When Physicians Try to Unionize Against HMOs

"I'm sorry, the doctors can't see you today. They are on strike." Is this a possible scenario? Given the dissatisfaction felt by many doctors over the increasing power of managed care plans, health maintenance organizations (HMOs), preferred provider organizations and other networks it is not hard to imagine.

Complaining that third-party payors arbitrarily set rates of payment, dictate what services may be provided and interfere with decisions about patient care, physicians have begun turning to unions for support in their battles with managed care organizations and health networks, which they view as eroding their economic and professional stake in the practice of medicine. As Dr. John Nelson, a member of the American Medical Association's (AMA) Board of Trustees, has complained:

There is an increasing angst on the part of physicians that they are not in a game that is fair. Physicians employed in groups can organize, but us solo practitioners have no ability to do that, and hence no leverage to negotiate. If a managed care plan decides to pay me half as much for a procedure, what leverage do I have?¹

In several recent National Labor Relations Board (NLRB) cases, unions have petitioned to allow doctors employed by health care providers to vote in union elections at their employers. Current federal labor law allows employees who unionize to bargain collectively about wages and other terms and conditions of employment and provides for a "labor exemption" from the antitrust laws.

This exemption, however, only applies to physicians if they are "employees" of a hospital or health system, not self-employed contractors, and then only if they are not deemed to be "supervisors" under the National Labor Relations Act (NLRA).² The NLRB has traditionally taken the position that self-employed physicians are either "independent contractors" prohibited from banding together to form a negotiating bloc in violation of the antitrust laws, or not "protected employees," or in the case of hospital interns and residents, that they are "students." Neither independent professionals nor students are entitled to the protected right to organize under the NLRA.³

These new efforts at unionizing and collective bargaining by independent physicians, however, have caught the attention of other federal authorities. The Federal Trade Commission and the Justice Department's Antitrust Division have made clear their position that independent doctors who collectively bargain, set fee schedules or even strike are acting in violation of the antitrust laws. In August, the Justice Department sued a physicians' union in the federal district court in Delaware alleging essentially that the union was simply a vehicle for price-fixing in violation of the antitrust laws.⁴

In an effort to sidestep such liability, a bill known as the "Quality Health-Care Coalition Act of 1998"⁵ was introduced this year in the House of Representatives by Representative Thomas Campbell, D-Calif. The bill proposed exempting physicians from the antitrust laws to allow negotiating groups to deal collectively with health systems without unions. The bill had the backing of the AMA but was vehemently opposed by both federal and state agencies that enforce the antitrust laws. The AMA at its June meeting also approved a resolution to develop a negotiating unit and has established a special Organized Medical Staff Section.

Recent NLRB Cases

As noted earlier, physicians who are employed by health care providers in a staff physician capacity may organize for collective bargaining purposes. For example, this past summer, physicians working at 46 primary-care clinics outside Seattle voted to be represented by the United Salaried Physicians and Dentists union in an election widely viewed as a backlash against salary cuts, heavier patient loads and less input in decision-making processes.⁶

The doctors' employer, Medalia Healthcare, Washington State's largest medical network, reportedly spent more than $150,000 to defeat the union. It argued unsuccessfully before the NLRB that the doctors were "supervisors" because they were clinic administrators or served on management committees. The NLRB regional director's decision concluded that the doctors could organize under the NLRA, as they did not have the authority to hire and fire or make managerial decisions:

In sum, we have a seemingly policy-less, nonuniform, checkerboard smattering of physician involvement in occasional major decisions at the clinic level, sometimes directly, sometimes through their committee representative(s) . . . .⁷

A large Arizona health system, Thomas-Davis Medical Center, used the same supervisor argument in a protracted fight against unionization, which it, too, ultimately lost.⁸ So did the management of New York University Medical Center, which argued unsuccessfully this year before the Second Circuit Court of Appeals that its staff psychiatrists were "unit chiefs" and thus supervisors not entitled to unionize.

