Mid-Atlantic Health Law TOPICS

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Physician Contracting Texas Style

On May 17, 2000, Texas Attorney General John Cornyn issued final rules implementing the Texas Collective Negotiations by Physicians Act (Act). Those rules took effect on June 6th, making Texas the first state allowing otherwise independent physicians to negotiate jointly with health benefit plans.

Understanding the Act and the final rules is important to those outside of Texas because (1) there is a movement nationwide to enact similar legislation, and (2) there is a common misconception about the significance of the Act, namely few physicians will likely ever utilize the Act because its rules are so onerous.

A. The Act The Act allows physicians to negotiate collectively through a physicians' representative with those health plans covered by the Act.

The negotiations may involve clinical practice guidelines, coverage criteria, patient referral procedures, timing of physician payments, dispute resolution procedures, quality assurance programs, utilization review procedures and physician selection and termination criteria.

However, the negotiations may only involve the fees to be paid the physicians if, as determined by the Texas Attorney General: (1) the health plan has substantial market power; and (2) the fees being offered by the health plan have already affected or threaten adversely to affect the quality and availability of patient care. Moreover, whether or not the proposed negotiations involve fees, the Attorney General is only to permit them, if their likely benefits outweigh the reduction in competition that results from the joint activity.

B. Antitrust Background

Generally, it is an antitrust violation for otherwise independent physicians to negotiate jointly with a health plan, especially if those negotiations pertain to the fees to be paid to the physicians. However, states may immunize activity that would otherwise be an antitrust violation, if the state clearly articulates its decision to legalize the behavior, and if the state then actively supervises the behavior.

The Act articulates Texas' policy to permit joint physician contracting under certain circumstances. Further, the rules issued by the Texas Attorney General attempt to supervise the endeavor by establishing a complicated application process.

C. The General Application

Physicians seeking to negotiate jointly must file a lengthy application with the Texas Department of Insurance and the Office of the Attorney General, Consumer Protection Division, Antitrust Section. That application must contain information about (1) the physicians' representative; (2) the participating physicians; (3) the market for physician services; (4) the proposed negotiations; and (5) the physician representative's plan of operation and procedures to insure compliance with the Texas Insurance Code.

For example, with respect to information about the participating physicians, the application must include a description of each physician's specialty, clinic affiliations and hospital staff privileges, and an identification of each integrated practice group or independent practice association to which the participating physician belongs.

Further, for each health benefit plan for which joint negotiations are proposed, the application must state whether each participating physician or practice group has had a contract with that health benefit plan for the last three (3) years, and if so, the application must include a copy of the most recent contracts and any correspondence from the past year concerning renewal, termination or modification of those contracts.

With respect to information about the market for physician services, the application generally must include the number and the descriptor of the ten CPT codes, excluding office visit codes, that comprise the largest portion of the participating physicians' revenues for each specialty. (CPT codes, developed by the American Medical Association, categorize medical procedures for billing purposes according to a standard coding system.)

Also, if the participating physicians draw a significant portion of their patients from outside the county in which they primarily practice, the application must identify those geographic areas. The application also must include the number of physicians by specialty who compete with the participating physicians in each geographic area in which the participating physicians draw patients.

With respect to information about the proposed negotiations, the application must contain a description of the proposed timeline of the negotiations, the expected impact of the negotiations on the quality of patient care, the expected impact of the negotiations on competition, the expected impact of the negotiations on consumers, the benefits of a contract between the identified health benefit plan and the participating physicians, and the identity of any health care providers, other than the representative and the participating physicians, who will be parties to and will share risk in the contracts to be negotiated.

D. Fee Related Applications

In addition, if the negotiations are to involve fees, then the application must demonstrate how the fee-related terms to be negotiated have already affected or threaten adversely to affect the quality and availability of patient care.

Applications to conduct fee-related negotiations must also contain the names of the health benefit plans, by product, which collectively account for 80% of each participating physician's, or integrated practice group's, business in the last year, and include for each of the health benefit plans named, the effective dates of each contract currently in effect, the termination dates of any contracts that have been terminated in the past three (3) years, and the reason for each of those terminations.

Fee-related applications must also include information demonstrating that the health plan to be negotiated with has substantial market power in the purchase of physician services.

E. After Approval

Once an application is approved, the participating physicians may communicate with each other and with the physicians' representative with respect to the contractual terms and conditions to be negotiated with the health plan. During the negotiations, the physicians' representative is the sole party authorized to negotiate with the health plan, and each physician may agree to be bound by the terms and conditions negotiated by the physicians' representative.

Nevertheless, health plans communicating or negotiating with the physicians' representative remain free to contract with, or offer different contract terms and conditions to, individual physicians. Further, participating physicians are prohibited from acting in concert in response to a report issued by the physicians' representative related to the discussions and negotiations with the health plan.

F. The National Front

On the national front, on June 30, 2000, the United States House of Representatives approved the Quality Health-Care Coalition Act of 2000, which would also give doctors outside of Texas the right to bargain collectively with health benefit plans under certain circumstances. However, the future of that legislation remains uncertain, since the United States Senate would have to pass a similar bill, and the Republican leadership in the Senate has shown little interest in doing so. Interestingly, the Congressional Budget Office has predicted that the Quality Health-Care Coalition Act of 2000 would increase doctors' fees by 4.5%.


December 21, 2000




Rosen, Barry F.


Health Care