Chapter 1: Overview/Background

Return to Report


    1. Fee For Service Reimbursement and the Rise of Managed Care
    2. The Managed Care Backlash
    3. Recent Developments
      1. The Return of Open Networks and the Rise of Tiering
      2. Payment for Performance
      3. The Road Forward

    1. What Is Known About Health Care Quality?
    2. Competition and Quality
    3. Barriers to Improving Quality
      1. Informational Barriers to Improving Quality
      2. Payment Barriers to Improving Quality

    4. Quality, Competition and Competition Law

    1. Basics of Competition Law
    2. Application of Competition Law to Health Care
      1. Commission Health Care Related Activities
      2. Division Health Care Related Activities
      3. Private Litigation

    3. Health Law Overview
      1. Anti-Kickback
      2. Self-Referral Amendments
      3. EMTALA
      4. Medical Malpractice

    4. Obligational Norms
    5. Conclusion



Health care financing and delivery arrangements have undergone dramatic changes in the past several decades. This section provides a brief overview of some of these developments, including changes in provider payment, the rise of managed care, and the integration (and then partial dis-integration) of health care delivery.1

A. Fee For Service Reimbursement and the Rise of Managed Care

For most of the twentieth century, most consumers relied on independent physicians to provide care. Pricing was fee-for-service (FFS).2 FFS payment was based on the number and type of services performed. Insurers imposed few constraints on consumer choice of providers and limited oversight of the type and extent of care provided.3 FFS payment provided little incentive for physicians and other health care providers to coordinate and integrate the care they rendered. FFS arrangements conformed with public sentiment that more care was better care, and the treating physician was best positioned to judge the most appropriate care for any given case.4

Policymakers began seriously questioning the consequences of these institutional arrangements in the late-1960s.5 Commentators argued that the combination of FFS payment, health insurance, and consumers' imperfect information about health care limited the possibility of effective price competition and created an incentive for physicians to over-provide (and consumers to over-consume) healthcare resources.6 Some commentators argued that organizations that agreed to meet the health care needs of a consumer for a set time period at a set price could solve these problems.7 More generally, many commentators argued that consumers should be given greater control over health care spending and treatment decisions.8 Over the past three decades, state and federal policy has encouraged the emergence of a range of financing and delivery options, and embraced, to varying degrees, price and non-price competition in health care.

Managed care existed for most of the 20th century, but it did not spread widely until the 1980s and early 1990s.9 In 1980, the overwhelming majority of the population was enrolled in an indemnity insurance plan and managed care organizations (MCOs) accounted for a small percentage of the market. Fifteen years later, these patterns had reversed, and various managed care offerings accounted for an overwhelming majority of the insured population.10 To be sure, managed care means different things to different people, and it has meant different things at different times.11 Commentators generally agree, however, that MCOs integrate, to varying degrees, the financing and delivery of health care services.12

Managed care encompasses a wide array of institutional arrangements for the financing and delivery of health care services.13 Usually when one speaks of a managed care organization, one is speaking of the entity that manages risk, contracts with providers, is paid by employers or patient groups, or handles claims processing. The "tools" of managed care include the creation of networks of preferred providers or the hiring of a staff of employed physicians to provide care, selective contracting based on price, required pre-authorization, restricted access to specialists, restricted panels of providers, higher copayments (and sometimes denial of coverage) for out-of-network care, capitation, bonuses, practice guidelines, retrospective denials of coverage, "real-time" utilization review, restricted coverage of prescription drugs, disease management for chronic illnesses, limitations on benefits, and an emphasis on prevention.

In global terms, managed care offers a more restricted choice of (and access to) providers and treatments in exchange for lower premiums, deductibles, and co-payments than traditional indemnity insurance. Stated differently, managed care inverts, to varying degrees, the incentives of a piece-work based fee-for-service system, and employs a variety of supply- and demand-side strategies to do so.

MCOs typically use three strategies to control costs and enhance quality of care: (i) selective contracting; (ii) direct financial incentives; and (iii) utilization review.14 Selective contracting is used to create a restricted networks of providers.15 Selective contracting intensifies price competition and allows payors to negotiate volume discounts and choose providers based on a range of criteria.16 The intensity of competition increases with the number of providers and covered lives in the relevant market, and with the restrictiveness of the insurance contracts found in the market (i.e., HMOs, which have more limited panels than PPOs, induce more intense price competition among providers than would PPOs of equivalent size).17

When insurers have a credible threat to exclude providers from their networks and channel patients elsewhere, providers have a powerful incentive to bid aggressively. Inclusion in a restricted panel offers the provider the prospect of substantially increased revenue. Without such credible threats, however, providers have less incentive to bid aggressively, and even managed care organizations with large market shares may have less ability to obtain low prices.18

Direct financial incentives can take a variety of forms, including capitation, putting the physician on salary, and paying a bonus (or withholding a percentage of payment) based on meeting clinical and/or financial targets.19 Capitation pays the provider a fixed amount for each of the patients for whom he agrees to provide care, regardless of whether those patients seek care. Payment is typically based on a set number of dollars "per member-per month." In the mid-1990s, many commentators believed that capitation would become the basis for compensating most providers. Capitation lost some of its allure when some physician groups that had received capitation payments underestimated the associated costs, and were forced to file bankruptcy.20 Payors also grew less interested in capitation in the late-1990s, as providers became increasingly reluctant to accept the associated risks. Financial incentives can also be employed to encourage consumers to receive care from particular providers or in particular locations. Co-payments and deductibles are well-recognized forms of demand management.21

Utilization review appraises the appropriateness and medical necessity of the proposed treatment.22 Utilization review can be conducted on a retrospective, concurrent, or prospective basis. Although many payors use utilization review, the variety of forms it takes limit the ability to draw general conclusions about its effectiveness.23

These strategies can have an effect beyond the consumers covered by the MCO if providers tend to adopt a unitary standard of practice. Providers who must comply with certain quality protocols or report their performance for their MCO patients may (whether consciously or unconsciously) adopt those protocols for all their patients.24

B. The Managed Care Backlash

Managed care grew so unpopular by the late-1990s that most commentators began referring to a "managed care backlash."25 Providers complained about the second-guessing of their clinical judgment, and argued that managed care undermined the doctor-patient relationship and quality of care.26 Consumers expressed concern that managed care was restricting choices, limiting access to necessary medical care, and lowering quality.27 Consumers were also exceedingly skeptical about the use of direct financial incentives and utilization review.28 These concerns resulted in a substantial number of state and federal legislative and regulatory initiatives targeting more restrictive forms of managed care, along with private litigation. These initiatives have affected the forms of managed care available in the marketplace, although some commentators believe that competitive responses to the backlash had a bigger impact.29

Several commentators have argued that there is a substantial gap between consumer and provider perceptions and the actual impact of managed care.30 These commentators point to surveys and studies which show that consumers are generally satisfied with their own MCOs, that MCOs do not provide worse quality care than FFS medicine, and that managed care "horror stories" are often exaggerated or highly unrepresentative.31 Regardless, as Part C reflects, less restrictive forms of managed care have become extremely popular in recent years.32

C. Recent Developments

1. The Return of Open Networks and the Rise of Tiering

New forms of health care delivery have emerged, including preferred provider organizations (PPOs), point-of-service (POS) plans, and "concierge care." PPOs involve a broad network of providers, who agree to accept discounted FFS payments in exchange for participating in the network.33 POS programs generally require consumers to select a primary care gatekeeper, yet allow them to use out-of-plan providers for services in exchange for a higher co-payment. Some physicians who seek to avoid managed care entirely have begun concierge practices, where they provide personalized care, including house calls to patients willing and able to pay out of pocket for health care costs.34 The price of these options vary, with consumers facing greater out-of-pocket costs if they select less restrictive options.

Health care financing has also moved toward a tiered system of payment. As the prior paragraph states, and Chapter 5 outlines in greater detail, consumers pay less if they select a restricted managed care plan, or use an in-network provider than if they opt for a less restrictive plan or use an out-of-network provider. As Chapters 3 and 6 explain, tiering is also being used for hospitals and pharmaceuticals. Such strategies expose consumers to an increased share of the economic costs of their decisions.35

2. Payment for Performance

In health care, payment has generally not been directly tied to the quality of the services that are provided. Numerous commentators have argued that payment for performance (P4P) should be more widely used. The Institute of Medicine (IOM) recently recommended that financing and delivery systems should "[a]lign financial incentives with the implementation of care processes based on best practices and the achievement of better patient outcomes.36 A prominent trade association of health plans similarly advocates using "payment incentives that reward quality care."37 An open letter in a prominent health policy journal similarly argued that strong financial incentives were necessary to motivate providers to improve quality.38 Other commentators suggest that "quality-incentive programs should be viewed as part of a broader strategy of promoting health care quality through measuring and reporting performance, providing technical assistance and evidence-based guidelines, and, increasingly, giving consumers incentives to select higher-quality providers and manage their own health."39 Public and private payors are experimenting with P4P.40

Panelists noted that some providers have resisted P4P and tiering programs, and refused to provide information regarding the quality of care they provide.41 Other panelists noted that providers are concerned about the reliability and validity of P4P measures, and the fact that payors are requiring them to invest in expensive equipment without providing additional funds or evidence that such investments are cost-justified.42

3. The Road Forward

As Chapters 2, 3, and 5 reflect, there has been considerable ferment in the health care financing and delivery markets in the last three decades. Such "creative destruction" is one of the benefits of a competitive market.43 Because no single arrangement is likely to satisfy everyone, diversity of financing and delivery options helps ensure that consumer welfare is maximized. Finally, competition is a process; as one commentator noted, "the superiority of open markets ... lies in the fact that the optimum outcome cannot be predicted."44


Quality is an extremely important multi-dimensional attribute of health care.45 Many health services researchers and providers focus on whether the care that is provided is evidence-based.46 Economists typically view quality as a component of non-price competition.47 The IOM defines quality as "the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge."48 The Agency for Healthcare Research and Quality (AHRQ) defines quality health care as "doing the right thing at the right time in the right way for the right person and having the best result possible."49 Regulators and most academic commentators have historically employed a three-part framework (structure, process, and outcome) to assess quality of care.50 Some consumers may focus on how long they must wait for an appointment, and how they are treated when they arrive at the provider's office.51 Depending on which of these attributes is emphasized and the particular condition being evaluated, it is possible for the same care to be simultaneously deemed high quality and low quality.52

Several commentators and panelists suggested that many health care providers and health services researchers view quality as effectively binary: a provider is either delivering high quality care to a particular patient or he is not doing so.53 This paradigm treats the resources of the individual consumer as immaterial to the determination of whether the care is of acceptable quality.54 Conversely, economists and legal scholars sometimes treat quality as an attribute that can be traded-off against price and other attributes of health care.55 Controversy can result from these differing conceptions of quality; in one Hearing session, panelists hotly disagreed over the appropriateness of conducting a cost-benefit analysis of improvements in quality.56

Commentators and panelists agreed that health care quality actually encompasses many distinct factors, and the delivery system must perform well on each factor if it is to provide high quality care.57 These factors include whether the medical diagnosis is correct, whether the "right" treatment is selected (with the "right" treatment varying, depending on the underlying diagnosis and patient preferences and resources), whether the treatment is performed in a technically competent manner, whether service quality is adequate, and whether patients are able to access the care they desire without undue travel and inconvenience. Whether cutting edge technology and treatments are available is a component of health care quality, but it is not the only consideration. Information is necessary for consumers to make decisions about the care they will receive, and determine whether they are receiving the type of care they prefer and can afford.

Competition has an important role to play in ensuring that consumers receive high quality care, and informing consumers of the costs and benefits of selecting a particular provider or treatment. Competition law promotes quality by encouraging consumer empowerment through information disclosure, and preventing market participants from engaging in anticompetitive conduct. At the same time, competition law provides considerable flexibility to market participants to act collectively to improve quality of care.

A. What Is Known About Health Care Quality?

In recent decades, technology, pharmaceuticals, and know-how have substantially improved how care is delivered and the prospects for recovery. American markets for innovation in pharmaceuticals and medical devices are second to none. The miracle of modern medicine has become almost commonplace. Americans reap the benefits of new and improved drugs, cheaper generic drugs, treatments with less pain and fewer side effects, and treatments offered in a manner and location consumers desire. At its best, American health care is the best in the world.

Commentators and panelists agree that providers are committed to delivering high quality care, that the vast majority of consumers are getting the care they need, and that there have been recent improvements in quality of care.58 There is, however, still significant room for further improvement. A 1998 literature review noted that

there are large gaps between the care people should receive and the care they do receive. This is true for all three types of care - preventive, acute, and chronic -whether one goes for a check-up, a sore throat, or diabetic care. It is true whether one looks at overuse or underuse. It is true in different types of health care facilities and for different types of health insurance. It is true for all age groups, from children to the elderly. And it is true whether one is looking at the whole country or a single city . . . A simple average of the findings of the preventive care studies shows that about 50 percent of people received recommended care. An average of 70 percent. . . received recommended acute care, and 30 percent received contraindicated acute care. For chronic conditions, 60 percent received recommended care and 20 percent received contraindicated care.59

Commentators and panelists stated that more recent studies have reached similar conclusions.60 In particular, commentators and panelists noted that treatment patterns vary significantly; procedures of known value are omitted; and treatments that are unnecessary and inefficacious are performed. Moreover, commentators and panelists noted that considerable sums are spent annually on services whose value is questionable or non-existent.61 As one commentator stated, "quality problems . . . abound in American medicine. The majority of these problems are not rare, unpredictable, or inevitable concomitants of the delivery of complex, modern health care. Rather, they are frighteningly common, often predictable, and frequently preventable."62

Commentators and panelists noted that medical treatments can injure consumers. The IOM estimated that medical errors during inpatient hospitalization caused between 44,000 and 98,000 deaths per year - making medical errors the eighth leading cause of death in the United States.63 According to the IOM, every year medical errors in the hospital kill more people than motor vehicle accidents, breast cancer, and AIDS - without even counting the consequences of medical errors and low quality care in the outpatient setting.64 To be sure, these problems are not unique to American health care.65

Commentators and panelists agreed that "in American health care, geography is destiny. Both the amounts and kinds of care provided to residents of the United States are highly dependent on two factors: the capacity of the local health care system (which influences how much care is provided) and the practice style of local physicians (which determines what kind of care is provided)."66 The cost of care varies as well: in the lowest quintile of regional spending, it costs an average of $3,922 per Medicare enrollee per year to provide care, while in the highest quintile of regional spending it costs $6,304 to provide care.67 One panelist noted that providers deliver more services in high-cost areas, but the additional services generally do not correspond to higher use of evidence-based protocols or better outcomes.68 For example, one study found 56 percent of the patients in the lowest spending region and 50 percent of patients in the highest spending region received optimal treatment for a heart attack.69 Similar patterns were observed for the provision of preventative care.70 One study indicates that there is an inverse relationship between Medicare spending per beneficiary and quality of care, and higher spending actually purchases lower quality care.71

To summarize, health care quality could be improved. The next section considers the beneficial role of competition in accomplishing this objective.

B. Competition and Quality

The relationship between competition and health care quality has not been studied as extensively as the relationship between competition and health care cost. One panelist reviewed the available studies and concluded that "the best evidence thus far is that quality is higher where we would think markets would be more competitive."72

More studies have been done regarding the impact of consumer information on quality. Information regarding quality allows consumers to make their own determinations of how best to balance those attributes that are important to them, obtain value for their money, and drive improvements throughout the system. If consumers are poorly informed about quality, providers may offer an inefficiently low level of quality.73 Not all consumers must be well-informed for the market to deliver an efficient level of quality. All that is required is that a sufficient number of consumers be well-informed about prices and quality levels of different sellers.74 These informed consumers can help drive the market to a competitive outcome.

Consumers will use such information to select health plans, providers, and treatments that accord with their preferences if the information is presented in a usable fashion.75 Publicly available "report cards" can motivate providers to address quality deficiencies, even when it unclear whether consumers are relying on such information.76

Although competition can play an important role in enhancing quality of care, there are informational and payment barriers to effective competition. The next section turns to these matters.

