Managed Care: Explicit Gag Clauses Not Found in HMO Contracts, But Physician Concerns Remain

Published by the Government Accountability Office on 1997-08-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Requesters

August 1997
                  MANAGED CARE
                  Explicit Gag Clauses
                  Not Found in HMO
                  Contracts, But
                  Physician Concerns

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division


      August 29, 1997

      The Honorable Trent Lott
      The Honorable Don Nickles
      The Honorable Larry E. Craig
      United States Senate

      For consumers, managed health care not only lowers out-of-pocket costs
      but has the potential to coordinate medical services and monitor the
      quality of care. Yet, as more Americans enroll in managed care plans,
      concerns have been raised about the ability of patients to make informed
      choices about their medical care. Patients have traditionally relied on
      physicians to educate them about the appropriate treatment for their
      conditions and to advocate with their insurers for coverage of necessary
      care. During the past 2 years, some physician and consumer advocacy
      groups have claimed that health maintenance organizations (HMO) impose
      contractual limitations—referred to as “gag” clauses—that interfere with
      the physician-patient relationship by impeding discussions of treatment
      options. Health plans contend that these contractual limitations were
      never intended to hinder communication between physicians and patients
      about medical care. The controversy has prompted many states to enact
      legislation to prohibit gag clauses in managed care contracts. Because
      some health plans are not affected by state laws, federal legislation is also
      being considered.

      It has not been clear, however, how many health care plans include gag
      clauses in their contracts with physicians or whether such clauses actually
      inhibit medical communication with patients. Therefore, you asked us to
      examine (1) the types of contract clauses that could limit a physician’s
      ability to advise patients of all medically appropriate treatment options,
      (2) the extent to which these different types of clauses exist in current HMO
      contracts with physicians, and (3) the likely implications of HMO contract
      language on physician practice.

      To answer these questions we undertook three separate efforts. We wrote
      to 622 HMOs asking them to submit copies of current contracts that are
      representative of their agreements with primary care and specialty care
      physicians. We collected 1,150 physician contracts from 529 HMOs, for a
      response rate of 85 percent. We reviewed each contract to identify clauses
      that could be described as specifically or potentially limiting medical
      communication, as well as clauses that support open discussion of all
      treatment options with patients. We also surveyed 400 attorneys who

      Page 1                                         GAO/HEHS-97-175 HMO Gag Clauses

                   specialize in managed care, asking them about their experience drafting
                   and reviewing contracts between HMOs and physicians. Usable responses
                   were received from 42 percent of our sample.

                   In addition, we held discussions with officials, staff, and members of eight
                   professional medical societies to discuss their views and experiences with
                   HMO contracting.1 We also met with representatives from the American
                   Association of Health Plans (AAHP) and the American Medical Association
                   (AMA). To help develop our descriptions of contract clauses and our survey
                   materials for HMOs and health care attorneys, we consulted with managed
                   care contracting experts.

                   While our approach enabled us to capture a variety of perspectives about
                   the nature of gag clauses, our analysis of their prevalence and implications
                   was limited in two respects. First, we were not able to test the reliability of
                   the HMO responses. Contracts sent to us may not be representative, or
                   missing contracts may contain gag clauses. Second, because we did not
                   investigate any other forms of written or oral communication between
                   physicians and HMOs that could limit discussions of patient treatment
                   options, our findings pertain only to constraints imposed in contracts.
                   HMOs need not rely on written rules in their contracts to modify physician
                   behavior, but may use guidelines, protocols, physician profiling,
                   counseling, and approval procedures as well. (See app. I for a more
                   detailed description of our data collection and analysis methodology.)

                   The managed care industry, physicians, and health care attorneys have
Results in Brief   different views regarding contract language that could limit a physician’s
                   ability to advise patients of all medically appropriate treatment options.
                   There is general agreement that a clause that prohibits discussion of
                   procedures or providers not covered by the plan, and, to a lesser extent,
                   one that requires physicians to consult with the plan before discussing
                   treatment options with enrollees, is a gag clause. However, some
                   physicians and health care lawyers believe that other clauses—such as
                   those that bar physicians from disparaging the plan, soliciting patients to
                   join another health plan, or revealing confidential plan information—could
                   restrict the information and advice that physicians provide about a
                   patient’s medical options. Other physician groups and lawyers, and the
                   HMO industry disagree that such clauses limit medical communication and

                   We met with the American Society of Internal Medicine, the American Psychiatric Association, the
                   American College of Cardiology, the American College of Obstetricians and Gynecologists, the
                   American Academy of Family Physicians, the American College of Physicians, the American Society of
                   Clinical Oncology, and the American Academy of Ophthalmology.

                   Page 2                                                     GAO/HEHS-97-175 HMO Gag Clauses

             contend that these are standard contract clauses designed and used only
             to protect HMOs’ business interests.

             Of the 529 HMOs in our study, none used contract clauses that specifically
             restricted physicians from discussing all appropriate medical options with
             their patients. Two-thirds of responding plans and 60 percent of the
             contracts submitted had a nondisparagement, nonsolicitation, or
             confidentiality clause that some physicians might interpret as limiting
             communication about all treatment options. However, contracts with such
             business clauses often contained anti-gag language stating that the
             physician should not misconstrue the contract or a specific provision as
             restricting medical advice to patients or that the physician should foster
             open communication. Of those contracts with one or more of these
             business clauses, anti-gag language was found in 67 percent of them. This
             combination could mitigate the potential for business clauses to be read
             by physicians as limiting discussion of a patient’s treatment options.

