By Philip H. Lebowitz, Esq.
Can doctors form unions and, if they do, what are the legal advantages and disadvantages? Answers to these questions are not overly complex, but they are frequently unsatisfying because they reflect the coming together of two different sets of laws, designed to accommodate different policy goals, neither of which is fully accommodated to issues involving physicians and the practice of medicine. This is an area in transition and we are discussing the leading edge of that change.
The two sets of laws bearing on this issue are federal antitrust laws and federal and state labor laws, as they apply to changes in the medical profession (or what is increasingly and tellingly referred to as the “health care industry”).
The antitrust laws have existed since 1890 and are designed to protect competition. These laws rely on the fundamental principle that genuine competition in the marketplace will yield better products or services and lower prices. The theory is that the competitors will make changes in their products, services and price to attract customers from competing businesses.
There are two basic provisions: a prohibition on monopolies or monopolization—the “anti-trust” aspect that gives this body of law its name; and a prohibition on contracts, conspiracies or agreements that unreasonably restrain trade or limit competition. We are dealing mainly with this second aspect of the antitrust laws—conduct that when done by an individual is perfectly lawful but when done with others is not.
For example, the antitrust laws prohibit price fixing among competitors. That is, two competing business—like hardware stores—cannot come together and jointly set the price for a product like a hammer that they will charge to customers. Clearly, any individual or business can set its own price alone; one may charge $5, one $10. When competitors set prices jointly, both at $10, according to the antitrust laws, these competitors have no incentive to lower their prices to attract customers; rather, they simply agree to charge the same price and customers have no choice but to purchase from one of them.
You might say, the customer could simply go to a third hardware store for the same hammer. In antitrust parlance, if there are several other stores in the same geographic market, the first two stores may not have market power. Most agreements among competitors would not become antitrust problems at all unless those competitors jointly control more than 1/3 of the market in which they operate. Certain types of antitrust activity, however, are considered to be per se unlawful because they are always deemed to be anticompetitive, even if done by two small players. Price fixing is one of these. Therefore, in the eyes of antitrust enforcers, which can be either the government or private parties, if you do it, it’s wrong. The two hardware stores could be liable for jointly setting their hammer prices, even if consumers had many other choices. In that situation, there is no need to examine whether the conduct has actually had an adverse effect on competition.
In a now infamous case from Arizona, U.S. v. Alston, approximately 50 dentists got together and agreed that the reimbursement from a payer was too low and they agreed what it should be. They then jointly presented a new fee schedule to the payer, together with a mild threat that if they didn’t get this schedule, they would all refuse to deal with this payer. The federal government was informed of this conduct and sued to stop it. Those dentists who fought suffered criminal convictions for price-fixing, without any analysis of the effect on competition.
Another typical antitrust issue in the health care area is a group boycott or refusal to deal. In this situation, rather than coming together to set their price, competitors come together to try to coerce a third party to set its price where the competitors want it to be set. The competitors agree that they will not buy from the supplier, or will not sell to a customer, unless the supplier’s or customer’s price is what the competitors want. This joint activity is usually evaluated more completely to determine what legitimate justifications there are for the conduct and what its effects are. In one well-known case, FTC v. Indiana Federation of Dentists, the U.S. Supreme Court considered a boycott by dentists of insurance companies’ requirements that patient x-rays be submitted with claim forms. The Court found the group boycott to be unlawful.
So, the antitrust laws must be reckoned with in making any informal agreements of this kind. How do labor unions get away with collective bargaining? They have a specific exemption from the antitrust laws that permits them to bargain collectively and conduct strikes and boycotts. But it was not always so.
Although early craft guilds extend back several centuries, the modern era of labor union legislation begins in the 1930s—40 years after passage of the Sherman Antitrust Act. Interestingly, prior to intervention by Congress, groups of workers coming together to bargain with their employer or to stop working in order to gain changes in the workplace were enjoined in court actions based on the antitrust laws. Even though antitrust laws were initially passed to curb the abuses of accumulated capital, collective action by labor was held in early court decisions to be covered and viewed as unlawful concerted action whenever their activities obstructed the flow of the employer’s product into interstate commerce.
The earliest legislation passed by Congress to aid the labor movement was in the form of exceptions to the antitrust laws. Later, union activities became governed by the National Labor Relations Act, which has created a right for employees to organize, the right to bargain collectively and the right to engage in concerted or collective activities. The Act as amended has placed obligations on both employers and employees to attempt to foster a balanced environment for negotiations and other labor practices.
Some of the provisions of the labor laws, such as the right to bargain collectively, are limited to workers who are employees. Employee is defined as any individual employed by any person. Some laws, such as reporting and procedural requirements, apply to unions themselves, not the member. Moreover, unions may have rules and procedures which apply to their members and are in certain cases enforceable in court.