C. Barriers to Improving Quality

1. Informational Barriers to Improving Quality

In many markets, consumers have ready access to reliable information with which to assess the quality of the goods and services they intend to purchase. Such information allows consumers to define and exercise their preferences along the dimensions of health care quality that are important to them.77 Information regarding quality is useful to consumers, providers, payors, and state and federal agencies. Unfortunately, in health care, such information is often difficult to obtain and is not necessarily reliable.78 Panelists discussed a variety of public and private sector initiatives for increasing the availability of information regarding quality.79

CMS has joined with hospitals and the Quality Improvement Organizations (QIOs) in Maryland, New York, and Arizona to design a group of pilot tests for publicly reporting hospital performance measures.80 There is also a voluntary public-private program for reporting the same measures involving hospitals in every state.81 In addition, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provides that hospitals that report the requested data of quality will receive a full market basket update in hospital payments during 2005-2007, and hospitals that do not will have their payments reduced by 0.4 percent.82

CMS has successfully used public reporting of quality information to improve dialysis care. Since public reporting began in 1996, the number of patients receiving inadequate dialysis or experiencing anemia declined substantially.83 CMS is currently using similar strategies for disseminating quality information regarding home health care and long term care providers.84

Similarly, in 1989, New York state began making provider-specific outcomes for cardiac surgery (including coronary artery bypass grafts (CABG)) publicly available. By 1992, one study found risk-adjusted mortality had dropped 41 percent statewide, giving New York the lowest risk-adjusted mortality.85 Studies show the mortality rate has continued to fall.86 Pennsylvania experienced similar improvements when it began collecting and publishing risk-adjusted report cards.87 Several other states provide either volume information for specific conditions or quality ratings based on clinical quality measures.88

The National Committee for Quality Assurance (NCQA) also developed the Health Plan Employer Data and Information Set (HEDIS) to help assess health plans. HEDIS uses more than 50 measures of provider and plan performance in areas such as patient satisfaction, childhood immunization, and mammography screening rates. HEDIS scores have been shown to affect employee plan choice.89 A number of other private initiatives seek to make similar quality-related information available to employers, health plans, and the general public.90 Additionally, AHRQ issues a national report on the state of the quality of care being provided.91

Although information on quality is becoming more available, the benefits and costs of information-driven strategies are disputed. Panelists stated that consumers will use report cards if they are designed appropriately and the quality measures are sufficiently salient.92 One panelist noted report cards have not had the desired effects because "consumers are not aware of the quality problems that have been observed in health care," and that performance reports "have not really been designed to help people make choices."93 On the other hand, one study found that employers did not use data on quality to determine which health plans they should offer to their employees,94 and another noted that the use of performance measures for evaluating PPOs, which account for a growing share of the delivery market, is controversial.95

Several panelists noted that the usefulness of information disclosure depends on the target audience and the desired objectives. Different information and disclosure strategies may be preferable, depending on whether the goal is to "inform policy makers," "monitor progress over time," "provide some benchmarks for the future, identify some areas for improvement. . . [or] serve as a catalyst for action, both in improving quality and improving the quality of the measures and the data themselves."96 Panelists also noted that the disclosure of information to the public can "encourage professionals to recognize and fix deficiencies in health-care quality through a kind of self-regulatory behavior."97

A variety of other concerns were also expressed about report cards and information disclosure strategies.98 One panelist stated that providers believe payors intend to use the results to lower payments to providers instead of improve quality.99 Commentators and panelists identified concerns about the clinical validity and generalizability of particular measures, the time-lag between treatment and the generation of the report card, the way in which results are risk-adjusted, and how consumers will react to the information.100 Commentators and panelists also stated that information disclosure may discourage providers from treating high-risk patients, and result in "gaming" of the system.101

One panelist suggested that providers would be more willing to collect information if that information was not made available to the public.102 Several panelists indicated that providers believe information disclosure will confuse consumers and cause malpractice litigation.103 In general, the Agencies encourage information dissemination, because it allows consumers to make better informed decisions.104 In addition, commentators and panelists agreed that providers are less likely to modify their behavior if information is not publicly available.105

Public reporting of quality measures can be a powerful incentive for providers to improve.106 It is important, however, to keep the costs, limitations, and potential adverse consequences of information disclosure strategies in mind. To be useful, an information disclosure strategy must balance cost-effectiveness, clinical validity, and consumer saliency.

Finally, information technology (IT) is an important part of making information available to consumers, providers, and other interested parties. Panelists and commentators agreed that the health care marketplace does not employ information technology extensively or effectively.107 Prescriptions and physician orders are frequently hand-written.108 Records are often maintained in hard copy and scattered among multiple locations. Few providers use e-mail to communicate with consumers.109 Public and private entities have worked to develop and introduce electronic medical records and computerized physician order entry, but commentators and panelists agreed that much remains to be done.110

2. Payment Barriers to Improving Quality

Commentators and panelists agreed that there is not a "business case for quality" in health care because payment arrangements are rarely tied to the quality of the services that are provided.111 The IOM observed that "current [compensation] methods provide little financial reward for improvements in the quality of health care delivery, and may even inadvertently pose barriers to innovation."112 The Medicare Payment Advisory Commission more bluntly noted that "at times providers are paid even more when quality is worse, such as when the complications occur as the result of error."113

These problems are not theoretical. After Duke University Hospital created an integrated program to treat congestive heart failure, consumers were healthier - but the hospital lost money because of the resulting decline in admissions and the absence of complications.114 In Utah, ten hospitals had a similar experience after implementing practice guidelines for pneumonia treatment.115 One panelist noted that current payment systems for end of life care create an economic disincentive for providers who deliver "key elements of chronic care."116

Commentators noted that existing payment arrangements may paradoxically make providers financially worse off if they are better at delivering health care than their competitors.117 Such payment arrangements are economically perverse: no rational system of compensation rewards an agent (the provider) for making a principal (the consumer) worse off.118

At any given level of payment, commentators and panelists agreed that providers are less likely to improve quality of care if they suffer financially when doing so.119 Commentators and panelists also agreed that investments in quality improvement are similarly likely to be inadequate when costs are front-loaded, and benefits are deferred - particularly if the providers and payors incurring these costs will not capture the benefits.120

Public and private payors and providers are seeking to address these problems by creating direct economic incentives for the delivery of high-quality care (pay for performance or P4P).121 CMS recently introduced a demonstration project that pays modest financial incentives for hospitals that score in the top 20 percent and modest financial disincentives for hospitals that score in the bottom 20 percent on specified measures of quality for five conditions.122 There are significant statutory impediments to broader use of such incentives by CMS in the Medicare program.123

Employers and private plans are also experimenting pay for performance and other strategies to reward providers that adopt processes that are believed to improve quality. The Pacific Business Group on Health has been using incentive-based performance targets for eight years in its contracts with HMOs.124 HMOs that fail to meet targets for patient satisfaction and various clinical benchmarks (including prenatal care, mammography, pap smears, childhood immunizations, and cesarean section) forfeit two percent of their fees. The Leapfrog Group, a coalition of 145 private and public organizations, is using its purchasing power to encourage hospitals to adopt computerized physician order entry (CPOE), referrals to high volume hospitals for certain procedures, and staffing intensive care units (ICUs) with intensivists.125 Although more than a thousand hospitals are participating in Leapfrog, one survey showed that only six percent of hospitals had fully implemented CPOE, 57 percent had fully implemented ICU physician staffing, and most hospitals were meeting one to two of the six targets for referrals to high volume hospitals for selected procedures.126 A number of large health plans and hospital networks are also experimenting with such arrangements.127 Tiering can also be employed to link financial incentives to quality of care.128 Commentators and panelists agreed that, to date, P4P has had limited impact on the health care marketplace.129

D. Quality, Competition and Competition Law

"Enhancing quality" has long been the invariant excuse of providers who engage in anticompetitive conduct.130 As Chairman Robert Pitofsky noted when testifying before Congress on behalf of the Commission, quality-of-care arguments "have been advanced to support, among other things, broad restraints on almost any form of price competition, policies that inhibited the development of managed care organizations, and concerted refusals to deal with providers or organizations that represented a competitive threat to physicians."131 There are almost always more narrowly tailored means of achieving the same quality improvements without employing the anticompetitive means selected by self-interested providers.

Some commentators and panelists stated that antitrust law impedes providers' efforts to improve quality.132 Providers actually have considerable flexibility to act collectively to improve quality of care. Through their professional societies and other groups, health care professionals can jointly provide information and express opinions to health plans and the general public.133 Physicians, for example, may collectively explain to a health plan and the general public why they think a particular policy or practice is medically unsound and may present medical or scientific data to support their views.134 Finally, the Agencies have never brought a case based solely on providers' collective advocacy with a health plan on an issue involving patient care.135

Competition law also enhances quality in ways that are not widely appreciated. When providers engage in anticompetitive conduct they can undermine the quality of care actually received by the population as a whole. Lower prices can actually contribute to higher quality; as several commentators noted, "when costs are high, people who cannot afford something find substitutes or do without. The higher the cost of health insurance, the more people are uninsured. The higher the cost of pharmaceuticals, the more people skip doses or do not fill their prescriptions."136

Stated differently, when anticompetitive conduct increases prices, it makes it more difficult for many Americans to obtain needed care. Estimates of the price elasticity of health insurance vary, but many small employers do not offer health insurance at all because it is too expensive.137 When employers offer health insurance, price increases can result in limitations on coverage, employees refusing to sign up for insurance, and employers dropping coverage.138 Numerous studies establish that the lack of health insurance is associated with deleterious consequences, including increased mortality.139

Thus, anticompetitive conduct that raises prices, even if it is done in the name of improving "quality," is likely to have a systemic adverse effect on the quality of care actually provided to the population as a whole.140 In a competitive market, consumers consider various dimensions of quality and price. Competition law exists to promote and enhance consumer choice along all of these dimensions.

Provider complaints about the antitrust laws miss the point of those laws. As one commentator noted:

[T]he antitrust laws are concerned with maximizing the long-term welfare of consumers, but this is not inconsistent with the interests of efficient providers. The providers who are most efficient and offer the best-quality service at reasonable prices will attract patients in a competitive environment protected by the antitrust laws. The providers whose methods fall behind the times and who rely on the protection of concerted action to maintain their position may lose ground. But that is precisely what one should expect in our free enterprise system.141

In an efficient market, consumer preferences specify the targets at which providers aim. When providers engage in anticompetitive conduct, they frustrate this process. By ensuring a competitive marketplace and transparency of information, competition law and policy allows such demands to be satisfied, and prevents self-interested provider groups from preempting "the working of the market by deciding for itself that customers do not need that which they demand."142


As background to the succeeding chapters, this chapter summarizes the basics of competition law and offers a brief history of the application of competition law to health care markets. This chapter also provides an abbreviated overview of several specific forms of regulation that affect the structure and performance of the health care marketplace.

A. Basics of Competition Law

Federal competition law stems from a series of federal statutes, principally the Sherman Act,143 the Clayton Act,144 and the Federal Trade Commission Act.145

The Sherman Act prohibits unilateral and collective conduct that poses unacceptable dangers to competition. Section 1 of the Sherman Act declares unlawful "every contract, combination ... or conspiracy, in restraint of trade,"146 while Section 2 of the Sherman Act prohibits "monopolization" and "attempted monopolization."147 Courts reviewing Section 1 cases generally focus on whether the allegedly conspiring parties reach agreement, and whether that agreement was unreasonably restrictive. By contrast, courts reviewing Section 2 cases generally examine whether the defendant created or maintained a monopoly through wrongful or exclusionary means.

The Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."148 The Clayton Act thus reaches incipient threats to competition that might escape the Sherman Act's reach. Under related legislation, parties to proposed mergers that exceed statutory thresholds are required to notify the federal antitrust agencies of their plans and afford the government a limited opportunity to investigate before the transaction is executed.149

Finally, Section 5 of the Federal Trade Commission Act provides that "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are ... unlawful."150 The Supreme Court found this provision provides the FTC with the authority to attack conduct constituting a Sherman Act violation.151 The FTC Act provides no criminal penalties and is limited to equitable remedies. Depending upon the specifics of a case, the Commission enforces the FTC Act either administratively or through the courts. Advisory opinions are available for parties interested in prospective guidance as to the strictures of the FTC Act.152 The Division offers business review letters that perform much the same function for the statutes that the Department of Justice enforces.153

The Agencies are the primary antitrust enforcement authorities, although state attorneys general and private parties can also bring suit. For example, both the Division and private parties may sue to enforce the civil provisions of the Sherman Act, which authorize treble damages and broad equitable relief. By contrast, only the Division may enforce the criminal provisions of the Sherman Act. Moreover, the federal laws assign each Agency responsibility to enforce various antitrust laws. Thus, both Agencies can pursue violations of the Clayton Act, but only the Commission may enforce the FTC Act.

Because most of the antitrust challenges to health care practices focus on allegedly anticompetitive agreements, an abbreviated analysis of the standards for assessing such claims is warranted. In reviewing such claims, "the development of horizontal restraints jurisprudence suggests an analytic framework that proceeds by several identifiable analytical steps."154 Some conduct - such as naked agreements among competitors to fix prices or allocate markets - is viewed as "inherently suspect owing to its likely tendency to suppress competition."155 Such arrangements "always or almost always tend to raise prices or reduce outputs."156 Such conduct merits summary condemnation to prevent long, expensive investigations and litigation over conduct that is almost certain to cause harm to consumers.157 Most of the time, however, "conduct cannot be adjudged illegal without an analysis of its market context to determine whether those engaged in the conduct or restraint are likely to have sufficient power to harm consumers."158 Depending on the case, the necessary analysis can be sweeping or relatively constrained.159 As several panelists noted, antitrust investigations are factually intensive, and "antitrust cases have to be done one at a time."160

B. Application of Competition Law to Health Care

Courts, lawmakers, and commentators once believed that health care markets should not be subject to competition. Thus, it was widely understood that there was a "learned professions" exception to the antitrust laws; government enforcers or private parties only rarely pursued anticompetitive conduct in health care.161 The existence of this exemption remained an open issue until 1975 when the Supreme Court explicitly determined that the antitrust laws apply to "learned professions."162 One year later, the Supreme Court held that the alleged acts of a hospital were "sufficient to establish" a "substantial effect" on interstate commerce under the Sherman Act.163

In Arizona v. Maricopa County Medical Society, the Supreme Court emphasized that the antitrust laws applied fully to the health care marketplace.164 The Court found that an agreement among physicians to set maximum prices charged to policyholders was aper se violation of the Sherman Act.

For almost three decades, the Agencies have continued to enforce the competition laws by initiating investigations, filing and litigating complaints, filing amicus briefs in private litigation, and writing advisory opinions and business review letters for the health care industry.165

The Agencies took an additional step in the application of competition law and policy to health care by issuing the joint Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care (Health Care Statements) in 1993.166 The Agencies designed the Health Care Statements "to advise the health care community in a time of tremendous change, and to address . . . the problem of uncertainty concerning the Agencies' enforcement policy." 167

In response to comments and changes in the health care marketplace the Agencies expanded the Health Care Statements in 1994 and amplified them again in 1996. The Health Care Statements currently specify a range of circumstances that will not provoke enforcement actions (also known as "safety zones") for hospital mergers, hospital and physician joint ventures, physicians' provision of information to purchasers, multi-provider networks, and joint purchasing arrangements among health care providers. The Health Care Statements also provide a number of examples applying antitrust analytical principles to a particular set of health-care related organizational arrangements. The Agencies also offer prospective guidance relating to health care through advisory opinions and business review letters.168

Finally, the Agencies have jointly filed amicus briefs in a number of cases, including a recent brief filed in the Sixth Circuit, explaining the Agencies' analysis of how the state action doctrine should be applied to the conduct of subordinate state entities, such as public hospitals.169

1. Commission Health Care Related Activities

The Commission has long challenged barriers to competition in health care markets to foster innovative and more efficient means of delivering and financing health care.170 In the last several years, the Commission has made special efforts to protect competition in pharmaceutical markets, given rapidly rising drug expenditures that are causing great concerns among patients, employers, and government officials.171 The Commission has been especially active in investigating and challenging conduct that excludes or unduly delays generic competition from pharmaceutical markets.172 It has also reached important settlement agreements in mergers in the pharmaceutical markets,173 and successfully argued in an amicus brief that improper pharmaceutical filings before the Food and Drug Administration are not immune from antitrust review.174

The Commission also issued a recent, comprehensive study on generic drug competition.175 This study recommended legislative changes to the statutory framework governing generic drug entry to mitigate the possibility of abuse of this framework. Most of these recommendations were enacted by the Medicare Prescription Drug and Improvement Act of 2003.