             It appears that HMO contract provisions that may be interpreted as limiting
             the medical information that physicians may provide patients are not
             likely to have a significant impact on physician practice. Physicians we
             interviewed told us that, in general, they and their colleagues do not
             carefully read all of their contracts with HMOs. They maintained that they
             freely communicate with their patients regarding all medically appropriate
             care because habitual practice, professional ethics, and fear of medical
             liability are stronger influences on their behavior than contract
             requirements. Yet, physicians also pointed out that the increasing power of
             HMOs in the health care marketplace and their ability to terminate
             physician contracts can bring significant pressure to bear on physicians to
             modify their practice patterns or discussions with patients, without relying
             on the clauses discussed above.

             In January 1996, the AMA’s Council on Ethical and Judicial Affairs issued a
Background   statement that gag clauses were an unethical interference in the
             physician-patient relationship. The AMA accused several large HMOs of
             having gag clauses and called on all HMOs to cancel contract provisions
             that physicians believed prevented them from communicating openly with
             patients. Throughout that year, several HMOs, including U.S. Healthcare
             and Humana, announced publicly that they were adding language to their
             contracts that supports open communication between physicians and

             Page 3                                       GAO/HEHS-97-175 HMO Gag Clauses

patients.2 In a December 1996 policy statement, the AAHP’s Board of
Directors announced that “health plans, by contract or policy, will not
prohibit physicians from communicating with patients concerning medical
care, medically appropriate treatment options (whether covered or not),
or from making factual and nonproprietary statements regarding the plan.”

In recent years, several states have taken action on this issue as part of
their efforts to strengthen consumer protections in managed care. As of
July 1997, 32 states had passed laws that protect the right of physicians
and patients to discuss all treatment options.3 In general, provisions in
state legislation prohibit contracts from limiting providers from, or
penalizing providers for, disclosing information to patients about their
medical conditions or treatment options; advocating on behalf of patients;
or providing information about HMO policies, including financial incentives
or arrangements.

The federal government also has taken action against gag clauses by
notifying HMOs and other health plans that they may not restrict what
physicians tell Medicare or Medicaid patients about treatment options. In
November 1996, the Health Care Financing Administration (HCFA) sent
letters to 343 health plans informing them that an existing provision in the
government’s Medicare contract with the plans would be interpreted as
banning gag clauses and calling for a free exchange of information
between HMO physicians and patients.4 Two months later, the agency sent
letters to state Medicaid directors warning that Medicaid HMOs that prevent
physicians from discussing treatment options with patients violate federal

 In February 1996, U.S. Healthcare announced that it was revising its contracts to allow physicians to
talk to patients about the way they are paid and to discuss proprietary company information if it is
necessary or appropriate for the diagnosis and care of a patient. However, physicians are not allowed
to discuss specific payment rates. In October 1996, Humana informed its providers that it would not
enforce nondisparagement clauses in existing contracts, and as contracts are renegotiated or revised,
such clauses would be removed.
 According to information obtained from the AMA and Families USA Foundation, the following states
have passed patient protection legislation that addresses the gag clause issue: Arizona, Arkansas,
California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New
Hampshire, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont,
Virginia, Washington, and Wyoming.
 The notice said that “Medicare HMO patients were entitled to all benefits available in the standard
Medicare program, which pays doctors a separate fee for each service.” Among those benefits it cites
“advice from doctors on medically necessary treatment options.” HCFA therefore concluded that “any
contract that limits a doctor’s ability to advise and counsel a Medicare beneficiary was a violation of
the federal Medicare law.”

Page 4                                                        GAO/HEHS-97-175 HMO Gag Clauses

                            In February and March 1997, bills were introduced in the Congress to
                            prohibit interference with certain types of medical communication
                            between physicians and patients through contracts or agreements.5
                            Medical communication is defined as pertaining to the patient’s health
                            status, medical care, or treatment options; any utilization review
                            requirements that may affect treatment options; or any financial incentives
                            that may affect the patient’s care. The provisions of the bills would apply
                            to self-funded plans under the Employee Retirement Income Security Act
                            of 1974 (ERISA), and states would be allowed to enforce these or higher
                            standards on those plans subject to state regulation.6

                            A commonly understood definition of a gag clause is a contract provision
What Constitutes a          that limits physicians’ ability to advise patients of all medically appropriate
Gag Clause Is Subject       treatment options. There is little consensus, however, about whether
to Interpretation           certain clauses that may appear in HMO contracts meet this definition.7
                            Most agree that language that prevents physicians from giving patients
                            complete information about their medical care choices or restricts the
                            timing of such discussions is a gag clause. However, there is disagreement
                            about other contract clauses that on their face serve a business
                            purpose—such as those related to nondisparagement, nonsolicitation, and
                            business confidentiality—but are open to physician interpretation. To
                            minimize inappropriate interpretation of such clauses, some HMOs have
                            developed anti-gag language supporting physician freedom to discuss a full
                            range of treatment options.

