Managed Care: Explicit Gag Clauses Not Found in HMO Contracts, But
Physician Concerns Remain (Letter Report, 08/29/97, GAO/HEHS-97-175).

Pursuant to a congressional request, GAO reviewed contractual
limitations, known as gag clauses, imposed by health maintenance
organizations (HMO), that interfere with the physician-patient
relationship by impeding discussions of treatment options, focusing on:
(1) the types of contract clauses that could impede a physician's
ability to advise patients of all medically appropriate treatment
options; (2) the extent to which these different types of clauses exist
in current HMO contracts with physicians; and (3) the likely
implications of HMO contract language on physician practice.

GAO noted that: (1) the managed care industry, physicians, and health
care attorneys have different views regarding contract language that
could limit a physician's ability to advise patients of all medically
appropriate treatment options; (2) there is general agreement that a
clause that prohibits discussion of procedures or providers not covered
by the plan, and, to a lesser extent, one that requires physicians to
consult with the plan before discussing treatment options with
enrollees, is a gag clause; (3) however, some physicians and health care
lawyers believe that other clauses could restrict the information and
advice that physicians provide about a patient's medical options; (4)
other physician groups, lawyers, and the HMO industry disagree that such
clauses limit medical communication and contend that these are standard
contract clauses designed and used only to protect HMOs' business
interests; (5) of the 529 HMOs in GAO's study, none used contract
clauses that specifically restricted physicians from discussing all
appropriate medical options with their patients; (6) two-thirds of
responding plans and 60 percent of the contracts submitted had a
nondisparagement, nonsolicitation, or confidentiality clause that could
be interpreted by physicians as limiting communication about all
treatment options; (7) contracts with such business clauses often
contained anti-gag language stating that the contract or a specific
provision should not be construed as restricting physician medical
advice to patients or generally encouraging open communication; (8) of
those contracts with one or more of these business clauses, anti-gag
language was found in 67 percent of them; (9) this combination could
mitigate the potential for business clauses to be read by physicians as
limiting discussion of a patient's treatment options; (10) it appears
that HMO contract provisions that may be interpreted as limiting the
medical information that physicians may provide patients are not likely
to have a significant impact on physician practice; (11) physicians GAO
interviewed maintained that they freely communicate with their patients
regarding all medically appropriate care because habitual practice,
professional ethics, and fear of medical liability are stronger
influences on their behavior than contract requirements; and (12)
physicians also pointed out that the increasing power of HMOs in the
health care marketplace and their ability to terminate physician
contracts can bring significant pressure to bear on physicians to modify
their practice patterns or discussions with patients, without relying on
the clauses discussed above.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-97-175
     TITLE:  Managed Care: Explicit Gag Clauses Not Found in HMO 
             Contracts, But Physician Concerns Remain
      DATE:  08/29/97
   SUBJECT:  Health maintenance organizations
             Patient care services
             State law
             Physicians
             Surveys
             Contract specifications
             Liability (legal)
             Health services administration
             Proposed legislation
             Consumer protection

             
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Cover
================================================================ COVER


Report to Congressional Requesters

August 1997

MANAGED CARE - EXPLICIT GAG
CLAUSES NOT FOUND IN HMO
CONTRACTS, BUT PHYSICIAN CONCERNS
REMAIN

GAO/HEHS-97-175

HMO Gag Clauses

(108813)


Abbreviations
=============================================================== ABBREV

  AAHP - American Association of Health Plans
  AMA - American Medical Association
  HCFA - Health Care Financing Administration
  HMO - health maintenance organization

Letter
=============================================================== LETTER


B-276001

August 29, 1997

The Honorable Trent Lott
The Honorable Don Nickles
The Honorable Larry E.  Craig
United States Senate

For consumers, managed health care not only lowers out-of-pocket
costs but has the potential to coordinate medical services and
monitor the quality of care.  Yet, as more Americans enroll in
managed care plans, concerns have been raised about the ability of
patients to make informed choices about their medical care.  Patients
have traditionally relied on physicians to educate them about the
appropriate treatment for their conditions and to advocate with their
insurers for coverage of necessary care.  During the past 2 years,
some physician and consumer advocacy groups have claimed that health
maintenance organizations (HMO) impose contractual
limitations--referred to as "gag" clauses--that interfere with the
physician-patient relationship by impeding discussions of treatment
options.  Health plans contend that these contractual limitations
were never intended to hinder communication between physicians and
patients about medical care.  The controversy has prompted many
states to enact legislation to prohibit gag clauses in managed care
contracts.  Because some health plans are not affected by state laws,
federal legislation is also being considered. 

It has not been clear, however, how many health care plans include
gag clauses in their contracts with physicians or whether such
clauses actually inhibit medical communication with patients. 
Therefore, you asked us to examine (1) the types of contract clauses
that could limit a physician's ability to advise patients of all
medically appropriate treatment options, (2) the extent to which
these different types of clauses exist in current HMO contracts with
physicians, and (3) the likely implications of HMO contract language
on physician practice. 