These two legal structures push and pull as doctors attempt to address the changes occurring in the medical profession which you all know only too well. Doctors are in search of solutions that provide the organizing or collective power of the labor laws without offending the antitrust laws.
Can doctors form unions that resolve these two conflicting forces? The first answer is that doctors can form unions. At the most basic level, there is a constitutional right to associate and forming something called a “union” is fundamentally no different than forming a County Medical Society or the PPMA. The real issue is what legal benefits do doctors obtain by forming unions, and are there any legal downsides.
The benefits obtained are first determined by whether the doctor is or is not an employee. Since the National Labor Relations Act applies to “labor” or employees, doctors who are employees can reap all of the benefits of union membership—in particular, the right to bargain collectively. (One exception: employees of a state are excluded from the NLRA and are governed by state labor laws.) Thus, for example, doctors who are all employees of a hospital can form unions and bargain collectively with the management of the hospital. There are some special rules pertaining to collective bargaining in this setting, but it can be done.
Doctors who are not employees, who for example have their own practices, cannot bargain collectively whether or not they join a union. Because they are not employees, they do not have the right to bargain collectively and therefore are for that purpose no differently situated than if they were simply members of a Medical Society.
Physicians who are not employees but are affiliated with a larger union may use that broader bargaining power to lobby or petition the government for health care legislation more to the liking of physicians. Coming together for this purpose is perfectly permissible for all physicians. There may be other union benefits such as health, pension, disability and vacation funds which may lawfully be provided to union members regardless of their status as employees.
There may also be benefits from the fraternal aspect of union membership. Physician members of a union may prevail upon other union members in other fields or industries to seek out union physicians and to bargain for union-staffed health plans as part of their benefit packages. Absent some type of coercion or unlawful exercise of market power on the part of the physicians, this use of union membership would also appear to be valid and lawful.
There are also some responsibilities or (some may consider them) disadvantages to union membership. There are reporting requirements regarding funds paid by and received by unions; also, internal organizational procedures for voting, electing officers and so on may become more formalized and subject to legal requirements. The relationship between the professional responsibility of the physician and the rules governing union membership must be carefully reconciled to ensure that the physician is not restricted from practicing his or her profession appropriately. Some restrictions on employers in a union context—such as offering benefits to employees outside the bargaining process—would be permitted in a non-union setting.
What about bargaining with payers, managed care plans, or HMOs? There is a range of answers. On the safe end, non-employee union members or other physician groups can use the so-called “messenger model”, in which one person or entity negotiates on behalf of the group on an individual by individual basis. The use of the messenger prevents any “competitor” from comparing or fixing prices with any other competitor.
Physicians can also integrate their operations in order to be able to negotiate collectively. The Department of Justice and FTC Guidelines permit joint negotiations among physicians who have sufficiently integrated their practices that they are no longer viewed strictly as competitors for this purpose. For example, if a group of 50 doctors takes capitated fees for the care of patients such that each doctor’s costs over the course of a year affects the revenues to all, those doctors have formed a single entity offering a new service at the capitated rate. Therefore, doctors in that single entity do not constitute separate competitors and may act collectively in arranging the affairs, including the prices, of the entity.
Some have suggested that the definition of employee be broadened to encompass the performance of physician duties in the context of a managed care payer agreement under which various patient care issues are dictated by the payer. Should such a definition be adopted, physicians in private practice with managed care contracts could claim the right to bargain collectively for reimbursement rates and other conditions of employment that must be currently negotiated on an individual basis. At present, that interpretation would appear to stretch the current definitions and no court or legislature has yet gone to that length. Most likely, new legislation would be needed to achieve that result.
Union doctors can also form their own network or provider-based HMO. Legally there are licensing issues, and antitrust concerns if the network is too large. A union HMO would have the advantage of non-profit status such that excess revenues could be reinvested into the quality of care delivered. A union HMO may also benefit from choices by other union members to support a union service and thus secure for themselves the number of “covered lives” necessary to make the HMO viable. If such an HMO or network were to contract with more than 30 percent of the available physicians on a non-exclusive basis, it could be subject to greater antitrust scrutiny because of the inherent power to restrict the availability of other physicians. But this would be a problem you would likely be willing to deal with.
If you are contemplating further investigation of a union model, I caution you to go easy on the rhetoric about using a union affiliation to gain leverage in negotiations with managed care companies. The FTC and Justice Department are wary and watchful that non-employee physicians not use the union or guild label to mask what they would view as price-fixing or concerted boycotts or refusals to deal. These agencies have subpoena power, so your documents could end up in their hands.
In sum, forming a union is a lawful response for physicians to make to a changing environment. There are legal impediments that make the union less than the full solution to all your problems. There may also be additional requirements imposed as a result of union affiliation. On the other hand, the union model could be a step toward putting physicians on a firmer footing in the future of providing quality health care.
Philip H. Lebowitz, Esq., is with the law firm Pepper, Hamilton & Scheetz, in their Philadelphia Office.