandard 
contracts. The one-sided antitrust prosecutions and forced 
consent decrees are always, always against doctors and never--
not once in the history of the U.S. that we can find, and they 
are often unfair and incomplete.
    Some blame goes to the courts. Federal judges are mandated 
by the 2004 amendments to the Tunney Act to review antitrust 
consent decrees for fairness and impact on the public. This is 
not routinely done, and it has been discouraged by the DOJ. 
During the debate on the 2004 amendments, then Chairman 
Sensenbrenner commented that the amendments were to ensure 
judicial review beyond ``the mockery of justice standard.''
    True health care reform requires antitrust reforms; that 
is, a rebalancing of the contractual power between doctors and 
insurers so that patients are guaranteed access to the best 
medical care. Antitrust legislative reforms must include a 
reconsideration of the right of physicians to collectively 
negotiate with payers, as proposed by Campbell and Conyers. 
Antitrust regulatory reforms must include an update of the 1996 
antitrust guidelines consistent with current market realities 
and the right for physicians to develop and participate in 
quality initiates without threat of prosecution.
    And finally, antitrust enforcement reforms must start and 
end with an even-handed application of the rules of competition 
by the DOJ and the FTC, consistent with the intent of the 1890 
Sherman Act. That includes independent review of the last 35 
consent decrees for fairness. The Sherman Act, you will 
remember, was written as a short and general outline of 
fairness principles with the expectation that regulators and 
the courts would tailor the details to the specific market 
situations. Current antitrust enforcement in health care fails 
to treat physicians and consumers fairly.
    I would like to thank Chairman Conyers, Chairman Johnson, 
Ranking Member Coble, and Members of this Subcommittee and 
their staff for holding this hearing. I will be pleased to 
answer any questions.
    [The prepared statement of Dr. Connair follows:]
                Prepared Statement of Michael P. Connair


                               __________

    Mr. Johnson. Thank you, Dr. Connair. We have got a series 
of votes, six of them, which we will go to after we hear from 
Attorney Balto. Please proceed, sir.

           TESTIMONY OF DAVID BALTO, SENIOR FELLOW, 
                  CENTER FOR AMERICAN PROGRESS

    Mr. Balto. Thank you very much, Mr. Chairman.
    You know, I want to compliment the Committee and its staff 
for all the work you have done. Justice Brandeis said that 
sunlight is the best disinfectant. And if he was here today, he 
would really applaud you for all the work the Committee has 
done in bringing attention to important competitive issues.
    I am the former FTC Policy Director, and I usually 
represent consumer groups. And I asked myself the question, who 
represents the consumer? I think that is what this whole debate 
comes down to, who represents the consumer? Over the past 
decade, the FTC and the Department of Justice has said, in 
health care the insurance company represents the consumer; and 
they are wrong.
    What has been the result of that misplaced set of 
priorities? 31 or 35 cases against doctors. Zero, zero cases 
against health insurers' anti-competitive conduct. Zero cases 
against deceptive and fraudulent conduct by the agencies. 
Massive consolidation leading to highly concentrated markets. I 
am a little worried. I don't know about you folks. You just 
went through a year-long, exhaustive debate on health care 
reform, and the representatives of the government couldn't tell 
you that the markets were overly concentrated. That is 
something to worry about.
    What is the result of the misplaced priorities? 35 cases 
against doctors. I did look at all those cases. I examined 
them. Relatively few say that there was some harm. And the harm 
was insurance companies couldn't get the rates they wanted. 
Nothing about consumers in those complaints. Of those 35 cases, 
in only one case was the insurance company upset enough to file 
a private antitrust suit. Give me the money back. Nope. They 
have the FTC to do that. And they don't care about--there is no 
money to get because there is no harm. Did consumers file suits 
in those 35 cases? Zero. Not a one because consumers weren't 
harmed.
    At the same time, what happens when doctors try to get 
together? Well, you have these 1996 guidelines which I helped 
author; and if you think those guidelines are up to date, if 
you think the health care world is the same as it was in 1996, 
you should bet on the Minnesota Gophers beating the Wolverines 
in football. The standards applied are so egregious it is 
impossible for doctors to get advice in a timely fashion.
    Member Goodlatte asked us how long these letters take. I am 
surprised they didn't have the answer. The answer is on page 9 
of my testimony. I went back and looked at the last six 
letters. I talked to the lawyers and doctors who had submitted 
letters to the FTC. The time period is between 245 to 645 days. 
The cost, over $100,000 in each case. The letters, exhaustive. 
When you go outside of health care and you want the advice from 
the government, it takes something like 2 to 3 months. Now the 
agency committed to a 90- to a 120-day period to get these 
letters done. This is clearly out of whack and needs to be 
reformed.
    What is the result of this? Skyrocketing insurance 
premiums, record numbers of uninsured, diminishing 
reimbursement for these doctors, these dedicated doctors who 
are dedicated to serving the public, who are often forced into 
assembly line care.
    Who suffers? Ultimately the patients suffer. What is the 
solution? First, we need vastly stronger health insurance 
enforcement and on both sides, looking both at consumers and on 
physicians.
    There is a really important decision by the Third Circuit 
Court of Appeals on page 3 of my testimony that came out just 
this Tuesday. A large insurance company tried to exploit a 
hospital; and it said, We are not to blame in an antitrust 
sense. We are getting lower premiums. And the court said, You 
are wrong. Maybe you are giving them lower premiums, maybe you 
are not; but the way you are getting lower premiums is by 
giving consumers worse health care. You have to look at the 
total equation, look at the impact on patient quality, look at 
the impact on these doctors.
    Second, the FTC should only bring cases against doctors and 
other providers if there is clear evidence of competitive harm. 
These 31 cases that they brought under their per se rule of 
illegality just didn't make a hill of difference and took the 
limited government resources away from more important things, 
like prosecuting health insurance companies.
    Third, there needs to be new guidelines, and they need to 
have clear safe harbors. I have suggested one for pharmacies.
    Finally, in terms of mergers, both Member Gonzalez and 
Member Conyers posed about how highly concentrated the market 
is. What can you do about that? Well, there is something you 
can do; and the FTC did it for hospitals in this last decade. 
Go back, do a study of consummated mergers, and attack those 
consummated mergers that have harmed consumers. You can 
challenge a merger even if it has been consummated.
    I applaud the Committee's focus on these efforts, and I 
will look forward to trying to assist the Committee in trying 
to lead to sensible antitrust enforcement in the health care 
area.
    [The prepared statement of Mr. Balto follows:]
                   Prepared Statement of David Balto

                               __________

    Mr. Johnson. Thank you, Mr. Balto. One of the issues being 
pro-consumer price savings versus doctors' abilities to eke out 
an honest and profitable occupation or profession is very 
important. And you have struck upon a couple of interesting 
points that I would love to follow up on today. However, with 
the six votes, it is going to take us some time to be able to 
return here, and then there are other things on our agenda for 
this afternoon. So we will have to reschedule this hearing, and 
we will adjourn it today.
    Thank you for coming.
    And by the way, before I adjourn, without objection, 
Members will have 5 legislative days to submit any additional 
written questions which we will forward to the witnesses. You 
have not had any questions yet. So we will have you back. Thank 
you.
    [Whereupon, at 12:11 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

  Responses to questions posed during the hearing to Sharis A. Pozen, 
Chief of Staff and Counsel to the Assistant Attorney General, Antitrust 
          Division, U.S. Department of Justice, Washington, DC






                                

 Responses to Post-Hearing Questions from Richard Feinstein, Director, 
    Bureau of Competition, Federal Trade Commission, Washington, DC


                                 
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