To answer these questions we undertook three separate efforts.  We
wrote to 622 HMOs asking them to submit copies of current contracts
that are representative of their agreements with primary care and
specialty care physicians.  We collected 1,150 physician contracts
from 529 HMOs, for a response rate of 85 percent.  We reviewed each
contract to identify clauses that could be described as specifically
or potentially limiting medical communication, as well as clauses
that support open discussion of all treatment options with patients. 
We also surveyed 400 attorneys who specialize in managed care, asking
them about their experience drafting and reviewing contracts between
HMOs and physicians.  Usable responses were received from 42 percent
of our sample. 

In addition, we held discussions with officials, staff, and members
of eight professional medical societies to discuss their views and
experiences with HMO contracting.\1 We also met with representatives
from the American Association of Health Plans (AAHP) and the American
Medical Association (AMA).  To help develop our descriptions of
contract clauses and our survey materials for HMOs and health care
attorneys, we consulted with managed care contracting experts. 

While our approach enabled us to capture a variety of perspectives
about the nature of gag clauses, our analysis of their prevalence and
implications was limited in two respects.  First, we were not able to
test the reliability of the HMO responses.  Contracts sent to us may
not be representative, or missing contracts may contain gag clauses. 
Second, because we did not investigate any other forms of written or
oral communication between physicians and HMOs that could limit
discussions of patient treatment options, our findings pertain only
to constraints imposed in contracts.  HMOs need not rely on written
rules in their contracts to modify physician behavior, but may use
guidelines, protocols, physician profiling, counseling, and approval
procedures as well.  (See app.  I for a more detailed description of
our data collection and analysis methodology.)


--------------------
\1 We met with the American Society of Internal Medicine, the
American Psychiatric Association, the American College of Cardiology,
the American College of Obstetricians and Gynecologists, the American
Academy of Family Physicians, the American College of Physicians, the
American Society of Clinical Oncology, and the American Academy of
Ophthalmology. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The managed care industry, physicians, and health care attorneys have
different views regarding contract language that could limit a
physician's ability to advise patients of all medically appropriate
treatment options.  There is general agreement that a clause that
prohibits discussion of procedures or providers not covered by the
plan, and, to a lesser extent, one that requires physicians to
consult with the plan before discussing treatment options with
enrollees, is a gag clause.  However, some physicians and health care
lawyers believe that other clauses--such as those that bar physicians
from disparaging the plan, soliciting patients to join another health
plan, or revealing confidential plan information--could restrict the
information and advice that physicians provide about a patient's
medical options.  Other physician groups and lawyers, and the HMO
industry disagree that such clauses limit medical communication and
contend that these are standard contract clauses designed and used
only to protect HMOs' business interests. 

Of the 529 HMOs in our study, none used contract clauses that
specifically restricted physicians from discussing all appropriate
medical options with their patients.  Two-thirds of responding plans
and 60 percent of the contracts submitted had a nondisparagement,
nonsolicitation, or confidentiality clause that some physicians might
interpret as limiting communication about all treatment options. 
However, contracts with such business clauses often contained
anti-gag language stating that the physician should not misconstrue
the contract or a specific provision as restricting medical advice to
patients or that the physician should foster open communication.  Of
those contracts with one or more of these business clauses, anti-gag
language was found in 67 percent of them.  This combination could
mitigate the potential for business clauses to be read by physicians
as limiting discussion of a patient's treatment options. 

It appears that HMO contract provisions that may be interpreted as
limiting the medical information that physicians may provide patients
are not likely to have a significant impact on physician practice. 
Physicians we interviewed told us that, in general, they and their
colleagues do not carefully read all of their contracts with HMOs. 
They maintained that they freely communicate with their patients
regarding all medically appropriate care because habitual practice,
professional ethics, and fear of medical liability are stronger
influences on their behavior than contract requirements.  Yet,
physicians also pointed out that the increasing power of HMOs in the
health care marketplace and their ability to terminate physician
contracts can bring significant pressure to bear on physicians to
modify their practice patterns or discussions with patients, without
relying on the clauses discussed above. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In January 1996, the AMA's Council on Ethical and Judicial Affairs
issued a statement that gag clauses were an unethical interference in
the physician-patient relationship.  The AMA accused several large
HMOs of having gag clauses and called on all HMOs to cancel contract
provisions that physicians believed prevented them from communicating
openly with patients.  Throughout that year, several HMOs, including
U.S.  Healthcare and Humana, announced publicly that they were adding
language to their contracts that supports open communication between
physicians and patients.\2 In a December 1996 policy statement, the
AAHP's Board of Directors announced that "health plans, by contract
or policy, will not prohibit physicians from communicating with
patients concerning medical care, medically appropriate treatment
options (whether covered or not), or from making factual and
nonproprietary statements regarding the plan."

In recent years, several states have taken action on this issue as
part of their efforts to strengthen consumer protections in managed
care.  As of July 1997, 32 states had passed laws that protect the
right of physicians and patients to discuss all treatment options.\3
In general, provisions in state legislation prohibit contracts from
limiting providers from, or penalizing providers for, disclosing
information to patients about their medical conditions or treatment
options; advocating on behalf of patients; or providing information
about HMO policies, including financial incentives or arrangements. 

The federal government also has taken action against gag clauses by
notifying HMOs and other health plans that they may not restrict what
physicians tell Medicare or Medicaid patients about treatment
options.  In November 1996, the Health Care Financing Administration
(HCFA) sent letters to 343 health plans informing them that an
existing provision in the government's Medicare contract with the
plans would be interpreted as banning gag clauses and calling for a
free exchange of information between HMO physicians and patients.\4
Two months later, the agency sent letters to state Medicaid directors
warning that Medicaid HMOs that prevent physicians from discussing
treatment options with patients violate federal law. 

