Nancy Cross Dunham
Tim Size
Policy Paper No. 95-6
October, 1995
The conclusions and recommendations expressed in this report represent the views of the authors. They have not necessarily been endorsed by the Network's Advisory Board.
In Wisconsin, policy concerns surrounding the issues of competition, cooperation, and antitrust enforcement in rural areas are becoming increasingly important on a number of fronts.
- There is a growing interest among many public policy-makers in the potential of rural health care networks or systems to address some of the service delivery gaps faced by many rural areas.
- There is also, however, a clear potential for conflict between well-established public policy perspectives embodied in antitrust law and the growing pressures on rural health care providers to be efficient suppliers of a comprehensive set of health care services.
The various policy choices presented by the desire to optimize these potentially conflicting goals pose the following question:
- What balance of "competition vs. collaboration" in rural health care markets is desirable, according to what criteria?
In Wisconsin, in 1993 the state legislated the ability to forestall antitrust legislation through the use of the Certificate of Public Advantage (CPA) statute, which embodies the legal doctrine of state action immunity.
- This statute, however, has not yet been utilized, and a draft amendment to the existing statute is currently being drafted.
With the Certificate of Public Advantage legislation, the state government, in addressing issues of consolidations and integrated delivery systems in rural areas, may be increasingly called upon to address a number of questions, including:
- How should the development of rural provider networks in the state be viewed in relation to federal antitrust considerations?
- What potential exemptions to federal antitrust laws might the state apply to encourage and promote desired rural network development?
- What criteria might be used in making decisions about potential exemptions to federal antitrust laws?
In light of these policy issues and concerns, the two main objectives of this paper are to:
- discuss the underlying assumptions of antitrust enforcement and state action immunity, as they relate to rural health care markets; and
- present a number of health policy values or goals which could be considered in addressing issues of competition, cooperation and state action immunity for rural health care markets.
Access to services, efficiency, and quality in service delivery are three generally recognized values or health policy goals of delivery systems.
- In addition to these more general criteria for judging health care delivery systems, accountability to the community is proposed as a fourth criterion to be considered in thinking through the relative advantages and disadvantages of competition vs. collaboration in rural markets.
In addressing such state action immunity decisions through the Certificate of Public Advantage, state government has the opportunity to become proactive in shaping the policy debate regarding the balancing of "competition vs. cooperation" in rural areas, and in shaping the development of delivery systems in selected rural health care markets. A number of questions that, at least implicitly, reflect underlying health policy goals, will need to be weighed, including:
- To what extent can proposed networks or other collaborative arrangements substantially improve rural market areas' health care infrastructures and geographic access to care?
- What will be the likely short- and long-term effects of these proposed collaborative arrangements on:
- providers (physicians and other types of providers) already in the rural health care markets under consideration; and
- future provider recruitment and retention in these areas?
- To what extent can it be demonstrated that proposed networks/collaborative arrangements result in lower prices, or at least prices which are not higher than they would be in more "competitive" environments?
- To what extent can proposed networks/collaborative arrangements provide for full ranges of primary care/preventive services at the local level, and assure the availability, and coordination, of secondary and tertiary services?
- To what extent can proposed networks/collaborative arrangements demonstrate that consumer choice of providers will not be unduly restricted, and that there will be mechanisms available to monitor consumer/patient satisfaction?
- How are the proposed networks/collaborative arrangements perceived by the communities-at-large?
- Have there been sufficient opportunities for community input into the planning of these networks/systems?
Addressing these policy questions will help ensure that such arrangements operate in the public's interest and meet the state's policy goals for rural health care markets.
We want to thank a number of people who have provided valuable assistance in the development of this policy paper: Sybil Better, Mike Kirby, Kevin O'Connor, Greg Nycz, Debbie Waite, and Mike Weiden.
Page
I. Introduction
II. Federal Antitrust Laws and State Action Immunity
III. Balancing "Competition" and "Cooperation": Defining Intended Policy Goals
A. Access
B. Systems Management and Efficiency
C. Quality
D. Local Accountability
IV. Conclusion
V. References
In the U.S., health care delivery systems and markets have undergone rapid and fundamental change in recent years. Competitive health plans and managed care in various forms have virtually replaced traditional indemnity forms of insurance in many areas of the country; that trend is predicted to continue (Bromberg, 1993). Many health care providers and insurers have consolidated and reorganized into integrated service delivery and financing systems or networks, positioning themselves to respond competitively to growing pressure from consumers and purchasers of health care to contain costs (Polzer, 1995). These prevailing forces are affecting even small rural health care markets.
