by Elinor R. Hoffmann, Esq.

Managed Care Interface, Vol. 11, No. 3 at p. 81, March 1998

In the past two years, there have been a number of news articles, even a T.V. news segment, highlighting a new drive among physicians to become card-carrying members of a union engaged in collective bargaining. The objective is to increase bargaining power between physicians and the managed care organizations that use their services.

There is undoubtedly strength in numbers. From time to time, labor unions have proven their ability to wring concessions for their employee members from recalcitrant employers. And clearly, the collective bargaining activities of valid unions with respect to the wages, hours and terms and conditions of employment are sanctioned and encouraged by our labor laws. Unions, however, are intended to strengthen the bargaining position of bona fide employees, not of independent entrepreneurs.

A physicians' union may be an antitrust minefield. When independent, competing professionals (say, doctors) agree on fees and band together to negotiate those fees with a managed care organization, it is more likely to be deemed pricefixing than collective bargaining (see endnote 1). Understanding why requires some history.

THE LABOR/ANTITRUST INTERFACE

When the Sherman Act became law in 1890, (see endnote 2)it was intended to be a weapon against the power of the holding companies, pools and trusts that controlled certain basic goods and services, like sugar, oil and railroad transportation. That's not what happened. Instead, the law became a potent weapon in the hands of enemies of the nascent labor movement, who used it to persuade courts to enjoin or fine the young unions (see endnote 3). (Think about it. A labor union, in some sense, does precisely what the antitrust laws forbid. It's an organization of competitors whose members agree on the price at which they will sell their services.)

In the early 20th Century, Congress decided to strengthen the antitrust law to attack the restraints on commerce that it was originally intended to address, and to protect the labor movement from misapplication of the law. Congress declared that the "Labor of a human being is not a commodity or article of commerce" in what is now section 6 of the Clayton Act, and stated that nothing in the antitrust laws should forbid the existence or legitimate activities of nonprofit labor organizations created for mutual self-help (see endnote 4). Section 20 of the Clayton Act prohibited courts from issuing injunctions in disputes concerning terms or conditions of employment (see endnote 5).

Courts were still wary of the growing force of labor, and continued to apply the antitrust laws to quash labor activities (see endnote 6). In the Norris-LaGuardia Act of 1932, (see endnote 7)and again, in the Wagner Act of 1937, (see endnote 8) Congress reacted by making additional forms of labor activity, like picketing, non-enjoinable, and declared that national policy favored collective bargaining and union organization. With the basic statutory framework in place, it was up to the courts to draw a line of demarcation between our national labor policy, which sanctions the limitation of competition in wages, hours and working conditions among unionized employees, and our national antitrust policy, which promotes competition in the production and marketing of goods and services.

Line-drawing is never easy in law. But over the past century, the Supreme Court has fashioned guidelines, some clearer than others, as to when concerted conduct involving the labor of human beings is exempt from antitrust scrutiny. The easiest case was unilateral conduct by a certified labor union. This kind of conduct was exempt because it was not activity aimed at restraining trade, and in any event, was exempted from the antitrust laws by statute (see endnote 9). Agreements among labor and management posed a stickier problem. The trick was to discern when the combination had as its objective a restraint on commerce (and therefore would be subject to the antitrust laws) and when it had as its objective an adjustment in labor-management relations (and therefore would be exempt) (see endnote 10). Agreements among employers engaged in collective bargaining with unions were also found to be exempt when their primary purpose and effect was to affect the balance of power in collective bargaining negotiations(see endnote 11).

It is important to note two issues that the Supreme Court was able to resolve with relative clarity when dealing with the distinction between antitrust problems and legitimate collective activity associated with the provision of services. First, the individuals or societies practicing the "learned professions," like law, medicine and engineering, are subject to the antitrust laws to the same extent as any other provider of goods and services. An agreement among competing professionals on a minimum fee schedule, for example, is a violation of the antitrust laws (see endnote 12). There is no statutory, and no implied exemption from the antitrust laws for independently practicing professionals as there is for labor organizations and their members.