In February and March 1997, bills were introduced in the Congress to
prohibit interference with certain types of medical communication
between physicians and patients through contracts or agreements.\5
Medical communication is defined as pertaining to the patient's
health status, medical care, or treatment options; any utilization
review requirements that may affect treatment options; or any
financial incentives that may affect the patient's care.  The
provisions of the bills would apply to self-funded plans under the
Employee Retirement Income Security Act of 1974 (ERISA), and states
would be allowed to enforce these or higher standards on those plans
subject to state regulation.\6


--------------------
\2 In February 1996, U.S.  Healthcare announced that it was revising
its contracts to allow physicians to talk to patients about the way
they are paid and to discuss proprietary company information if it is
necessary or appropriate for the diagnosis and care of a patient. 
However, physicians are not allowed to discuss specific payment
rates.  In October 1996, Humana informed its providers that it would
not enforce nondisparagement clauses in existing contracts, and as
contracts are renegotiated or revised, such clauses would be removed. 

\3 According to information obtained from the AMA and Families USA
Foundation, the following states have passed patient protection
legislation that addresses the gag clause issue:  Arizona, Arkansas,
California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho,
Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, Oregon,
Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont,
Virginia, Washington, and Wyoming. 

\4 The notice said that "Medicare HMO patients were entitled to all
benefits available in the standard Medicare program, which pays
doctors a separate fee for each service." Among those benefits it
cites "advice from doctors on medically necessary treatment options."
HCFA therefore concluded that "any contract that limits a doctor's
ability to advise and counsel a Medicare beneficiary was a violation
of the federal Medicare law."

\5 See H.R.  586 and S.  449, each entitled The Patient Right to Know
Act. 

\6 Legislation to ban gag clauses in HMO contracts was introduced in
the 104th Congress.  It would have barred insurance plans covering
private sector workers from restricting physician-patient
communication regarding treatment options.  The legislation failed to
pass. 


   WHAT CONSTITUTES A GAG CLAUSE
   IS SUBJECT TO INTERPRETATION
------------------------------------------------------------ Letter :3

A commonly understood definition of a gag clause is a contract
provision that limits physicians' ability to advise patients of all
medically appropriate treatment options.  There is little consensus,
however, about whether certain clauses that may appear in HMO
contracts meet this definition.\7 Most agree that language that
prevents physicians from giving patients complete information about
their medical care choices or restricts the timing of such
discussions is a gag clause.  However, there is disagreement about
other contract clauses that on their face serve a business
purpose--such as those related to nondisparagement, nonsolicitation,
and business confidentiality--but are open to physician
interpretation.  To minimize inappropriate interpretation of such
clauses, some HMOs have developed anti-gag language supporting
physician freedom to discuss a full range of treatment options. 


--------------------
\7 In addition, we found no reported court cases that provide
guidance on what constitutes a gag clause. 


      CLAUSES THAT SPECIFICALLY
      RESTRICT COMMUNICATION
      REGARDING PATIENT CARE
---------------------------------------------------------- Letter :3.1

Physicians, the managed care industry, and health care attorneys
generally agree that any contract language that places an outright
restriction on discussion of treatment options that could be
beneficial but that the plan may not cover or may want to discourage
for financial or other reasons is a gag clause.  This would include
contract provisions that bar physicians from discussing procedures
that are considered experimental or other treatment alternatives the
plan does not offer.  It would also include clauses that prevent
physicians in HMOs from telling patients about specialists or other
providers not covered by their plan. 

There is somewhat less agreement whether language that restricts the
timing of discussions until after a recommended procedure has been
approved by the plan is a gag clause.  For example, contract clauses
could require physicians to obtain permission from the health plan
before discussing the possibility of hospital care with their
patients.  AMA and other physician associations contend that allowing
the plan's utilization manager, medical director, or other plan
representative to discourage discussion of certain treatments impedes
a physician's ability to advise patients.  Most health care attorneys
who responded to our survey (91 percent of those representing
physicians, 58 percent of those representing HMOs, and 75 percent of
those representing both groups) agreed that this type of clause
could, to a moderate or great extent, limit a physician's ability to
inform patients about all treatment options.  However, AAHP argues
that this practice ensures quality care by facilitating the most
accurate discussion of covered benefits. 


      BUSINESS CLAUSES THAT COULD
      INTERFERE WITH MEDICAL
      COMMUNICATION
---------------------------------------------------------- Letter :3.2

There is far less agreement about whether several other types of
clauses found in contracts between physicians and HMOs, which on the
surface serve a business purpose, could limit physician-patient
communication concerning all treatment options.  Most of the medical
groups we met with told us that these clauses have a "chilling
effect," denying physicians the flexibility needed to best advise
patients about medical care.  However, the HMO industry considers
them standard contract provisions necessary to protect the plan's
business interests and membership.  The health care attorneys we
surveyed were divided on whether such clauses could interfere with
medical communication. 


