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\\/ S. Hrg. 103-373 ANTITRUST ISSUES IN THE HEALTH CARE INDUSTRY Y 4, F 49: S. HRG. 103-373 Antitrust Issues in the Health Care... HEARING BEFORE THE SUBCOMMITTEE ON MEDICARE AND LONG-TERM CARE OF THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION MAY 7, 1993 Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 72-805—CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-043450-5 S. Hrg. 103-373 ANTITRUST ISSUES IN THE HEALTH CARE INDUSTRY 4. F 49: S, HRG, 103-373 titrust Issues in the Health Care. HEARING BEFORE THE SUBCOMMITTEE ON MEDICARE AND LONG-TERM CARE OF THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED THIRD CONGRESS FIRST SESSION MAY 7, 1993 Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 72-805—CC WASHINGTON : 1993 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice,Washington.DC 20402 ISBN 0-16-043450-5 COMMITTEE ON FINANCE DANIEL PATRICK MOYNIHAN, New York, Chairman MAX BAUCUS, Montana BOB PACKWOOD, Oregon DAVID L. BOREN. Oklahoma BOB DOLE, Kansas BILL BRADLEY, New Jersey WILLIAM V. ROTH, Jr., Delaware GEORGE J. MITCHELL. Maine JOHN C. DANFORTH, Missouri DAVID PRYOR, Arkansas JOHN H. CHAFEE, Rhode Island DONALD W. RIEGLE, Jr., Michigan DAVE DURENBERGER, Minnesota JOHN D. ROCKEFELLER IV, West Virginia CHARLES E. GRASSLEY, Iowa TOM DASCHLE, South Dakota ORRIN G. HATCH, Utah JOHN B. BREAUX, Louisiana MALCOLM WALLOP, Wyoming KENT CONRAD, North Dakota Lawrence ODonnell, Jr., StaffDirector Edmund J. Mihalski, Minority ChiefofStaff Subcommittee on Medicare and Long-Term Care JOHN D. ROCKEFELLER FV, West Virginia, Chairman MAX BAUCUS, MonUna DAVE DURENBERGER, Minnesota GEORGE J. MITCHELL, Maine BOB PACKWOOD, Oregon DAVID PRYOR, Arkansas BOB DOLE, Kansas TOM DASCHLE. South Dakota JOHN H. CHAFEE, Rhode Island KENT CONRAD, North Dakota CHARLES E. GRASSLEY, Iowa ORRIN G. HATCH, Utah (II) CONTENTS OPENING STATEMENTS Page Rockefeller, Hon. John D., IV, a U.S. Senator from West Virginia, chairman ofthe subcommittee 1 Durenberger, Hon. Dave, a U.S. Senatorfrom Minnesota 2 Daschle, Hon. Thomas A., a U.S. Senator from South Dakota 7 Baucus, Hon. Max, a U.S. Senator from Montana 8 COMMITTEE PRESS RELEASE Finance Subcommittee on Medicare to Hold Hearing on Antitrust Issues in Health Care Industry 1 ADMINISTRATION WITNESS Egan, James C, Jr., Director for Litigation, Bureau of Competition, Federal Trade Commission, Washington, DC, accompanied by Dr. James Langenfeld, Economist 20 CONGRESSIONAL WITNESS Metzenbaum, Hon. Howard M., a U.S. Senator from Ohio 9 PUBLIC WITNESSES Proger, Phillip A., Esq., Jones, Day, Reavis & Pogue, Washington, DC 17 Cooper, Ellen S., Assistant Attorney General, and Chief, Antitrust Division, State ofMaryland, and Chair, Health Care Working Group, National Asso- ciation ofAttorneys General, Baltimore, MD 22 Schenken, Jerald R., M.D., member, board of trustees, American Medical Association, Omaha, NE 40 Hansen, Erling, general counsel. Group Health Association ofAmerica, Wash- ington, DC 42 Malone, Beverly, Ph.D., R.N., F.A.A.N., dean and professor. School of Nurs- ing, North Carolina A&T University, Greensboro, NC, on behalf of the American Nurses Association 43 Pawlowski, Eugene P., president, Bluefield Regional Medical Center, Bluefield Health Systems, Inc., Bluefield, WV, on behalf of the American Hospital Association 45 WetMzienlnle,toSntkeav,e,MNexecutive director. Business Health Care Action Group, 48 ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED Baucus, Hon. Max: Opening statement 8 Cooper, Ellen S.: Testimony 22 Prepared statement 59 Responses to questions submitted by: Senator Rockefeller 62 Senator Hatch 63 Daschle, Hon. ThomasA.: Opening statement 7 (III) IV Page Durenberger, Hon. Dave: Opening statement 2 Prepared statement 64 Egan, James C, Jr.: Testimony 20 Prepared statement 66 Responses to questions submitted by: Senator Rockefeller 74 Senator Durenberger 86 Senator Hatch 91 Hansen, Erling: Testimony 42 Prepared statement 112 Responses to questions submitted by: Senator Rockefeller 114 Senator Durenberger 115 Senator Hatch 115 Hatch, Hon. Orrin G.: Prepared statement 116 Malone, Beverly