By Christopher Guadagnino, Ph.D.

Federation of Physicians and Dentists Executive Director Jack Seddon

Published August 1998

Other coverage of Indendence Blue Cross and physician unions

• Physician unions take root in Pa.

• HMO liability: boon or bane?

• Blue Cross gains more independence

• Physicians seek antitrust waiver

• Surgeons fight Blue Cross rate cuts

• Medical society explores regionalization and MD unions

• Legal issues of physician unionization

• Physician unions gain steam

• AMA collective bargaining program

• A Pennsylvania physician guild

• Building a physician union in the Delaware Valley

• The legalities of physician unions

• Prospect of physician unions in Pa.

• React to this article in the Discussion Forum.

According to IBC, its rate adjustments will reduce cumulative physician reimbursement by only two percent, will reduce cumulative, across-the-board payments for medical procedures by 16 percent and will create a cumulative increase in reimbursement for office visits and in-office procedures. There is, unfortunately, no such thing as a cumulative physician. For physicians whose practices rely on income from surgical procedures, e.g., general surgeons, orthopedic surgeons, ENTs and urologists, reimbursement from IBC will decrease by as much as 40 percent per procedure, falling as low as 56 percent of Medicare’s reimbursement rate.

In response, a substantial number of specialty physicians have joined the Federation of Physicians and Dentists—which is affiliated with the AFL-CIO—while the hospital community has filed a complaint with the state Insurance Department requesting an investigation of what they regard as unilateral changes to hospital contracts.

Rationale for Rate Changes

In a letter IBC sent to physicians dated May 29, IBC outlined the rationale for its rate schedule change, which applies to all of its non-Medicaid products, including Keystone Health Plan East, Personal Choice, Keystone 65, AmeriHealth HMO. Existing fee schedules, according to IBC, were developed by making adjustments to HCFA’s Resource Based Relative Value Scale (RBRVS) that "more closely aligns payments with current HCFA RBRVS values" and "reflects a greater emphasis on evaluation and management services."

IBC did not file the new fees with the Pennsylvania Insurance Department, as IBC traditionally had done when Pennsylvania Blue Shield shared ownership in a number of the products affected by the fee changes, noted Pennsylvania Medical Society (PMS) President Lee McCormick, M.D. in a letter sent to IBC President G. Fred DiBona. McCormick also noted in his letter that the rate change proposal did not seek public comment through the regulatory process.

In a letter to an area surgeon obtained by Physician’s News Digest, IBC acknowledged that reimbursements were reduced significantly for several surgical procedures, adding that IBC’s previous fee schedule was overvalued on those procedures relative to all others and relative to their RBRVS value. The letter justified the cuts by reminding the physician of IBC’s reimbursement increases in many high volume consultation codes used by surgeons, as well as reminding him of the large volume of patients which IBC represents.

Physician Impacts

The fee reductions for certain specialties are so dramatic, McCormick wrote to IBC, that the PMS is concerned that they may jeopardize the superior health care available in the Philadelphia area.

Charles Hummer, Jr., M.D., expects his eight-doctor orthopedic surgery practice at Crozer-Chester Medical Center to suffer a 20 percent to 30 percent overall drop in revenue under the IBC rate cuts. He notes that the cuts are across the board for surgical procedures, and especially target the higher-risk, high-liability procedures. Common procedures, such as arthroscopy, are cut by 40 percent, says Hummer.

The cuts are going to have a negative impact on physicians’ ability to provide services, says E. Michael Okin, M.D., past president of the Pennsylvania Orthopedic Society, who notes that malpractice liability insurance premiums cost area orthopedic surgeons $85,000 to $100,000 per doctor per year. "If the average orthopedic surgeon does 200 cases per year, it costs $400 to $500 a case to go into the operating room. That’s before you pay your rent and all your office personnel," Okin says. Some physician either will lose money by going into the operating room for some common procedures, or will have to lay off personnel to save on salaries, he predicts.

Hummer believes that surgeons will be less willing to perform high-risk operations, such as spine surgery.

IBC’s reimbursement rate increases for office consultations and the like will not offset the fee reductions for surgical procedures, according to Moreye Nusbaum, M.D., president of the Philadelphia Chapter of the American College of Surgeons.

Physician Recourse

Nusbaum notes that specialty groups have been meeting to discuss various responses that do not violate antitrust laws, among which are forming a federation of subspecialists or joining a union.

Nusbaum, however, regards the best option to be dialogue with IBC to discuss the rationale of the cuts and explore alternatives, such as rescinding the cuts and having IBC raise its HMO premiums instead. "We provide the surgical care in this community," declares Nusbaum, who points out that IBC has had the cooperation of the surgeon community in the past involving issues of zero and partial reimbursement.

By far the most provocative response to IBC’s rate cuts has been an apparently massive recruitment of area orthopedists by a chapter of the Federation of Physicians and Dentists (FPD), a Florida-based organization with 7500 to 8000 physicians across several states. The FPD is affiliated with the American Federation of State, County and Municipal Employees (AFSCME) and the AFL-CIO. According to Jack Seddon, executive director of the organization, FPD has been actively soliciting physicians in the wake of IBC’s action and has recruited 90 to 95 percent of all orthopedic surgeons, ENTs and urologists in the five-county Delaware Valley region. Ob/gyns are next on Seddon’s recruitment list, he says.