Clauses That Specifically   Physicians, the managed care industry, and health care attorneys generally
Restrict Communication      agree that any contract language that places an outright restriction on
Regarding Patient Care      discussion of treatment options that could be beneficial but that the plan
                            may not cover or may want to discourage for financial or other reasons is
                            a gag clause. This would include contract provisions that bar physicians
                            from discussing procedures that are considered experimental or other
                            treatment alternatives the plan does not offer. It would also include
                            clauses that prevent physicians in HMOs from telling patients about
                            specialists or other providers not covered by their plan.

                             See H.R. 586 and S. 449, each entitled The Patient Right to Know Act.
                             Legislation to ban gag clauses in HMO contracts was introduced in the 104th Congress. It would have
                            barred insurance plans covering private sector workers from restricting physician-patient
                            communication regarding treatment options. The legislation failed to pass.
                             In addition, we found no reported court cases that provide guidance on what constitutes a gag clause.

                            Page 5                                                        GAO/HEHS-97-175 HMO Gag Clauses

                          There is somewhat less agreement whether language that restricts the
                          timing of discussions until after a recommended procedure has been
                          approved by the plan is a gag clause. For example, contract clauses could
                          require physicians to obtain permission from the health plan before
                          discussing the possibility of hospital care with their patients. AMA and
                          other physician associations contend that allowing the plan’s utilization
                          manager, medical director, or other plan representative to discourage
                          discussion of certain treatments impedes a physician’s ability to advise
                          patients. Most health care attorneys who responded to our survey
                          (91 percent of those representing physicians, 58 percent of those
                          representing HMOs, and 75 percent of those representing both groups)
                          agreed that this type of clause could, to a moderate or great extent, limit a
                          physician’s ability to inform patients about all treatment options. However,
                          AAHP argues that this practice ensures quality care by facilitating the most
                          accurate discussion of covered benefits.

Business Clauses That     There is far less agreement about whether several other types of clauses
Could Interfere With      found in contracts between physicians and HMOs, which on the surface
Medical Communication     serve a business purpose, could limit physician-patient communication
                          concerning all treatment options. Most of the medical groups we met with
                          told us that these clauses have a “chilling effect,” denying physicians the
                          flexibility needed to best advise patients about medical care. However, the
                          HMO industry considers them standard contract provisions necessary to
                          protect the plan’s business interests and membership. The health care
                          attorneys we surveyed were divided on whether such clauses could
                          interfere with medical communication.

Nondisparagement Clause   Nondisparagement language requires a physician to refrain from making
                          statements that could undermine patient, employer, union, or public
                          confidence in the health plan. Such clauses may have a penalty, such as
                          termination, attached. For example, one contract contained the following
                          language: “[The plan] may terminate this agreement immediately, . . . if the
                          Specialty Provider acts in such a way that undermines or may undermine
                          the confidence of Members, potential Members or the public in [the plan]
                          or in the quality of care which Members receive.”

                          According to HMO industry representatives, nondisparagement clauses are
                          meant to protect a plan’s business interests by requiring that physicians
                          dissatisfied with an HMO complain to the HMO and not to the patient. In
                          May 1996 testimony before the Subcommittee on Health and Environment,

                          Page 6                                        GAO/HEHS-97-175 HMO Gag Clauses

                         House Committee on Commerce, the President and CEO of AAHP testified
                         that “the primary purpose of an anti-disparagement clause is simply to
                         prevent a provider from involving patients in disputes and disagreements
                         between physicians and health plans.” However, AMA and several other
                         medical associations we met with believe that the nondisparagement
                         language could preclude physicians from expressing disagreement with
                         the plan’s coverage or utilization decisions regarding a course of
                         treatment. Physicians told us that, if broadly interpreted, this clause could
                         prevent physicians from criticizing or questioning a plan’s rulings on
                         behalf of the patient.

                         The health care attorneys we surveyed had varied opinions on
                         nondisparagement clauses. Sixty-four percent of attorneys representing
                         physicians reported that such clauses could have a moderate to great
                         effect on a physician’s discussion of patient treatment options, while
                         25 percent of those representing HMOs took this position, and 46 percent of
                         those working with both groups agreed with this statement.

Nonsolicitation Clause   A nonsolicitation clause bars physicians from providing patients with
                         information that might encourage them to enroll in another health plan.
                         For example, a contract may state that the “ . . . PHYSICIAN shall not
                         directly or indirectly engage in . . . any action . . . which HEALTH PLAN
                         may reasonably interpret to be designed to persuade a Member to
                         discontinue his/her relationship with HEALTH PLAN, to disenroll from a
                         plan or provider covered by a contract with HEALTH PLAN, or to
                         encourage a Member to receive health care services from PHYSICIAN on a
                         fee-for-service basis.” Such a clause would preclude a participating
                         physician from informing patients about the benefit coverage offered by a
                         competing health plan or that the physician’s health plan affiliation has

                         The managed care industry believes that health plans should be able to
                         prohibit physicians in their networks from soliciting patients to join a
                         different plan that the physician also works for or will be leaving to work
                         for. However, some physician associations expressed concern that such a
                         clause could constitute “patient abandonment.” In their view, it is essential
                         to notify patients in the course of treatment that their physician will not be
                         able to continue their care under that plan.