L., Ph.D., R.N., F.A.A.N: Testimony 43 Prepared statement 118 Responses to questions submitted by Senator Rockefeller 127 Metzenbaum, Hon. Howard M.: Testimony 9 Prepared statement 130 Mitchell, Hon. GeorgeJ.: Prepared statement 131 Pawlowski, Eugene P.: Testimony 45 Prepared statement 131 Responses to questions submitted by: Senator Rockefeller 139 Senator Durenberger 141 "Hospital Collaboration: The Need for an Appropriate Antitrust Pol- icy," paper prepared by theAHA Office ofthe General Counsel 141 Proger, Phillip A., Esq.: Testimony 17 Prepared statement with attachments 143 Responses to questions submitted by Senator Rockefeller 155 Rockefeller, Hon. John D., IV: Opening statement 1 Schenken, Jerald R., M.D.: Testimony 40 Prepared statement with attachments 179 Responses to questions submitted by: Senator Rockefeller 226 Senator Durenberger 230 Wetzell, Steve: Testimony 48 Prepared statement 231 Responses to questions submitted by: Senator Rockefeller 236 Senator Hatch 237 Communications Federation ofAmerican Health Systems 239 Schiemann, Ronald 241 ANTITRUST ISSUES IN THE HEALTH CARE INDUSTRY MAY FRIDAY, 1993 7, U.S. Senate, Subcommittee on Medicare and Long-Term Care, Committee on Finance, Washington, DC. The hearing was convened, pursuant to notice, at 10:17 a.m., in room SD-215, Dirksen Senate Office Building, Hon. John D. Rocke- feller rV (chairman ofthe subcommittee) presiding. Also present: Senators Baucus, Daschle, Chafee, and Duren- berger. [The press release announcing the hearing follows:] [PressReleaseNo.H-20,May5, 1993] Finance Subcommittee on Medicare to Hold HearingonAntitrust Issues in Health Care Industry DC— Washington, Senator John D. Rockefeller IV (D-WV), Chairman of the Committee on Finance Subcommittee on Medicare and Long Term Care, announced today that the subcommittee will hold hearings on antitrust issues in the health care industry. The hearing is scheduled for 10:00A.M. on Friday, May 7, 1993, and will be held in room SD-215 ofthe Dirksen Senate Office Building. In announcing the hearing, Senator Rockefeller stated: "There are many facets to the antitrust issue. This hearing will provide subcommittee members an opportunity to more fully explore these issues as we begin the task ofreforming our health care system. There is a growing recognition that our health care delivery system needs to be substantially restructured to provide incentives for coordination and collaboration ofhealth care services, and for preventative and primary care services. We can no longer afford the inefficiencies ofduplication or financial incentives that encour- age technology at the expense ofprevention." "This hearing will provide a starting point for figuring out whether legitimate bar- riers exist to the development ofintegrated health care networks or to lowering the costs of health care. A reformed care system will need local flexibility but, at the same time, consumers need to be assured affordable high quality health care." OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, A U.S. SENATOR FROM WEST VIRGINIA, CHAIRMAN OF THE SUBCOMMITTEE Senator Rockefeller. Our first witness, Senator Metzenbaum, will be here. He is testifying downstairs but should be here by the time the Senator from Minnesota and I have finished our opening statements. Actually, I wanted the Senator from Ohio to hear my opening statement. It was designed for him to hear. [Laughter.] Would you like to go first? [Laughter.] (ij Senator DURENBERGER. It depends on how fast an hour it is this morning. Would you Hke me to? Seriously? Senator Rockefeller. Yes. [The balance of Senator Rockefeller's opening statement appears on page 5.] OPENING STATEMENT OF HON. DAVE DURENBERGER, A U.S. SENATOR FROM MINNESOTA Senator DURENBERGER. Good morning, Mr. Chairman, and How- ard Metzenbaum, wherever you are. Let me begin by saying something that sort ofputs today's hearing in context. First, I am very proud of the Chair of the subcommittee. This is another one of those hearings we have never had before and it is sort of like a sign of the times and this is not the first time that the Chairman has brought us together on a subject this