Since the 1970s, the Commission has had an active law enforcement program targeting anticompetitive practices among physicians and other health care professionals. The types of conduct within the health care professions that have been subject to Commission challenge over the decades include agreements on price and price-related terms, agreements to obstruct the entry of innovative forms of health care financing and delivery, and restraints on advertising and other forms of solicitation.176

Since 2002, the Commission has entered into 17 consent agreements with physicians, their organizations, or their non-physician consultants and agents, settling charges that the respondents have engaged in unfair methods of competition - primarily involving joint contracting with payors and other forms of price-fixing.177

Additionally, Commission staff are currently evaluating the effects of consummated hospital mergers in several cities. The Commission will announce the results of these retrospective studies after determining whether the mergers in question were harmful to consumers.178 One case arising out of this investigation is currently in administrative litigation.179

2. Division Health Care Related Activities

During the last three years, the Division has pursued formal investigations across the full range of healthcare products and services. In addition to the matters on which it has taken formal enforcement or advisory action, the Division has examined, or is investigating, mergers and conduct of managed care organizations, including the review of four major mergers of health plans. In one of these matters, the Division publicly set forth the reasoning that led it to clear the formation of the nation's largest health plan.180

The Division has examined both vertical contracting arrangements involving health plans and providers as well as allegations of horizontal agreements among plans. Additionally, the Division has or is investigating mergers and conduct of providers (both physicians and hospitals), including allegations of horizontal agreements. These investigations, while not resulting in challenges, have included criminal inquiries into the conduct of managed care plans, hospitals, and physicians.

The Division's civil conduct investigations have encompassed hospital conduct, blood products, and retrospective examinations of a hospital joint operating agreement and a multi-hospital joint selling venture, the latter of which implemented mechanisms intended to achieve clinical integration without formal merger. The Division's formal merger investigations have encompassed hospital mergers, senior assisted living facilities, and diagnostic imaging service providers. Finally, the Division has actively provided counsel to the Administration on health care policy matters.

The Division has taken several public enforcement actions, including a merger challenge involving critical care monitors and orthopedic equipment,181 litigation resulting in a consent decree against the Federation of Physicians and Dentists,182 a case brought against the dominant producer of prefabricated artificial teeth in the United States,183 and a consent decree requiring dissolution of a physician organization of over 1000 members.184 Additionally, the Division has issued favorable business review letters to two groups requesting guidance regarding fee surveys.185

3. Private Litigation

The majority of antitrust challenges to health care activities arise in private litigation. One study showed that the Agencies brought only six percent of the antitrust challenges to health care practices involving quality of care from 1985 to 1999.186 Most private antitrust challenges are not successful: the same study found that plaintiffs won favorable opinions only 14 percent of the time; 67 percent of the judicial opinions favored defendants, and the remaining 19 percent favored neither party.187 The most common private antitrust healthcare litigation claims involved staff privileges and exclusive contracting cases.188

C. Health Law Overview

The states and the federal government extensively regulate health care.189 Many of these regulations are described in greater detail in Chapters 2-8, infra. This section provides a basic introduction to several important provisions that are important to understand the health care marketplace.

1. Anti-Kickback

The Medicare and Medicaid Anti-Kickback Statute (42 U.S.C. §1320a-7b(b)) broadly criminalizes the solicitation or receipt of remuneration in connection with items or services for which payment is made under Medicare or Medicaid.

There are statutory exceptions for discounts, payments pursuant to a bona fide employment relationship, group purchasing organizations, waiver of coinsurance obligations, and risk-sharing agreements of managed care organizations. There are also administrative regulations creating specific safe harbors and advisory opinions covering a number of other arrangements.190

Those who violate the anti-kickback statute are subject to criminal and civil penalties and/or exclusion from participation in the Medicare and Medicaid programs. The anti-kickback statute has had an important effect on the structure of the health care marketplace.191

2. Self-Referral Amendments

The Self-Referral Amendments (42 U.S.C. §1395nn) prohibit physicians from referring Medicare and Medicaid patients to ancillary providers in which they or their family members hold a financial interest and prohibit service providers from billing for services performed as a result of such referrals.

The Self-Referral Amendments apply to certain designated health services. A financial interest includes an ownership interest or a compensation arrangement (the latter includes both the giving and receiving of compensation). There are certain defined situations in which a physician is permitted to receive payment for the referral of a Medicare or Medicaid patient to an entity in which he or she has a direct or indirect financial interest, including when the physician has an ownership interest in a whole hospital.

The Self-Referral Amendments create a strict liability offense, with violation punishable by program exclusion and substantial civil penalties. Like the anti-kickback statute, the Self-Referral Amendments have had an important effect on the structure of the health care marketplace.192


The Emergency Medical Treatment and Labor Act (42 U.S.C. §1395dd) requires hospitals that receive Medicare funding and have an emergency department (ED) to provide an appropriate medical screening examination to any individual who comes to the ED and requests one. Stabilizing treatment must be provided to individuals with an emergency medical condition. Violations are punishable with civil penalties, program exclusion, and private lawsuits brought against individual hospitals. Like the anti-kickback and Self-Referral Amendments, EMTALA has had an important effect on the health care marketplace.193

4. Medical Malpractice

Medical malpractice litigation is governed by state tort law. To prevail in a medical malpractice claim, the plaintiff must prove that the provider-defendant owed a duty of care to the plaintiff, that the provider-defendant breached this duty by failing to adhere to the standard of care expected, and that this breach of duty caused an injury (with associated damages) to the plaintiff. Malpractice litigation seeks to compensate negligently injured consumers, deter unsafe practices, and achieve corrective justice.

Numerous panelists and commentators stated that the medical malpractice system is in the midst of a crisis.194 The American Medical Association (AMA) has declared a malpractice crisis in twenty states, claiming that important health care services are in short supply.195 Complete consideration of this issue lies beyond the scope of this Report, but it significantly affects the health care marketplace.196

D. Obligational Norms

Many members of the public view health care as a "special" good, not subject to normal market forces, with significant obligational norms to provide necessary care without regard to ability to pay.197 Similarly, risk-based premiums for health insurance are perceived by many as inconsistent with obligational norms and fundamental fairness, because those with the highest anticipated medical bills will pay the highest premiums.198 A wide array of regulatory interventions, ranging from EMTALA and mandated benefits to community rating and guaranteed issue, reflect these norms.199

E. Conclusion

Commentators have extensively analyzed the application of competition and antitrust law to health care. In general, these commentators have concluded that increased competition has empowered consumers, lowered prices, increased quality, and made health care more accessible.200 The Agencies have long held that standard antitrust analysis and doctrines apply to health care markets. With rare exceptions, the antitrust laws are rules of general applicability, and they govern health care markets in largely the same way that they govern other markets.

To be sure, as noted previously, health care is extensively regulated. The optimal balance between competition and regulation is an enduring issue. Just over thirty years ago, the Senate Judiciary Committee, Subcommittee on Antitrust and Monopoly held six days of hearings on Competition in the Health Services Market. Senator Philip A. Hart opened the hearings with the following prescient observations:

Over the years, health care service has been treated pretty much as a "natural monopoly." It has been assumed that a community could support only so many hospitals; that providers just naturally control supply and demand. And there may be validity to such ideas. But, in this area, as in many others which have long been thought of as "natural monopolies," today questions are being raised as to just how pervasive the monopolization must be. Isn't it just possible, some are asking, that turning competition loose, at least in some sections, may not only lower the costs of health care but improve its quality? . . . [W]e hope to develop some suggestions as to areas where restrictions on trade could be replaced with competition to the benefit of the health and pocketbooks of consumers.201

In the intervening thirty years, it has become clear that health care is not a natural monopoly, and that competition has an important role to play in ensuring that consumers can obtain the care they desire at a price they are willing to pay. The Agencies help maintain competition in the health care financing and delivery markets, and ensure that market participants can compete to satisfy consumer demand.


1 There are numerous books on the issues covered in this section. See David Dranove, The Economic Evolution of American Health Care: From Marcus Welby to Managed Care (2000); James C. Robinson, The Corporate Practice of Medicine (1999); Michael Millenson, Demanding Medical Excellence (1999); Sherry Glied, Chronic Condition: Why Health Reform Fails (1997); Charles E. Rosenberg, The Care of Strangers: The Rise of America's Hospital System (1995); Rosemary Stevens, In Sickness and In Wealth: The Rise of American Hospitals (1990); Joseph A. Califano, Jr., America's Health Care Revolution: Who Lives? Who Dies? Who Pays? (1986); Paul Starr, The Social Transformation of American Medicine (1983); Rosemary Stevens, American Medicine and the Public Interest (1976); Herman M. Somers & Anne R. Somers, Doctors, patients, and Health Insurance (1961). See also Special Issue: Kenneth Arrow and the Changing Economics of Health Care, 26 J. HEALTH, Pol., Pol'y & L. 823-1203 (Issue 5, Oct. 2001); Paul B. Ginsburg, Remarks at the Federal Trade Commission and Department of Justice Hearings on Health Care and Competition Law and Policy (Feb. 26, 2003), at page 58 (noting that "history matters in health care markets") [hereinafter, citations to transcripts of these Hearings state the speaker's last name, the date of testimony, and relevant page(s)]. Transcripts of the Hearings are available at ings/index.htm#Materials.

This chapter does not address a number of important issues, including the rise of medical technology. See generally Council of Economic Advisors, Economic Report of the President, Health Care and Insurance 190-93 (2004); Penny E. Mohr et al., Project HOPE Ctr. for Health Affairs, Paying for New Medical Technologies: Lessons for the Medicare Program from Other Large Health Care Purchasers (2003) (submitted to Medicare Payment Advisory Committee), available at; David M. Cutler & Mark McClellan, Is Technological Change in Medicare Worth It?, 20 Health Affairs 11 (Sept./Oct. 2002); Barbara J. McNeil, Hidden Barriers to Improvement in the Quality of Care, 345 New Eng. J. Med. 1612 (2001); David J. Rothman, Beginnings Count: The Technological Imperative in American Health Care (1997); Calif ano, supra; Starr, supra.

2 Gail B. Agrawal & Howard R. Veit, Back to the Future: The Managed Care Revolution, 65 Law & Contemp. Prob. 11, 13 (2003).

3 The principal limitation was that charges had to be "usual, customary and reasonable." Agrawal & Veit, supra note 2, at 13; General Accounting Office (GAO), Managed Health Care: Effect on Employers' Costs Difficult to Measure 1 (1993), available at

4 Robinson, supra note 1, at 22, 24.

5 Tufts Managed Care Institute, A Brief History of Managed Care 2 (1998), at ("In the late 1960s and early 1970s, politicians and interest groups of all stripes promoted various proposals for reforming the nation's healthcare system.... In 1971, the Nixon Administration announced a new national health strategy: the development of health maintenance organizations (HMOs). . . . In adopting this policy, the Administration was influenced by Paul Ellwood, MD of Minneapolis, who argued that the structural incentives of traditional fee-for-service medicine had to be reversed in order to achieve positive reform.").

6 Burns 4/9 at 87; Carol J. Simon et al., The Effect of Managed Care on the Incomes of Primary Care and Speciality Physicians, 33 Health Services Res. 2 (1998); Lawrence Casalino, Markets and Medicine: Barriers to Creating a 'Business Case for Quality, 46 Persp. Bio. Med. 38, 39-42 (2002); John G. Day, Managed Care and the Medical Profession: Old Issues and New Tensions the Building Blocks of Tomorrow 's Health Care Delivery and Financing System, 3 Conn. Ins.L.J. 1, 21 (1996); Sherry Glied, Managed Care, in 1A HANDBOOK OF HEALTH Economics (Anthony J. Culyer & Joseph P. Newhouse, eds. 2000).

7 Congress took a significant step in this direction with the Health Maintenance Organization Act of 1973 (HMO Act). The HMO Act provided start-up funds to encourage the development of HMOs, overrode State anti- HMO laws, and required large firms to offer an HMO choice to their employees. Glied, supra note 6, at 13.

8 Agrawal & Veit, supra note 2, at 21-22.

9 Staff and group-model HMOs existed throughout this period, but for much of the 20th century had only a modest enrollment and were found primarily in geographically limited areas - principally California and the Pacific Northwest. Agrawal & Veit, supra note 2, at 21-22; Thomas Mayer & Gloria Gilbert Mayer, HMOs: Origins and Development, 312 New Eng. J. Med. 590 (1985).

10 Glied, supra note 6, at 710 ("Beginning in the mid-1980s, enrollment in managed care plans in the US grew very rapidly, more than 10% per year.").

11 Cara S. Lesser etal., The EndofAn Era: What Became of the 'Managed Care Revolution' in 2001?, 38 Health Services Res. 337 (2003); James C. Robinson, The End of Managed Care, 285 JAMA 2622 (2001).

12 Glied, supra note 6, at 708 ("The term managed care encompasses a diverse array of institutional arrangements, which combine various sets of mechanisms, that, in turn, have changed over time."); Jacob S. Hacker & Theodore R. Marmor, How Not to Think About "Managed Care," 32 U. Mich. J.L. Ref. 661, 667-68 ("What exactly constitutes "managed care," however, has never been clear, even by its strongest proponents. Perhaps the most defensible interpretation of 'managed care' is that it represents a fusion of two functions that once were regarded as largely separate: the financing of medical care and the delivery of medical services.").

See also Council on Medical Service, American Medical Ass'n, Principles of Managed Care 3 (4th ed.1999), available at http://www.ama- (defining "managed care" as "processes or techniques used by any entity that delivers, administers and/or assumes risk for health services in order to control or influence the quality, accessibility, utilization, costs and prices, or outcomes of such services provided to a defined population."); Academy for Health Mgmt, A Glossary of Managed Care Terms, at glossary/index.html (last visited July 13, 2004); Mark A. Kadzielski et al., Managed Care Contracting: Pitfalls and Promises, 20 WhittierL. Rev. 385, 387 (1998).

13 Health Maintenance Organizations (HMO) are licensed health plans that agree to cover all or most of an enrollees health needs for a predetermined monthly fee, with a designated physician acting as a gatekeeper. Point- of-Service (POS) plans allow patients to select a primary care gatekeeper, yet use out-of-plan physicians for some services. Preferred Provider Organizations (PPOs) are similar to POSs, but generally do not require a coordinating primary care physician.

14 GAO, supra note 3, at 8 ("Despite the variety of managed care plans, most include the following common cost control features: (1) provider networks, with explicit criterial for selection; (2) alternative payment methods and rates that often shift some financial risk to providers; and (3) utilization controls over hospitals and specialist physicians services."); Sherman Folland et al., The Economics of Health and Health Care 252 (4th ed. 2003); Simon et al., supra note 6, at 2 ("Managed care includes a variety of cost-containment strategies used by employers and insurers, such as utilization review (UR), selective contracting, and financial incentives.").

15 Folland et al., supra note 14, at 252; Day, supra note 6, at 8-10. On selective contracting more generally, see Simon et al., supra note 6, at 2 (stating physicians can be selected on the "basis of their prices, quality history, treatment styles, their willingness to abide by [utilization review], and their willingness to accept financial risk").

16 See Michael Morrisey, Competition in Hospital and Health Insurance Markets: A Review and Research Agenda, 36 Health Services Res. 191 (2001); Gabel 4/23 at 160; Jon Gabel, Competition Among Health Plan 3 (4/23) (slides), at HMOs also relied on capitation, preauthorization review, and primary care gatekeepers. Gabel 4/23 at 160-61. Plans that engage in selective contracting can also "deselect" a provider who does not meet their needs and requirements. Timothy Lake et al., Medicare Payment Advisory Comm'n, MPR No. 8568-700, Health Plans' Selection and Payment of Health Care Providers, 1999, at 72-73 (2000) (final report).

17 Gabel 4/23 at 160. Another panelist stated that provider margins do not begin to fall until at least three HMOs are competing, and that more than 4 or 5 HMOs in a local market have no additional effect on margins. Mazzeo 4/23 at 137-138. Another panelist focused on competition in the Medicare managed care market. Pizer 4/23 at 144.

See also Alan T. Sorensen, Insurer-Hospital Bargaining: Negotiated Discounts in Post-Deregulation Connecticut, 51 J. Industrial Econ. 469 (2003) (noting the "ability of insurers to obtain discounts [is] determined primarily by [the] ability of insurer to channel patients to hospitals with which favorable discounts have been negotiated"); Michael Staten et al., Market Share and the Illusion of Power: Can Blue Cross Force Hospitals to Discount?, 6 J. Health Econ. 43 (1987) ("Blue Cross obtained substantial discounts only when it had numerous hospitals with which to potentially contract").

18 Gabel 4/23 at 160; Douglas R. Wholey et al., The Effect of Market Structure on HMO Premiums, 14 J. Health Econ. 81 (1995) ("[M]ore competition, measured by the number of HMOs in the market area, reduces HMO premiums").

19 David Orentlicher, Paying Physicians More To Do Less: Financial Incentives To Limit Care, 30 U. Rich. L. Rev. 155, 158-159 (1996); GAO, supra note 3, at 10 ("Managed care plans also use provider payment methods to control costs."); American Medical Ass 'n, Model Managed Care Contract: With Annotations and Supplemental Discussion Pieces 46 (3rd ed. 2002), available at /ama1/pub/upload/mm/368/mmcc-02-public.pdf; Glied, supra note 6, at 714-716; Stephen Latham, Regulation of Managed Care Incentive Payments to Physicians, 22 Am. J.L. & Med. 399 (1996).