Although area surgeons, as independent contractors, are restricted by the Sherman Antitrust Act from collectively bargaining, they have decided to pay $620 annual FPD dues in return for a number of other services. It reviews and provides consultation on insurance company contracts and helps draft counterproposals, publishes data on customary charges for key medical procedures and reimbursement rates of other insurers in the area and explains the data to physicians, notes Seddon. Using a third-party messenger model, FPD offers a physician or practice the use of expert contract negotiators who represent the physicians’ interests.

The third-party messenger model is under investigation by the Federal Trade Commission for possible antitrust violation. Seddon maintains that FPD negotiators operate within protocols drafted by their attorneys, following the letter of antitrust law. Because the negotiations are done strictly on an individual or integrated group basis and are unassociated with negotiations involving other physicians or groups, they do not violate antitrust statute.

IBC has flatly stated that it will not work with third-party negotiators. The same stance was taken by Blues companies in Florida, Connecticut, Ohio and Delaware, where FPD has chapters, says Seddon. When Delaware’s Blue Cross Blue Shield (BCBS) recently dropped reimbursement rates by 10 percent, nearly all of the state’s orthopedic surgeons (approximately 60) joined FPD, notes Seddon. The physicians did not accept the rate changes and resigned from BCBS’s panels, prompting the insurer to complain to the Justice Department that the physicians were price-fixing, Seddon explains. The investigation has not yet been concluded.

Joining FPD "is the only response we have left that’s still legal," other than early retirement or leaving the state says Okin, whose two-physician orthopedic practice has told IBC that it cannot accept its new rates. "I’ve been in practice 26 years and have to go into my savings in order to pay my bills," says Okin.

Physicians who drop out of IBC panels can still see IBC patients and bill them directly on a fee-for-service basis, notes Okin. That happened in Delaware when orthopedic surgeons put up signs in their practices indicating that they were no longer taking BCBS, but gave those patients a receipt for their out-of-pocket payment—at rates prior to the BCBS cuts. The patients could then go back to BCBS requesting reimbursement.

"Patients will never be denied care," says Okin. "They’re not being denied care in Delaware, either, although [BCBS] has no orthopedic personnel on their panel," he adds. Similarly, if IBC were to have no panel of specialty physicians, then they couldn’t sell their product and would have no choice but to use available physicians under fee-for-service or negotiate with a third-party messenger, says Okin.

Hummer’s eight-physician orthopedic practice also rejected the IBC rate changes and joined FPD. He believes that most doctors who follow suit, will continue to treat IBC patients and would bill them directly, leaving their insurance company to work out the rest.

The PMS has entered the fray with its own responses. It has met with the Pennsylvania Insurance Commissioner to discuss IBC’s lack of regulatory and public accountability. It hired a consultant to analyze the competitiveness of the Philadelphia market and review premiums and physician reimbursement levels. It has met with the Pennsylvania Chamber of Business and Industry to discuss premium rate hikes for employers accompanied by declines in insurer reimbursements. It has also met with county and specialty medical society executives to develop a coordinated approach to the problem.

Such a meeting took place in Philadelphia on July 23, at which the PMS outlined a draft plan of potential measures:

• Launch an aggressive public relations campaign to gain support from employers and the business community on the issue of market dominance by major health care insurers and the impact on patient care, access and quality.

• Exert pressure on major insurers to justify an increase in premiums while implementing payment reductions to providers. Activities could include grassroots letter writing campaigns to legislators, regulators, local chambers of commerce and others; as well as summit meetings among leaders from medicine, business, government, hospitals and consumers.

• Increase health insurance competition in the Philadelphia market by exploring direct contracting opportunities with business health purchasing coalitions and by discussing with less dominant health insurers possible Justice Department actions on the market dominance issue. Coordinate collection of market data to support pro-competitive actions.

• Challenge the legality of the current IBC contract with the assistance of AMA attorneys.

• Initiate introduction of a bill in the Pennsylvania General Assembly that could include standards to assure reasonable payments by health insurers to physicians and other providers, require regulatory approval of all changes to fees or contracts and require public notice of those changes, imposing penalties for violations. Reasonable fee standards could be defined as payment that is consistent with efficient, quality care and that is sufficient to enlist an adequate panel of providers.

Regulatory redress is currently being sought by the Delaware Valley Healthcare Council (DVHC), which filed a complaint with the Pennsylvania Department of Insurance requesting a market conduct investigation of IBC.

The complaint was a response to IBC’s reimbursement rate reduction for various hospital services, including outpatient procedures, emergency room visits and laboratory and radiology services. IBC also imposed the contract terms on its new Medicare HMO contracts with hospitals, notes DVHC Vice President Len Carp.

The complaint charged that IBC unilaterally changed hospital contacts that were drawn up in 1992, violating state law requiring insurance department approval of contractual changes, and that IBC violated the Pennsylvania Unfair Insurance Practices Act. "This is a policy issue," says Carp. "Does an insurer have the right to amend and alter contracts to the extent that they are, in fact, new contracts without going through a review process with the Insurance Department?" he asks.

The Insurance Department sent a copy of the complaint to IBC to allow it to respond by late August, and will review the matter for violation of statute or regulation, in which case it has cease and desist powers, as well as the authority to take formal action through administrative hearings, says Greg Martino, deputy insurance commissioner for the Office of Rate and Policy Regulation.