      NONDISPARAGEMENT CLAUSE
---------------------------------------------------------- Letter :3.3

Nondisparagement language requires a physician to refrain from making
statements that could undermine patient, employer, union, or public
confidence in the health plan.  Such clauses may have a penalty, such
as termination, attached.  For example, one contract contained the
following language:  "[The plan] may terminate this agreement
immediately, .  .  .  if the Specialty Provider acts in such a way
that undermines or may undermine the confidence of Members, potential
Members or the public in [the plan] or in the quality of care which
Members receive."

According to HMO industry representatives, nondisparagement clauses
are meant to protect a plan's business interests by requiring that
physicians dissatisfied with an HMO complain to the HMO and not to
the patient.  In May 1996 testimony before the Subcommittee on Health
and Environment, House Committee on Commerce, the President and CEO
of AAHP testified that "the primary purpose of an anti-disparagement
clause is simply to prevent a provider from involving patients in
disputes and disagreements between physicians and health plans."
However, AMA and several other medical associations we met with
believe that the nondisparagement language could preclude physicians
from expressing disagreement with the plan's coverage or utilization
decisions regarding a course of treatment.  Physicians told us that,
if broadly interpreted, this clause could prevent physicians from
criticizing or questioning a plan's rulings on behalf of the patient. 

The health care attorneys we surveyed had varied opinions on
nondisparagement clauses.  Sixty-four percent of attorneys
representing physicians reported that such clauses could have a
moderate to great effect on a physician's discussion of patient
treatment options, while 25 percent of those representing HMOs took
this position, and 46 percent of those working with both groups
agreed with this statement. 


      NONSOLICITATION CLAUSE
---------------------------------------------------------- Letter :3.4

A nonsolicitation clause bars physicians from providing patients with
information that might encourage them to enroll in another health
plan.  For example, a contract may state that the " .  .  . 
PHYSICIAN shall not directly or indirectly engage in .  .  .  any
action .  .  .  which HEALTH PLAN may reasonably interpret to be
designed to persuade a Member to discontinue his/her relationship
with HEALTH PLAN, to disenroll from a plan or provider covered by a
contract with HEALTH PLAN, or to encourage a Member to receive health
care services from PHYSICIAN on a fee-for-service basis." Such a
clause would preclude a participating physician from informing
patients about the benefit coverage offered by a competing health
plan or that the physician's health plan affiliation has changed. 

The managed care industry believes that health plans should be able
to prohibit physicians in their networks from soliciting patients to
join a different plan that the physician also works for or will be
leaving to work for.  However, some physician associations expressed
concern that such a clause could constitute "patient abandonment." In
their view, it is essential to notify patients in the course of
treatment that their physician will not be able to continue their
care under that plan. 

Most health care attorneys responding to our survey indicated that
nonsolicitation clauses would have little or no effect on physician
discussions of treatment options.  Among the attorneys representing
HMOs, 89 percent believed nonsolicitation clauses were not a problem
for physician-patient medical communication; among those working with
physicians, 68 percent shared this opinion, as did 75 percent of
those representing both groups. 

Although infrequent, some nonsolicitation clauses specify that, if
the agreement between the plan and the physician is terminated, the
physician is prohibited from communicating with plan members
concerning the termination, the options available to members to join
other plans or to switch to another doctor in the same plan, or that
the physician "will no longer be the member's health care provider."
Any such communication by a physician with a member or any attempt
"directly, indirectly, or by implication, to advise or encourage" a
plan member to disenroll from the plan, to switch to another plan, or
to change providers is a breach of contract.\8 According to the AMA,
this type of contract provision has strong potential for inhibiting
discussion of treatment options between a physician whose
relationship with the plan has been terminated and his patients. 


--------------------
\8 Although the plan agrees to notify members at least 30 days in
advance of the physician's termination, it is not clear that this
will always be possible because the contracts in which this clause
appears also provide that the plan may terminate the physician
immediately in the event that any one of a dozen events occur. 


      BUSINESS CONFIDENTIALITY
      CLAUSE
---------------------------------------------------------- Letter :3.5

Business confidentiality clauses require physicians to maintain the
confidentiality of such proprietary information as the plan's payment
and incentive structure, medical management criteria, and clinical
practice protocols.  One such clause reads "You agree to treat as
confidential this Agreement (including the compensation provisions
hereof), all provider and Covered Person listings, utilization data,
reports and procedures, quality assurance procedures, credentialing
procedures, and all other procedures, programs and protocols of [the
plan] or Program Sponsors and You agree not to disclose any such
information to anyone unless such disclosure is authorized in writing
by [the plan] or required by applicable law."

The HMO industry believes this type of contract clause protects their
business interests.  Testifying before the Subcommittee on Health and
Environment, House Committee on Commerce, in May 1996, the President
and CEO of AAHP stated that it is appropriate for health plans to
restrict the disclosure of specific coverage decision procedures and
compensation amounts because "the competition among health plans is
intense, and the release of such information about one plan can give
its competitors an unfair advantage .  .  .  and eliminate the
incentive to find more effective methods for delivering care."

Some physician associations argue that such contract provisions
prevent physicians from telling a patient that the HMO financial
arrangements may penalize them for making referrals to specialists.\9
Nevertheless, most of the attorneys responding to our survey believe
that confidentiality clauses are unlikely to restrict discussions of
treatment options.  Among attorneys representing physicians, 68
percent of those took this position, compared to 83 percent of those
representing HMOs and 77 percent of those representing both groups. 


