AmeriHealth Inc./AmeriHealth HMO

National Labor Relations Board - Board Decisions

Oct 18, 1999

329 N.L.R.B. 870 (N.L.R.B. 1999)

DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 870
AmeriHealth Inc./AmeriHealth HMO and United
Food and Commercial Workers Union, Local
56, AFL–CIO, Petitioner. Case 4–RC–19260
October 18, 1999
ORDER DENYING REVIEW
BY CHAIRMAN TRUESDALE AND MEMBERS FOX
AND BRAME
The National Labor Relations Board has delegated its
authority in this proceeding to a three-member panel,
which has considered the Petitioner’s request for review
of the Regional Director’s Decision and Order (pertinent
portions of which are attached). The request for review
is denied as it raises no substantial issues warranting re-
view.1

APPENDIX
DECISION AND ORDER
On January 8, 1998, the undersigned Regional Director ad-
ministratively dismissed the subject petition on the ground that
the petitioned-for physicians are independent contractors. On
August 27, 1998, the National Labor Relations Board issued a
Decision on Review, Direction, and Order Remanding for a
Hearing which, inter alia, reinstated the petition and remanded
the case to the undersigned for a hearing “for the purpose of
receiving evidence to resolve the question of whether the peti-
tioned-for physicians are or are not employees within the mean-
ing of the Act and the issuance of a decision.” Because the
case “involves an important issue of first impression,” the
Board decided that “the best way . . . to assess the total factual
context here is to provide for the full development of the record
through a hearing.” In particular, the Board stated:

1 The sole issue presented for review is whether the Regional Direc-
tor erred in finding that the petitioned-for primary care and specialty
physicians are independent contractors and not employees within the
meaning of Sec. 2(3) of the Act. We agree with the Regional Director
that the consideration of all factors of the common law agency test as
expressed in the Board’s decision in Roadway Package System, 326
NLRB 842 (1998), favor a finding of independent contractor status for
the petitioned-for physicians. We particularly agree with the Regional
Director’s finding that the relationship between the petitioned-for phy-
sicians and AmeriHealth is similar to the relationship between the
advertising agency and the freelance advertisement photographers who
were found to be independent contractors in Young & Rubicam Interna-
tional, 226 NLRB 1271 (1976).
Contrary to the Regional Director, however, we accord little weight
to the fact that AmeriHealth does not exercise substantial control with
respect to the physicians’ physical conduct in the performance of ser-
vices such as examining patients, diagnosing illnesses, and performing
specific procedures, since it is not customary in the medical profession
for fully trained physicians, including traditional staff physicians em-
ployed by hospitals or clinics, to be subject to substantial controls over
the manner in which they perform their professional duties. See Re-
statement (Second) of Agency, Sec. 220, Comment on Subsection (2)(i)
(emphasizing importance of the “custom of the community as to the
control ordinarily exercised in a particular occupation”). Similarly, we
accord less weight than the Regional Director to the absence of on-site
supervision in light of AmeriHealth’s other means of monitoring the
physicians’ performance by paperwork, telephone, and computer. See
e.g., Michigan Eye Bank, 265 NLRB 1377, 1379 (1982), and Mission
Foods Corp., 280 NLRB 251, 251 (1986) (finding meaningful over-
sight by employer despite absence of daily supervision).
In denying review, we are not necessarily precluding a finding that
physicians under contract to health maintenance organizations may, in
other circumstances, be found to be statutory employees.
Contrary to his colleagues, Member Brame does not find that the
Regional Director accorded undue weight to the degree of control
which AmeriHealth exercises over the physicians’ performance of
medical services or to the absence of the on-site supervision.
Member Brame additionally notes that he dissented from the
Board’s order remanding this case to the Regional Director to hold a
hearing and would have affirmed the Regional Director’s initial admin-
istrative dismissal of the petition. See AmeriHealth Inc./AmeriHealth
HMO, 326 NLRB 509, 510 (1998).

Such evidence will provide a more complete picture of the
day-to-day interaction between the physicians and the HMOs
[health maintenance organizations] and the impact of the
HMOs on the physicians’ access to and care of patients. It
will also provide a more complete picture of the nature of the
overall practices of the physicians who contract with the
HMOs and the impact of managed health care in Atlantic and
Cape May Counties, New Jersey, on such practices.