As the Second Circuit noted, NYU's strongest evidence of supervisory authority was the unit chief's job description, that the position supervised psychiatrists and other physicians, evaluated them and recommended hiring and termination. The unit chiefs themselves, however, denied that they had the actual authority to hire and fire and claimed that none of them had ever seen the job description.

The court agreed with the NLRB that these physicians were not supervisory, adding, "theoretical or paper power does not a supervisor make."⁹ Similarly, St. Barnabas Hospital in the Bronx is appealing an NLRB decision that found that some 250 attending physicians that it has working at Lincoln Hospital are eligible for representation by the United Salaried Physicians and Dentists Union, since they are not supervisory employees. A union election was held in earlier this month, but the NLRB impounded the ballot box until the appeal is decided.¹⁰

None of this recent activity should suggest that physician unions are a novel idea. The physician-union movement was at its peak in 1974 when some 55,000 doctors sought protection from a malpractice liability crisis, heavier government regulations and the prospect of national health insurance.¹¹ More recently, however, a 1997 AMA report¹² found that only about 14,000 to 20,000 physicians are union members, with half of those being residents at public hospitals.

Government-owned or sponsored hospitals (e.g., New York City Health and Hospitals Corp.) usually have salaried doctors on staff, and historically, salaried doctors at public hospitals have been allowed to unionize without lengthy legal fights, since public hospitals often voluntarily recognize physicians' unions for collective bargaining purposes.

"Student" Issue

At this point, it may be helpful to describe the various categories of physicians-in-training who are often collectively referred to as "house staff."¹³ Interns and residents make up the majority, and there are some 96,000 of them employed in U.S. hospitals today. "Interns" are those students who are still in medical school and who are receiving clinical training in a hospital under a contractual arrangement between their medical school and the hospital. "Residents" are those who have completed medical school, received their degree and are concentrating on post-graduate specialty training at one or more teaching hospitals that are affiliated with a medical school.

Residency programs are accredited by a national organization, the Accreditation Council on Graduate Medical Education, and residents receive a training certification diploma upon completion of their program. "Fellows" are physicians who have completed their residencies and are pursuing further training in a medical sub-specialty. Interns, residents and fellows, although they may be employed by hospitals, are not eligible to organize or bargain collectively. The exception to this is in public hospitals and even a handful of private nonprofit hospitals that voluntarily permit them to do so.

In Boston Medical Center and House Officers' Assn., Committee on Interns and Residents,¹⁴ physicians-in-training at privately owned Boston Medical Center petitioned for a union election in a direct challenge to established NLRB rulings in Cedars-Sinai Medical Center ¹⁵ and St. Clare's Hospital.¹⁶ These cases, which date from the 1970s, held that "house staff" may not collectively bargain because they are students and therefore are not entitled to the protections of the NLRA.

The petition of the Committee on Interns and Residents for an election was rejected based upon these precedents. The CIR previously represented the interns, residents, and fellows at the former Boston City Hospital, a public hospital not under the jurisdiction of the NLRB. When Boston City Hospital merged with the former University Hospital to create Boston Medical Center, the new entity also voluntarily recognized the union. Subsequently, however, it changed its position and argued that, since its house staff were actually students, it had no obligation to recognize their union. The NLRB agreed with the hospital. The CIR has appealed to the NLRB in Washington, D.C., and a decision is expected soon.

As contrasted with a physician-in-training, an "attending physician" is a doctor who has completed training and can admit and treat patients at a hospital at which he/she has been granted privileges. Attending physicians often have a private office practice and may also be shareholders and/or employees of professional corporations. It is some of these attending physicians who are behind the current efforts to organize.