                         Most health care attorneys responding to our survey indicated that
                         nonsolicitation clauses would have little or no effect on physician

                         Page 7                                         GAO/HEHS-97-175 HMO Gag Clauses

                           discussions of treatment options. Among the attorneys representing HMOs,
                           89 percent believed nonsolicitation clauses were not a problem for
                           physician-patient medical communication; among those working with
                           physicians, 68 percent shared this opinion, as did 75 percent of those
                           representing both groups.

                           Although infrequent, some nonsolicitation clauses specify that, if the
                           agreement between the plan and the physician is terminated, the physician
                           is prohibited from communicating with plan members concerning the
                           termination, the options available to members to join other plans or to
                           switch to another doctor in the same plan, or that the physician “will no
                           longer be the member’s health care provider.” Any such communication by
                           a physician with a member or any attempt “directly, indirectly, or by
                           implication, to advise or encourage” a plan member to disenroll from the
                           plan, to switch to another plan, or to change providers is a breach of
                           contract.8 According to the AMA, this type of contract provision has strong
                           potential for inhibiting discussion of treatment options between a
                           physician whose relationship with the plan has been terminated and his

Business Confidentiality   Business confidentiality clauses require physicians to maintain the
Clause                     confidentiality of such proprietary information as the plan’s payment and
                           incentive structure, medical management criteria, and clinical practice
                           protocols. One such clause reads “You agree to treat as confidential this
                           Agreement (including the compensation provisions hereof), all provider
                           and Covered Person listings, utilization data, reports and procedures,
                           quality assurance procedures, credentialing procedures, and all other
                           procedures, programs and protocols of [the plan] or Program Sponsors
                           and You agree not to disclose any such information to anyone unless such
                           disclosure is authorized in writing by [the plan] or required by applicable

                           The HMO industry believes this type of contract clause protects their
                           business interests. Testifying before the Subcommittee on Health and
                           Environment, House Committee on Commerce, in May 1996, the President
                           and CEO of AAHP stated that it is appropriate for health plans to restrict the
                           disclosure of specific coverage decision procedures and compensation
                           amounts because “the competition among health plans is intense, and the

                            Although the plan agrees to notify members at least 30 days in advance of the physician’s termination,
                           it is not clear that this will always be possible because the contracts in which this clause appears also
                           provide that the plan may terminate the physician immediately in the event that any one of a dozen
                           events occur.

                           Page 8                                                         GAO/HEHS-97-175 HMO Gag Clauses

                          release of such information about one plan can give its competitors an
                          unfair advantage . . . and eliminate the incentive to find more effective
                          methods for delivering care.”

                          Some physician associations argue that such contract provisions prevent
                          physicians from telling a patient that the HMO financial arrangements may
                          penalize them for making referrals to specialists.9 Nevertheless, most of
                          the attorneys responding to our survey believe that confidentiality clauses
                          are unlikely to restrict discussions of treatment options. Among attorneys
                          representing physicians, 68 percent of those took this position, compared
                          to 83 percent of those representing HMOs and 77 percent of those
                          representing both groups.

Anti-Gag Clause Used to   In an effort to mitigate any impact of clauses that physicians say hinder
Minimize Inappropriate    treatment discussions with patients, HMOs may include anti-gag statements
Interpretations           in their contracts. In contrast to language that might limit medical
                          communication, an anti-gag clause generally states that provisions in the
                          contract are not to be construed as prohibiting discussions of care-related
                          matters with patients. As expressed in one contract, “The parties agree
                          further that nothing contained in this agreement shall be construed to alter
                          the physician-patient, hospital-patient or health care provider-patient
                          relationship or to interfere with the Group’s or Group Providers’ ability to
                          provide necessary services in accordance with current medical standards.”

                          Some anti-gag clauses encourage physicians to discuss with their patients
                          recommended treatments and medically appropriate alternatives. For
                          example, one contract affirmed that “A primary care physician shall have
                          the right and is encouraged to discuss with his or her patients pertinent
                          details regarding the diagnosis of the patient’s condition, the nature and
                          purpose of any recommended procedure, the risks and benefits of any
                          recommended treatment, and any reasonable alternatives to such
                          recommended treatment.”

                          In addition to anti-gag clauses that apply to the contract as a whole, some
                          plans use exculpatory language applicable to a specific business clause.
                          For example, in a nondisparagement clause, one contract stated that “This
                          provision does not prohibit the Group or Group Providers from
                          communicating any information relevant to treatment and Covered

                           In March 1996, HCFA announced rules requiring managed care plans under Medicare and Medicaid to
                          disclose financial arrangements for physicians to the agency and patients. In Shea v. Esensten, 107
                          F.3d 625 (8th Cir. 1997), the court held that the failure of an HMO providing services for an employee
                          benefit plan to disclose financial incentives that discourage referrals is a breach of its fiduciary duty.

                          Page 9                                                          GAO/HEHS-97-175 HMO Gag Clauses

                       Services, from responding to Members’ queries regarding the Group and
                       Group Providers’ Agreement with [the plan], or from discussing the
                       comparative merits of different health care payers even if such discussion
                       is critical of [the plan].”