Second, calling an association of individuals who practice independently a union doesn't make it one. The Supreme Court has dealt with this issue on a number of occasions, most significantly for present purposes, in one case involving physicians.

PRICEFIXING BY ANY OTHER NAME . . . .

In American Medical Association v. United States, (see endnote 13) the American Medical Association and the Medical Society of Washington, D.C. were indicted for violations of section 3 of the Sherman Act. (Section 3 of the Sherman Act prevents unreasonable restraints of trade in the same manner and as section 1, but is applicable to commerce in the District of Columbia.) The government charged that the AMA and the Medical Society, together with a number of individuals, including physicians, had violated the antitrust laws by conspiring to "hinder and obstruct the operations of Group Health Association, a nonprofit corporation organized by Government employees to provide medical care and hospitalization on a risk-sharing prepayment basis." (see endnote 14). More specifically, the government contended that the defendants conspired to coerce practicing physicians who were members of the defendant organizations from accepting employment under Group Health, from consulting with Group Health physicians, and persuade hospitals from affording care for Group Health patients. The defendants argued, among other things, that they were exempt from the application of the antitrust laws because they were engaged in a labor dispute to which the antitrust laws did not apply under the Clayton Act and the Norris-La Guardia Act.

The Supreme Court was not persuaded. The Court characterized the AMA and Medical Society as an organization composed of professionals who practiced independently. This was not an association of employees of anyone, even if some of the members had contracts with Group Health. The objective of their conduct was to prevent Group Health from continuing its business, not to better the terms and conditions of employment in a collective bargaining context.

As authority for its holding, the Court relied on Columbia River Packers Association v. Hinton (see endnote 15). Hinton involved alleged antitrust violations against the Pacific Coast Fishermen's Union, its officers and members, and two individuals who processed and sold fish. The Union was affiliated with the C.I.O. but was primarily an association of fishermen who owned or leased fishing boats, and who were independent entrepreneurs. The Union acted as the bargaining agency for its members' sale of fish. Members were prohibited by the Union by-laws from delivering fish outside of the Union agreements, and the Union required buyers of Union fish to buy only from its members. The plaintiffs in the case were two fish processors and sellers who refused to make such an agreement, and consequently were denied access to Union fish.

The Court found that the activity complained of was not exempt from the antitrust laws by reason of labor policy. It found it plain that the labor laws (in particular, the Norris-LaGuardia Act) focus upon "disputes affecting the employer-employee relationship", and that they were not meant to have "application to disputes over the sale of commodities." Simply put, the dispute was between sellers of fish and buyers of fish. Like the doctors in the AMA case, and like many of the physicians in today's proposed unions, the fishermen were not and did not want to be anyone's employees. Rather, they wanted more bargaining power in the sale of the product they were marketing. But that is not a justification for an agreement on price among competitors.

THEN AND NOW

The health care industry has evolved over the past fifty years, but the governing principles reflected in the cases discussed above have not changed. Pricefixing is still illegal per se, and calling a group of independent practitioners a union does not protect them from the application of the antitrust laws (see endnote 16).

In a recent case, terminating in a proposed consent decree including a substantial fine, the FTC made that fact abundantly clear (see endnote 17). The case arose out of the FTC's challenge to the activities of the College of Physician-Surgeons of Puerto Rico and several physicians groups. The defendants had sought to combat the bargaining power of the Puerto Rican government's health insurance system for indigent residents by making a series of demands. They insisted that the public corporation administering the system recognize defendants as the collective bargaining agent for Puerto Rico's physicians, that it allow the defendants to collectively negotiate contracts for the physicians, and that it increase physician control over funds and decrease physician financial risk.