--------------------
\9 In March 1996, HCFA announced rules requiring managed care plans
under Medicare and Medicaid to disclose financial arrangements for
physicians to the agency and patients.  In Shea v.  Esensten, 107
F.3d 625 (8th Cir.  1997), the court held that the failure of an HMO
providing services for an employee benefit plan to disclose financial
incentives that discourage referrals is a breach of its fiduciary
duty. 


      ANTI-GAG CLAUSE USED TO
      MINIMIZE INAPPROPRIATE
      INTERPRETATIONS
---------------------------------------------------------- Letter :3.6

In an effort to mitigate any impact of clauses that physicians say
hinder treatment discussions with patients, HMOs may include anti-gag
statements in their contracts.  In contrast to language that might
limit medical communication, an anti-gag clause generally states that
provisions in the contract are not to be construed as prohibiting
discussions of care-related matters with patients.  As expressed in
one contract, "The parties agree further that nothing contained in
this agreement shall be construed to alter the physician-patient,
hospital-patient or health care provider-patient relationship or to
interfere with the Group's or Group Providers' ability to provide
necessary services in accordance with current medical standards."

Some anti-gag clauses encourage physicians to discuss with their
patients recommended treatments and medically appropriate
alternatives.  For example, one contract affirmed that "A primary
care physician shall have the right and is encouraged to discuss with
his or her patients pertinent details regarding the diagnosis of the
patient's condition, the nature and purpose of any recommended
procedure, the risks and benefits of any recommended treatment, and
any reasonable alternatives to such recommended treatment."

In addition to anti-gag clauses that apply to the contract as a
whole, some plans use exculpatory language applicable to a specific
business clause.  For example, in a nondisparagement clause, one
contract stated that "This provision does not prohibit the Group or
Group Providers from communicating any information relevant to
treatment and Covered Services, from responding to Members' queries
regarding the Group and Group Providers' Agreement with [the plan],
or from discussing the comparative merits of different health care
payers even if such discussion is critical of [the plan]."


   CURRENT CONTRACTS CONTAIN NO
   SPECIFIC RESTRICTIONS ON
   MEDICAL COMMUNICATION, BUT
   OTHER TYPES OF CLAUSES APPEAR
   OFTEN
------------------------------------------------------------ Letter :4

Of the contracts submitted for our review, none specifically
restricted discussion of treatment options.\10 Many contracts
contained business clauses that--while they do not explicitly limit
medical communication--may be viewed by physicians as having that
effect.  However, most plans did include anti-gag language in their
contracts that could mitigate the potential for physicians to
construe a contract or a particular provision as preventing them from
giving patients complete information about treatment options or
financial incentives to limit treatment. 

Of the 529 HMOs in our study, two-thirds used one or more business
clauses that could be interpreted as imposing restrictions on the
exchange of care-related information between physicians and patients. 
Specifically, 7 percent used nondisparagement clauses, 32 percent
used nonsolicitation clauses, and 62 percent used confidentiality
clauses.  In addition, 60 percent of all responding HMOs used
anti-gag language asserting that the contract or a specific business
clause does not seek to limit communications between physicians and
patients concerning all treatment options.\11 (See fig.  1.)

   Figure 1:  Number of HMOs Using
   Restrictive, Nondisparagement,
   Nonsolicitation,
   Confidentiality, and Anti-gag
   Clauses

   (See figure in printed
   edition.)

At the contract level, anti-gag language was fairly prevalent in
combination with clauses that physicians might interpret as barring
them from informing a patient of all medically appropriate treatment
alternatives.  In 1,150 contracts currently used to engage
physicians, 60 percent contained at least one of the three business
clauses and 67 percent of those contracts included anti-gag language
that could counteract the view of some physicians that the clauses
restrict medical communication.  Anti-gag language applicable to the
contract or a particular provision (and commonly both) were found in
64 percent of contracts that had a nondisparagement clause, 68
percent of the contracts with some form of nonsolicitation clause,
and 70 percent of the contracts that contained a business
confidentiality clause.  (See fig.  2.) Even in contracts with none
of the three business clauses that could be viewed as potentially
restrictive, 27 percent contained anti-gag provisions. 

   Figure 2:  Number of Contracts
   Containing Nondisparagement,
   Nonsolicitation, or
   Confidentiality Clauses, With
   and Without Anti-Gag Clauses

   (See figure in printed
   edition.)

Recently, physician networks have started their own health plans to
compete with traditional insurance companies and managed care
organizations.  One presumed advantage of this type of arrangement is
that decisions about patient care are not encumbered by constraints
from managed care entities.  However, the same issues of restrictive
contract language arise in provider-based delivery systems.  Of the
HMOs in our review that identified themselves as being owned and
operated by physicians, none used specifically restrictive language
and 54 percent used at least one of the business clauses that could
be interpreted as limiting participating physician ability to inform
patients about the range of treatments available for their
conditions.  In addition, 43 percent used anti-gag language to
clarify that medical communication between physicians and patients is
not being constrained. 