20 Peter R. Kongstvedt, Compensation of Primary Care Physicians in Managed Health Care Plans, in Essentials of Managed Health Care 85, 106 (Peter R. Kongstvedt ed., 4th ed. 2003).

21 See Haiden A. Huskamp et al., The Effect of Incentive-Based Formularies on Prescription Drug Utilization and Spending, 349 New Eng. J. Med. 2224 (2003) (copayments can affect pharmaceutical spending and usage); Dana P. Goldman et al., Pharmacy Benefits and the Use of Drugs by the Chronically Ill, 291 JAMA 2344 (2004) (documenting substantial price responsiveness in pharmaceutical use by the chronically ill); Joseph P. Newhouse, Free for All? Lessons from the RAND Health Insurance Experiment (1993); Willard G. Manning et al., Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment, 77 Am. Econ. Rev. 251 (1987).

22 See generally GAO, supra note 3, at 20 ("By reviewing physicians' clinical decisions and requiring authorization for some specialist and hospital services, UR attempts to lower costs by avoiding services that do not meet the reviewers' standards for necessity of care.").

23 Dranove, supra note 1, at 83 ("The bottom line is that there are no studies to date that provide a definitive answer about how UR affects costs, nor are there any studies of whether UR systematically affects quality.").

24 Alex D. Federman & Albert L. Siu, The Challenge of Studying Managed Care as Managed Care Evolves, 39 Health Services Res. 7 (2004); Lawrence C. Baker, Managed Care Spillover Effects, 24 Ann. Rev. Pub. Health 435 (2003); Kate M. Bundorf et al., Impact of Managed Care on the Treatment, Costs, and Outcomes of Fee-for-Service Medicare Patients with Acute Myocardial Infarction, 39 Health Services Res. 131 (2004).

25 Bloche 6/10 at 181; Lesser 9/9/02 at 76; Peter Jacobson, Who Killed Managed Care: A Policy Whodunit?, 47 St. Louis L J. 365, 371 (2003) (noting that physicians "provided some of the most vociferous opposition to managed care that contributed to the public backlash beginning in the mid-1990s"); David Mechanic, The Managed Care Backlash: Perceptions and Rhetoric in Health Care Policy and the Potential for Health Care Reform, 79 Milbank Q. 35, 40 (2001) (observing that "[u]nhappy physicians contribute[d] to the managed care backlash. . . ."); David A. Hyman, Regulating Managed Care: What's Wrong With A Patient Bill of Rights, 73 S. Cal. L. Rev. 221 (2000). See also Special Issue The Managed Care Backlash, 24 J. HEALTH, Pol., Pol'y & L. 873- 1218 (Issue 5, Oct. 1999).

26 Mechanic, supra note 25, at 41 ("Doctors complain increasingly about not having sufficient time for their patients, and our understanding of managed care leads us to suspect. . . that time is 'being squeezed out' of the physician-patient relationship."); Jacobson, supra note 25, at 370 (observing that "[i]n a relatively short period of time, managed care challenged and undermined . . . core doctrines" such as the physician-patient relationship). See also American Chiropractic Ass'n, Comments Regarding Health Care and Competition Law and Policy (Sept. 9, 2003) [Submitted by Daryl D. Wills & James D. Edwards] 1-3 (Public Comment) [hereinafter links to FTC/DOJ Health Care Hearings Public Comments are available at os/comments/healthcarecomments2/index.htm].

27 Agrawal & Veit, supra note 2, at 41 (noting a survey that reported 58% of Americans thought managed care hurt care quality); Robert J. Blendon et al., Understanding the Managed Care Backlash, 17 Health Affairs 83 (July/Aug. 1998) (citing surveys that found 45 percent of American believed that managed care had decreased the quality of health care for patients and that 54 percent of Americans believed that managed care will reduce quality of medical care in the future); Eleanor D. Kinney, Tapping and Resolving Consumer Concerns About Health Care, 26 Am. J.L. Med. 335, 339 (2000) ("Consumer concerns about health care vary greatly but pertain primarily to three issues: quality, cost and access."); Mechanic, supra note 25, at 37 ("But a more fundamental reason for the public perception is that most Americans are discomforted by mechanism for doing so.").

28 Mark A. Hall, The Theory and Practice of Disclosing HMO Physician Incentives, 65 Law & Contemp. Probs. 207, 214 (2002); Henry T. Greely, Direct Financial Incentives in Managed Care: Unanswered Questions, 6 Health Matrix 53, 70 (1996) (discussing consumers' concerns that managed care's use of direct financial incentives will lead to different treatments, at some risk to patients' health); Robinson, supra note 11, at 2623.

29 See Ginsburg 2/26 at 60-61; M. Gregg Bloche & David Studdert, Law as an Agent of Health System Change, 23 Health Affairs 29 (Mar./Apr. 2004).

30 See Richard I. Smith et al., Examining Common Assertions about Managed Care, in ESSENTIALS OF Managed Health Care, supra note 20, at 71 (examining common assertions about managed care and concluding "[the] claims made by opponents of managed care are often simply wrong"); Mechanic, supra note 25, at 36 (arguing that many have "a distorted understanding of the relation between financial constraints and the provision of accessible and competent health care," and these "factual misconceptions about managed care feed on themselves, make the public anxious, and . . . contribute to an atmosphere of distrust"); Hyman, supra note 25, at 241-242.

31 Smith et al., supra note 30, at 72 (noting national surveys that "have reported high levels of consumer satisfaction with managed care plans"); Blendon et al., supra note 27, at 82 ("[M]ost insured Americans, regardless of whether they have managed care or traditional coverage, are satisfied with their own health insurance plan."); Robert H. Miller & Harold S. Luft, HMO Plan Performance Update: An Analysis Of The Literature, 1997-2001, 21 Health Affairs 63 (July /Aug. 2002) ("Results from seventy-nine studies suggest that both types of plans provide roughly comparable quality of care .... Quality-of-care results in particular are heterogeneous, which suggests that quality is not uniform - that it varies widely among providers, plans (HMO and non-HMO), and geographic areas."); Joseph M. Gottfried & Frank A. Sloan, The Quality of Managed Care: Evidence from the Medical Literature, 65 Law & Contemp. Probs. 103 (2002); R. Adams Dudley et al., The Impact of Financial Incentives on Quality of Care, 76 MILBANK Q. 649 (1998).

Negative consumer perceptions were frequently fueled by negative media coverage and political debate. Hyman, supra note 25, at 237-241; Jacobson, supra note 25, at 381-385; Mechanic, supra note 25, at 37 ("The chorus of opposition from physicians and other professionals, negative media coverage, repeated atrocity-type anecdotes, and bashing by politicians all contribute to the public's discomfort with new arrangements.").

32 See Robert E. Hurley et al., The Puzzling Popularity of the PPO, 23 Health Affairs 59-60 (2004) ("Consumer backlash, intensified regulatory pressures, provider disenchantment with risk, and the unsustainable pricing practices of plans seeking to buy entry into new markets all conspired to produce a rapid reversal of fortune for the HMO product and stimulate a massive migration in to PPO arrangements."); William M. Sage & Peter J. Hammer, A Copernican View of Health Care Antitrust, 65 LAW& Contemp. Probs. 241 (2002).

33 See Hurley et al., supra note 32, at 56-58.

34 Carl F. Ameringer, Devolution and Distrust: Managed Care and the Resurgence of Physician Power and Authority, 5 DePaul J. Heath Care L. 187, 203 (2002). Some concierge practices charge consumers on a FFS basis for the services they provide, while others impose a flat fee on top of their FFS charges.

35 See Brewbaker 9/9/02 at 22-26.

36 Institute of Medicine (IOM), Crossing the Quality Chasm: A New Health System for the 21st Century 184 (2001) (recommending that financing and delivery systems "[a]lign financial incentives with the implementation of care processes based on best practices and the achievement of better patient outcomes. Substantial improvements in quality are most likely to be obtained when providers are highly motivated and rewarded for carefully designing and fine-tuning care processes to achieve increasingly higher levels of safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity.").

37 America's Health Insurance Plan, Board of Directors Statement: A Commitment to Improve Health Care Quality, Access, and Affordability (Mar. 2004), at content/default.aspx?docid=428. See also Ignagni 5/27 at 59 ("We need to pay for quality and effectiveness, not for overuse, misuse, and underuse.").

38 Donald M. Berwick et al., Pay for Performance: Medicare Should Lead, 22 Health Affairs 8 (Nov./Dec. 2003). See also Casalino 5/28 at 134 ("[P]hysicians for the most part don't have an incentive to improve quality . . . .").

39 Meredith B. Rosenthal et al., Paying for Quality: Providers' Incentives for Quality Improvement, 23 Health Affairs 127 (Mar./Apr. 2004).

40 See David A. Hyman & Charles Silver, You Get What You Pay For: Result-Based Compensation for Health Care, 58 Wash. & Lee L. Rev. 1427 (2001); Arnold M. Epstein et al., Paying Physicians For High Quality Care, 350 New Eng. J. Med. 406 (2004); Nat'l Health Care Purchasing Institute, Ensuring Quality Providers: A Purchaser's Toolkit for Using Incentives (The Robert Wood Johnson Foundation) (May 2002); Nat'l Committee for Quality Assurance, Integrated Healthcare Ass'n Pay for Performance Program: 2004 Clinical Measure Specifications and Audit Review Guidelines (Dec. 2003); The Leapfrog Group, Leapfrog Compendium, compendium.htm (last visited July 13, 2004).

In Britain, the National Health Service is experimenting with a similar P4P strategy. Peter C. Smith & Nick York, Quality Incentives: The Case of U.K. General Practitioners, 23 Health Affairs 112 (Mar./Apr. 2004).

41 Milstein 5/30 at 32; Milstein 5/28 at 179; Tuckson 5/30 at 113 ("There is no question that we have experienced dominant players in the marketplace who basically can say to us, and who say to employers as well on whose behalf we operate, 'we don't have to play this quality game because (A) we have got the market; or (B) we are the only game in town. And either way we can thumb our nose at this thing and we will continue to do what we are doing and provide lip service to the people who come here saying we are going to give you some information about quality.'"); Probst 5/29 at 90; Romano 5/28 at 95.

42 Kumpuris 5/30 at 47; Kelly J. Devers & Gigi Y. Liu, Leapfrog Patient-Safety Standards are a Stretch for Most Hospitals 5 (Ctr. for Studying Health Sys. Change, Issue Brief No. 77, 2004), available at CONTENT/647/647.pdf; The Leapfrog Group, Leapfrog's Regional Roll-Outs Fact Sheet (June 2004), at RRO_FactSheet.pdf; Hyman & Silver, supra note 40, at 1462-1471.

43 See Joseph Schumpeter, Capitalism, Socialism and Democracy 83 (1945) ("This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.").

44 Martha Derthick & Paul J. Quirk, The Politics of Deregulation 124 (1985) (quoting Alfred Kahn, former Administrator of the Civil Aeronautics Board). See also Blumstein 2/27 at 18.

45 Gaynor 5/28 at 70; Muris 2/26 at 7; Kanwit 9/9/02 at 182.

46 Thomas Bodenheimer, The American Health Care System - The Movement for Improved Quality in Health Care, 340 NewEng. J. Med. 488 (1999).

47 See Pauly 5/28 at 31 (defining quality as "whatever matters that isn't quantity"); Rosenthal 5/28 at 163; William M. Sage & Peter J. Hammer, Competing on Quality of Care: The Need to Develop a Competition Policy for Health Care Markets, 32 U. Mich. J.L. Reform 1069, 1072-73 (1999). But see Gaynor 5/27 at 77 ("I don't view . . . price and quality competition as separate issues.").

48 IOM, supra note 36, at 46.

49 Agency for Healthcare Research & Quality, U.S. Dep't of Health & Human Services, National Healthcare Quality Report 10 (2003), at report/do wnload_report. aspx.

50 See Clancy 5/27 at 6-9; Kumpuris 5/30 at 43; Romano 5/28 at 50-61. Structural measures of quality focus on whether particular organizational structures are in place, such as a mechanism for credentialing physicians who seek admission to a medical staff. Process measures of quality focus on whether particular inputs are in place, such as the vaccination rate among a pediatric practice and the number of nurses per patient in an ICU. Outcome measures of quality focus on the results of medical treatment, such as the five year mortality rate following treatment for lung cancer.

51 Darby 5/30 at 8-9 ("For example, patients value having communication with their provider, being able to have things explained to them in a way that they can understand, and that the provider will listen to them and answer the questions that they have."); John Kenagy, Service Quality in Health Care, 281 JAMA 661 (1999).

52 See Myers 5/29 at 218, 220. Even if one uses the same definition, it is possible for an institution to provide high quality care for some conditions and low quality care for other conditions. See Clancy 5/27 at 12. An additional complication is that "the proportion of healthcare . . . where there's clearly one right answer is clearly a minority of what's provided in healthcare." Id. at 139.

53 See Hammer 5/28 at 144 ("[F]rom a professional paradigm or health services research paradigm, there's an absolutist or objective nature of what quality is."); Hammer 2/27 at 63; Hyman 5/28 at 276. See also William M. Sage et al., Why Competition Law Matters to Health Care Quality, 22 Health Affairs 31 (Mar./Apr. 2003); James F. Blumstein, Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, 79 Cornell L. Rev. 1459, 1465-66 (1994).

54 See, e.g., Blumstein 2/27 at 22-26; James 5/28 at 104-105 ("[V]ery often patients and physicians define quality as spare no expense .... The reason that you'd engage in price competition was a hope to increase your patient volume or your treatment volume . . . [physicians] work on a completely different set of incentives, price largely being immaterial."); Iezzoni 5/28 at 117 (Throw everything that you can possibly do for me, Doctor,' is how some patients do define quality, although this is going to vary from patient to patient."); Lomazow 6/10 at 250 ("[D]o you want to run the system on high octane or regular? Do you want to use factory parts or do you want to use knock-offs or rebuilts? The American public deserves the best. They pay for the best.").

This paradigm similarly treats quality as a purely technical matter that must be handled by providers. See Sfikas 2/27 at 187 ("[W]hen it comes to quality, the dental profession believes that it is the dentists who understand quality"); Opelka 2/27 at 178 ("I am a physician and it is my mission to deliver, what I believe is the highest quality of care to every patient."). See also Michael L. Millenson, "Miracle and Wonder": The AMA Embraces Quality Measurement, 16 Health Affairs 183, 183 (May/June 1997) (describing an advertisement in the New York Times in which a physician has her arm around a patient; the headline reads "She's my patient. There's no way I'll let anyone put a price tag on her life."); Blumstein 2/27 at 25 (professional paradigm "vested enormous authority in professionals to make fundamental decisions about medical care").

55 See Sage 5/29 at 144 ("Competition law treats quality as one attribute of a good or service which must be traded off against price and other attributes, while the medical profession has historically regarding quality as a irreducible minimum to be determined by physicians without reference to cost."); Hammer 5/28 at 143-144 ("[T]here's an underlying conflict in the way that economists and antitrust lawyers approach questions of quality than health services research."). See also Sage et al., supra note 53, at 39.

56 Compare Modell 6/10 at 257 ("If... the economist can put to me on paper what one in 400 excess mortality is worth, then I can address that question. As a physician and as someone who has spent hundreds of thousands of our own dollars trying to make anesthesia safer, I can tell you, that number is unacceptable to me"), with Bloche 6/10 at 257-58 ("You need to put a number on that one and 400. Ultimately, what is involved here is the need to come up with a valuation of a life saved. What is this particular method, this particular policy costing in terms of, well, the cost of each life saved? . . . [W]hen we lose those resources because we're taking the more expensive method of doing this, then we don't have those resources for other health care needs.").

See also Guterman 5/29 at 268 ("One thing that occurs to me is deciding sort of in whose eyes quality is to be evaluated. We've got a number of payers here and some providers and - you know, and the title of the session is consumer information, but I think there's a real difference between what consumers may want and what payers may want."); Delbanco 5/29 at 269-270 (noting importance of deciding "who is the customer" in health care); McGinnis 5/30 at 53-54 ("The lack of information, and to some degree a lack of agreement on what constitutes high-quality surgical care from both the clinical and patient perspectives creates confusion.").