Although only approximately one-quarter of the U.S. population lives in rural areas, these areas pose real challenges with respect to the efficient delivery of cost-effective, quality health care. Furthermore, rural populations may require higher than average levels of medical service, since they tend to be older, poorer, and more hazardously employed than their urban/suburban counterparts (Christianson and Moscovice, 1993). In the face of this high level of need, however, health care resources tend to be sparse in rural areas.
There is a growing interest among many public policy-makers in the potential of rural health care networks or systems to address some of the service delivery gaps faced by many rural areas. By bringing the component parts of rural health markets into more collaborative organizational and financial structures, provider networks or other delivery systems may offer a variety of potential benefits, including the opportunity to strengthen provider recruitment and retention, shore up eroding infrastructures, achieve administrative and clinical efficiencies and economies of scale, and improve financial and clinical accountability and performance (Coburn and Mueller, 1995).
While the formation of rural provider networks may be perceived as an answer to many of the problems of service delivery in rural areas, their growth and expansion may also pose thorny antitrust questions. There is a clear potential for conflict between well-established public policy perspectives embodied in antitrust law and the growing pressures on rural health care providers to be efficient suppliers of a comprehensive set of health care services.
In Wisconsin, policy concerns surrounding the issues of competition, cooperation, and antitrust enforcement in rural areas are becoming increasingly important on a number of fronts. First, many of the state's health care providers and insurers have consolidated and reorganized into integrated service delivery and financing systems or networks, to better position themselves to respond to an increasingly competitive health care delivery environment. That trend is likely to continue - and to accelerate - in coming years. Integrated delivery systems, as well as rural providers, will be looking for guidance on the planning and negotiation of such acquisitions and mergers in rural areas, without being subject to antitrust prosecution.
The recent antitrust case involving Blue Cross and Blue Shield United of Wisconsin (BC&BSUW) and Marshfield Clinic has focused a lot of attention on these issues. In 1994, a U.S. District Court had ruled against Marshfield Clinic, finding that the clinic had illegally monopolized health care in north central Wisconsin, and that there was evidence of collusion, in the form of illegally dividing markets with competitors, a violation of the Sherman Act. A federal appellate court, while agreeing that there was evidence of collusion in the form of divided markets, overruled much of the lower court's decision. Part of the case is headed back to court for re-trial. Most recently, the U.S. Justice Department and the Federal Trade Commission joined in the lawsuit, filing a "Friend of the Court" brief with the appellate court which supports BC&BSUW's motion for a rehearing of the case by the appellate court. Regardless of the ultimate outcome of this particular case, the issue of whether or not rural areas can - or should - be encouraged to sustain fully competitive markets is an important one which deserves fuller discussion, outside of the courtroom.
Several states with large rural populations, including Wisconsin, are currently addressing potential ways to assure flexibility in antitrust policy and enforcement in rural areas (Barnett, 1995; Burda, 1995; Jaklevic, 1995; Mjoseth, 1995; Miskimon, 1994). In particular, there has been increasing public policy interest in the doctrine of state action immunity as a mechanism to address potential antitrust concerns surrounding rural network development in areas which may not be able to sustain multiple independent provider practices. The Supreme Court has recognized that, under the doctrine of state action immunity, states can immunize certain types of private anti-competitive conduct from federal antitrust liability.
In Wisconsin, in 1993 the state legislated the ability to forestall antitrust legislation through the use of the Certificate of Public Advantage (CPA) statute, which embodies the legal doctrine of state action immunity. This statute, however, has not yet been utilized, and a draft amendment to the existing statute is currently being drafted.
With the Certificate of Public Advantage legislation, the state government, in addressing issues of consolidations and integrated delivery systems in rural areas, may be increasingly called upon to address a number of questions, including:
- How should the development of rural provider networks in the state be viewed in relation to federal antitrust considerations?
- What potential exemptions to federal antitrust laws might the state apply to encourage and promote desired rural network development?
- What criteria might be used in making decisions about potential exemptions to federal antitrust laws?