The FTC complaint alleged that when the demands were not met, the defendants called a strike (i.e., boycott) of all non-emergency services, resulting in a denial of consumer access to medical services. The FTC also charged that the strike had the purpose, effect, tendency or capacity to restrain competition among physicians, fix prices paid to physicians, and raise costs to insurers, among other things. A settlement, reflected in the proposed consent decree prohibits the respondents from agreeing to boycott any third-party payor, from threatening to or actually refusing to provide services to persons enrolled, covered, or served by any third-party payor, and from negotiating the amount manner of calculating or terms of reimbursement or conditions of any participation agreement. The parties also stipulated to a $300,000 fine, payable by the College to the Puerto Rican Department of Health. The word "union" was not mentioned in the complaint or the consent decree, but the attempts by the defendants to act as "collective bargaining agents" made the parallels clear.

The consent decree expressly did not prevent the corporate defendants from jointly negotiating on behalf of any "integrated joint venture", or any other joint venture that has received prior approval from the FTC. It further provided that nothing in the order would prevent the defendants from exercising their First Amendment rights to petition the government.

Cutting through the verbiage, the consent decree permits the physicians to do what is permitted under the antitrust laws and the free speech provisions of the United States Constitution. Characterizing their activities as conduct in furtherance of collective bargaining did not change the antitrust status of the independently practicing physicians one bit.

The situation, of course, would be different for physician-employees seeking to organize to bargain collectively over their terms and conditions of employment. There are, for example, unions of doctors or lawyers employed by government entities or university systems which should be protected from antitrust attack to the same extent as any other union activities. But members of those organizations are not independent practitioners like the Puerto Rican physicians in the FTC's case.

WHY UNIONS?

Last December, Fortune magazine reported that the physician union movement is on the upswing (see endnote 18). A group of New Jersey practitioners (independent practitioners) have petitioned the National Labor Relations Board to permit the United Food and Commercial Workers Union to represent them. According to the article, the basis of the petition is that the power of the HMOs has converted the independent practitioners into de facto employees. The objective, according to the organizers, is not so much economic benefits as the right to practice medicine in their own way.

This is an interesting concept, but it is not clear that the rules and policies of the labor laws must be invoked to protect the participants from antitrust attack. The antitrust laws condemn only some practices (like pricefixing) as per se illegal. Most other conduct is subject to a test of reasonableness. The Health Care Guidelines recognize this: they provide safe harbors for some activities (including joint bargaining on fees) undertaken by financially integrated joint ventures composed of a limited percentage of competitors in a given geographic market, particularly non-exclusive ones. They do not condemn other financially integrated joint ventures, but simply say that they will be subject to a test of reasonableness. And they have invited the health care profession to test the waters. The Health Care Guidelines illustrate the point by using as an example of an arrangement that would not be challenged, a group of all of the physicians in a rural county who want to negotiate collectively with an HMO on all issues other than price. The enforcement agencies state that they would not challenge such a joint venture because "the small risk of anticompetitive harm from this venture is outweighed by the substantial procompetitive benefits of improved quality of care and access to physician services that the venture will engender" (see endnote 19). What other kinds of collective conduct may be reasonable in the health care industry and permissible under the antitrust laws is still an open question.

There is a danger in invoking one set of laws to obtain an exemption from another. The participants in a business venture sometimes regard exemptions as a license to go farther than necessary. The courts, on the other hand, construe exemptions restrictively. This is particularly true in antitrust, which reflects the strong public policy that generally, competition is the best method of insuring that the consumer gets the highest quality product or service at the lowest price. If some form of collective activity will improve the quality and efficiency of health care services without restraining competition, you don't need a union to do it.

