October 2001 Bulletin

Update on joint negotiations with insurers

Supreme Court ruling seems to end ability of labor unions to represent employed physicians

By Richard N. Peterson

The Academy has received a number of questions recently regarding joint physician negotiation issues, particularly regarding negotiations with insurers. Physician interest in unions is an understandable reaction to the powerful positions some health plans have in many markets and the heavy-handed tactics that often follow. The article briefly summarizes developments in this area.


Under current antitrust law, the only way physicians can bargain collectively is in the context of an employment relationship, as defined by the National Labor Relations Act (NLRA). Unless they are part of an integrated group practice, self-employed physicians cannot bargain collectively with insurers or other payers. Doing so might be considered a violation of the federal antitrust laws, that potentially carries criminal penalties and the possibility of treble damages. Under federal antitrust laws, physicians who are not students or employed are viewed as competitors and therefore, they cannot agree on the prices they will charge for their services.

Labor organization exemption

Several exemptions exist to the federal antitrust laws, two of which may apply to independent physicians desiring to bargain collectively. The NLRA provides an exemption from the federal antitrust activities of labor organizations and their members to allow them to engage in collective negotiations over the terms and conditions of their employment. The labor exemption is contingent on the physician being in an employment relationship. Only employees who are not supervisors or managers ("non-supervisory employees") may form a collective bargaining unit to negotiate with their employers.

Any entity, including a medical society, may be certified on behalf of non-supervisory employees of a given employer if it meets the NLRA definition. Similarly, any group of non-supervisory employees may form a labor organization without affiliating with a traditional labor union.

From 1996 on, the National Labor Relations Board (NLRB) held in several highly publicized situations that employed physicians could bargain collectively with their employers. In addition, the American Podiatric Medical Association formed a "union" for podiatrists. In response to these and other developments, the House of Delegates of the American Medical Association (AMA) in June 1999 voted to form an independent physicians union, which ultimately became known as the Physicians for Responsible Negotiations (PRN). It was designed for employed and resident physicians only, but independent physicians could become sustaining members.

After several initial successes, the PRN in June 2001 announced that it would be backing off plans to launch new organizing efforts at private hospitals because of the U.S. Supreme Court’s recent decision in NLRB v. Kentucky River Community Care, Inc. (121 S. Ct. 1861, May 29, 2001). In Kentucky River, the U.S. Supreme Court in a 5—4 decision determined that health care workers in private hospitals could not join labor organizations if their duties include drawing upon their professional training and experience in supervising others.

The Supreme Court held that professional employees, in this circumstance registered nurses who supervise aides in administering patient care, who use "independent judgment" to direct the work of others are, in effect, supervisors who are not eligible to join a labor organization. This contrasts with the previous positions of the NLRB that health care professionals who exercise "ordinary professional or technical judgment" in directing less skilled employers were not supervisors if they were not responsible for hiring, firing or disciplining employees. Many experts believe that Kentucky River effectively ends the ability of a labor organization to represent even employed physicians, since all physicians are by their training and responsibilities "supervisors," as newly defined or clarified by the Supreme Court.

State action doctrine

The other exemption from the federal antitrust laws deal with the state action doctrine. Under this court-created doctrine, antitrust laws do not apply to collective actions compelled or approved by a state pursuant to a "clearly articulated and affirmatively expressed state policy.’’ To be considered as a part of state action, the action must be actively monitored by a state agency. In Texas, the legislature adopted a policy allowing physicians to negotiate collectively under the laws of the state of Texas, based on a model prepared by the AMA. Then-Governor George W. Bush signed the legislation into law in 1999, but the responsible agency has not implemented the legislation well and both the AMA and the Texas Medical Association have expressed concern. Similar legislation is being considered in other states.

Federal legislation

At the federal level, the Academy and other medical societies have aggressively pursued antitrust relief for joint physician negotiating. The Quality Health Care Coalition Act (also known as the Campbell-Conyers bill or H.R. 1304) would allow independent physicians to collectively negotiate with health plans in the same manner as labor organizations can bargain under the NLRA. The Act would prohibit strikes by physicians or other actions that would interfere with patient care. The Campbell-Conyers bill overwhelming passed the U.S. House of Representatives in 2000, but it was not considered by the U.S. Senate. While Tom Campbell, cosponsor of H.R. 1304, is no longer in Congress, efforts to reintroduce the legislation in both the House and the Senate are underway.

Third party messenger model

In 1996, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued a joint statement of antitrust enforcement policy, known as the "Guidelines." The guidelines permit the use of the third party messenger model to allow independent physicians to market themselves as a network to health plans without engaging in illegal price fixing. The third party messenger model is a process whereby independent physicians can, through a third party, gather and present the future fees and fee-related items that they are willing to accept to purchasers and agree, again through a third party, upon such fees with purchasers. The model permits independent physicians in a network to arrive at a fee schedule with payers without the physicians agreeing among themselves about what fee schedule they will accept, through a process whereby each physician in the network arrives at an individual agreement with the payer as opposed to having a representative of the physicians negotiate a fee schedule on behalf of all of the physicians. It is a highly detailed process, in which each physician independently makes a decision about which fee schedule he or she will accept and communicates this by the third party messenger to the health plan.

There has been considerable concern by the DOJ about independent physicians using the messenger model in their negotiating with payers. Federal investigations in Delaware, Connecticut, Florida, Ohio and other states have resulted. In July 1997, the DOJ filed suit in Delaware, alleging that orthopaedic surgeons using the messenger model were engaged in price fixing and in an illegal boycott of payers. At the time of this writing, no decision has been reached in the Delaware case. The Federation of Physicians and Dentists (FPD), a physicians union affiliated with the American Federation of State, County and Municipal Employees (AFSCME) and the AFL-CIO, has been on the forefront of efforts for physicians to use the third party messenger model to independently negotiate with health plans.

By action of the fellowship at the Annual Meeting in 1999, the AAOS is charged with helping inform orthopaedic surgeons of developments in the rapidly changing area of joint physician negotiating. Further information about this topic may be obtained by contacting the AAOS Office of General Counsel.

Richard N. Peterson is AAOS General Council

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