57 See Clancy 5/27 at 18-19; Myers 5/29 at 218-219, 264.

58 AHRQ, supra note 49, at 2. See also Carolyn Clancy, IP A Overview 28 (5/27) (slides), at; Fisher 5/27 at 42 ("I think physicians are doing their best in settings of real complexity to deliver care that they know should be delivered."); Ignagni 5/27 at 64; Kumpuris 5/30 at 49 ("The vast majority of physicians are good doctors, motivated to provide quality of care using evidence-based clinical pathways. However, good doctors and bad systems will still result in adverse and undesirable outcomes."); McGinnis 5/30 at 50-51; Tuckson 5/30 at 82-83 ("Physicians want to do the right thing."); Nielsen 5/30 at 225 ("We are all partners in this morass, and we all have a vested interest in doing it right."); Gebhart 6/12 at 227; Kizer 6/11 at 71 ("There's lots of good things that we do in health care here in the U.S. as far as training of our practitioners; having lots of diagnostic and treatment technology diffused throughout our community; our biomedical research program is the envy of the world and the engine that's driving development throughout the world; and lots of technology."); Greenberg 9/9/02 at 180.

59 Mark A. Schuster et al., How Good Is the Quality of Health Care in the United States?, 76 Milbank Q. 517, 520-21 (1998). See also Mark R. Chassin & Robert W. Galvin, The Urgent Need to Improve Health Care Quality, 280 JAMA 1000 (1998).

60 See Berenson 5/30 at 239-40 (noting there are "a couple of JAMA articles documenting quality problems for the Medicare population on... 23 measures of [] well accepted process and some outcome measures on quality . . . ."); Fisher 5/27 at 28 ("Errors result in the deaths of thousands. [Leape's] estimate is that it's the equivalent of three jumbo jet crashes every two days, dying from a consequence of errors"); Ignagni 5/27 at 133; Gaynor 5/28 at 73 ("It's been very, very extensively documented. There's a lot of variation in quality."); Milstein 5/28 at 178-179 ("[Q]uality failure is severe and invisible."); Milstein 2/27 at 100-101 ("Large employers and consumer organizations agree with the Institute of Medicine's reports over the last four years that there's a very wide gap between the health care that Americans are getting and what health care could and should be .... We think the optimality gap with respect to American spending on health care could be as large as 40 percent of the dollars that we're spending."); Darling 2/27 at 114; Kanwit 6/25 at 29; Kizer 6/11 at 72; Brewbaker 9/9/02 at 26-31.

See also AHRQ, supra note 49, at 2-3; Eve A. Kerr et al., Profiling the Quality of Care in Twelve Communities: Results From the CQI Study, 23 Health Affairs 247 (May/June 2004) ("Health care quality falls far short of its potential nationally .... We find room for improvement in quality overall and in dimensions of preventive, acute, and chronic care in all of these communities; no community was consistently best or worst on the various dimensions"); Elizabeth A. McGlynn et al., The Quality of Health Care Delivered to Adults in the United States, 348 New Eng. J. Med. 2635 (2003) ("Quality varied substantially according to the particular medical condition, ranging from 78.7 percent of recommended care ... for senile cataract to 10.5 percent of recommended care ... for alcohol dependence," with overall average of half of recommended care provided); Donald M. Berwick, Errors Today and Errors Tomorrow, 348 New Eng. J. Med. 2570 (2003); Earl P. Steinberg, Improving the Quality of Care - Can We Practice What We Preach?, 348 New Eng. J. Med. 2681 (2003); John P. Burke, Infection Control - A Problem for Patient Safety, 348 New Eng. J. Med. 651 (2003); Tejal K. Gandhi et al., Adverse Drug Events in Ambulatory Care, 348 New Eng. J. Med. 1556 (2003); Chunliu Zhan & Marlene R. Miller, Excess Length of Stay, Charges, and Mortality Attributable to Medical Injuries During Hospitalization, 290 JAMA 1868 (2003) (concluding that failures in care processes for 18 medical complications resulted in more than 32,000 deaths, 2.4 million extra days in the hospital, and more than $9 billion annually); Stephen F. Jencks et al., Change in the Quality of Care Delivered to Medicare Beneficiaries, 1998-1999 to 2000-2001, 289 JAMA 305 (2003); McNeil, supra note 1, at 1612 ("The public has just begun to recognize that despite the enormous achievements of American medicine and the American health care system, the quality of care in this country needs to be and can be improved.").

61 See Foster 5/29 at 198 ("[W]e all know that mistakes do occur, and there is both overuse and under-use of some diagnostic and treatment procedures, as described in the Institute of Medicine's landmark reports, To Err is Human and Crossing the Quality Chasm."); Myers 5/29 at 217-218 ("We cannot, of course, ignore the Institute of Medicine studies that have been referenced earlier and the studies that are in the hopper both within the Institute of Medicine and by other agencies . . . ."); Kumpuris 5/30 at 41 ("[E]fforts to improve health care quality are not only needed, but long overdue. In 2001, the Institute of Medicine published 'Crossing the Quality Chasm' which found that the United States health care system does not uniformly and consistently deliver high quality care to all patients. A diverse literature addresses this variation in health quality and the difficulties in measuring those differences. Although the conclusions of this landmark IOM report are seldom disputed, the reasons are far from agreed upon."); O'Kane 5/30 at 67-70; Milstein 5/28 at 183-184 ("[T]he probability of there being a great hospital that warrants a great brand name, based on the current evidence, is close to zero."); Gebhart 6/12 at 222-223.

See also Schuster et al., supra note 59, at 518 (differentiating between too much care, too little care, and the wrong care); Mark R. Chassin, Is Health Care Ready for Six Sigma Quality?, 76 Milbank Q. 565, 570-78 (1998) (differentiating between overuse, underuse, and misuse); David P. Phillips et al., Increase in U.S. Medication-Error Deaths between 1983 and 1993, 351 LANCET 255 (1999); David W. Bates et al., Incidence of Adverse Drug Events and Potential Adverse Drug Events: Implications for Prevention, 274 JAMA 29 (1995).

62 Chassin, supra note 61, at 566. See also Bodenheimer, supra note 46, at 488; Medicare Payment Advisory Committee (MedPAC), Quality of Care in the Medicare Program, in Report to the Congress: Variation and Innovation in Medicare § 2, at 17 chart 2-1 (June 2003) (finding between 2000 and 2001, when a patient was admitted with a heart attack, 31 percent of patients did not receive beta blockers within 24 hours of admission, 21 percent did not receive beta blockers upon discharge, and 43 percent of smokers were not advised to stop), at pac/publications%5Ccongressional_reports%5CJun03DataBookSec2.pdf.

63 See Institute of Medicine (IOM), TO Err is Human 22 (1999). These figures have been disputed. Compare Rodney A. Hayward & Timothy P. Hofer, Estimating Hospital Deaths Due to Medical Errors: Preventability is in the Eye of the Reviewer, 286 JAMA 415 (2001), and Christopher M. Hughes et al., Deaths Due to Medical Errors are Exaggerated in Institute of Medicine Report, 284 JAMA 93 (2000), with Lucian L. Leape, Institute of Medicine Medical Error Figures Are Not Exaggerated, 284 JAMA 95 (2000). See also Lucian Leape, Error in Medicine, 272 JAMA 1851 (1994) (estimating that injuries caused by physicians during inpatient hospitalization accounted for 180,000 deaths per year).

64 IOM, supra note 63, at 1. One panelist noted that despite extensive publicity, Americans dramatically underestimate the number of preventable in-hospital deaths attributable to medical errors. Milstein 5/29 at 244.

65 See Kanwit 2/27 at 117; Elizabeth A. McGlynn, There is No Perfect Health System, 23 Health Affairs 100 (May/June 2004).

66 Faculty of the Ctr. for the Evaluative Clinical Sciences, Dartmouth Medical School, The Dartmouth Atlas of Medical Care (1999), http:// See also Fischer 5/27 at 34-35; 40-41, 43; Milstein 2/27 at 122 ("[M]ost of the big dollar variation from region to region in how much it costs ... is not driven by differences in consumer demand. It's driven by ... supply-sensitive services . . . ."); Antos 9/30 at 119-120 ("[T]here are large variations in practice patterns across the United States that clearly indicate that medical care is practiced in peculiar and often inefficient ways"); Fisher 5/27 at 30-32; Bloche 6/10 at 169; Milstein 2/27 at 122-123 ("[M]ostof the big dollar variation from region to region. . . is not driven by differences in consumer demand. Its driven by what Dartmouth would refer to as supply sensitive services .. . only about 7 to 8 percent of health care cost differences are rooted in what's called preference sensitive services . . . ."); Greaney 2/27 at 222; Elliot S. Fisher et al., The Implications of Regional Variations in Medicare Spending, Part 1, 138 Annals Internal Med. 273 (2003); John E. Wennberg et al., Geography And The Debate Over Medicare Reform, 2002 Health Affairs (Web Exclusive) W96, 96-97, at http://content.healthaffairs. org/cgi/reprint/hlthaff.w2.96v1.

Such variation may not correspond to consumer preferences. See generally Foundation for Informed Medical Decision Making ("The decision that will best serve a particular patient often depends critically on the patient's own preferences and values. The treatment that is best for one patient may not be what is best for another who is in exactly the same situation... a growing body of research shows that when patients are well informed and play a significant role in deciding how they are going to treat or manage their health conditions, things work out better. Informed patients feel better about the decision process. Their decisions are more likely to match up with their preferences, values and concerns. These patients are more likely to stick with the regimens the treatment requires, and they often end up rating their health after treatment as better."), at (last visited July 14, 2004). See also Richard A. Deyo et al., Involving Patients in Clinical Decisions: Impact of an Interactive Video Program on Use of Back Surgery, 38 Med. Care 959 (2000); Joseph F. Kasper et al., Developing Shared Decision-Making Programs to Improve the Quality of Health Care, 18 Quality Rev. Bull. 183 (1992); Michael J. Barry et al., Watchful Waiting Versus Immediate Transurethral Resection for Symptomatic Prostatism: The Importance of Patients' Preferences, 259 JAMA 3010 (1988).

67 Fisher 5/27 at 31; Elliot Fisher, What are the Underlying Causes of Poor Quality and High Costs? 6 (5/27) (slides), at healthcarehearings/docs/030527fisher.pdf. These figures are adjusted for age, race, morbidity, and a substantial number of other factors.

68 Fisher 5/27 at 31-40.

69 Id. at 35-36. Elliot Fisher et al., The Implications of Regional Variations in Medicare Spending, Part 2: Health Outcomes and Satisfaction with Care, 138 Annals of Internal Med. 288 (2003).

70 Fisher 5/27 at 35.

71 Katherine Baicker & Amitabh Chandra, Medicare Spending, The Physician Workforce, and Beneficiaries' Quality of Care, 2004 Health Affairs (Web Exclusive) W4-184, 187-88, at See also Fisher 5/27 at 39 (discussing his study that showed "as you moved up to the highest spending regions there's a two and half percent higher risk of death in the highest spending regions compared to the lowest spending regions"); Brewbaker 9/9/02 at 30.

72 See Gaynor 5/27 at 78-79, 81-84; Wong 5/28 at 187-199; Town 5/28 at 199-209; Kessler 5/28 at 210- 226; Gaynor 2/26 at 125. See also Gautam Gowrisankaran & Robert Town, Competition, Payer, and Hospital Quality, 38 Health Services Res. 1403 (2003) ("[E]stimates indicate that increasing competition for HMO patients appears to reduce prices and save lives and hence appears to improve welfare. However, increases in competition for Medicare appear to reduce quality and may reduce welfare. Increasing competition has little net effect on hospital quality for our sample."); Daniel P. Kessler & Mark B. McClellan, Is Hospital Competition Socially Wasteful?, 115 Q.J. Econ. 577 (2000) (finding that welfare effects of competition in the 1980s were ambiguous, but in the 1990s, competition unambiguously improves social welfare, in Medicare patients who suffered a heart attack). But see Kevin G. M. Volpp et al., Market Reform in New Jersey and the Effect on Mortality From Acute Myocardial Infarction, 38 Health Services Res. 515 (2003) (finding an increase in post-heart attack mortality in New Jersey after competition increased (as a result of repeal of rate-setting statute) and subsidies for inpatient care for the uninsured decreased).

73 See Council of Economic Advisors, Economic Report of the President, Promoting Health Care Quality and Access 147 (2002) ("In most market settings, consumers' purchase decisions are based on good information on the value of the products they buy. But in healthcare the lack of good information on the success of different treatments - in terms of the best outcomes per dollar - means that individuals and families have difficulty making informed decisions, and insurance companies are not rewarded for altering their coverage to encourage high- value care.").

74 See Gaynor 5/27 at 81 ("[I]f you have enough that are well informed and sellers can't readily discriminate between well-informed and less-well-informed individuals, the well-informed individuals can help drive the market."); Herzlinger 5/27 at 94; Rosenthal 5/28 at 166.

75 See James 5/28 at 122-23; Fraser 5/28 at 329-330; Judith H. Hibbard et al., AARP Public Pol'y Institute, #2000-14, Older Consumers' Skill in Using Comparative Data to Inform Health Plan Choice: A Preliminary Assessment (2000) (finding consumers more likely to use information that is presented in a usable fashion), at

76 Judith H. Hibbard et al., Does Making Hospital Performance Public Increase Quality Improvement Efforts?, 22 Health Affairs 84 (Mar./Apr. 2003); MarkR. Chassin, Achieving and Sustaining Improved Quality: Lessons From New York State and Cardiac Surgery, 21 Health Affairs 48 (July/Aug. 2002); Eric C. Schneider & Arnold M. Epstein, Influence of Cardiac-Surgery Performance Reports on Referral Practices and Access to Care: A Survey of Cardiovascular Specialists, 335 New Eng. J. Med. 251 (1996).

77 See Ignagni 5/27 at 48 ("[F]or our competitive markets to work, information, access is key."); Romano 5/29 at 46-47 ("[M]arket-oriented goals really focus on providing information that addresses the asymmetry of information [in] the marketplace and empowering consumers to demand better health care, giving them the information, the tools that they need to make better-informed choices that theoretically maximize their utility."); Stoddard 5/29 at 249 ("In theory, [if] patients are given accurate information about the quality and price of hospital and physician services[, t]hey will choose the providers that offer the best value for them."). See also William M. Sage, Regulating Through Information: Disclosure Laws and American Health Care, 99 Colum. L. Rev. 1701 (1999).

78 Fisher 5/27 at 123 ("I think it's remarkable to the degree to which we agreed on the need for better information in health care."); Probst 5/29 at 89-91 (noting difficulty in obtaining information from hospitals about process measures of quality); Millenson 5/27 at 104-113; Darling 2/27 at 78; Matthews 9/24 at 141-42 (noting difficulty in obtaining information regarding price and value of services); Knettel 6/25 at 114 (number one priority should be "to put in place the infrastructure that's needed to provide for... much more transparent health care purchasing decision-making."); Meghrigian 9/24 at 84 ("[M]any consumers are very knowledgeable and able to tell who are and who are not good physicians, but. . . many consumers still don't have an idea in terms of who is a good clinical physician. . . ."). As one panelist noted, "historically, decisions on which hospital to use have not been based on information but have been based almost exclusively on what the patient's doctor has recommended or where that patient's doctor actually practices." Tirone 5/29 at 233. See also Frances H. Miller, Illuminating Patient Choice: Releasing Physician-Specific Data to the Public, 8 Loy. Consumer L. Rev. 125 (1995-1996).

A related set of issues is raised in teaching hospitals, where there have been complaints about the nature of disclosure regarding the level of professional training of those rendering services and the services that will be provided. Compare Wilson 6/10 at 8-31, with Bondurant 5/30 at 34-37. See also Michael Greger, Comments Regarding Hearings on Health Care and Competition Law and Policy (Public Comment); Noreen Farrell Nickolas, Comments Regarding Health Care and Competition Law and Policy (July 17, 2003) (Public Comment). More broadly, information communication between providers and consumers has a substantial impact on consumer satisfaction and the risk of a malpractice claim. See Levinson 5/30 at 161-174.

Finally, some of the information that is available is unreliable because it is false or deceptive. The Commission has played an important role in addressing such conduct in health care, while simultaneously encouraging truthful non-deceptive advertising. See Timothy J. Muris, Everything Old is New Again: Health Care and Competition in the 21st Century, Prepared Remarks for the 7th Annual Competition in Health Care Forum (Nov. 7, 2002), at See also Carabello 6/12 at 161-178; Lee 6/12 at 179-189; Koch 6/12 at 190-199.

79 Foster 5/29 at 199-200; Tuckson 5/30 at 82 ("So CMS is about to come out with their physician performance measures. The Bridges to Excellence we just heard about. The IOM has its guidance. NCQA has been leading this for years now. NQF has its performance measures that it is moving forward with. The Leapfrog Group is moving from hospitals to performance measurement. And at the base of all of this for us is the essential organization, the AMA's Physician Consortium for Performance Improvement. Lots of people are in the drama."); Milstein 5/30 at 33 ("[S]ignificant efforts by the Leapfrog Group, the Consumer Purchaser Disclosure Project, and other progressive market forces, such as those catalyzed by NCQA, are already promoting such transparency-based market solutions."); Dana 6/12 at 159 ("AHCA has developed a model to encourage its state affiliates to begin developing a satisfaction-based consumer guide. The model focuses on reporting a nursing home's three-year trend of family satisfaction, family willingness to recommend, and staff willingness to recommend, as well as the inspection data, but presented as a percentage of the 495 standards that each nursing home must meet."); Ignagni 5/27 at 53-54; Millenson 5/27 at 120; Kessler 5/29 at 68-73 (differentiating between survey, process, and outcome report cards).