Following the Board’s Decision on Review, the Region con-
ducted 14 days of hearing between November 4 and December
16, 1998, compiling a record of approximately 2300 transcript
pages and 4500 pages of exhibits. The parties filed briefs on
January 16, 1999. Upon the entire record in this proceeding,
the undersigned finds:
1. The hearing officers’ rulings made at the hearing are free
from prejudicial error and are hereby affirmed.
2. The Employer is engaged in commerce within the mean-
ing of the National Labor Relations Act and it will effectuate
the purposes of the Act to assert jurisdiction herein.
3. The labor organization involved claims to represent cer-
tain individuals which it contends are employees of the Em-
ployer.
4. On October 27, 1997, the Petitioner filed a petition seek-
ing to represent “all primary care and specialty physicians em-
ployed by AmeriHealth Corporation in Atlantic and Cape May
Counties, New Jersey.” The parties stipulated that, as of the
time of the hearing in November 1998, there were 652 physi-
cians in the proposed bargaining unit, including 172 primary
care physicians (PCPs) and 480 specialty physicians.
The Identity of the Employer
The parties disagree about the correct name of the asserted
Employer. AmeriHealth HMO, Inc. is a wholly-owned sub-
sidiary of AmeriHealth, Inc., a holding company that conducts
no operations and is wholly owned by Independence Blue
Cross, a large health care insurance company based in Phila-
delphia, Pennsylvania. AmeriHealth HMO, Inc. operates an
HMO in New Jersey. AmeriHealth Insurance Company of
New Jersey is another wholly owned subsidiary of Independ-
ence Blue Cross, and holds a license for preferred provider
(PPO) insurance plans and traditional indemnity insurance
plans in New Jersey. AmeriHealth HMO, Inc. markets a vari-
ety of HMO plans and, through an arrangement with Ameri-
Health Insurance Company of New Jersey, also markets PPO
and indemnity plans. AmeriHealth HMO, Inc. has operated in
New Jersey since the late 1980’s or early 1990’s, though before
1995 the entity operated under different names, such as Dela-
ware Valley HMO, Inc. d/b/a Keystone Health Plan New Jer-
sey.
“AmeriHealth HMO, Inc.” is the name which appears on the
standard contract governing the physicians’ provision of medi-
329 NLRB No. 76
AMERIHEALTH INC./AMERIHEALTH HMO 871
cal services to AmeriHealth HMO members, which is entitled
“Physician Managed Care Agreement.” According to a stan-
dard “AmeriHealth HMO, Inc. Affiliate Program Attachment”
to the Agreement, physicians who contract with AmeriHealth
HMO, Inc. “shall provide Covered Services within the scope of
Physician’s practice to Participants in Programs of Ameri-
Health Affiliates in accordance with the terms of the Agree-
ment and applicable Program Attachments.” The Affiliate
Program Attachment lists six HMOs, eight PPOs and seven
indemnity plans that are current “AmeriHealth Affiliates.” The
listed HMOs include Keystone Health Plan East, Inc.; Ameri-
Health HMO, Inc. (Delaware Division); AmeriHealth Inte-
grated Benefits, Inc. d/b/a AmeriHealth Administrators;
Healthcare Delaware, Inc.; Blair Mill Administrators, Inc.; and
Keystone Health Systems, Inc. The Agreement also states that
the physician’s provision of services to participants in such
Affiliates’ programs is “subject to the applicable utilization
management, quality management and Participant grievance
procedures and requirements established by the AmeriHealth
Affiliate.” In its correspondence with the petitioned-for physi-
cians about their performance of services under the Agree-
ments, AmeriHealth HMO, Inc. uses a letterhead that also car-
ries the name of AmeriHealth Insurance Company of New Jer-
sey.