Private Physicians

While the labor status of employed physicians and house staff is relatively settled, a new ruling on the status of independent private attending physicians is raising questions. In United Food and Commercial Workers v. AmeriHealth Corp., a union of blue-collar workers including meat cutters and truck drivers, sought to represent 450 independent doctors in Southern New Jersey in negotiations with an HMO known as AmeriHealth.¹⁷

A regional director of the NLRB rejected the petition and even denied a hearing, on the traditional basis that the self-employed doctors were independent contractors, not employees, and that their affiliation with a union would therefore violate the antitrust laws. On appeal, the NLRB disagreed. In a groundbreaking order, the NLRB required for the first time that there be a full hearing on the union's petition. The 2-1 decision noted:. . . [T]he HMOs place certain conditions and restrictions on the physicians which indicate that they do not have the independence normally associated with an independent contractor. The involvement of the HMOs in the physicians' delivery of health care services and access to patients is a feature of the changing nature of the health care industry . . . . It calls into question the historical understanding of the status of physicians who maintain their own practices.¹⁸

AmeriHealth is significant because the independent physicians who contracted with it did not even spend a majority of their time treating patients enrolled in the AmeriHealth HMO. AmeriHealth argued that the doctors are not its employees and that they make independent medical decisions, provide their own facilities, equipment and support staff and could leave the HMO at any time. The doctors' provider contracts may impose certain conditions that are non-negotiable, but AmeriHealth contended that such conditions are required by the New Jersey HMO Act.

The union, on the other hand, argued:

(a) that the HMO imposes so many conditions on the practice of medicine that the doctors are reduced to being health plan employees;

(b) that the doctors find themselves in the same position as professional athletes, actors or truck drivers who drive their own vehicles, all of whom are permitted to unionize because they are deemed to be an agency's employees;

(c) that AmeriHealth controlled access to patients, staged unannounced inspections of doctors' offices, dictated compensation, terms and services and restricted the doctors' judgment by requiring pre-authorization for specialty referrals; and

(d) that AmeriHealth gave doctors "take-it-or-leave-it" contracts dictating reimbursement rates, and that as a result, they were not truly able to leave the network, since some would lose 15 to 30 percent of their patients because of AmeriHealth's predominance in the area.¹⁹

In a brief but forceful dissent, NLRB Member J. Robert Brame III argued that all the traditional elements for finding independent contractor status were present and that a remand for a hearing under the circumstances was inappropriate. He wrote:

[The] remand is little more than a fishing expedition for the benefit of counsel and a limited postponement of a sure and certain dismissal . . . . [I]t sends a highly misleading message to the public and our understaffed Regional Offices . . . . that the issue is uncertain and constitutes a gross waste of our Agency's limited resources.²⁰

The NLRB's regional office in Philadelphia began taking testimony in early November and the hearing is expected to last into December.

The Counterattack

Meanwhile, the Justice Department's Antitrust Division has launched a vigorous counterattack on unionization efforts by independent physicians. What may be the first federal antitrust case to be filed against a physicians' union commenced in August, in United States of America v. Federation of Physicians and Dentists Inc.²¹ There, the Justice Department sued a physicians' union, alleging that it organized its member orthopedic surgeons in an illegal boycott in violation of the Sherman Act Sec.1.²²

The complaint alleges that the Federation union signed up virtually all of Delaware's orthopedic surgeons for the purpose of negotiating fees with Blue Cross & Blue Shield of Delaware. When Blue Cross proposed fee reductions, the complaint alleges that the doctors simultaneously terminated their Blue Cross contracts. The government charges that the Federation's unlawful conspiracy with its members blocked Blue Cross's efforts to reduce the rate of cost increases and disrupted physician-patient relationships by reducing the panel of orthopedic surgeons participating with Blue Cross.

The government charges that this was caused "by collusive distortion of what should have been independent negotiations between Blue Cross and each of several independent orthopedic surgeon practices in Delaware." In the process, the government asserts that the state's consumers were harmed because Blue Cross subscribers were forced to go out of their network and pay more for orthopedic surgical services.