80 CMS is using ten measures relating to three medical conditions - acute myocardial infarction (heart attack), congestive heart failure, and pneumonia. See Foster 5/29 at 208-10; Guterman 5/29 at 178-79; Centers for Medicare & Medicaid Services, CMS Hospital Three-State Pilot: Centers for Medicare & Medicaid Services Fact Sheet (Feb. 18, 2004), at hospital/3StateFactSheet.pdf. One panelist noted these measure are a subset of data already collected by the Joint Commission of Accreditation of Health Care Organizations. Tirone 5/29 at 236.

81 See Kahn 5/29 at 126-128; Foster 5/29 at 209; Centers for Medicaid & Medicare Services, Hospital Quality Initiatives (HQI), http://www.cms. (last modified May 7, 2004).

82 Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, § 501, 117 Stat. 2066(2003).

83 In 1994, the government began collecting clinical information annually on four key care indicators of quality for patients with end stage renal disease. Centers for Medicaid & Medicare Services, End Stage Renal Disease Program: Core Indicators Project, at (last modified May 16, 2002). In 1996, 26 percent of patients received inadequate dialysis. By 2001, these figures had declined to 11 percent. MedPAC, supra note 62, at 19 chart 2-3.

84 Guterman 5/29 at 176-77; Centers for Medicare & Medicaid Services, Nursing Home Quality Initiative, at quality/nhqi (last visited July 13, 2004); Centers for Medicare & Medicaid Services, Home Health Quality Initiative, at (last visited July 13, 2004). A number of demonstration projects involving physicians are also underway. Centers for Medicare & Medicaid Services, Physician Focused Quality Initiative, at (last visited July 13, 2004).

85 See E.L. Hannan et al., The Decline in Coronary Artery Bypass Graft Surgery Mortality in NY State, 273 JAMA 209 (1995).

86 See E.D. Peterson et al., The Effects of New York's Bypass Surgery Provider Profiling on Access to Care and Patient Outcomes in the Elderly, 32 J. Am. C. of Cardiolgy 993 (1998) (finding a 33 percent decrease in risk- adjusted mortality in New York for CABG and a 19 percent decrease in risk-adjusted mortality rates across the nation).

87 See Arnold M. Epstein, Public Release of Performance Data: A Progress Report From the Front, 283 JAMA 1884, 1885 (2000); Martin N. Marshall et al., The Public Release of Performance Data: What Do We Expect to Gain?, 283 JAMA 1866 (2000).

88 See, e.g., Illinois Health Care Cost Containment Council, 2000 Hospital Care Buyer's Guides, at consumerreports.htm#hcbg (last visited July 13, 2004); Virginia Health Information, Cardiac Care: Introduction, at (last visited July 13, 2004); Texas Health Information Council, Indicators ofInpatient Care in Texas Hospitals, 2002, Report2002/IQIReport2002.htm (last visited July 13, 2004); Office of Statewide Health Planning & Development, California Report on Coronary Artery Bypass Graft (CABG) Surgery 1999 Hospital Data (2003), at HQAD/HIRC/hospital/Outcomes/CABG/ (revision date Apr. 1, 2004); Pennsylvania Health Care Cost Containment Council, Hospital Performance Reports, (last visited July 13, 2004); Quality Counts (WI), at (last visited July 13, 2004).

89 Nancy D. Beaulieu, Quality Information and Consumer Health Plan Choices, 21 J. Health Econ. 43 (2002); G. J. Wedig & M. Tai-Seale, The Effect of Report Cards on Consumer Choice in the Health Insurance Market, 21 J. HEALTH Econ. 1031 (2002).

HEDIS scores may have a more limited impact when consumers do not have a choice among competing health plans, and when low-scoring plans elect to withhold their scores. Bodenheimer, supra note 46, at 490 (noting that 47 percent of employees in large companies and 80 percent of employees in small firms have no choice among health plans). If employers rely on HEDIS scores in selecting the plans to offer their employees, this would not be a problem, but there is some evidence that employers do not use HEDIS scores in this fashion. See infra note 92, and accompanying text.

90 See, e.g., Bridges to Excellence, (last visited July 13, 2004). The National Quality Forum develops consensus standards and identifies best practices. See Kizer 6/11 at 72-74, 79- 84; National Quality Forum, (last visited July 13, 2004).

91 Fraser 5/29 at 156. Congress mandated annual reports by AHRQ. Irene Fraser, The Nexus of Cost and Quality: Four AHRQ Initiatives 10-17 (5/29) (slides), at hearings/docs/030529fraser.pdf.

92 See Romano 5/29 at 50-60; Patrick S. Romano, Public Reporting on Provider Quality: What We Know, What We Need to Know 3 (5/29) (slides) (describing studies), at ogc/healthcarehearings/docs/030529romano.pdf; O'Kane 5/30 at 73 ("We don't want to hear about these HEDIS measures. We didn't get a Ph.D. but we are interested in hearing how this plan helps me stay healthy, how well they take care of people with chronic illness and so forth."); Sofaer 5/30 at 214; Dana 6/12 at 157-159 ("Most consumers don't want confusing clinical statistics or deficiency information. They simply want to know which facilities have the most satisfied residents and families."); Paul 6/11 at 247-248 ("What I hear from consumers a lot is that outcome measures just resonate better for people. You know, it's easier to understand infection rates or death rates, mortality rates or whatever, than it is to understand ... the measures that we have on hospitals . . . [and measures] that have to do with left ventricular systolic dysfunction.").

See also Jon Christianson et al., Early Experience with a New Model of Employer Group Purchasing in Minnesota, 18 Health Affairs 100, 112 (Nov./Dec. 1999); Robert Galvin & Arnold Milstein, Large Employers' New Strategies in Health Care, 347 New Eng. J. Med. 939, 940-41 (2002).

Panelists and commentators identified a number of reasons why consumers have not embraced available quality information. See Foster 5/29 at 202-04; Crofton 5/30 at 17 ("The first lesson that we learned is that people want information about health care quality but they won't use that information unless it is easy to understand and to apply"); Hibbard 5/29 at 32-33; Delbanco 5/29 at 193; Milstein 5/29 at 29-30; Ateev Mehrotra et al., Employers' Efforts to Measure and Improve Hospital Quality: Determinants of Success, 22 HEALTH Affairs 60 (Mar./Apr. 2003) (identifying six factors that limit usability of report cards, including ambiguity of goals, conflicts over the measurements employed; questions of the benefits from public release; lack of economic incentives; lack of employer bargaining power; and failure to ask hospitals to collaborate on the measurements); Arnold Milstein & Nancy E. Adler, Out Of Sight, Out Of Mind: Why Doesn 't Widespread Clinical Quality Failure Command Our Attention?, 22 Health Affairs 119 (Mar./Apr. 2003) (identifying several behavioral economic reasons why consumers tolerate low quality, including optimistic bias, bias in favor of the individual, desire to trust providers, bias toward authority, and cognitive dissonance); Judith H. Hibbard et al., Making Health Care Report Cards Easier to Use, 27 Joint Commission J. On Quality Improvement 591 (2001); Judith H. Hibbard et al., Increasing the Impact of Health Plan Report Cards by Addressing Consumer Concerns, 19 HEALTH Affairs 138 (Sept./Oct. 2000) (noting importance of making quality information readily accessible to consumers).

One panelist identified several steps to make report cards more useful to consumers, and stated that the redesigned report card had a "viral effect" with people talking about it and making recommendations to one another. Hibbard 5/29 at 34-40.

93 Hibbard 5/29 at 29-33 ("If you step back and you look, the quality problem is not visible to people. They don't really think that there are differences. And then we give them these reports that are really hard to use and that require a lot of hard work. So, is it really any wonder that people aren't using them?"); Foster 5/29 at 202-204.

94 Jon R. Gabel et al., When Employers Choose Health Plans Do NCQA Accreditation and HEDIS Data Count? (1998), athttp://www.

95 See Dennis P. Scanlon et al., Options for Assessing PPO Quality: Accreditation and Profiling as Accountability Strategies, 58 Med. Care Res. Rev. S70 (2001); Lawrence C. Kleinman, Conceptual and Technical Issues Regarding the Use of HEDIS and HEDIS-like Measures in Preferred Provider Organizations, 58 Med. Care Res. Rev. S37 (2001).

96 Fraser 5/29 at 158. See also Fisher 5/27 at 29 (causes of poor quality and high cost are "a flawed understanding of medical care . . . inadequate information to support wise decisions and flawed incentives.").

97 Romano 5/29 at 47. See also Clancy 5/27 at 24 ("The literature to date suggest modest, although a growing impact on consumer decisions and a slightly more impressive impact on individual providers."); Romano 5/29 at 65 ("[T]he observed effects of report cards on consumer choice are small, transient, and hard to demonstrate in practice."); Guterman 5/29 at 173; Scully 2/26 at 36-37 ("It has a big impact if you start putting patient quality information out there because the boards of the nursing homes start asking their employees, how come we have the number one number of bed sores in the community."); Ginsburg 2/26 at 76-77 ("[H]ospitals pay a lot of attention to [report cards] and they actually have a beneficial effect from hospitals seeing where they're weak and looking into why they're weak and trying to do something about it. We often don't see much use of report cards by employers or consumers and hospitals have been resistant to them and have closed down some efforts"). Whether the conduct is described as "self-regulatory" or as a predictable response to doing poorly in a competitive market, the more important point is that improvement follows from information disclosure.

98 See Berenson 5/30 at 238; Nielsen 5/30 at 228; Nancy Nielsen, Health Care Competition Law and Policy - Quality and Consumer Information: Physicians 4 (5/30) ("[I]t remains statistically difficult to assess individual physician competence or distinguish among physicians on outcomes"), at; Probst 5/29 at 95. See also Stephen F. Jencks, Clinical Performance Measurement: A Hard Sell, 283 JAMA 2015 (2000).

99 Sofaer 5/30 at 205 (noting that physicians were convinced the dissemination of information "was being done to reduce their income further").

100 See Foster 5/29 at 261; Gaynor 5/27 at 138 ("We do have to be careful. And we have to understand the ways that patients make choices and what matters to them because we don't want to do something like provide information about one part of care that's important and neglect another part of care and find out that we're actually worse off than we were previously or worse off than we had intended"); Sofaer 5/30 at 205, 206; Romano 5/29 at 61-62, 66; Conlon 5/29 at 108, 111; Kahn 5/29 at 124; Kumpuris 5/30 at 47. See also Mehrotra et al., supra note 92, at 60; Thomas H. Lee et al., A Middle Ground on Public Accountability, 350 NewEng. J. Med. 2409 (2004); Lawrence P. Casalino, The Unintended Consequences of Measuring Quality on the Quality of Medical Care, 341 NewEng. J. Med. 1147 (1999).

101 Kessler 5/29 at 68, 78-83 (report cards "provide an incentive for doctors and hospitals to select healthy patients in order to game the report card"); Guterman 5/29 at 262-63 ("[D]epending on how you structure the measure, you can. . . comply with better outcomes by reducing your risk at the outset"); McGinnis 5/30 at 56-57 ("Bonuses based on measures that are proxies for surgical quality at best are likely to cause system gaming."); Mays 5/30 at 142 (same); Nielsen 5/30 at 227; Foster 5/29 at 213 (noting study that found that publishing data on in- hospital mortality resulted in a decline in in-hospital mortality, but an increase in deaths in the 30-day period post- discharge).

See also David Dranove et al., Is More Information Better? The Effects of 'Report Cards' on Health Care Providers, 111 J. Pol. Econ. 555 (2003); Joshua H. Burack et al., Public Reporting of Surgical Mortality: A Survey of New York State Cardiothoracic Surgeons, 68 Annals Thoracic Surgery 1195, 1198 (1999) (documenting concern of cardiothoracic surgeons about "gaming" of reporting requirements); Nowamagbe A. Omoigui et al., Outmigration For Coronary Bypass Surgery in an Era of Public Dissemination of Clinical Outcomes, 93 Circulation 27 (1996); James G. Jollis & Patrick S. Romano, Pennsylvania's Focus on Heart Attack - Grading the Scorecard, 338 New Eng. J. Med. 983 (1998); John D. Clough, Lack of Relationship Between the Cleveland Health Quality Choice Project and Decreased Inpatient Mortality in Cleveland, 17 Am. J. Med. Quality 47 (2002).

102 Conlon 5/29 at 97-99.

103 See id.; Clancy 5/29 at 140 ("If you punish people now or sue them or sanction them because of making errors, there's a really easy way to fix that problem .... that is, don't report it."); Millenson 5/27 at 112 ("The hospital, backed by the local medical society and the state hospital association, argued persuasively that releasing infection data would cause doctors to stop reporting it."); Ignagni 5/27 at 52 ("It is unreasonable to expect healthcare providers to report errors and then have that be grist for suits by plaintiffs' attorneys. "); Fisher 5/27 at 56 ("[M]edical errors ... is interrelated to the liability system and I think creates an innate reluctance in healthcare to report bad outcomes."); Tuckson 5/30 at 125.

104 See J. Howard Beales, Remarks Before the Food & Drug Law Institute Conference on Qualified Health Claims (Jan. 4, 2004), at; Howard Beales et al., Efficient Regulation of Consumer Information, 24 J.L. & Econ. 491, 492 (1981) (information "allows buyers to make the best use of their budget by finding the product whose mix of price and quality they most prefer"); see also O'Kane 5/30 at 66 ("[W]e want to be sure that consumers are focusing on: How much health am I getting for my health care dollar?").

105 Hibbard 5/29 at 44-46 (noting importance of public release, and the dilemma that "what helps consumers the most there seems to be the most resistance from providers on. So evaluable reports that are explicit about high performers and low performers and any kind of negative framing is also strongly resisted."); O'Kane 5/30 at 68.

See also Hibbard, supra note 76, at 84 (finding "public report hospitals" reported a significantly higher number of quality improvement activities in obstetrics (an average of 3.4 activities out of 7), while "private report hospitals" reported an average of 2.5 activities, and the "no measurement hospitals", 2.0 activities; for four cardiac quality improvement activities, "public report hospitals" reported an average of 2.5 improvement activities; private-report hospitals, 1.5 activities; and no measurement hospitals, 1.4 activities).

106 Millenson 5/27 at 113 (noting that some providers have a "continuing lack of conviction . . . that improvement is needed" and suggesting that public reporting could help remedy this belief); Guterman 5/29 at 173 (noting that once the State of Pennsylvania published quality information on hospitals the information was put to use "because no hospital wanted to be at the bottom of the list when it came to quality."); Casalino 5/28 at 137 ("Getting publicly recognized for quality actually was one of the most potent predictors of whether groups would use care management processes."); Lee 6/12 at 255 ("[I]f solid quality measures get put out there, it produces the desired effect, which is it makes consumers like . . . [me] sweat bullets and try to create systems that make it better."). See also supra note 97.

107 See, e.g., Gingrich 6/12 at 11-12; Gaynor 5/27 at 82; Asner 9/25 at 34. See also Robert H. Miller & Ida Sim, Physicians' Use of Electronic Medical Records: Barriers and Solutions, 23 Health Affairs 116 (Mar./Apr. 2004); David W. Bates & Atul Gawande, Improving Safety with information Technology, 248 New Eng. J. Med. 2526 (2003); Steinberg, supra note 60, at 2682 ("[W]e must make greater use of information technology."); Newt Gingrich et al., Saving Lives and Saving Money (2003); Stephen M. Shortell et al., Remaking Healthcare in America: Building Organized Delivery Systems 40-41 (1996) ("It is not possible to create clinically integrated care . . . without certain functions such as information systems and quality management in places.").

108 SeeGingrich6/12at11.

109 See Thomas Bodenheimer & Kevin Grumbach, Electronic Technology: A Spark to Revitalize Primary Care?, 290 JAMA 259 (2003); Lawrence Baker et al., Use of the Internet and e-mail for Health Care Information: Results From a National Survey, 289 JAMA 2400 (2003); Alissa R. Spielberg, On Call and Online: Sociohistorical, Legal, and Ethical Implications of e-mail for the Patient-Physician Relationship, 280 JAMA 1353 (1998).