committee does not, and the subcommittee, does not often deal with. But it is because we are living in a time and we are faced with a challenge that we have not had before as a nation. We are all trying to figure out what managed competition is and how we are going to blend it into health care reform and what markets are, because we have never experienced them, in medicine. So a few of us and other members of the subcommittee this morning came here to learn. In my view, watching a market evolve in my own State without any help from the government, in fact, nothing but hindrance, I suppose, is that sound markets require informed consumer choice. They also require rewards to good producers and providers of care. The sense of managed competition as I know—it is that we will attempt to enhance consumer choice in two ways one by providing information and two by allowing consumers to choose among health plans based on reliable price and quality information. Without informed consumers and providers who are held accountable for results, rewarded for good results, you will never achieve the kind of cost containment that we insist on in our society and the high quality care that we have become so accustomed to. We cannot do that without a market-based price mechanism. Medical markets work best when the best providers get all the business and when smart buyers are rewarded with better service and lower prices or value, as we call it. The key to this is a price system that works. Under managed competition, consumers will choose among competing accountable health plans. Within each plan there may be hundreds of partici- pating providers among whom a consumer may choose. The plan administrators guarauitee that the providers they have selected meet quality standards. In truth, choice is not threatened by this managed competition structure of a competing accountable health plan, but rather it is enhanced. The question for all of us is, are there changes that could be made and need to be made in the area of anti-trust policy and enforcement that would serve the purpose of protecting the value ofconsumer choice fi-om anti-competitive behavior. And if so, whose anti-competitive behavior do we need to be pro- tected from? Anti-competitive practices cost our health care system a lot of money, even in the current dysfunctional, or especially in the current dysfunctional system. The most egregious examples are price fixing, boycotts, market allocations and buying arrangements. Ten percent of our National health care expenditures are estimated to be due to anti-competitive behavior. That amounted to $74 billion in 1991 or $790 million in the average family's health bill. It is for this reason that those of us interested in reforming our Nation's health care system need to become more aware of the af- fect that anti-trust laws may have on providers and providers' per- ceptions ofthe laws, especially as we move to establish accountable health plans. There is concern in this area that anti-trust laws prohibit the creation ofintegrated service network under certain circumstances, especially horizontal restraints of trade. But there is also concern that weakening the laws could complicate the negotiating process and cause managed competition ultimately to suffer. Mr. Chairman, I do have several more pages to this statement, including some reference to the difficulty ofthe Group Health Asso- ciation we had right here in this town in 1937, which was one of our first interesting anti-trust cases. I will ask that my statement be made a part of the record, a statement by Senator Hatch, who cannot be with us today but would like to be, and some questions that Senator Hatch wants submitted for the record. Senator ROCKEFELLER. All right, Senator. I was hoping you might finish your statement. Senator DURENBERGER. I wondered if my colleague wanted to comment. Senator Chafee. No, I will give you my time. Senator ROCKEFELLER. There is plenty of time. Senator Chafee, proceed. [Laughter.] [The prepared statements of Senators Durenberger and Hatch along with questions from Senator Hatch appear in the appendix.] Senator Chafee. Well, I have no pearls of