                       Of the contracts submitted for our review, none specifically restricted
Current Contracts      discussion of treatment options.10 Many contracts contained business
Contain No Specific    clauses that—while they do not explicitly limit medical
Restrictions on        communication—may be viewed by physicians as having that effect.
                       However, most plans did include anti-gag language in their contracts that
Medical                could mitigate the potential for physicians to construe a contract or a
Communication, but     particular provision as preventing them from giving patients complete
                       information about treatment options or financial incentives to limit
Other Types of         treatment.
Clauses Appear Often
                       Of the 529 HMOs in our study, two-thirds used one or more business clauses
                       that could be interpreted as imposing restrictions on the exchange of
                       care-related information between physicians and patients. Specifically,
                       7 percent used nondisparagement clauses, 32 percent used nonsolicitation
                       clauses, and 62 percent used confidentiality clauses. In addition,
                       60 percent of all responding HMOs used anti-gag language asserting that the
                       contract or a specific business clause does not seek to limit
                       communications between physicians and patients concerning all treatment
                       options.11 (See fig. 1.)

                         This finding is consistent with recent research on Medicaid managed care contracts showing few
                       instances of explicit gag rule provisions. See Sara Rosenbaum, Peter Shin, Barbara Smith, and others,
                       Negotiating the New Health System: A Nationwide Study of Medicaid Managed Care Contracts
                       (Washington, D.C.: The George Washington University Center for Health Policy Research, Feb. 1997).
                        Because 54 percent of the plans included statements in their contracts that require physicians to
                       comply with limitations set out in other documents, this accounting of contract clauses may not
                       capture all of the potential limitations on physician discussion of treatment options.

                       Page 10                                                       GAO/HEHS-97-175 HMO Gag Clauses

Figure 1: Number of HMOs Using
Restrictive, Nondisparagement,                Number of Plans
Nonsolicitation, Confidentiality, and   500
Anti-Gag Clauses


                                        350                                  330




                                         50               38

                                                       str ally





                                                    Re cific







                                         Type of Clause

                                        At the contract level, anti-gag language was fairly prevalent in combination
                                        with clauses that physicians might interpret as barring them from
                                        informing a patient of all medically appropriate treatment alternatives. In
                                        1,150 contracts currently used to engage physicians, 60 percent contained
                                        at least one of the three business clauses and 67 percent of those contracts
                                        included anti-gag language that could counteract the view of some
                                        physicians that the clauses restrict medical communication. Anti-gag
                                        language applicable to the contract or a particular provision (and
                                        commonly both) were found in 64 percent of contracts that had a
                                        nondisparagement clause, 68 percent of the contracts with some form of
                                        nonsolicitation clause, and 70 percent of the contracts that contained a
                                        business confidentiality clause. (See fig. 2.) Even in contracts with none of
                                        the three business clauses that could be viewed as potentially restrictive,
                                        27 percent contained anti-gag provisions.

                                        Page 11                                              GAO/HEHS-97-175 HMO Gag Clauses

Figure 2: Number of Contracts
Containing Nondisparagement,                     Number of Contracts
Nonsolicitation, or Confidentiality   1100

Clauses, With and Without Anti-Gag    1000



















                                      Type of Clause

                                                                 Contracts Without Anti-Gag Clauses

                                                                 Contracts With Anti-Gag Clauses

                                      Recently, physician networks have started their own health plans to
                                      compete with traditional insurance companies and managed care
                                      organizations. One presumed advantage of this type of arrangement is that
                                      decisions about patient care are not encumbered by constraints from
                                      managed care entities. However, the same issues of restrictive contract
                                      language arise in provider-based delivery systems. Of the HMOs in our
                                      review that identified themselves as being owned and operated by
                                      physicians, none used specifically restrictive language and 54 percent used
                                      at least one of the business clauses that could be interpreted as limiting
                                      participating physician ability to inform patients about the range of
                                      treatments available for their conditions. In addition, 43 percent used
                                      anti-gag language to clarify that medical communication between
                                      physicians and patients is not being constrained.

                                      Page 12                                                         GAO/HEHS-97-175 HMO Gag Clauses

                           Based on our interviews with physician groups, it appears that HMO
Business Clauses, Per      contract provisions that may be interpreted as limiting the medical
Se, Unlikely to Affect     information provided to patients are not likely to have a significant impact
Physician Practice         on physician practice. Such clauses may not actually interfere with patient
                           communication about treatment options because physicians are not fully
                           aware of them, do not interpret them as hindering communication, or
                           choose to disregard them. Still, physicians are concerned about discipline
                           or the threat of termination by health plans for lack of adherence to plan
                           utilization management policies. They say that “terminate at will” clauses
                           in their contracts and their economic dependence on managed care
                           reinforce HMO policies on physician management of patient care and costs.

Physician-Patient          There are a number of reasons why physicians may not comply with
Communication Influenced   clauses in their HMO contracts. The physician groups consulted in this
by Many Factors            review reported a lack of awareness of contract language, noting that
                           physicians—especially those under contract with multiple health
                           plans—seldom read the provisions in their HMO agreements carefully. They
                           told us that their behavior is more likely to be influenced by training and
                           experience, professional ethics, and malpractice concerns than by any
                           restrictions imposed by an HMO. As one health care attorney put it, gag
                           clauses “are essentially unenforceable as a practical matter, and doctors
                           are going to talk with their patients regardless of the contract clause.”