--------------------
\10 This finding is consistent with recent research on Medicaid
managed care contracts showing few instances of explicit gag rule
provisions.  See Sara Rosenbaum, Peter Shin, Barbara Smith, and
others, Negotiating the New Health System:  A Nationwide Study of
Medicaid Managed Care Contracts (Washington, D.C.:  The George
Washington University Center for Health Policy Research, Feb.  1997). 

\11 Because 54 percent of the plans included statements in their
contracts that require physicians to comply with limitations set out
in other documents, this accounting of contract clauses may not
capture all of the potential limitations on physician discussion of
treatment options. 


   BUSINESS CLAUSES, PER SE,
   UNLIKELY TO AFFECT PHYSICIAN
   PRACTICE
------------------------------------------------------------ Letter :5

Based on our interviews with physician groups, it appears that HMO
contract provisions that may be interpreted as limiting the medical
information provided to patients are not likely to have a significant
impact on physician practice.  Such clauses may not actually
interfere with patient communication about treatment options because
physicians are not fully aware of them, do not interpret them as
hindering communication, or choose to disregard them.  Still,
physicians are concerned about discipline or the threat of
termination by health plans for lack of adherence to plan utilization
management policies.  They say that "terminate at will" clauses in
their contracts and their economic dependence on managed care
reinforce HMO policies on physician management of patient care and
costs. 


      PHYSICIAN-PATIENT
      COMMUNICATION INFLUENCED BY
      MANY FACTORS
---------------------------------------------------------- Letter :5.1

There are a number of reasons why physicians may not comply with
clauses in their HMO contracts.  The physician groups consulted in
this review reported a lack of awareness of contract language, noting
that physicians--especially those under contract with multiple health
plans--seldom read the provisions in their HMO agreements carefully. 
They told us that their behavior is more likely to be influenced by
training and experience, professional ethics, and malpractice
concerns than by any restrictions imposed by an HMO.  As one health
care attorney put it, gag clauses "are essentially unenforceable as a
practical matter, and doctors are going to talk with their patients
regardless of the contract clause."

According to practicing physicians, their communication with patients
is largely governed by their professional code of conduct.\12 Under
the principle of informed consent, physicians have an ethical and
legal duty to provide patients with information about the benefits,
risks, and costs of various treatments.  For the most part, medical
professionals consider their primary obligation to be to the patient,
and patients look to them to be their advisers and advocates,
regardless of any contract provisions to the contrary.  In 1996,
AMA's Council on Ethical and Judicial Affairs addressed concerns that
contractual restrictions on physicians acting in their role as
patient adviser could jeopardize informed consent.\13 It stated that
"the physician's obligation to disclose treatment alternatives to
patients is not altered by any limitations in the coverage provided
by the patient's managed care plan.  Patients cannot be subject to
making decisions with inadequate information.  This would be an
absolute violation of the informed consent requirements."\14

Some physicians expressed concern that withholding information from
patients, even under instructions from an HMO, could increase their
risk of being sued.  In fact, a study of malpractice depositions
identified communication problems between physicians and patients in
70 percent of cases.\15 Others believe that adherence to contract
restrictions could result in poorer outcomes and, thus, increase
their exposure to medical malpractice claims. 


--------------------
\12 AMA's Code of Medical Ethics is the governing code of ethics for
physicians and is recognized as the profession's standard by state
medical boards, state and federal courts, and the Congress. 

\13 For a discussion of the potential conflict of interest of
physicians, see Institute of Medicine, Committee on Choice and
Managed Care, Improving the Medicare Market:  Adding Choice and
Protections (Washington, D.C.:  National Academy Press, 1996). 

\14 Report of the Council on Ethical and Judicial Affairs, CEJA
Report 1-A-96 (Chicago, Ill.:  AMA, 1996) . 

\15 See H.B.  Beckman, K.M.  Markakis, A.L.  Suchman, and others,
"The Doctor-Plaintiff Relationship:  Lessons From Plaintiff
Depositions," Archives of Internal Medicine, Vol.  154 (1994), pp. 
1365-70. 


      COMMUNICATION RESTRICTIONS
      COULD BE ENFORCED THROUGH
      TERMINATION CLAUSES
---------------------------------------------------------- Letter :5.2

Many physicians and attorneys believe that the most powerful
incentive for a physician to cooperate with HMO policies on
physician-patient communication is the possibility that his or her
contract could be canceled.  Of the contracts reviewed for this
study, nearly all were initially written for a period of 1 year or
less, and were renewable for 1-year periods.  To the extent that the
plan threatens the economic well-being of those ignoring its contract
provisions, physicians may feel forced to be more compliant.  This is
more likely to be the case in regions where managed care dominates
the local health care market than where managed care is less
prevalent. 

One means HMOs have for enforcing physician adherence to plan
policies, procedures, and utilization management guidelines is the
"without cause" or "at will" termination clause, which we found in 72
percent of the HMO contracts we reviewed.  This clause allows an HMO
to terminate its contract with a physician without having to specify
a reason, generally with a notice period of 30, 60, or 90 days.\16
The HMO industry considers this a standard business clause, giving
plans the ability to direct and control its physician network to
ensure high-quality medical care.  One physician group we met with
agreed, saying that HMOs must be able to remove poor-performing
physicians from their network. 