wisdom to give. I will say this, I have heard, and this is one of the reasons we are here today, anecdotal evidence about the facts ofthe anti-trust laws that prevent hospital mergers and prevent hospitals in small commu- nities from working closer together, to save costs. It all seems not make a great deal ofsense. So I am looking forward to the testimony today and would be de- lighted to hear the balance of Senator Durenberger's comments. Senator Durenberger. Mr. Chairman, John, I am not going to read the balance of my comments, but I would like to suggest a couple things, one in the current environment in which we see markets develop in my own State ofMinnesota, and then some pro- spective comments that concern us as we try to define exactly what managed competition is. The competition that exists in Minnesota is in the context of what economists call a dysfunctional marketplace. In other words, the signals are not very clear. The people are trying to do good, which is something that those ofyou who listen to Garrison Keeler are well aware is a trait that most ofus possess out there. And it has been an interesting time for all ofus, watching efforts by employers in the Twin Cities in particular, to try to change the behavior of medical providers. And, we are going to have a witness here today from the Business Health Care Action Group talk about their efforts in Minnesota. But every time these forces come into the picture and try to aggregate the hospitals and the doctors and things like that, there is always the perceived threat of anti-trust violation. We have closed in our Minneapolis-St. Paul community, about 2.2-2.3 million people, the equivalent of 10, 400-bed hospitals in the last year. But we are still at about, in the existing supply, a 46-percent occupancy. So we still have a long way to go and people would argue we still have not reduced the cost growth as much as we could with that kind of an effort and principally because hospitals are competing at the high tech, high cost level; and the hospitals in our Twin Cities area are out buying up business and contracts and so forth all over the State. But that is an interesting market at work, changing the supply in our community, which should drive down price but it does not yet because the signals are not there to do it. Out in the rural areas, we have these interesting competitions like up in Fargo-Moorhead between two large medical groups, the Dakota Clinic and the Fargo Clinic. They have enhanced the care in all of these very rural areas in North Dakota and Minnesota by bringing in more and better doctors to all of these small commu- nities. Sometimes these physicians do not live in the community, sometimes they do and sometimes they come to visit. But it is these two clinics competing for business between themselves and competing with some of these solo practitioners that is actually making better medical care and better health care available to people in that area. But again, they compete at who has the best cardiovascular unit or something like that or who can roll the MRI down the highway on an 18-wheeler and get it into some small town twice a week rather than once a week. So you see, good people are doing good things. But without a stated objective that we want to raise the quality and lower the price at the same time, competition in that sense is not achieving some of the ends that our society would like to see changed. In Sioux Falls, South Dakota, which serves the southwestern part of Minnesota, you have two large ho—spitals competing with each other; and I mean literally competing out buying up admin- istrative arrangements in small towns and making deals with doctors and things like that. Now the Mayo Clinic as we all know is running out of business. So they are in Iowa trying to buy arrangements with doctors or in Wisconsin trying to do the same thing. Of course, people in Iowa and Wisconsin are getting a little apprehensive about that, particu- larly in Iowa. Somebody like Blue Cross/Blue Shield of Iowa, which is run by a former Republican Governor of that State is getting very nervous about somebody from outside the State coming in.