The petition names “AmeriHealth Inc./AmeriHealth HMO”
as the Employer. At the opening of the hearing, the parties
stipulated that the “correct name of the employer” is “Ameri-
Health HMO, Inc.” During the hearing, the Petitioner first
withdrew from the stipulation on the Employer’s name, then re-
entered the stipulation, and still later asserted that it agreed to
the stipulated name “with the view that it would encompass the
entities that are described in the [Physician Managed Care
Agreements].” In its post-hearing brief, the Petitioner contends
that the Employer “includes AmeriHealth HMO and its affili-
ates, as defined in” the Agreements. As the parties stipulated
that “AmeriHealth HMO, Inc.” is the Employer’s correct name,
and all petitioned-for physicians have contracted with Ameri-
Health HMO, Inc. (or with the corporate entity that is now so
named), this Decision will focus on the relationship between
AmeriHealth HMO, Inc. (AmeriHealth), and the physicians.
Nonetheless, the physicians’ involvement with the affiliates
pursuant to their contracts with AmeriHealth may be relevant to
the issue in the instant proceeding.
Recent Changes in the Health Care Industry
At the hearing, the Petitioner adduced testimony from Dr.
Alan Hillman of the University of Pennsylvania, an expert in
health care economics and managed care and the use of finan-
cial incentives and nonfinancial rules and regulations by man-
aged care organizations (MCOs) to influence physicians’ be-
havior. Dr. Hillman provided a general overview of conditions
in the health care economy as they exist now and how they
have developed in recent years.
Before the recent growth of managed care, physicians in pri-
vate practice normally had complete authority over the provi-
sion of care to their patients, and insurance was, for the most
part, indemnity-oriented. The insurance company paid for
whatever services the physician thought were necessary on a
fee for service basis. The physicians and insurance companies
each had separate relationships with the patient, and for the
most part, dealt with each other only to exchange information
for payment purposes. Many believe that this essentially unfet-
tered provision of fee for service care was a primary cause of
the dramatic increase in health care costs and health insurance
premiums in the 1970’s and 1980’s. As premiums increased
each year, employers and health care consumers sought con-
straints on these costs, and managed care provided an alterna-
tive. Previously, physicians in private practice did not have
contracts with insurance carriers that controlled or influenced
the physicians’ practice of medicine. Such contracts, however,
are now a central element of the managed care system. In man-
aged care, the doctor-patient relationship is influenced and
constrained by a manager who, to varying extents, influences or
determines what procedures the doctor performs, and how and
where they are performed, all with a goal of providing good
medical care as efficiently as possible.
Health maintenance organizations (HMOs) are a form of
managed care that deliver a comprehensive set of health care
services, including preventive care and primary care, that tradi-
tional indemnity-based care either did not promote or did not
even cover. Nationwide, HMOs have enrolled approximately
35 percent of American insured patients. There are several
kinds of HMOs: “Staff model” HMOs operate medical care
facilities, provide the medical equipment, and directly employ
the physicians, nurses and other health care providers who staff
the facility. “Group model” HMOs contract with a separate
group medical practice to provide all medical services for the
HMO, and the group practice provides the facilities and equip-
ment and employs physicians and other health care staff. “Di-
rect contracting” or “independent practice association” (IPA)
HMOs contract with an array of existing individual practitio-
ners and group medical practices throughout a community, who
in turn provide the facilities and equipment.
Preferred provider organization (PPOs) are something of a
hybrid. Like HMOs, PPOs have a closed panel or network of
providers. PPO members may choose a provider outside the
panel and still have the services covered, only the level of cov-
erage (e.g., the percentage of costs reimbursed) is lower than if
the member uses a panel provider. AmeriHealth Insurance
Company of New Jersey offers a PPO called AmeriHealth Per-
sonal Choice.
The goal of MCOs is to provide the appropriate amount of
care, neither too much nor too little, in the most efficient way
possible. Where they do not provide the care themselves, but
contract with providers to do so, they use a variety of tech-
niques to structure the relationship to meet these efficiency
goals. According to Dr. Hillman, physicians’ pay constitutes
about 22 percent of health care expenses generally, and physi-
cians control another 62 percent by what they order through test
procedures, referrals, surgeries, hospitalizations, and other care.