However, other physicians we spoke with said that terminate-at-will
clauses provide an incentive for physicians to comply with
restrictions on patient communication.  An attorney who represents
physician groups in contract negotiations told us that compliance
with restrictive language "may be somewhat difficult to enforce but
the physician is very much aware that a contract breach may likely
result in termination from the HMO." A similar point was made by one
of the health care attorneys responding to our survey who commented,
"I have recently seen communications from plans advising that
termination without cause could result from physicians' expression of
opinion to patients and others on issues relative to level of care
and length of stay, if those opinions were at variance from the
opinions of the plan medical directors or utilization management
personnel."

Physicians also told us that the termination clause becomes
especially relevant in regions where the health care marketplace is
dominated by a few large managed care plans.  In this situation,
physicians may be less willing to challenge HMO policies because they
view their participation in managed care plans as essential to
sustain their practice.  Many physicians, especially those in
oversupplied specialties, believe that they have a weak bargaining
position and are vulnerable in these relationships.\17 Aware of the
possibility of termination, physicians and other practitioners may
feel that they must become "managed care friendly."


--------------------
\16 This provision limits the physician's legal ability to contest
the discharge because no cause of the discharge is given.  See Julia
A.  Martin and Lisa K.  Bjerknes, "The Legal and Ethical Implications
of Gag Clauses in Physician Contracts," American Journal of Law &
Medicine, Vol.  22, No.  4 (winter 1996), pp.  433-76. 

\17 Lynn Etheredge and Stanley B.  Jones, "Consumers, Gag Rules, and
Health Plans:  Strategies for a Patient-Focused Market," Research
Agenda Brief, Health Insurance Reform Project (Washington, D.C.: 
George Washington University, May 1997). 


   CONCLUSION
------------------------------------------------------------ Letter :6

The dispute over gag clauses appears to be part of the broader
criticism of managed care.  The HMO industry is facing growing
criticism from consumer groups and physicians over a variety of
practices that they consider to be too restrictive.  However,
restrictive gag clauses in contracts, by themselves, do not appear to
be limiting physicians' ability to advise their patients about all
medically appropriate treatment options.  Even taking into account
the prevalence of business clauses that could be interpreted by
physicians as interfering with medical communications, it is unlikely
that these contract clauses actually limit physicians' discussions of
all treatment options with their patients.  Rather, it is the
contractual relationship itself--its short duration and provision for
termination without cause--that may make physicians feel constrained
from speaking openly with their patients. 


---------------------------------------------------------- Letter :6.1

Because information in this report does not pertain to federal
agencies, we did not seek agency comments.  We did, however, obtain
comments on our draft report from experts in managed care and health
care law.  They generally agreed with the information presented. 

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days from the date of this letter.  At that time, we will
send copies to interested parties and make copies available to others
on request.  If you or your staff have any questions regarding this
report, please call Rosamond Katz on (202) 512-7148 or me on (202)
512-7119.  Major contributors to this report are listed in appendix
II. 

Bernice Steinhardt
Director, Health Services Quality
 and Public Health Issues


DATA COLLECTION AND ANALYSIS
METHODOLOGY
=========================================================== Appendix I

This appendix describes the approaches we used to examine the nature,
extent, and implications of gag clauses in contracts between
participating physicians and HMOs.  First, we requested contracts
from HMOs and reviewed them for evidence of gag clauses.  Second, we
surveyed lawyers knowledgeable about managed care contracting to
learn about their views of various types of contract clauses. 
Finally, we met with physicians from national medical associations to
discuss their experiences in contracting with HMOs.  The following
discusses the scope, data sources, and the methodology used for each
of these efforts. 


   COLLECTING AND ANALYZING HMO
   CONTRACTS
--------------------------------------------------------- Appendix I:1

To determine the prevalence of gag clauses, we sent letters to 622
HMOs asking them to forward contracts for our review.\\18 These HMOs
represented the universe of plans in operation as of January 1, 1996,
as compiled by Interstudy, Inc.\19 In our letter, we requested a
representative sample of contracts through which the HMO currently
engages physicians, including both direct contracting and
subcontracting arrangements.  We asked each plan to submit a copy of
a representative contract (including amendments) used with primary
care physicians and specialists.\20

In our letter, we assured the HMOs that the information they
submitted to us would be aggregated with information obtained from
other sources and that individual respondents would not be separately
identified.  After a follow-up mailing, we received 1,150 physician
contracts from 529 plans, for a response rate of 85 percent of
plans.\21

In addition to requesting contracts, we asked each HMO to provide
information on a variety of descriptive characteristics.  A
compilation of their responses shows the following profile of those
HMOs responding to our request letter:\22

  -- 70 percent were independent practice association or network
     model HMOs;

  -- 46 percent had fewer than 25,000 enrollees, 18 percent had
     25,001 to 50,000 enrollees, 10 percent had 50,001 to 100,000
     enrollees, and 26 percent had more than 100,000 enrollees;

  -- the median number of primary care physicians under contract with
     each plan was 727 and the median number of specialists was
     1,547;

  -- 74 percent contracted to serve Medicare beneficiaries, Medicaid
     recipients, or both;

  -- 39 percent of respondents were nationwide HMO companies; and

  -- 67 percent identified their tax status as for-profit, 14 percent
     as nonprofit (taxable), and 18 percent as nonprofit
     (nontaxable). 