                           According to practicing physicians, their communication with patients is
                           largely governed by their professional code of conduct.12 Under the
                           principle of informed consent, physicians have an ethical and legal duty to
                           provide patients with information about the benefits, risks, and costs of
                           various treatments. For the most part, medical professionals consider their
                           primary obligation to be to the patient, and patients look to them to be
                           their advisers and advocates, regardless of any contract provisions to the
                           contrary. In 1996, AMA’s Council on Ethical and Judicial Affairs addressed
                           concerns that contractual restrictions on physicians acting in their role as
                           patient adviser could jeopardize informed consent.13 It stated that “the
                           physician’s obligation to disclose treatment alternatives to patients is not
                           altered by any limitations in the coverage provided by the patient’s
                           managed care plan. Patients cannot be subject to making decisions with

                            AMA’s Code of Medical Ethics is the governing code of ethics for physicians and is recognized as the
                           profession’s standard by state medical boards, state and federal courts, and the Congress.
                            For a discussion of the potential conflict of interest of physicians, see Institute of Medicine,
                           Committee on Choice and Managed Care, Improving the Medicare Market: Adding Choice and
                           Protections (Washington, D.C.: National Academy Press, 1996).

                           Page 13                                                         GAO/HEHS-97-175 HMO Gag Clauses

                        inadequate information. This would be an absolute violation of the
                        informed consent requirements.”14

                        Some physicians expressed concern that withholding information from
                        patients, even under instructions from an HMO, could increase their risk of
                        being sued. In fact, a study of malpractice depositions identified
                        communication problems between physicians and patients in 70 percent of
                        cases.15 Others believe that adherence to contract restrictions could result
                        in poorer outcomes and, thus, increase their exposure to medical
                        malpractice claims.

Communication           Many physicians and attorneys believe that the most powerful incentive
Restrictions Could Be   for a physician to cooperate with HMO policies on physician-patient
Enforced Through        communication is the possibility that his or her contract could be
                        canceled. Of the contracts reviewed for this study, nearly all were initially
Termination Clauses     written for a period of 1 year or less, and were renewable for 1-year
                        periods. To the extent that the plan threatens the economic well-being of
                        those ignoring its contract provisions, physicians may feel forced to be
                        more compliant. This is more likely to be the case in regions where
                        managed care dominates the local health care market than where managed
                        care is less prevalent.

                        One means HMOs have for enforcing physician adherence to plan policies,
                        procedures, and utilization management guidelines is the “without cause”
                        or “at will” termination clause, which we found in 72 percent of the HMO
                        contracts we reviewed. This clause allows an HMO to terminate its contract
                        with a physician without having to specify a reason, generally with a
                        notice period of 30, 60, or 90 days.16 The HMO industry considers this a
                        standard business clause, giving plans the ability to direct and control its
                        physician network to ensure high-quality medical care. One physician
                        group we met with agreed, saying that HMOs must be able to remove
                        poor-performing physicians from their network.

                        However, other physicians we spoke with said that terminate-at-will
                        clauses provide an incentive for physicians to comply with restrictions on

                          Report of the Council on Ethical and Judicial Affairs, CEJA Report 1-A-96 (Chicago, Ill.: AMA, 1996) .
                         See H.B. Beckman, K.M. Markakis, A.L. Suchman, and others, “The Doctor-Plaintiff Relationship:
                        Lessons From Plaintiff Depositions,” Archives of Internal Medicine, Vol. 154 (1994), pp. 1365-70.
                         This provision limits the physician’s legal ability to contest the discharge because no cause of the
                        discharge is given. See Julia A. Martin and Lisa K. Bjerknes, “The Legal and Ethical Implications of Gag
                        Clauses in Physician Contracts,” American Journal of Law & Medicine, Vol. 22, No. 4 (winter 1996), pp.

                        Page 14                                                        GAO/HEHS-97-175 HMO Gag Clauses

             patient communication. An attorney who represents physician groups in
             contract negotiations told us that compliance with restrictive language
             “may be somewhat difficult to enforce but the physician is very much
             aware that a contract breach may likely result in termination from the
             HMO.” A similar point was made by one of the health care attorneys
             responding to our survey who commented, “I have recently seen
             communications from plans advising that termination without cause could
             result from physicians’ expression of opinion to patients and others on
             issues relative to level of care and length of stay, if those opinions were at
             variance from the opinions of the plan medical directors or utilization
             management personnel.”

             Physicians also told us that the termination clause becomes especially
             relevant in regions where the health care marketplace is dominated by a
             few large managed care plans. In this situation, physicians may be less
             willing to challenge HMO policies because they view their participation in
             managed care plans as essential to sustain their practice. Many physicians,
             especially those in oversupplied specialties, believe that they have a weak
             bargaining position and are vulnerable in these relationships.17 Aware of
             the possibility of termination, physicians and other practitioners may feel
             that they must become “managed care friendly.”