110 Tuckson 5/30 at 77; O'Kane 5/30 at 100.

111 See Scully 2/26 at 34; Millenson 5/27 at 105; Millenson 5/28 at 179; Tirone 5/29 at 241 ("[T]here is no business case for quality. The fact is that those that we ask to invest resources to improve the quality and safety of care are not those that benefit in terms of the return on investment. Simply put, the hospital that spends the money on its CPOE [computerized physician order entry] and so forth, if they are - the more safe they are, the higher quality they give, in our current system, the less reimbursement, the less income they will have. The illogical extension of all this is that a really high quality institution can, in effect, put itself out of business."); Stoddard 5/29 at 256 ("We think that Medicare and other hospitals should begin to reward hospitals financially if they improve staffing levels and patient outcomes. We note that other respected health care experts such as the Institute of Medicine also reviewed and recommended new reimbursement approaches that pay hospitals for demonstrated higher-quality outcomes."); Delbanco 5/29 at 259-260.

See also Steinberg, supra note 60, at 2682 ("The challenge, therefore, is not to demonstrate that there already is a 'business case' for quality improvement in health care; rather, it is to establish new incentives that will create such a case."); Uwe E. Reinhardt, The Medicare World From Both Sides: A Conversation with Tom Scully, 22 Health Affairs 167, 168 (Nov./Dec. 2003) ("Everyone with an M.D. or D.O. degree gets the same rate, whether they are the best or worst doc in town? Every hospital gets the same payment for a hip replacement, regardless of quality? We are very good at fixing prices and paying quickly. But we have zero ability to monitor utilization or differentiate payment based on quality .... Having federal price fixing, no consumer information or pricing sensitivity, and no measurement of quality has led to predictable results: artificially high prices and uneven quality."); Sheila Leatherman et al., The Business Case for Quality: Case Studies and an Analysis, 22 Health Affairs 23 (Mar./Apr. 2003).

112 IOM, supra note 36, at 19. See also Hyman & Silver, supra note 40, at 1427-1485.

113 Medicare Payment Advisory Committee (MedPAC), Report to Congress: Variation and Innovation in Medicare Ch. 7, at 108 (June 2003).

114 Herzlinger 5/27 at 89. See also Regina Herzlinger, A Better Way to Pay, Mod. Healthcare, Dec. 11, 2000, at 32 ; Lynn 5/30 at 197 ("There are now six randomized control trials showing better ways of taking care of patients with advanced heart failure. Every single one of those programs has folded at the end of the grant funding because it is not sustainable under Medicare.").

115 See James 5/28 at 232-233 (stating protocol to reduce variation in care for hospitalized patients with community acquired pneumonia decreased complications, mortality, and net operating revenues of hospital). See also IOM, supra note 36, at 191-193 (proportion of patients suffering significant complications declined from 15.3 to 11.6 percent, inpatient mortality rates fell from 7.2 to 5.3 percent, and costs fell by 12.3 percent primarily as a result of expenses avoided through the lower complication rate; "the cost savings in those ten small rural hospitals totaled more than $500,000 per year, but an analysis of net operating income showed a loss to the facilities of over $200,000 per year"). See also MedPAC, supra note 113.

116 Lynn 5/30 at 197. See also Joanne Lynn et al., Financing of Care for Fatal Chronic Illness: Opportunities for Medicare Reform, 175 W.J. Med 299 (2001).

117 IOM, supra note 36, at 94 ("Even when care delivery groups want to improve the quality of the clinical processes . . . they can be severely limited in their ability to pursue such strategies if providers lose revenues from many quality improvement activities because of the expenses of implementing the improvements and the revenues lost as a result of reduced care delivery."); Steinberg, supra note 60, at 2682 ("The fourth and biggest problem that must be addressed is the fact that current financial incentives often discourage quality improvement. . . Physicians and hospitals often face an outright economic disincentive to invest in infrastructure that will improve compliance with best practices.").

118 Tirone 5/29 at 241 ("What this all really means is that we have a system that pays the same for high-quality care as it pays for less than high quality care, must be revised if we're going to change the paradigm"); Edelman 6/11 at 227 (" [I]f we give incentives, we shouldn't be giving incentives to things that we are saying are not good care practices"); Hyman & Silver, supra note 40, at 1480.

19 See supra notes 117-118, and accompanying text.

120 Leatherman et al., supra note 111, at 27-28 (noting problems that result from temporal disconnect of costs and benefits of improvements). See also supra notes 117-118, and accompanying text.

121 See Myers 5/29 at 223-24 (describing an experimental incentive program connected to clinical performance indicators for physicians); O'Kane 5/30 at 71-73; Mays 5/30 at 139-153; Paul 6/11 at 201 ("[W]e should be paying more for superior care.").

See also Epstein et al., supra note 40; Bradley C. Strunk & Robert Hurley, Paying For Quality: Health Plans Try Carrots Instead of Sticks (Ctr. for Studying Health Sys. Change, Issue Brief No. 82, 2004), available at Robert A. Berenson, Paying for Quality and Doing It Right, 60 Wash. & Lee L. Rev. 1315 (2003).

The United Kingdom is implementing a P4P initiative for general practitioners in which about 18 percent of practice earnings will be at risk. See Peter C. Smith & Nick York, Quality Incentives: The Case of U.K. General Practitioners, 23 Health Affairs 112 (May/June 2004).

122 See Centers for Medicare & Medicaid Services, The Premier Hospital Quality Incentive Demonstration: Rewarding Superior Quality Care: Centers for Medicare & Medicaid Services Fact Sheet (Feb. 18, 2004), at quality/hospital/PremierFactSheet.pdf For the first three years, hospitals in the top 10 percent receive a 2 percent bonus of Medicare payments for the measured conditions; hospitals in the second 10 percent are paid a 1 percent bonus. In the third year, hospitals that fall below the bottom two deciles (as set in the first year) will receive DRG payments that are 1 percent or 2 percent lower than would otherwise be the case.

CMS has a similar bonus program for managed care plans that contract with Medicare regarding the treatment received by individuals with congestive heart failure. Paul 6/11 at221. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 also established a Care Management Performance pilot that will pay bonuses to physicians that adopt and use IT to improve quality and reduce avoidable hospitalizations for chronically ill patients. Medicaid News, Centers for Medicare & Medicaid Services, CMS Urges States to Adopt Disease Management Programs, Agency Will Match State Costs (Feb. 26, 2004), at http://www.cms.hhs. gov/media/press/release.asp?Counter=967.

123 David A. Hyman, Does Quality of Care Matter to Medicare?, 46 Persp. Bio. Med. 55 (2003); Robert A. Berenson & Dean M. Harris, Using Managed Care Tools in Traditional Medicare - Should We? Could We?, 65 Law&ContempProbs. 139, 144-145 (2002).

124 Helen Halpin Schauffler et al., Raising the Bar: The Use of Performance Guarantees by the Pacific Business Group on Health, 20 Health Affairs 134 (Mar./Apr. 1999).

125 Leapfrog members have agreed to reward those hospitals that meet these three standards with public recognition and by steering patients to those hospitals. Delbanco 5/29 at 186-87; David Shaller et al., Consumers and Quality-Drive Health Care: A Call to Action, 22 Health Affairs 97 (Mar./Apr. 2003).

The Leapfrog initiative may have the unintended effect of setting a standard of care for malpractice litigation. See Michelle M. Mello et al., The Leapfrog Standards: Ready to Jump from Marketplace to Courtroom?, 22 Health Affairs 47 (Mar./Apr. 2003).

126 Devers & Liu, supra note 42.

127 Tuckson 5/30 at 82 (listing many of the incentive experiments, but noting there may be a need to develop an industry standard so that providers do not get "whipsawed" by competing measures); Myers 5/29 at 221- 222.

128 See infra Chapter 3.

129 Devers & Liu, supra note 42, at 3. See also MedPAC, supra note 113, Ch. 7, at 123. One panelist noted that even if the incentives are significant for any given health plan, that health plan may not account for a sufficient share of a provider's practice to have a significant impact. Berenson 5/30 at 234. Another difficulty with P4P programs is that although "it is nice to have marginal incentives to do good ... it is the base incentives that drive the market." Berenson 5/30 at 235.

130 See Sage et al., supra note 53, at 35; Blumstein, supra note 53, at 1466-67 ("The threat to quality is perceived as the physicians' silver bullet in the debate about health care policy."); Apold 6/10 at 131-132 ("[T]he battle cry for anticompetitive behavior is always one of quality."); Sage 5/29 at 136 ("Before the mid-1970s, physicians invoked quality with impunity to excuse anticompetitive conduct"); Thomas L. Greaney, Quality of Care and Market Failure Defenses in Antitrust Health Care Litigation, 21 Conn. L. Rev. 605, 605 (1989) (noting complaints that quality will be undermined "as ethical and professional norms give way to financial incentives").

131 Prepared Statement Concerning the "Quality Health-Care Coalition Act of 1998": Hearing on H.R. 4277 Before the House Comm. on the Judiciary, 105th Cong. (1998) (Statement of Robert Pitofsky, Chairman, Federal Trade Commission), at camptest.htm.

132 See Opelka 2/27 at 183; Sfikas 2/27 at 185-187. See also Sage et al., supra note 53, at 39-43; David A. Hyman, Five Reasons Why Health Care Quality Research Hasn 't Affected Competition Law and Policy, 4 Int'l J. Health Care Fin. & Econ. 159 (2004).

133 See, e.g., Schacharv. Am. Acad. of Ophthalmology, 870 F.2d 397 (7th Cir. 1989); Dep'tof Justice & Federal Trade Comm'n, Statements of Antitrust Enforcement Policy in Health Care §§ 4-5 [hereinafter Health Care Statements], available at ts/hlth3s.pdf.

134 Prepared Statement Concerning the "Quality Health-Care Coalition Act of 1999 ": Hearing on H.R. 1304 Before the House Comm. on the Judiciary, 106th Cong. 5 (1999) (Statement of Robert Pitofsky, Chairman, Federal Trade Commission), at healthcaretestimony.htm.

135 In fact, Commission staff recently issued an advisory opinion addressing the formation and operation of a physician "healthcare advocacy group." See Letter from Jeffrey W. Brennan, Assistant Director, Federal Trade Commission, to Gregory G. Binford, Benesch Friedlander Coplan& Aronoff LLP (Feb. 6, 2003), at

136 Sage et al., supra note 53, at 35-36, 41. See also supra note 21; Kumpuris 5/30 at 42 (noting the "interrelationship between health care quality and the access to care. To address one and ignore the other is not only mis-directed, but it represents a lack of appreciation of the day-to-day realities of delivering health care."); O'Kane 5/30 ("[A]ccess and cost-effectiveness of the system are very related concepts. If the system is out of control, there will be less access because people will have less insurance").

More generally, setting a supra-competitive level of health care quality as the mandatory minimum ignores both the short-term consequences for price and access and the long-term consequences of increased price and decreased access on the quality of care that consumers actually receive.

137 See Roger Feldman et al., The Effect of Premiums on the Small Firm's Decision to Offer Health Insurance, 32 J. Human Resources 635 (1997) (estimating a fairly high firm-level demand elasticity for health insurance (-3.91 for single coverage, -5.82 for family coverage), and calculating that if monthly premiums to firms increased by $ 1, the proportion of firms offering health insurance to employees would decline by almost 2 percentage points.). See also The Kaiser Family Found. & Health Research & Educational Trust, Employer Health Benefits 2003 Annual Survey, at chart 12 (2003), at loader.cfm?url=/commonspot/security/getfile.cfm&PageID=21185 [hereinafterKaiser/HRET]; David A. Hyman& Mark Hall, Two Cheers for Employment-Based Health Insurance, 2 Yale J. Health Pol'y, L. & Ethics 23, 26 (2001).

138 See Kaiser/HRET, supra note 137, at Chart 27-28.

139 See infra Chapter 5.

140 The Agencies' historical approach to health care enforcement reflects this reality. The Agencies have aggressively targeted providers who blocked the development of cheaper forms of health care delivery, even though the providers insisted they were trying to ensure that all care was of the highest possible quality. See Sage et al., supra note 53, at 35, 37.

141 L. Barry Costilo, Antitrust Enforcement in Health Care: Ten Years After the AMA Suit, 313 New Eng. J.Med. 901, 904(1985).

142 FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 462 (1986). As a matter of substantive antitrust law, Professional Engineers made it clear that the desire of providers to ensure that only high quality services were available was, in itself, an insufficient basis to override the clear prohibitions of the antitrust laws. Nat'l Soc'y of Prof. Engineers v. United States, 435 U.S. 679, 695 (1978) (rejecting the claim that markets could not adequately provide for public health and safety as "nothing less than a frontal assault on the basic policy of the Sherman Act").

See also Blumstein 2/27 at 28 ("[A]ntitrust law is the engine of the market paradigm."); Frank H. Easterbrook, Cyberspace Versus Property Law?, 4 Tex. Rev. L. & Pol. 103, 111 (1999). ("It is ironic that just as a global network and automation are reducing the costs of contracting, and moving us closer to the world in which the Coase Theorem prevails, people promote more and more contract-defeating schemes. One is tempted to think that they are concerned not about market failures but about market successes - about the prospect that the sort of world people prefer when they vote their own pocketbooks will depart from the proposers' ideas of what people ought to prefer.").

143 15 U.S.C. §§ 1-7.

144 Id. §§ 12-27.

145 Id. §§ 41-61. In addition, state attorneys general may enforce federal antitrust statutes. See generally Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice § 15.4, at 590- 91 (2d ed. 1999) (discussing role of state attorneys general in antitrust enforcement).

146 15 U.S.C. § 1 (1994) ("Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal [and is a felony punishable by fine and/or imprisonment] . . . .").

147 Id. § 2 ("Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [and is similarly punishable] . .. .").

148 Id. § 13(a).

149 Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. § 18a (1976).

150 15 U.S.C. § 45.

151 FTC v. Cement Institute, 333 U.S. 683 (1948).

152 16 C.F.R. § 1.1.

153 28 C.F.R. § 50.6.

154 In re Polygram Holding, Inc., No. 9298, at 29 (2003) (opinion of the Commission), at

155 Id.

156 Health Care Statements, supra note 133, § 8, at 47, 57 n.36, citing Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. 1, 21-22 (1979).

157 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); cf. Kanwit 9/9 at 197-98 ("I think we also need to remember what per se rules apply to. They apply to price fixing, boycotts and market allocations. I just cannot see the benefit to consumers ... in a time of [rising] health care costs of having the DOJ or the FTC spend three years looking at a physician group to determine under the rule of reason whether a certain arrangement is or is not violative of the antitrust laws. That is not going to benefit consumers.").

158 Polygram Holding, No. 9298 at 29.

159 Id. at 29-35.

160 See, e.g., Feldman 4/23 at 96; Lerner 4/23 at 97-98 ("So, I think a lot of these things, I agree, you have to look at the case you're dealing with and figure out what makes sense"); Monk 4/23 at 98 ("[W]hen you're looking at a specific market, you do have to factor in what the characteristics that are in that market at that time and whether the characteristics changed because there was a change in - either the market was currently in balance or out of balance").

161 The Supreme Court applied the antitrust laws to the activities of the American Medical Association, but it did not expressly decide whether a physician's medical practice constituted "trade" under the Sherman Act, leaving unsettled the extent to which the antitrust laws could be applied to the activities of the health care professions generally. Am. Med. Ass'nv. United States, 317 U.S. 519, 528 (1943). See also Gaynor 5/27 at 71-72.

162 Goldfarb v. Va. State Bar, 421 U.S. 773, 787 (1975) (observing that the "nature of an occupation, standing alone, does not provide sanctuary from the Sherman Act. . . nor is the public-service aspect of professional practice controlling in determining whether § 1 includes professions").

163 Hosp. Bldg. Co. v. Trustees of RexHosp., 425 U.S. 738, 739-40 (1976).

164 457 U.S. 332 (1982).

165 For a comprehensive review of antitrust health care cases brought by the Commission, see Health Care Services & Products Div., Federal Trade Comm'n, FTC Antitrust Actions in Health Care Services and Products (2004), at; Bureau of Competition, Federal Trade Comm'n, FTC Antitrust Actions in Pharmaceutical Services and Products (April 2004), at See also Muris 2/26 at 6; Simons 9/9/02 at 99-108; Beales 9/9/02 at 108- 113; Scheffman 9/9/02 at 113-118.