This suit is the culmination of a seven-month investigation of the Federation's activities by the Justice Department, arising from complaints by Blue Cross plans in several states. Under 1996 antitrust enforcement policy guidelines issued by the Justice Department and the FTC,²³ the Federation would have been allowed to serve as a "messenger" that conveys information between competing physicians to the insurer about prices the network participants are willing to accept.

The critical feature of such a "messenger model" arrangement is that each physician must make his/her own independent, unilateral decision about accepting the insurer's offer, separate from what other physicians will do and without any influence from other physicians or the messenger. If the messenger goes further and begins to act as an agent on behalf of one or more unrelated providers for collective negotiations, however, the arrangement could violate the antitrust laws.

In the Delaware Federation case, the government alleged that the Federation cloaked its illegal activities by describing them as a messenger model arrangement. The Federation denied that it improperly shared the prices of medical procedures among the physicians. At this writing, the two sides have begun settlement discussions, with the Federation union proposing to form a committee of itself, the Justice Department, the FTC and the AMA to study physician antitrust issues. The Justice Department has not yet responded to this proposal.²⁴

In a related matter, United HealthCare Inc., an HMO, has filed a complaint against the Federation union with the Justice Department's Antitrust Division regarding the union's representation of orthopedic surgeons in Dayton, Ohio.²⁵ The Federation has also been active in Pennsylvania, where reportedly about 90 percent of Philadelphia's orthopedic surgeons have joined it in response to cuts in reimbursement rates by Independence Blue Cross.²⁶ There, the Federation is apparently receiving dues in exchange for "consultation services" such as review of insurance company contracts and help in drafting counter-proposals.

An orthopedic surgeon and past president of the Pennsylvania Orthopedic Society was quoted as saying that the Federation is "the only venue we have left to save our profession," given Independence Blue Cross's 16 percent rate cut and the fact that 30 percent of his patients are Independence Blue Cross subscribers.²⁷

Doctor Strikes?

As mentioned earlier, the proposed Quality Health-Care Coalition Act of 1998 sought to grant antitrust immunity to these collective efforts by permitting self-employed doctors, in groups, to negotiate with health insurers in the same way that bargaining units are allowed under the NLRA. Should such a bill ever become law, it raises the question whether doctors could also strike, if necessary, to enforce their demands.

As the bill is currently drafted, the answer is apparently yes. And while the AMA supports the bill, it has taken a firm stand in opposition to granting physicians the right to strike. As Dr. Donald Palmisano, a member of the AMA board of trustees, stated in his testimony before Congress on the bill: "It is our ethical precept that we will not use patients as bargaining chips."²⁸

The idea of joining trade unions also grates on physicians' professional pride. As a result, one alternative to unionization is the increased role of state and county medical societies in the representation of physicians in contract negotiations, payment disputes, and employment issues.²⁹ The Governing Council of the AMA's Organized Medical Staff Section has urged this, stating that "when physicians seek sources outside of their profession for representation of any kind, this becomes a critical membership issue that has a negative ripple effect for all on organized medicine."³⁰

The AMA's House of Delegates, its formal policy-making body, asked its board of trustees to develop a negotiating unit by December that will have no affiliation with national trade unions. The FTC and the Justice Department's revised health care guidelines also permit "integrated" physician groups to create joint ventures and negotiate collectively with health plans.³¹

The AmeriHealth decision is probably an aberration, and physicians will continue to face formidable barriers under both the NLRA and the antitrust laws before they will be able to ally themselves with organized labor. Perhaps more important, widespread unionization of doctors may risk diminishing the stature of doctors as independent professionals engaged in the practice of the medical arts.

Whether physicians are more likely to be successful in their dealings with the HMOs by grouping together in such entities as independent practice associations remains to be seen. Many physicians remain reluctant to surrender any measure of control over their practices, even to their fellow physicians. What is certain is that organized medicine will continue its search for effective methods to redress the perceived imbalance between managed care and provider networks on the one hand and physicians on the other.

Francis J. Serbaroli is a partner at Cadwalader, Wickersham & Taft.