             The dispute over gag clauses appears to be part of the broader criticism of
Conclusion   managed care. The HMO industry is facing growing criticism from
             consumer groups and physicians over a variety of practices that they
             consider to be too restrictive. However, restrictive gag clauses in
             contracts, by themselves, do not appear to be limiting physicians’ ability to
             advise their patients about all medically appropriate treatment options.
             Even taking into account the prevalence of business clauses that could be
             interpreted by physicians as interfering with medical communications, it is
             unlikely that these contract clauses actually limit physicians’ discussions
             of all treatment options with their patients. Rather, it is the contractual
             relationship itself—its short duration and provision for termination
             without cause—that may make physicians feel constrained from speaking
             openly with their patients.

             Because information in this report does not pertain to federal agencies, we
             did not seek agency comments. We did, however, obtain comments on our

              Lynn Etheredge and Stanley B. Jones, “Consumers, Gag Rules, and Health Plans: Strategies for a
             Patient-Focused Market,” Research Agenda Brief, Health Insurance Reform Project (Washington, D.C.:
             George Washington University, May 1997).

             Page 15                                                    GAO/HEHS-97-175 HMO Gag Clauses

draft report from experts in managed care and health care law. They
generally agreed with the information presented.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to interested parties
and make copies available to others on request. If you or your staff have
any questions regarding this report, please call Rosamond Katz on
(202) 512-7148 or me on (202) 512-7119. Major contributors to this report
are listed in appendix II.

Bernice Steinhardt
Director, Health Services Quality
  and Public Health Issues

Page 16                                        GAO/HEHS-97-175 HMO Gag Clauses
Page 17   GAO/HEHS-97-175 HMO Gag Clauses

Letter                                                                                          1

Appendix I                                                                                     20
                        Collecting and Analyzing HMO Contracts                                 20
Data Collection and     Survey of Health Care Attorneys                                        22
Analysis Methodology    Discussion Groups With Practicing Physicians                           22

Appendix II                                                                                    23

Major Contributors to
This Report
Figures                 Figure 1: Number of HMOs Using Restrictive, Nondisparagement,          11
                          Nonsolicitation, Confidentiality, and Anti-gag Clauses
                        Figure 2: Number of Contracts Containing Nondisparagement,             12
                          Nonsolicitation, or Confidentiality Clauses, With and Without
                          Anti-Gag Clauses


                        AAHP      American Association of Health Plans
                        AMA       American Medical Association
                        HCFA      Health Care Financing Administration
                        HMO       health maintenance organization

                        Page 18                                    GAO/HEHS-97-175 HMO Gag Clauses
Page 19   GAO/HEHS-97-175 HMO Gag Clauses
Appendix I

Data Collection and Analysis Methodology

                 This appendix describes the approaches we used to examine the nature,
                 extent, and implications of gag clauses in contracts between participating
                 physicians and HMOs. First, we requested contracts from HMOs and
                 reviewed them for evidence of gag clauses. Second, we surveyed lawyers
                 knowledgeable about managed care contracting to learn about their views
                 of various types of contract clauses. Finally, we met with physicians from
                 national medical associations to discuss their experiences in contracting
                 with HMOs. The following discusses the scope, data sources, and the
                 methodology used for each of these efforts.

                 To determine the prevalence of gag clauses, we sent letters to 622 HMOs
Collecting and   asking them to forward contracts for our review.18 These HMOs
Analyzing HMO    represented the universe of plans in operation as of January 1, 1996, as
Contracts        compiled by Interstudy, Inc.19 In our letter, we requested a representative
                 sample of contracts through which the HMO currently engages physicians,
                 including both direct contracting and subcontracting arrangements. We
                 asked each plan to submit a copy of a representative contract (including
                 amendments) used with primary care physicians and specialists.20

                 In our letter, we assured the HMOs that the information they submitted to
                 us would be aggregated with information obtained from other sources and
                 that individual respondents would not be separately identified. After a
                 follow-up mailing, we received 1,150 physician contracts from 529 plans,
                 for a response rate of 85 percent of plans.21

                  The letter to the HMOs cited our authority (under 29 U.S.C. 1143a) to study “employee benefit plans.”
                 For the purpose of conducting such studies, we have access to the records of parties, including
                 managed care organizations, that are providing services to those employee benefit plans.
                    See The Interstudy Competitive Edge: HMO Directory 6.2 (St. Paul, Minn.: Interstudy, Aug. 1996). In
                 some cases, the HMO responding to our request submitted contracts that were used by a number of
                 affiliated plans that had been listed individually in the directory. We recorded this response as if it was
                 from each of the individual plans, rather than a single parent entity. In cases where HMOs had merged
                 since the directory was compiled, we recorded the responses from the new entity as representative of
                 the each of the former plans. This was done to maintain consistency with the original listing in the
                   In asking for copies of representative contracts, we stipulated that such contracts should be
                 reasonably typical of the plan’s universe of contracts with physicians. A contract would be
                 representative, for example, if it (or substantially similar versions of it) covered a majority of
                 physicians under contract or if it contained relevant clauses that are common to the plan’s contracts
                 with a majority of physicians.
                  The size and geographic distribution of nonrespondents were similar to those plans that did submit
                 contracts. Some of the plans that did not submit contracts notified us that they were no longer offering
                 an HMO product or were not operating as an employee benefit plan.