MCOs therefore attempt to control health care costs by influ-
encing physician behavior. MCOs apply rules and regulations,
such as prior approval for procedures, mandatory second opin-
ions, utilization reviews before and after treatment, protocols
and guidelines for particular medical problems or preventive
treatment, and quality assurance mechanisms. MCOs also use
financial incentives to control costs or reward the efficient pro-
vision of care, through bonuses or penalties based on productiv-
ity, quality of care, or meeting a budget. MCOs’ two basic
methods of payment to providers (in addition to salaries in
“staff model” HMOs) are fee for service, which is the payment
of a fixed amount per service or procedure, and “capitation,”
which is the payment of a fixed amount per patient per month
regardless of the number of services or procedures provided to
the patient. MCOs, and HMOs in particular, vary widely in the
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 872
extent of control they exercise, or attempt to exercise, over the
physicians who provide care to their members.
Dr. Hillman testified that under traditional indemnity-based
fee for service arrangements, the physician had an economic
incentive to provide as many services as possible, whether truly
needed or not, and there were few if any incentives to be cost
conscious. The more services the physician provided, the more
he/she was paid. MCOs, however, have placed substantial
limits on fee for service-based care through the use of rules and
incentives. Under managed care capitation arrangements, the
physician has an incentive to acquire as many healthy patients
as possible and see them as infrequently as possible, because
the physician is paid the same regardless of how often he/she
sees the patients. Thus, under capitation there is an incentive to
provide less care, rather than more. Here too, MCOs use rules
and incentives to counterbalance the economic incentive.
According to Dr. Hillman, managed care in general, and
HMOs in particular, have altered not only the relationship be-
tween physicians and patients, but also the means by which
physicians acquire patients. Before the advent of managed
care, physicians obtained patients primarily by word-of-mouth
referrals, and traditional indemnity-based insurance covered
needed services regardless of which physician the patient se-
lected to provide the services. An HMO, on the other hand,
generally covers nonemergency services only if provided by
physicians who are part of the HMO’s network or panel of
health care providers. Patients are often restricted in their
choice of physicians by the panels of providers in the MCOs
offered by their employer. Fewer patients are now referred by
word-of-mouth, and physicians must rely in part on the market-
ing ability of the MCOs with whom they have contracted to
attract new members and sign up new employers.
The Physicians’ Contracts with AmeriHealth
AmeriHealth General Manager Dr. Richard Gilfillan de-
scribed AmeriHealth’s business as providing “access to and
coverage for a defined set of covered services within the con-
fines or context of an overall benefit plan.” According to
AmeriHealth’s “Member Handbook,” AmeriHealth provides
“access to quality health care coverage.” The Member Hand-
book’s “Summary of Benefits” describes the covered benefits
to which members are entitled. Once members have selected a
primary care provider (PCP), they may obtain, through their
PCP (and, for female members, through their obstetrician or
gynecologist), an array of routine and preventive care. Mem-
bers are also entitled to a broad range of other inpatient and
outpatient medical services from PCPs and specialty physicians
provided that (1) the services are “medically necessary,” and
(2) the services are provided or referred by the member’s PCP,
and “preapproved” by AmeriHealth where such pre-approval is
required. The Member Handbook also lists number of particu-
lar medical services that are specifically excluded from cover-
age.
AmeriHealth does not own or directly operate any health
care facilities for its members. Rather, AmeriHealth is a “direct
contracting” model HMO which has recruited a network of
participating providers throughout New Jersey to provide ser-
vices to its members. These providers include physicians, acute
care hospitals, nursing homes, home health agencies, durable
medical equipment companies, IV therapy companies, and
include the petitioned-for physicians in Cape May and Atlantic
Counties. AmeriHealth’s network of PCPs includes family
practitioners, general internists, pediatricians and general prac-
titioners, and its network of specialty physicians includes all
other medical specialties.
In order to become part of AmeriHealth’s network, physi-
cians must enter into Physician Managed Care Agreements
with AmeriHealth. These standard form Agreements include
the “AmeriHealth HMO, Inc. Affiliate Program Attachment,”
discussed above, and a 1998 “Addendum” that amends the
Agreement to comply with recent State and Federal regulation.
PCPs’ Agreements also include a standard “HMO Primary Care
Physician Program Attachment” to the Agreement, and spe-
cialty physicians’ Agreements include a standard “HMO Spe-
cialty Care Physician Program Attachment.”
