May 23, 2000
By: Benjamin H. Hardy, Research Analyst
You asked what issues are involved in allowing physicians to unionize.
Renewed interest in creating unions that enable physicians to bargain collectively has been building for more than a decade, since institutions such as health maintenance organizations (HMOs) and other insurers began to impose accounting and managerial constraints on doctors' fees and decisions about patient care. Responses to these changes currently focus on:
1. Unionizing more doctors who work directly for health care organizations as salaried employees,
2. Ending the federal antitrust prohibition against collective bargaining on fees by physicians who are independent contractors, and
3. Seeking at the state level similar collective bargaining rights on fees for independent contractor physicians.
It is legal for physicians employed directly by hospitals, HMOs, and other institutions to organize and bargain collectively on fees and other work issues. On the other hand, federal law prohibits independent contractors, including most physicians, from collective bargaining on fees. Legislation pending before Congress would treat independent contractor physicians as employees for purposes of wage negotiations. Texas has enacted such legislation under the doctrine of state agency, which allows a state to modify antitrust restraints if it closely monitors the price-setting processes that result, and several other states are considering similar measures.
At present, the law distinguishes between (1) salaried physicians employed by institutions such as hospitals and HMOs, and (2) individual physicians and groups who provide professional services and charge fees as independent contractors. Employee physicians may be, and some are, members of unions with collective bargaining powers.
According to Professor Grace Budrys of DePaul University, author of When Doctors Join Unions (Ithaca, NY: Cornell University Press, 1997), the nation has 620,000 physicians, of whom 108,000 are salaried; of the latter, about 42,000 belong to unions. She notes that about 70% of doctors in practice five or fewer years are salaried, and predicts that memberships will continue to increase. There are several unions, all affiliated with the AFL-CIO. In 1999, three merged to form the largest physician union, the 15,000-member National Doctors Alliance, a unit of the Service Employee International Union.
Last year the American Medical Association (AMA) created Physicians for Responsible Negotiation, designed to offer its employed members leadership in salary negotiations and patient care issues. In November 1999, the approximately 100,000 interns and residents in the United States won a National Labor Relations Board ruling that they are employees rather than students. Some were already union members, but the ruling gives them all the right to bargain collectively on salaries.
In contrast to salaried physicians who work as employees, physicians in private practice as individuals or in groups are often considered to be independent contractors. In Alexander vs. Rush North Shore Medical Center, 101 F.3d 487 (7th Cir. 1996), the court used a common law test involving (1) control and supervision over the work done, (2) skills required in the occupation, (3) responsibility for operating costs, (4) payments and benefits, and (5) commitment or expectations concerning the job's duration to decide that a physician was an independent contractor and reject his claim that he was an employee.
The National Labor Relations Act (NLRA, codified at USCA 29 § 185) excludes independent contractors from its definition of “employee,” thus prohibiting them from bargaining collectively. The NLRA modified federal antitrust laws to permit labor unions to negotiate fixed wage rates with employers. Behind the exclusion stands a longstanding practice of treating independent contractors as entrepreneurs, competing to sell services and therefore subject to antitrust regulation.
Proposed Federal Legislation
The most direct way to permit physicians in private practice to engage in collective bargaining on fees would be for Congress to change the law. On March 25, 1999, Representative Tom Campbell, Republican of California, introduced his “Quality Health-Care Coalition Act” (H. R. 1304, enclosed). The bill extends the same treatment under federal and state antitrust laws to health care professionals negotiating a contract to provide services through a health plan as is accorded a collective bargaining unit recognized under the NLRA. It requires that for purposes of the negotiations only, they be treated as employees rather than independent contractors, employers, managers, or supervisors.
The bill made little progress during 1999, but earlier this year the House Judiciary Committee held a public hearing, added a sunset provision, and sent it to the House floor on March 30. Justice Department and Federal Trade Commission officials opposed it while it was in committee, testifying it would remove needed competitive constraints on medical services costs. The extent of Congressional support for the bill is unclear at this time.
According to Marla Rothouse of the National Council of State Legislatures (NCSL), H. R. 1304 would preempt federal antitrust laws, but it has no enforcement mechanism. It also preempts activity under the state action doctrine (discussed below).