166 Health Care Statements, supra note 133.

167 Id. at 1.

168 Prospective guidance was considered at a hearing session on June 26, 2003. A complete lists of the participant on this panel is available in Appendix A and in the Agenda, at healthcarehearings/completeagenda.pdf. Two panelists noted the importance of prospective guidance. Grimes 6/26 at 176 ("I think a number of panelists have pointed out that the advisory opinions and business review letters are a critical part of this effort."); Johnson 6/26 at 171 ("[S]taff advisory opinions and business review letters are valuable components of the government's overall antitrust enforcement efforts. The processes ensure compliance by the requesting parties, frequently with implementation of competitive safeguards that private counsel might not have deemed necessary. Further, and perhaps more importantly, publication of detailed reviews allows private practitioners to better counsel their clients, discourages submission of duplicative requests, and fosters enhanced antitrust compliance at relatively low cost.").

One panelist discussed how state attorneys general handle advisory opinions. Cooper 6/26 at 184-193. Another panelist discussed how the Office of the Inspector General of HHS handles advisory opinions relating to the anti-kickback act. Robinson 6/28 at 193-203. The anti-kickback act is described in greater detail infra at notes 190-191, and accompanying text.

169 See Amicus Brief of the U.S. Dep't of Justice, Jackson v. West Tennessee Healthcare, Inc. (6th Cir. 2004) (No. 04-5387), available at; Amicus Brief of the Federal Trade Comm'n, Jackson v. West Tennessee Healthcare, Inc. (6th Cir. 2004) (No. 04-5387), available at 2004/06/040604jacksonhopitalamici.pdf; Amicus Brief of the U.S. Dep't of Justice, Surgical Ctr. of Hammond, L.C. v. Hosp. Serv. Dist. No. 1 of Tangipahoa Parish (5th Cir. 1998) (No. 97-30887), available at; Amicus Brief of the Federal Trade Comm'n, Surgical Ctr. of Hammond, L.C. v. Hosp. Serv. Dist. No. 1 of Tangipahoa Parish (5th Cir. 1998) (No. 97-30887), available at

170 An Overview of Federal Trade Commission Antitrust Activities: Hearing Before the House Comm. on the Judiciary, Antitrust Task Force, 108th Cong. 2 (2003) (Testimony of Timothy J. Muris, Chairman, Federal Trade Commission), at

171 Id.

172 See In re Schering-Plough, No. 9297 (2003), available at d9297/031218commissionopinion.pdf (opinion of Commission). See also In re Bristol-Myers Squibb Co., No. C-4076 (Apr. 14, 2003) (consent order); In re Biovail Corp., No. C-4060 (Oct. 2, 2002) (consent order); In re Biovail Corp. & Elan Corp., PLC., No. C-4057 (Aug. 20, 2002) (consent order); In re Schering-Plough Corp., No. 9297 (Apr. 3, 2002) (consent order as to American Home Products Corp.); In re Hoechst Marion Roussel, Inc., No. 9293 (May 8, 2001) (consent order); In re Abbott Laboratories, No. C-3945 (May 22, 2000) (consent order); In re Geneva Pharmaceuticals, Inc., No. C-3946 (May 22, 2000) (consent order).

173 Muris, supra note 170, at 2 (citing such cases as Pfizer Inc., No. C-4075 (May 27, 2003) (consent order); Baxter International Inc. and Wyeth, No. C-4068 (Feb. 3, 2003); andAmgenInc. and Immunex Corp., No. C- 4056 (Sept. 3, 2002)).

174 See Brief of Amicus Curiae of the Federal Trade Comm'n, In re Buspirone Patent Litigation & In re Buspirone Antitrust Litigation, MDL Docket No. 1410 (JGK) (Jan. 8, 2002) (in opposition to defendant's motion to dismiss), at; see also In re Buspirone, 185 F. Supp. 2d 363 (S.D.N.Y. 2002) (adopting Commission's argument).

175 Federal Trade Comm'n, Generic Drug Entry Prior to Patent Expiration: An FTC Study (2002), at genericdrugstudy.htm.

176 See generally Health Care Services & Products Division, supra note 165.

177 See, e.g., In re Southeastern N.M. Physicians IP A, Inc., No. 0310134 (June 7, 2004); In re Cal. Pac. Med. Group, No. 9306 (May 11, 2004) (final order); In re Tenet Healthcare Corp., C-4106 (Jan. 29, 2004) (final order); In re Mem'l Hermann Health Network Providers, C-4104 (Jan. 8, 2004) (final order); In re Surgical Specialists of Yakima, C-4101(Nov. 14, 2003) (final order); In re S. Ga. Health Partners, L.L.C., C-4100 (Oct. 31, 2003) (final order); In re Physician Network Consulting, L.L.C., C-4094 (Aug. 27, 2003) (final order); In re Me. Health Alliance, C-4095 (Aug. 27, 2003) (final order); In re Anesthesia Med. Group, Inc., C-4085, & Grossmont Anesthesia Services Med. Group, C-4086 (July 11, 2003) (final orders); In re Washington Univ. Physician Network, C-4093 (Aug. 22, 2003) (final order); In re SPA Health Org., C-4088 (July 17, 2003) (final order); In re Carlsbad Physician Ass'n, C-4081 (June 13, 2003) (final order); In re R.T. Welter & Assocs. (Oct.2, 2002) (final order); In re Sys. Health Providers, C-4064 (Oct. 24, 2002) (final order); In re Aurora Associated Primary Care Physicians, L.L.C., C-4055 (July 16, 2002) (final order); In re Physicians Integrated Services of Denver, Inc., C-4054 (July 16, 2002) (final order); In re Obstetrics & Gynecology Med. Corp. of Napa Valley, C-4048 (May 14, 2002) (final order). See also Palmisiano 9/9/02 at 244 ("In recent years, physicians and physician organizations have been the subject of approximately 50 enforcement actions.").

178 The Commission announced on June 30, 2004 that it had closed an investigation into the aquisition of Provena St. Therese Medical Center by Vista Health Acquisition. See News Release, Federal Trade Comm'n, FTC Closes Investigation Into Merger of Victory Memorial Hospital and Provena St. Therese Medical Center (July 1, 2004), at

179 In re Evanston Northwestern Healthcare Corp., No. 9315 (Feb. 10, 2004) (administrative complaint), at 0110234/040210emhcomplaint.pdf.

180 See Dep't of Justice, Department of Justice Antitrust Division Statement on the Closing of its Investigation of Anthem, Inc.'s Acquisition of Wellpoint Health Networks, Inc. (Mar. 9, 2004), at

181 United States v. Gen. Elec. Co., 2004-1 Trade Cas. (CCH) U 74,313 (D. D.C. 2004)

182 United States v. Fed'n of Physicians & Dentists, Inc., 2002 Trade Cas. (CCH) U 73,868 (D. Del 2002).

183 United States v. Dentsply Int'l, Inc., 277 F. Supp. 2d 387 (D. Del. 2003). The case is currently pending before the United States Court of Appeals for the Third Circuit. The Division's briefs may be found at

184 United States v. Mountain Health Care, P. A., 2004 WL 938495 (4th Cir. N.C. May 3, 2004).

185 See Letter from Charles A. James, U.S. Dep't of Justice, to Jerry B. Edmonds, Williams, Kastner & Gibbs PLLC (Sept. 23, 2002), at; Letter from R. Hewitt Pate, U.S. Dep't of Justice, to Diana West (May 25, 2004), at http://www.usdoj. gov/atr/public/busreview/203831.htm.

186 Peter J. Hammer & William M. Sage, Antitrust, Health Care Quality, and the Courts, 102 Colum. L. Rev. 545, 565 (2002).

187 Id. at 575; Hammer 5/28 at 146.

188 See Hammer & Sage, supra note 186, at 578. The incidence of private staff privileges cases seems to be declining. It is possible the enactment of the Health Care Quality Improvement Act of 1986, 42 U.S.C. §§ 11,101- 11,152 (1994), which offers limited protection from antitrust liability to peer review decisions, may be responsible for this trend. See Hammer & Sage, supra note 186, at 597-98; Hammer 9/10/02 at 22.

189 For example, depending on the state and the type of provider, there may be restrictions on entry, structure, and conduct.

190 See, e.g., safe harbors set forth at 57 Fed. Reg. 52,723 (Nov. 5, 1992) and 56 Fed. Reg. 35,952 (codified at42C.F.R. 1001.952).

191 See Blumstein 2/27 at 36; Hammer 2/27 at 63 ("Things that are necessary to police fraud and abuse in a fee-for-service realm impairs substantially what a hospital can do in terms of structuring its business arrangements."); Paul E. Kalb, Health Care Fraud and Abuse, 282 JAMA 1163 (1999); David A. Hyman, Health Care Fraud and Abuse: Market Change, Social Norms, and "the Trust Reposed in the Workmen," 30 J. Legal Studies 531 (2001); James F. Blumstein, Rationalizing the Fraud and Abuse Statute, 15 Health Affairs 118 (Winter 1996); James F. Blumstein, The Fraud and Abuse Statute in an Evolving Healthcare Marketplace: Life in the Healthcare Speakeasy, 22 Am. J. L. & Med. 205 (1996).

192 See infra Chapter 3 (discussing the rise of single-specialty hospitals (SSHs). Physicians are able to invest in SSHs and refer to them without running afoul of the Self-Referral Amendments because they have invested in a "whole hospital." See also Mallon 6/10 at 189, 193-94 (noting that "payment shades practice" and effects of self-referral provisions on physician-owned physical therapy services); Hammer 2/27 at 63; Kahn 2/27 at 76 ("One of the unintended consequences of the Stark Law is this issue of physician-owned specialty hospitals."); Fine 9/9/02 at 198.

193 See Brian Kamoie, EMTALA: Dedicating an Emergency Department Near You, 37 J. HEALTH L. 41 (2004); David A. Hyman, Patient Dumping and EMTALA: Past Imperfect/Future Shock, 8 HEALTH MATRIX 29 (1998).

194 See Lomazow 6/10 at 196; Gingrich 6/12 at 25-26; M. Young 6/12 at 90; Michelle Mello et al., Caring for Patients in a Malpractice Crisis: Physician Satisfaction and Quality of Care, 23 HEALTH Affairs 42 (July/Aug. 2004); David Studdert et al., Medical Malpractice, 350 New Eng. J. Med. 283 (2004); Kenneth E. Thorpe, The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms, 2004 Health Affairs (Web Exclusive) W4-20; Michelle Mello et al., The New Medical Malpractice Crisis, 348 New Eng. J. Med. 2281 (2003); William M. Sage, Understanding the First Malpractice Crisis of the 21st Century, 2003 Health Law Handbook; Office of the Assistant Secretary of Planning & Evaluation, Dep't of Health & Human Services, Confronting the New Health Care Crisis: Improving Health Care Quality and Lowering Costs By Fixing Our Medical Liability System (2002), litrefm.pdf.

195 See American Medical Ass'n, Massachusetts named state in medical liability crisis (June 14, 2004), ama/pub/article/9255-8629.html. But see News Release, General Accounting Office, Medical Malpractice: Implications of Rising Premiums on Access to Health Care (Aug., 2003),

196 See supra note 194; Fred J. Hellinger & William E. Encinosa, U.S. Department of Health and Human Services, The Impact of State Laws Limiting Malpractice Awards on the Geographic Distribution of Physicians 12 (2003); David A. Hyman, Medical Malpractice: What Do We Know and What (If Anything) Should We Do About It?, 80 TexL. Rev. 1639-1655 (2002); James F. Blumstein, The Legal Liability Regime: How Well is It Doing in Assuring Quality, Accounting for Costs, and Coping with an Evolving Reality in the Health Care Marketplace?, 11 Annals Health L. 125 (2002); Patricia M. Danzon, Liability For Medical Malpractice, in Handbook of Health Economics (Culyer & Newhouse, eds., 2000).

197 See Blumstein 2/27 at 21-22 ("This is not purely a question about resource allocation, but it's also a question about a normative overlay of why health care is different. Why do we care about access to health care in ways that we don't care about access to certain other things? We worry about it because of our concern about, broadly speaking, redistributive values and some notion of egalitarianism."); Hyman 6/25 at 86-87 (noting that many people describe health care as a "merit good"); Mark Schlesinger & Thomas Lee, Is Health Care Different? Popular Support for Federal Health and Social Policies, 18 J. Health Politics, Pol'y & L. 551 (1993); Richard A. Epstein, Why is Health Care Special?, 40 U. KANSAS L. Rev. 307 (1992).

198 See, e.g., TIMOTHYS. JOST, DISENTITLEMENT? THE THREATS FACING OUR HAEALTH-CARE PROGRAMS and A Rights-Based Response (2003); Deborah Stone, The Struggle for the Soul of Health Insurance, 18 J. Health Pol., Pol'y & L. 28 (1993).

199 See infra Chapters 2-8.

200 See generally Gaynor 5/28 at 73 ("[A]ntitrust enforcement is a critical element of health policy"); Greenberg 5/28 at 316; Greaney 9/10/02 at 303 ("There are countless economic studies, I think that show the demonstrable consumer benefits that have flowed from the competition in the health care industry."); Greaney 2/27 at 135; Hanson 9/9/02 at 163 ("Competition often leads to quality improvements, innovation and enhanced access to medical services.")

See also Thomas Leary, Special Challenges for Antitrust in Health Care, Antitrust, Spring, 2004 at 23; Thomas L. Greaney, Chicago's Procrustean Bed: Applying Antitrust Law in Health Care, 71 ANTITRUST L. J. 857 (2004); Stuart M. Butler, A New Policy Framework for Health Care Markets, 23 Health Affairs 22 (Mar./Apr. 2004); Clark Havighurst, I 've Seen Enough! My Life and Times in Health Care Law and Policy, 14 HEALTH MATRIX 107 (2004); Deborah Haas-Wilson, Managed Care and Monopoly Power: The Antitrust Challenge (2003); Thomas Greaney, Whither Antitrust: The Uncertain Future of Competition Law in Health Care, 21 HEALTH Affairs 185 (Mar./Apr. 2002); Frank A. Sloan & Mark A. Hall, Market Failures and the Evolution of State Regulation of Managed Care, 65 Law & Contemp. Probs. 169 (Autumn, 2002); Richard A. Epstein, Mortal Peril: Our Inalienable Right to Health Care? (1997); H.E. Frech, Competition & Monopoly in Medical Care (1996); American Health Policy: Critical Issues for Reform (Robert Helms, ed. 1993); Competitive Approaches to Health Care Reform (Arnould, Rich & White, eds. 1993); Frances H. Miller, Competition Law and Anticompetitive Professional Behavior Affecting Health Care, 55 Modern L. Rev. 453 (1992); WARREN Greenberg, Competition, Regulation and Rationing in Health Care (1991); Paul Weller, "Free Choice " as a Restraint of Trade in American Health Care Delivery and Insurance, 69 Iowa L. Rev. 1351 (1984); Thomas E. Kauper, The Role of Quality of Health Care Considerations in Antitrust Analysis, 51 Law & Contemp. Probs. 273 (1988); Competition in the Health Care Sector: Past, Present and Future: Proceedings of a Conference Sponsored By the Bureau of Economics , Federal Trade Commission (Warren Greenberg ed., 1978). See also Dranove, supra note 1; Glied, supra note 1; Robinson, supra note 1; Sage & Hammer, supra note 32; Blumstein, supra note 53; Sage et al., supra note 53; Gingrich et al., supra note 107; Epstein, supra note 197.

To be sure, panelists and commentators expressed concern about the use and/or direction of competition in healthcare markets. See, e.g., Feder2/27 at 153-156, 162; LenM. Nichols etal., Are Market Forces Strong Enough to Deliver Efficient Health Care Systems? Confidence is Waning, 23 Health Affairs 8 (Mar./Apr. 2004); Michael E. Porter & Elizabeth Olmsted Teisberg, Fixing Competition in U.S. Health Care, Harv. Bus. Rev. 65 (June, 2004); M. Gregg Bloche, The Invention of Health Law, 91 Cal. L. Rev. 247 (2003); Clark Havighurst, How the Health Care Revolution Fell Short, 65 Law & Contemp Probs. 55 (2002); Uwe Reinhardt, Can Efficiency in Health Care Be Left to the Market?, 26 J. Health, Pol., Pol'y & L. 967 (2001); Thomas Rice, The Economics of Health Reconsidered (1998); Thomas Rice, Can Markets Give Us the Health Care System We Want?, 22 J. Health, Pol., Pol'y & L. 383 (1997); James A. Morone, The Case Against Competition, in Competitive Approaches to Health Care Reform, supra; Lawrence D. Brown, Competition and the New Accountability: Do Market Incentives and Medical Outcomes Conflict or Cohere?, in Competitive Approaches to Health Care Reform, supra; Theodore R. Marmor and David A. Boyum, The Political Considerations ofProcompetitive Reform, in COMPETITIVE Approaches to Health Care Reform, supra.

201 Senator Philip A. Hart, Hearings Before the Subcomm. on Antitrust & Monopoly of the Senate Comm. on the Judiciary, 93rd Cong., 2nd Sess. 1 (1974).

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