According to the Agreement’s “Purpose” section, Ameri-
Health contracts with employers and individuals, among others,
“to provide, insure, arrange for or administer the provision of
health care services,” and “contracts with physicians, hospitals
and other health care practitioners and entities, to provide, ar-
range for or administer, at predetermined rates, the delivery of
such health care services.” The Agreement provides that the
physician “will render Covered Services to Participants” and do
so “with the same standard of care, skill and diligence custom-
arily used by similar physicians in the community in which
such services are rendered,” and “in the same manner, in accor-
dance with the same standards, and with the same availability,
as offered to other patients.”
While AmeriHealth “makes no representations or guarantees
concerning the number of Participants it can or will refer to
Physician,” PCPs are required to accept “all Members who
select Physician for Primary Care Services” up to at least 150
members, and specialty physicians are required to “provide all
specialty care Covered Services within the scope of Physician’s
practice that are required by Participants.” PCPs have the op-
tion “closing their panel” after they have reached 150 members
by giving 90-day notice to AmeriHealth, though they must
continue “to accept for diagnosis and treatment all Members
who select” the PCP for primary care services during the 90-
day period. There is no similar “panel closing” option for spe-
cialty physicians. Where a member has selected a PCP, but the
PCP does not wish to have that member as a patient, the PCP
cannot unilaterally remove the patient from the PCP’s panel but
must instead make a request to AmeriHealth or the patient that
the patient transfer to another PCP.
The Agreement requires that the physician “act in accor-
dance with . . . Program Requirements,” which are defined as
“the rules and procedures, including Utilization Management
and Quality Management procedures, that establish conditions
to be followed by participating Providers,” and includes “the
requirements set forth in the applicable Provider Manual.”
“Quality Management” is defined as “the processes established
and operated by AmeriHealth HMO or its designee relating to
the quality of Covered Services.” “Utilization Management” is
defined as “the process to review and determine whether certain
health care services provided or to be provided to Participants
are in accordance with Program Requirements.” Ameri-
Health’s current “Provider Manual” is entitled the “Physician’s
Office Manual for New Jersey.” The Office Manual’s ap-
proximately 275 pages describe AmeriHealth’s various plans,
and set forth policies and procedures on referrals, record keep-
ing, reimbursement, quality management, credentialing and
recredentialing, site standards, preventive care guidelines, and
precertification, and describe AmeriHealth’s protocols and
guidelines for particular medical conditions.
AMERIHEALTH INC./AMERIHEALTH HMO 873
In return for the physician’s services under the Agreement,
AmeriHealth agrees to reimburse the physician on either a fee
for service basis or capitation basis. Except for certain radiolo-
gists who are paid by capitation, specialty physicians are paid
only on a fee for service basis according to AmeriHealth’s
“maximum fee schedule in effect at the time of service.” Pay-
ment to PCPs for “primary care covered services,” which in-
clude most routine, urgent and emergency care that PCPs pro-
vide, is based either on capitation or fee for service. PCPs who
have 100 or fewer AmeriHealth members in their member
panel can elect to receive payment on either basis. Once the
PCP’s member panel exceeds 100 (or 100 times the number of
PCPs in a group practice), the Agreement requires payment by
capitation. AmeriHealth’s capitation schedule involves pay-
ment of a fixed amount per member per month, based on the
member’s age. Capitation rates for different plans vary
depending on the plans’ copay amounts. Payment to PCPs for
care other than “primary care covered services” is by fee for
service. Of the 172 PCPs in the petitioned-for unit, only 69 are
paid on a capitation basis, and nearly all of those have more
than 100 AmeriHealth patients.
In addition to fee for service or capitation payments from
AmeriHealth, physicians also collect copayments directly from
members. Copayments vary depending on the member’s par-
ticular plan. AmeriHealth does not pay any of the physicians
on either an hourly or a salaried basis, and provides no benefits
to the physicians. Unlike some other MCOs described by Dr.