Endnotes

(1) This assumes there is no financially integrated joint venture of the type described by federal enforcement agency guidelines. See Department of Justice/Federal Trade Commission Joint Statements of Antitrust Enforcement Policy In Health Care, 4 Trade Reg. Rep. 13,153 (CCH) (August 28, 1996) (the "Health Care Guidelines"); see also Hoffmann, "The 1996 Justice Department/FTC Statements on Physician Joint Ventures and Multiprovider Organizations," MEDICAL INTERFACE, vol. 10, no. 2 at p. 103 (February, 1997).
(2) Among other things, the Sherman Act and the case law interpreting it outlaws pricefixing as an unreasonable restraint of trade and prohibits abuse of monopoly power. Pricefixing may be a felony, punishable by huge fines and even jail sentences. 15 U.S.C. s 1 et. seq.
(3) See, e.g., Loewe v. Lawlor, 208 U.S. 274 (1908) (reversing lower court judgment of dismissal of a complaint for treble damages based on boycott of non-unionized manufacturer); United States v. Debs, 64 F. 724 (C.C.N.D. Ill. 1894), aff'd, 158 U.S. 564 (1895) (upholding injunction against Pullman strike and holding directors and officers of union in contempt); United States v. Workingmen's Amalgamated Council, 54 F. 994 C.C.E.D. La. (1893) (upholding injunction against organizational strike by draymen).
(4) 15 U.S.C. s 17.
(5) 29 U.S.C s 52 [?]
(6) See, e.g., Duplex Co. v. Deering, 254 U.S. 443 (1921) (secondary boycotts); American Steel Foundries v. Tri-City Central Trades Council, 257 U.S. 184 (1921) (picketing); Bedford Cut Stone Co. v. Journeymen Stone Cutter's Ass'n, 274 U.S. 37 (1927) (primary boycotts).
(7) 29 U.S.C. ss 101-115.
(8) 29 U.S.C. s 151.
(9) Apex Hosiery v. Leader, 310 U.S. 469 (1940); United States v. Hutcheson, 312 U.S. 219 (1941). In Hutcheson, the Supreme Court answered in the negative the question whether, if certain conduct was not enjoinable under the Norris-LaGuardia and Clayton Acts, would it be subject to criminal prosecution or treble damages under the antitrust laws. The Court characterized the statutes as "interlacing": if labor-related conduct was non-enjoinable under those statutes, it was also conduct that should not "be considered or held to be violations of any law of the United States" under Clayton Act 20.
(10) Compare Allen Bradley Co. v. Local 3, 325 U.S. 797 (1945) (combination of electrical workers' union, contractors and manufacturers to exclude non-New York manufacturers not exempt) with Local 189 v. Jewel Tea Co., 381 U.S. 676 (1965) (agreement between butcher's union and retail meat marketers restricting operating hours of Chicago meat markets exempt).
(11) E.g., Kennedy v. Long Island Railroad, 319 F.2d 366, 372-73 (2d Cir.), cert. denied, 375 U.S. 830 (1963) (dismissing antitrust claim against employers' strike insurance pact because the antitrust laws were "designed principally to outlaw restraints against commercial competition in the marketing and pricing of goods and services and were not intended as instruments for the regulation of labor-management relations.")
(12) See, e.g., Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (minimum fee schedule published by county bar association and enforced by state bar violates the Sherman Act).
(13) 317 U.S. 519 (1943).
(14) Id. at 526.
(15) 315 U.S. 143 (1942).
(16) See also Los Angeles Meat & Provision Drivers Union v. United States, 371 U.S. 94, 101 (1962) (answering in the negative "[t]he narrow question . . . whether businessmen who combine in an association which would otherwise be properly subject to dissolution under the antitrust laws can immunize themselves from that sanction by the simple expedient of calling themselves `Local 626-B' of a labor union." There are instances when independent businessmen have been found to be legitimate participants in union activity, for example, when there is an economic interrelationship between union members and the independents, such that a union pay scale would not be effective absent inclusion of the independents. See, e.g., American Federation of Musicians v. Carroll, 391 U.S. 99 (1968).
(17) College of Physicians-Surgeons of Puerto Rico, 4 Trade Reg. Rep. (CCH) 24,335 (October 2, 1997).
(18) Now the Doctors Want a Union, FORTUNE, Dec. 8, 1997 at p. 32.
(19) Health Care Guidelines, Statement 8 (Physician Joint Ventures), example C.7. (4 Trade Reg. Rep. 13,153 (CCH) (1996) at 20,825.)
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