TMA- and AMA-Supported State Legislative Proposal
May Allow Some Physicians to Collectively Negotiate
with Managed Care Insurers in Texas

By Michael E. Clark, J.D., LL.M. in Taxation, Candidate for LL.M. in Health Law

On May 31, 1999, the Managed Care Freedom of Choice Act was passed by the Texas House and Senate and now awaits signature by Governor George W. Bush to become law. If Governor Bush approves, the new law will take effect on September 1, 1999.

The Managed Care Freedom of Choice Act will let physicians engage in some collective bargaining over the terms of their contracts with health plans under the auspices of the "state law" exception to federal antitrust laws. Before discussing the particulars of the legislation, however, a brief overview of how the antitrust laws affect physicians in their dealings with insurers is helpful.

Antitrust laws have generally prevented independent physicians, who are viewed as marketplace competitors, from engaging in collective bargaining activities with large insurers, because the physicians' coordinated actions have been characterized as anti-competitive "group boycotts" or illegal price-fixing activities. Physicians are expressing frustration in dealing with large insurers and exploring new ways to get relief from what they claim are too often one-sided "take it or leave it" contracts mandated by large insurers and managed care plans. In recent years, physicians have begun embracing unions, many mistakenly thinking that doing so will allow them to engage in collective bargaining activities by taking advantage of the labor law exception to the federal antitrust laws. While the federal labor laws permit employees to join unions and engage in collective bargaining, most physicians cannot gain relief from them. The labor law exception is largely inapplicable for many physicians, who either cannot meet the "employee" test (particularly in states like Texas which strictly prohibit the corporate practice of medicine) or, even when they meet that test, are ineligible because their work is deemed to be "supervisory" in nature.

While the Department of Justice and the Federal Trade Commission, the federal government's antitrust enforcement agencies, have permitted physicians to integrate their practices or take on market risk in order to gain negotiation leverage without running afoul of the antitrust laws (reasoning that such endeavors pose insignificant market risks), physicians who are not part of a large, vertically-integrated system and who do not want to join unions have sought legislative relief.

During the 1940s, the Supreme Court recognized the "state action" exception to the otherwise broad reach of the federal antitrust laws. This exception limits the federal government from interfering with states' efforts to advance their interests in public health or safety, even when it means that competition will be limited. But, for this exception to apply, state policy must be involved and the state must actively supervise the process. Past arguments that states' oversight in the licensing of physicians met these active supervision requirements have been rejected by the government and by the courts.

The key features of the amended Managed Care Freedom of Choice Act are that up to 10% of competing physicians within a health plan's service area could meet and communicate in order to collectively negotiate the following terms and conditions of their contracts with a health plan (although a higher or lower percentage may be authorized by the state if conditions support such a change):

However, the competing physicians would not be authorized to meet and communicate in order to collectively negotiate about: In order to meet the active supervision requirement under the state law exception to the federal antitrust laws, the Managed Care Freedom of Choice Act would require that any representatives purporting to act for physicians under this new authority must first furnish a report to the Texas Attorney General's Office, which identifies, among other things: Thereafter, the representative would provide a copy of the proposed contracts and the result of negotiations. The Attorney General's Office can approve or disapprove any request to engage in such joint negotiations upon determining whether the likely benefits outweigh the disadvantages. Moreover, the Managed Care Freedom of Choice Act includes a legislative finding that recognizes the potential antitrust issues, but finds that they are outweighed by a greater need to allow physicians to have bargaining power over issues that involve their patients' health. Finally, it prohibits any physicians from engaging in any strikes that involve suspending the delivery of needed health care services.

Both the Texas Medical Association (TMA) and the American Medical Association endorsed the proposal, while such business groups as the Texas Association of Business Chamber of Commerce, the Texas Association of Health Plans, and the Texas Association of Health Underwriters spoke out against it. According to the TMA, FTC officials have also indicated "concern" about the legislation. The TMA issued a media release on its website which summarizes the proposal, gives some additional details such as the FTC's expressed concerns, and provides a link to the legislation from the Texas Legislature Online. See and for more details. Also see "Physicians seek antitrust waiver" which appears in the June 1, 1999 Physician's News Digest, which is available at, for a discussion of the Texas legislation as well as similar proposals that are being offered in other states.