                 Page 20                                                          GAO/HEHS-97-175 HMO Gag Clauses
    Appendix I
    Data Collection and Analysis Methodology

    In addition to requesting contracts, we asked each HMO to provide
    information on a variety of descriptive characteristics. A compilation of
    their responses shows the following profile of those HMOs responding to
    our request letter:22

•   70 percent were independent practice association or network model HMOs;
•   46 percent had fewer than 25,000 enrollees, 18 percent had 25,001 to 50,000
    enrollees, 10 percent had 50,001 to 100,000 enrollees, and 26 percent had
    more than 100,000 enrollees;
•   the median number of primary care physicians under contract with each
    plan was 727 and the median number of specialists was 1,547;
•   74 percent contracted to serve Medicare beneficiaries, Medicaid
    recipients, or both;
•   39 percent of respondents were nationwide HMO companies; and
•   67 percent identified their tax status as for-profit, 14 percent as nonprofit
    (taxable), and 18 percent as nonprofit (nontaxable).

    To facilitate the review of contracts, we identified various types of
    contract clauses that could impede a physician’s ability to advise patients
    of all medically appropriate treatment options. We developed descriptions
    of restrictive, nondisparagement, nonsolicitation, confidentiality, anti-gag,
    and terminate-at-will clauses in consultation with health care attorneys
    and managed care consultants with expertise in HMO contracting. We
    reviewed the contracts submitted by the HMOs and recorded the presence
    of each clause that we judged to meet one of the descriptions we
    developed. A plan was recorded as using a particular clause if any one of
    its contracts contained such language.23

    In two respects, this approach limits our ability to generalize about the
    extent of HMO restrictions on medical communication. First, we were not
    able to test the reliability of the HMO responses; contracts sent to us may
    not be representative or missing contracts may contain gag clauses.
    Second, some physicians and health care attorneys have indicated that
    efforts to control physician communication with patients may also take
    noncontractual forms, such as policy statements in a provider manual or

      For the most part, these data were supplied by the HMOs submitting contracts. Where a respondent
    failed to provide complete information on plan characteristics, we obtained data on missing elements
    from the Interstudy Directory, if available. Therefore, this analysis accounts for 75 to 93 percent of
    responding HMOs.
     As one would expect, we found among plans a great deal of variation in the language of clauses
    within the same category. For example, some nonsolicitation clauses are worded broadly to prohibit
    any communications that might influence a patient to change plans, while others are limited to specific
    efforts by physicians to convince patients to change. The classifications of clauses are therefore to
    some extent judgmental.

    Page 21                                                       GAO/HEHS-97-175 HMO Gag Clauses
                        Appendix I
                        Data Collection and Analysis Methodology

                        discussions with a medial director. An examination of these forms was
                        beyond the scope of this review.

                        We obtained a list of about 8,500 attorneys from the National Health
Survey of Health Care   Lawyers Association directory. From this list, 1,505 attorneys were
Attorneys               identified as knowledgeable about managed care. Of those attorneys, 1,023
                        primarily represented payers, including HMOs; 344 represented physicians
                        or other providers; and 138 were associated with other groups. From each
                        of the first two subgroups we selected a random sample of 200 attorneys,
                        400 in total, for our mail survey.

                        The survey consisted of multiple-choice questions that asked about the
                        attorney’s perceptions and experiences reviewing or drafting contracts
                        between HMOs and physicians. After we mailed a follow-up letter, our
                        overall response rate was 63 percent. However, we excluded from our
                        analysis 87 respondents who were not sufficiently experienced in
                        HMO-physician contracting to complete the survey. Of the final 166
                        respondents, 36 told us that they primarily represented HMOs, 86 mostly
                        represented physicians, and 44 said that they represented both physicians
                        and HMOs.

                        To obtain the perspective of physicians, we held discussions with
Discussion Groups       members from eight professional medical societies: the American Society
With Practicing         of Internal Medicine, the American Psychiatric Association, the American
Physicians              College of Cardiology, the American College of Obstetricians and
                        Gynecologists, the American Academy of Family Physicians, the American
                        College of Physicians, the American Society of Clinical Oncology, and the
                        American Academy of Ophthalmology. At each discussion group, we
                        interviewed 3 to 11 practicing physicians, as well as officials and staff of
                        the association. In total, we spoke with 42 physicians.

                        At these meetings, we sought the physicians’ opinions about what
                        constitutes a gag clause, their familiarity with clauses in their contracts,
                        and the implications of such clauses on how they interact with their
                        patients. We also asked about the potential influence of other written and
                        verbal communications with the HMO on their ability to inform patients of
                        all medically appropriate treatment options.

                        We conducted our review between February and July 1997 in accordance
                        with generally accepted government auditing standards.

                        Page 22                                       GAO/HEHS-97-175 HMO Gag Clauses
Appendix II

Major Contributors to This Report

               Rosamond Katz, Assistant Director, (202) 512-7148
               Barry Bedrick, Associate General Counsel
               Jennifer Grover, Senior Evaluator
               Elsie Picyk, Senior Evaluator/Computer Specialist
               Evan Stoll, Senior Evaluator/Computer Specialist
               Ann V. White, Senior Evaluator
               Craig Winslow, Senior Attorney

(108813)       Page 23                                    GAO/HEHS-97-175 HMO Gag Clauses
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