Practice Pulse: Eye On Managed Care
Third-Party Negotiations
By Gil Weber, M.B.A.

Recent news out of California is creating something of a stir among exasperated practitioners in that state. Already caught in the jaws of the nation's most contentious and financially-stressed managed care environment, they're hoping that proposed legislation will finally loosen the uncompromising grip that third-party payers have traditionally held over individual practices, small groups and healthcare delivery systems.

A bill now moving through the California legislature would grant independent practitioners (those not in economically integrated networks or groups) the right to negotiate collectively with third-party payers. Such joint negotiations are currently regarded as anti-competitive and are therefore banned under federal anti-trust regulations. Thus, doctors have always been at a significant disadvantage when trying to negotiate fees and other contractual matters.

The suggested alternative

Already passed by the State Assembly and set for consideration by the Senate Judiciary Committee, the bill is hotly contested by the HMO industry. Not surprisingly, certain business interests are also advocating against the bill, claiming that its passage would only drive up the cost of healthcare.

Opponents of the bill argue that practitioners have other means to negotiate and protect their interests -- by forming IPAs (Independent Practice Associations) or medical groups, for example. But given that 25 of these groups failed in California last year, and 125 failed there in the past 5 years (leaving many millions of dollars in uncollected claims), practitioners see this as nothing but illusory rhetoric by those determined to continue their lock-grip and the status quo.

As of August 2001, only one state, Texas, has chosen to allow collective bargaining. So far, not many practitioners there have chosen to exercise their rights, relying instead on the traditional IPA system. But that might change given some other recent news.

This month, IPAs filed for bankruptcy in Ft. Worth and San Antonio. AM News reported on August 13 that physicians have been left holding an estimated $40 million in unpaid claims against the Ft. Worth IPA. And the IPA in San Antonio has debts of roughly $12 million in excess of assets.

Unions for doctors?

If practitioners gain the right to bargain collectively, that raises the specter of unionization. But do most doctors want a union? This idea may not even be practical or feasible, either. After all, unions are made up of those who are supervised by others -- not of a company's managers (who in this case would be the doctors). So any collective bargaining rights granted to healthcare practitioners might be quite different than those seen in the traditional union model.

Limits on negotiating?

Whatever form collective bargaining may take, if allowed, it's clear that doctors are looking for a way to leverage their numbers without getting caught up in and tied down by the clearly flawed and highly risky "global capitation" that has sent so many IPAs crashing to oblivion.

The proposed California legislation doesn't allow practitioners to simply get together and demand a negotiations meeting with a payer. Rather, they'd first have to seek approval to enter into negotiations from the newly formed Department of Managed Care. Assuming such approval were granted, the payer would start negotiations.

If the sides couldn't reach a negotiated agreement, then the case could be submitted to mediation and, if that didn't work, resubmitted to non-binding arbitration. Unfortunately, even that might not resolve the disagreement.

That's because under the pro-posed legislation, the payer could refuse to continue negotiations at any point in the process. If that happens, it's really not clear where the doctors would go from there. Some voice an opinion that any health-plan's refusal to continue negotiations in good faith would make a stronger case for additional action in the legislature to mandate continued negotiations.

Just wait and see

For now all we can do is watch the nation's bellwether state for evolutionary, even revolutionary managed care activity. It's clear to most practitioners that the traditional "global capitation" risk demanded of IPAs by payers is a scenario to avoid. If California's bill does pass and allows doctors an effective means to negotiate collectively -- without taking risk -- well, that would be big news.