In light of these issues, the two main objectives of this paper are to:
- discuss the underlying assumptions of antitrust enforcement and state action immunity, as they relate to rural health care markets; and
- present a number of health policy values or goals which could be considered in addressing issues of competition, cooperation and state action immunity for rural health care markets.
Potentially "collaborative" activities of rural health care delivery networks may be subject to potential litigation under two federal laws, the Sherman Act and the Clayton Act. The Sherman Act prohibits contracts and combinations in restraint of trade, while the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly.
Antitrust law is said to reflect the legislative judgement that competition will not only produce lower prices, but better goods and services as well (Davidson, 1993). Policies limiting market concentration through antitrust law are based on assumptions that a lack of competition will result in higher prices or costs than those of a competitive market (Casey et al., 1994), and that consumer welfare is protected by breaking up monopolies and preventing them from forming (Polzer, 1995).
Some argue that antitrust laws include processes for balancing the pro-competitive and efficiency-enhancing aspects of collaborative arrangements against the anti-competitive effects of such collaboration (O'Connor, 1995). It has also been argued, however, that rather than containing costs and promoting consumer welfare, the strict application of antitrust law may pose a threat to the expansion of health plans into underserved rural areas, thereby retarding the development of health care delivery infrastructures and inhibiting access to needed services (Christianson and Moscovice, 1993; Jaklevic, 1995).
The threat of antitrust litigation may be perceived as particularly great in rural communities, because there are so few providers. Many rural communities remain unable to attract and retain the physicians and other providers needed to meet minimum community health needs. Other rural areas will never be able to support more than a single "provider" (e.g., solo practitioner, small group practice, larger clinic, or hospital) because of their population densities and patient bases. In reality, therefore, meaningful "competition" among individual providers is not likely to occur in many individual rural communities.
Thus, states with large rural areas may be increasingly called upon to consider ways to assure greater flexibility in antitrust policy and enforcement, allowing for greater consolidation and sharing of resources among rural providers. Specifically, state action immunity statutes are designed to encourage transactions that will either reduce costs or increase quality of, and access to, care in rural areas (Barnett, 1995). Under state action immunity, exemptions to antitrust laws can be granted to:
"...arrangements that are conducted pursuant to a clear state policy to supplant competition and actively supervised by the state. For the state exemption to hold, a state must provide prior approval to an arrangement and supervision after it begins." (Christianson and Moscovice, 1993)
On a case-by-case basis, states must decide whether the potential benefits of proposed arrangements outweigh any possible anti-competitive effects.
In recent years, there has been a rapid increase in the number of states which have enacted some form of antitrust exception law applying to the health care industry. State action immunity statutes are on the books in at least 20 states. Eighteen of those states instituted programs to exempt hospitals and other providers under state action immunity between March 1992 and June 1994 alone (Polzer, 1995).
To date, however, there has been a "remarkable lack of activity" under these statutes. Only a very limited number of applications have been approved under these state antitrust exemption laws (Mjoseth, 1995).
A number of things may account for this lack of activity. First, most states have not yet adopted clear review criteria to apply in considering requests for antitrust relief by rural health care networks. Secondly, networks or other collaborative arrangements that seek such relief must make a substantial trade-off: they must agree to accept even closer monitoring by the state for potentially monopolistic behavior. Providers and networks who win state approval for such activities would have to demonstrate, through periodic reports and reviews, that the cooperative agreements are living up to their promises, or forfeit the approvals. A third, related, reason is that since antitrust decisions provide basic "sign-offs" to proceed (or not proceed) in certain directions, some rural providers may be waiting to see how the "dust will settle" on antitrust cases like the BC&BSUW/Marshfield Clinic suit before proceeding with the more complicated state action immunity approach.
With the Certificate of Public Advantage legislation, state government may be increasingly called upon to address requests for potential exemptions to standing federal antitrust laws in order to encourage and promote desired rural network development through rural provider consolidations and acquisitions. These judicial and legislative challenges reflect closely held - but sometimes conflicting - values. For example, we seek unduplicated use of scarce resources and the "integrated" or "seamless" delivery of health care in rural areas, but we also prize consumer choice and competitive markets. These sets of values are inextricably intertwined, making it sometimes difficult to make clear policy choices about choosing one set of values over competing sets of values. The various policy choices presented by the desire to optimize these potentially conflicting goals pose the following question: What balance of "competition vs. collaboration" in rural health care markets is desirable, according to what criteria?