To facilitate the review of contracts, we identified various types of
contract clauses that could impede a physician's ability to advise
patients of all medically appropriate treatment options.  We
developed descriptions of restrictive, nondisparagement,
nonsolicitation, confidentiality, anti-gag, and terminate-at-will
clauses in consultation with health care attorneys and managed care
consultants with expertise in HMO contracting.  We reviewed the
contracts submitted by the HMOs and recorded the presence of each
clause that we judged to meet one of the descriptions we developed. 
A plan was recorded as using a particular clause if any one of its
contracts contained such language.\23

In two respects, this approach limits our ability to generalize about
the extent of HMO restrictions on medical communication.  First, we
were not able to test the reliability of the HMO responses; contracts
sent to us may not be representative or missing contracts may contain
gag clauses.  Second, some physicians and health care attorneys have
indicated that efforts to control physician communication with
patients may also take noncontractual forms, such as policy
statements in a provider manual or discussions with a medial
director.  An examination of these forms was beyond the scope of this
review. 


--------------------
\18 The letter to the HMOs cited our authority (under 29 U.S.C. 
1143a) to study "employee benefit plans." For the purpose of
conducting such studies, we have access to the records of parties,
including managed care organizations, that are providing services to
those employee benefit plans. 

\19 See The Interstudy Competitive Edge:  HMO Directory 6.2 (St. 
Paul, Minn.:  Interstudy, Aug.  1996).  In some cases, the HMO
responding to our request submitted contracts that were used by a
number of affiliated plans that had been listed individually in the
directory.  We recorded this response as if it was from each of the
individual plans, rather than a single parent entity.  In cases where
HMOs had merged since the directory was compiled, we recorded the
responses from the new entity as representative of the each of the
former plans.  This was done to maintain consistency with the
original listing in the directory. 

\20 In asking for copies of representative contracts, we stipulated
that such contracts should be reasonably typical of the plan's
universe of contracts with physicians.  A contract would be
representative, for example, if it (or substantially similar versions
of it) covered a majority of physicians under contract or if it
contained relevant clauses that are common to the plan's contracts
with a majority of physicians. 

\21 The size and geographic distribution of nonrespondents were
similar to those plans that did submit contracts.  Some of the plans
that did not submit contracts notified us that they were no longer
offering an HMO product or were not operating as an employee benefit
plan. 

\22 For the most part, these data were supplied by the HMOs
submitting contracts.  Where a respondent failed to provide complete
information on plan characteristics, we obtained data on missing
elements from the Interstudy Directory, if available.  Therefore,
this analysis accounts for 75 to 93 percent of responding HMOs. 

\23 As one would expect, we found among plans a great deal of
variation in the language of clauses within the same category.  For
example, some nonsolicitation clauses are worded broadly to prohibit
any communications that might influence a patient to change plans,
while others are limited to specific efforts by physicians to
convince patients to change.  The classifications of clauses are
therefore to some extent judgmental. 


   SURVEY OF HEALTH CARE ATTORNEYS
--------------------------------------------------------- Appendix I:2

We obtained a list of about 8,500 attorneys from the National Health
Lawyers Association directory.  From this list, 1,505 attorneys were
identified as knowledgeable about managed care.  Of those attorneys,
1,023 primarily represented payers, including HMOs; 344 represented
physicians or other providers; and 138 were associated with other
groups.  From each of the first two subgroups we selected a random
sample of 200 attorneys, 400 in total, for our mail survey. 

The survey consisted of multiple-choice questions that asked about
the attorney's perceptions and experiences reviewing or drafting
contracts between HMOs and physicians.  After we mailed a follow-up
letter, our overall response rate was 63 percent.  However, we
excluded from our analysis 87 respondents who were not sufficiently
experienced in HMO-physician contracting to complete the survey.  Of
the final 166 respondents, 36 told us that they primarily represented
HMOs, 86 mostly represented physicians, and 44 said that they
represented both physicians and HMOs. 


   DISCUSSION GROUPS WITH
   PRACTICING PHYSICIANS
--------------------------------------------------------- Appendix I:3

To obtain the perspective of physicians, we held discussions with
members from eight professional medical societies:  the American
Society of Internal Medicine, the American Psychiatric Association,
the American College of Cardiology, the American College of
Obstetricians and Gynecologists, the American Academy of Family
Physicians, the American College of Physicians, the American Society
of Clinical Oncology, and the American Academy of Ophthalmology.  At
each discussion group, we interviewed 3 to 11 practicing physicians,
as well as officials and staff of the association.  In total, we
spoke with 42 physicians. 

At these meetings, we sought the physicians' opinions about what
constitutes a gag clause, their familiarity with clauses in their
contracts, and the implications of such clauses on how they interact
with their patients.  We also asked about the potential influence of
other written and verbal communications with the HMO on their ability
to inform patients of all medically appropriate treatment options. 

We conducted our review between February and July 1997 in accordance
with generally accepted government auditing standards. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

Rosamond Katz, Assistant Director, (202) 512-7148
Barry Bedrick, Associate General Counsel
Jennifer Grover, Senior Evaluator
Elsie Picyk, Senior Evaluator/Computer Specialist
Evan Stoll, Senior Evaluator/Computer Specialist
Ann V.  White, Senior Evaluator
Craig Winslow, Senior Attorney


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