1. Quoted in "Independent Doctors Seek Right to Organize, Yet Refuse to Consider Work Stoppages," BNA's Health Care Policy Report, June 22, 1998.
2. 29 USC Sec.151, et. seq.
3. The 1947 Taft-Hartley amendments to the NLRA provide expressly that the term "employee" does not include any individual having the status of an independent contractor. 29 USC Sec.152(3). Students are not "employees" within the meaning of the NLRA under the holding in Cedars-Sinai Medical Center, 223 NLRB 251 (1976). See also, University of Chicago Hospitals and Clinics, 223 NLRB 1002 (1976); Kansas City General Hospital, 225 NLRB 106 (1976).
4. U.S. v. Federation of Physicians and Dentists Inc., Civ. Action No. 98-475 (D.Ct. Del. 1998). See discussion, infra.
5. H.R. 4277, 105th Cong., 2d Sess. (1998).
6. Medalia Healthcare and United Salaried Physicians and Dentists, SEIU, No. 19-RC-113554, 4/24/98. See news articles in BNA Daily Labor Report, April 28, 1998, and The (Tacoma, Wash.) News Tribune, June 3, 1998, page 1.
7. Klein, "Doctor Union Activity Heats up in Fla., Wash. State, Calif.," Amer. Medical News, Vol. 41, No. 19, May 18, 1998.
8. Thomas-Davis Medical Centers and Federation of Physicians and Dentists, 324 NLRB No. 15 (1997).
9. New York University Medical Center v. NLRB, 156 F3d 405 (2d Cir. 1998).
10. Crain's Health Pulse, Nov. 6, 1998.
11. Lowes, "Strength in Numbers: Could Doctor Unions Really Be the Answer?" Medical Economics, Vol. 75, No. 12, July 29, 1998.
12. Reardon, "Doctors, Unions, Often Not a Good Match," American Medical News, Vol. 41, No. 12, March 23, 1998.
13. In non-teaching hospitals, the term "house staff" usually refers to licensed physicians who are employees of either the hospital or a professional corporation or partnership that has contracted with the hospital to provide medical services to the hospital's patients, e.g., so-called "hospitalist" physicians.
14. No.1-RC-20574 (NLRB, Oct. 17, 1997).
15. 223 NLRB 251 (1976).
16. 229 NLRB 1000 (1977).
17. No. 4-RC-19260 (NLRB, Jan. 8, 1998 and Aug. 27, 1998).
18. No. 4-RC-19260 (NLRB, Aug. 27, 1998).
19. Quoted in AP Political Service, Feb. 4, 1998.
20. No. 4-RC-19260, pp. 2-3 (NLRB, Aug. 27, 1998).
21. Civ. Action No. 98-475 (D.Ct.Del. 1998).
22. 15 USC Sec.1.
23. U.S. Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care, 4 Trade Reg. Rep. (CCH) 13,153 (Aug. 28, 1996).
24. Hallam, "Doc Group Initiates Antitrust Settlement," Modern Healthcare, Nov. 9, 1998.
25. "Physician Unionization: UHC Battles Ohio Effort," Amer. Pol. Network Inc. Health Line, Aug. 5, 1998.
26. "Philly Doctors Fight Cuts; Insurer Defends Move," Medical Data International Inc., Medical Industry Today, Aug. 11, 1998.
27. "Phila. Surgeons Join Union, Fight Blue Cross," Best Wire, Aug. 18, 1998.
28. Testimony before the House Committee on the Judiciary, Legislative Hearing on H.R. 4277, July 29, 1998.
29. Report E, A-98, of Organized Medical Staff Section Governing Council, p. 22, June, 1998.
30. Id.
31. U.S. Department of Justice and FTC Statements of Antitrust Enforcement Policy in Health Care, 4 Trade Reg. Rep. (CCH) 13,153 (Aug. 28, 1996).

This article is reprinted with permission from the October 30th issue of the New York Law Journal © 1998 NLP IP Company.