Access to services, efficiency, and quality in service delivery are three generally recognized values or health policy goals of delivery systems. In addition to these more general criteria for judging health care delivery systems, accountability to the community is proposed as a fourth criterion to be considered in thinking through the relative advantages and disadvantages of competition vs. collaboration in rural markets.
A. Access
Rural Health Care Infrastructures. Ensuring access to needed medical services is an often articulated value and goal of the health care delivery system in the U.S. Enhanced access to essential health care services in many rural areas depends, ultimately, on strengthening the health care infrastructure - including people, structures, and systems. Many rural areas do not have sufficient population bases for the development of infrastructures which provide full geographic access to needed primary, secondary, and tertiary health care services. Thus, a key criteria for evaluating proposals for the development of "cooperative" rural service delivery systems might be the extent to which they maintain a fundamental health care infrastructure, and can provide for the full range of services needed by the geographic areas and population bases under consideration.
Recruitment and Retention of Providers. In terms of building and maintaining the health care infrastructure of rural areas, a key issue is, of course, ensuring an adequate supply of providers. Maintaining sufficient numbers of providers depends on both recruitment and retention. Rural primary care physicians and other rural providers are often characterized as overworked, inadequately reimbursed, and lacking sufficient professional support. Thus, meeting the needs of providers (e.g., how physicians work vis-a-vis other providers; how they work within organizations, etc.) is an important component of the access issue. Rural providers may welcome organizational and delivery system changes that rural networks may bring to improve the circumstances of their practices (Christianson and Moscovice, 1993), thereby improving the long term retention of physicians in rural practices.
B. Systems Management and Efficiency
Increasingly, purchasers of health insurance and services (i.e., consumers, employers, federal and state governments, etc.) are emphasizing the need for health plans to document the "value" of health services provided. It is assumed that, at a minimum, health systems should strive to conserve health care resources, avoid unnecessary duplication of facilities and services, and hold individual providers accountable for the quality and cost of services delivered. Networks that can prove that they promote efficiency and serve the best interests of consumers should be able to respond effectively to antitrust challenges (Barnett, 1995). Thus, another criterion to consider in thinking through the comparative advantages of competition vs. cooperation in rural health care markets might be the extent to which existing or proposed plans can show that they are efficient and cost-effective, and that their prices are no higher than they would be in a more competitive market.
C. Quality
An implicit underlying value in considerations of health care delivery systems is that of providing "quality" services to individuals and populations. In reality, "quality" is a remarkably difficult concept to operationalize and quantify. How do we, therefore, begin to understand what's working and what's not? There are at least two sub-components of the concept of "quality", which might be considered: consumer choice and satisfaction; and the extent to which a health care system assures coordination of appropriate services.
Consumer Choice and Satisfaction. Consumer (or patient) choice in the selection of providers is a long-standing, underlying value of the U.S. health care system; a value seen as key to the development of workable and satisfactory physician-patient relationships. From a public policy perspective, it is assumed that unrestricted choice of health care providers by informed purchasers and consumers can play a pivotal role in injecting greater competition and interest in quality improvement in the medical marketplace. It is often argued that free choice of providers must be preserved so that consumers can vote with their pocketbooks, based on their own values and perceptions of quality (Bromberg, 1993).
In many rural areas, however, the issue of consumer choice may not be paramount, if there had been no previous ready access to needed health care services, because of endemic provider shortages. Because residents of rural areas do not typically have wide choices of providers, consumer satisfaction with their providers may become an even more central component of ensuring "quality" than it might otherwise be in areas which offer more choices among providers.
Coordination of Appropriate Services. At a minimum, health care systems should be "user-friendly" by truly managing care and by providing consistent and coordinated access to services across care settings. "Appropriate services," especially primary care and preventive services, should be provided at the local level. In communities that cannot support secondary and tertiary services, rural delivery systems should assure that higher acuity inpatient services are not only available at regional referral centers or urban hospitals, but are coordinated by providers in the system.
D. Local Accountability
An implicit underlying assumption of most rural health care initiatives is that they support efforts to strengthen local health care systems. In addition, networks represent a key element in a broader strategy for sustainable rural community development that integrates rural health system development with other components of the economy (Cordes, 1989; Coburn and Mueller, 1995).