AMA Support for H. R. 1304
The AMA testified in support of the bill and has issued statements arguing that it offers essential but properly limited redress of doctors' loss of decision-making power to health care institutions. Pointing out that the six largest health insurance companies exercise major influence over the national market, the AMA asserts that they dictate health care decisions and force physicians to accept “take it or leave it” contracts. Such practices, it argues, force the 80% of patients who are under managed care to accept the cheapest treatment, prevent them from learning of treatment options, can result in release of confidential patient information, and force rules and restrictions on physicians that lead to inadequate patient care. Modifying the antitrust laws through an exemption specific to health care professionals, the AMA argues, would strengthen the ability of physicians to organize for bargaining purposes (whether through unions or otherwise) but retain other antitrust limitations. The AMA asserts that the bill would not enable organized professionals to meet and set prices among themselves. Rather, they would have to reach agreement directly with health care plans on contract terms covering fees, reimbursements, referrals to specialists, drug formularies, patient privacy and convenience, clauses that prevent doctors from discussing some treatment options with patients, and other issues. Existing Justice Department and the Federal Trade Commission antitrust oversight of physicians would continue under H. R. 1304 and cessations of service to patients, such as strikes, would be specifically prohibited.
Opposition to H. R. 1304
Opponents of H. R. 1304 argue that professionals already have the power to bargain collectively on patient care issues so long as they do not resort to boycott; thus, the disagreement is over money. The bill, they say, essentially would allow professionals to fix prices for their services and to coerce health care institutions into accepting them. Testimony by the Health Insurance Association of America (HIAA) and the Antitrust Coalition for Consumer Choice in Health Care expanded on this argument. They asserted that the health care system is intensely competitive but offers a good power balance between professional providers and managed care institutions. They argued that the bill's antitrust waiver destroys this balance by allowing professionals to increase costs to businesses, consumers, and taxpayers. They argued further that the health care industry is evolving and diversifying with the creation of HMOs, preferred provider organizations, and point-of-service plans, and that these choices are successful because they control health care expenses. They do not see the current system as placing professionals at a disadvantage, but rather as creating a healthy market by enabling insurers, employers, and consumers to control costs heretofore based on physicians' ability to increase both the amount of service and the fee charged. They assert that despite cost controls, between 1985 and 1996 physicians' median income rose by 77%, to $166,000 a year.
The bill's opponents also believe that since many physicians belong to group practices that may number hundreds of members and thousands of patients, their competitive disadvantage is more imaginary than real. Opponents perceive the bill as giving health professionals a tool they can use to continue increasing health costs, which consumers and taxpayers ultimately pay. The HIAA cited estimates from a study it commissioned that higher fees resulting from collective bargaining would increase health care costs by $16.6 billion to $25.6 billion a year, an increase of 4.2% to 6.5% of expenditures on health professionals without any improvement in service quality.
The state action doctrine, which originated with a 1943 U. S. Supreme Court decision, requires the state to monitor closely any anticompetitive activity exempted from antitrust prohibitions to make sure it continues to provide the public good that justified the exemption. According to Physician's News Digest (June 1999), the state of Washington availed itself of the doctrine in 1995, but restricted physicians to joint negotiations over contractual issues other than fees (RCW 43.72.300 and 310).
Legislation in Texas has taken joint negotiations further. Senate Bill 1468 (enclosed with bill analysis), enacted in 1999, expires September 1, 2003. It permits physicians to negotiate jointly, through an appointed third party, with health benefit plans on a variety of contract terms and conditions. But fees and certain other compensation issues become negotiable only if the plan has substantial market power and the terms at issue adversely affect the quality and availability of patient care (Articles. 29.05, 29.06). The attorney general determines what constitutes substantial market power and approves or disapproves the contract. He must approve it if the applicants demonstrate that its likely benefits outweigh the disadvantages attributable to a resulting reduction in competition.
The Texas law allows “joint negotiation” rather than “collective bargaining.” The difference is more than semantic, in that it lets each physician decide whether to be bound by the terms and conditions negotiated. A unionized collective bargain, by contrast, binds participants to conditions adopted by majority vote. The option works both ways: health plans may also decline to negotiate, which is not the case in union negotiations under NLRA.
Several other states have introduced legislation to enable physicians to engage in collective bargaining. Many bills require that an insurer have substantial market power either in a geographic area or a market segment before physicians (in some bills, all health care professionals) may negotiate jointly. The NCSL regularly updates a bill status report, “2000 Legislative Session Collective Negotiation,” available on its web site, http://www.ncsl.org/statefed/Health/2000collneg.htm.