Thus, consideration should also be given to the "indigenous values" of rural communities, and how those communities relate to their local health care providers. It is important to pay attention to the "intra-community" implications of competition vs. cooperation in rural health care markets. For example, if a rural health care market becomes the site of a "satellite" operation of a large, urban-based network or health plan, how does that affect the ways in which the "medical community" relates to the broader community? How would these changes be perceived by the broader community?
It is apparent that the rural perspective on antitrust issues is complex. On the one hand, strong antitrust enforcement is likely to be seen as beneficial to rural providers and service networks concerned about potential predatory practices of large, urban-based health care and insurance systems. Conversely, antitrust laws may be seen as unnecessary limitations to the development of rural health care infrastructures and systems.
Because of the potentially conflicting policy goals underlying the debate over the appropriate balance of competition vs. cooperation, it is likely to be important to maintain the underlying federal statutory authority for antitrust enforcement. However, in using the legislative authority of the Certificate of Public Advantage to make case-by-case determinations of what is the appropriate balance of competition and cooperation in rural markets which may be increasingly penetrated by health care networks and integrated delivery systems, the state will need to, at least implicitly, weigh a number of questions that reflect underlying health policy goals, including:
- To what extent can proposed networks or other collaborative arrangements substantially improve rural market areas' health care infrastructures and geographic access to care?
- What will be the likely short- and long-term effects of these proposed collaborative arrangements on:
- providers (physicians and other types of providers) already in the rural health care markets under consideration; and
- future provider recruitment and retention in these areas?
- To what extent can it be demonstrated that proposed networks/collaborative arrangements result in lower prices, or at least prices which are not higher than they would be in more "competitive" environments?
- To what extent can proposed networks/collaborative arrangements provide for full ranges of primary care/preventive services at the local level, and assure the availability, and coordination, of secondary and tertiary services?
- To what extent can proposed networks/collaborative arrangements demonstrate that consumer choice of providers will not be unduly restricted, and that there will be mechanisms available to monitor consumer/patient satisfaction?
- How are the proposed networks/collaborative arrangements perceived by the communities-at-large?
- Have there been sufficient opportunities for community input into the planning of these networks/systems?
In addressing such state action immunity decisions through the Certificate of Public Advantage, state government has the opportunity to become proactive in shaping the policy debate regarding the balancing of "competition vs. cooperation" in rural areas, and in shaping the development of delivery systems in selected rural health care markets. It will be important that these decisions ensure that such arrangements operate in the public's interest and meet the state's policy goals for rural health care markets.
Barnett, A.A. (1995). Don't fence us in. Hospitals and Health Networks, May 5, 36-40.
Bromberg, M.D. (1995). Flexibility in antitrust enforcement. Health Affairs, Fall, 150-151.
Burda, D. (1995). Montana hospitals asking state for immunity. Modern Healthcare,
Mar 6, 36.
Campion, D.M., Helms, W.D., & Barrand, N.L. Health care reform in rural areas. Health
Affairs, Fall, 76-80.
Casey, M., Wellever A., & Moscovice, I. (1994). Public Policy Issues and Rural Health
Network Development. Minneapolis, MN: Rural Health Research Center, University of Minnesota, Working Paper #8.
Christianson, J. & Moscovice, I. (1993). Health reform and rural health networks. Health
Affairs, 12(3), 58-80.
Coburn, A.F. & Mueller, K.J. (1995). Legislative and policy strategies for supporting rural health network development: Lessons from the 103rd Congress. Journal of Rural Health, 11(1), 22-31.
Cordes, S. (1989). The changing rural environment and the relationship between health
services and rural development. Health Services Research, Feb, 757-784.
Davidson, D. (1993). Antitrust policy and real health care reform. Health Affairs, Fall,
144-147.
Jaklevic, M.C. (1995). Groups fear ruling may hinder rural care. Modern Healthcare,
May 1, 26.
Miskimon, R. (1994). Remembering the rurals: Making managed cooperation work in
Washington State. Hospitals and Health Networks, Sept. 5, 54-58.
Mjoseth, J. (1995). Little activity seen under state laws granting antitrust immunity. BNA's
Health Law Reporter, 4, 303-304.
O'Connor, K. (1995). Personal communication to author.
Polzer, K. (1995). Consolidation in the Health Care Marketplace and Antitrust Policy.
Issue Brief No. 660. Washington DC: National Health Policy Forum, George Washington University.