Hillman, AmeriHealth does not impose penalties or provide
bonuses or other financial incentives to physicians based on
productivity or quality. The Agreements state that physicians
“shall accept the rates set forth in this Agreement as payment in
full for all services provided to Participants pursuant to this
Agreement.” Pursuant to New Jersey law, physicians are pro-
hibited, even in the event AmeriHealth fails to pay the physi-
cians, or breaches the Agreement, or becomes insolvent, from
billing members for “covered services.”
The Agreement includes the following language in a subsec-
tion entitled “Independent Contractor Relationship”:

This Agreement is not intended to create nor shall be con-
strued to create any relationship between AmeriHealth HMO
and Physician other than that of independent persons or enti-
ties contracting for the purpose of effecting provisions of this
Agreement. Neither party nor any of their representatives
shall be construed to be the agent, employer, employee or rep-
resentative of the other.

In practice, AmeriHealth does not withhold taxes from pay-
ments to a physician or the physician’s practice, and reports
those payments on an IRS Form 1099 rather than a W-2.
The standard Agreement is for a 1-year term, but after the
initial year the Agreement automatically renews each year for
another 1-year term. Most physicians continue their contractual
relationship with AmeriHealth from year to year. After the first
1-year term, the Agreement “may be terminated by either party
at any time” with 60 days’ notice. The Agreement gives
AmeriHealth the right to terminate “immediately upon written
notice” if the physician’s license is restricted, or if the physi-
cian fails to “provide Covered services with the same standard
of care, skill and diligence customarily used by similar physi-
cians in the community in which such services are rendered,” or
if the physician breaches any term of the Agreement, or any
“Program Requirement,” which, as noted above, includes every
rule and policy in AmeriHealth’s Physician’s Office Manual.
Physicians have no similar right of immediate termination.
Even AmeriHealth’s mid-1998 unilateral implementation of a
new fee schedule, which included some significant reductions
in fees, apparently did not give physicians the right to terminate
immediately, as AmeriHealth reminded physicians when they
sought to do so.
The 1998 Addendum to the Physician Managed Care
Agreement includes new notice and hearing requirements in the
event that AmeriHealth wishes to terminate the Agreement, all
of which terms are dictated by New Jersey law. AmeriHealth
must give 90 days written notice of termination and provide a
hearing, if requested. The required notice and opportunity for a
hearing do not apply where, among things, there has been “a
breach of the Agreement by the physician.” Pursuant to New
Jersey law, physicians are protected from termination and pen-
alty “solely because of filing a complaint or appeal regarding a
utilization management determination made by AmeriHealth or
because [the physician] acts as an advocate for the patient in
seeking appropriate, medically necessary services.”
The Physicians’ Practices
In 1996, AmeriHealth paid $1.1 million in fees to its pro-
vider physicians in Atlantic and Cape May Counties, a figure
that grew to $6.8 million in 1997. However, AmeriHealth’s
membership constitutes only a small portion of the insured
population in southern New Jersey: approximately 4 percent in
Atlantic County and 7 percent in Cape May County. There are
a number of competing HMOs, PPOs and indemnity plans.
The record does not indicate what portion of the insured popu-
lation of those counties is enrolled in HMOs or other forms of
MCOs.
AmeriHealth’s Agreements with physicians do not contain
noncompetition clauses, and the physicians are free to contract
with, or even serve as advisors to, competing insurance compa-
nies. Information reported to AmeriHealth by the physicians in
the unit sought by the Petitioner suggests that the physicians
contract with, on average, five or six other MCOs or indemnity
insurance companies. The physicians also treat patients who
are covered by Medicare, as well as patients who self-pay. For
the six PCPs and specialty physicians who testified at the hear-
ing, AmeriHealth revenues constituted from 1 to 12 percent of
their practices’ total income in 1997, and on average about 4
percent of total practice income. It appears, though, that the
number of AmeriHealth members in the physicians’ practices
has grown significantly, as reflected by the increase in Ameri-
Health’s payouts to physicians from 1996 to 1997.
AmeriHealth also imposes no restrictions on competition be-
tween AmeriHealth’s network physicians, and, in fact, the evi-
dence suggests that a number of the network physicians provide
similar services to patients in the same geographic area as other
network physicians. Most or all of the physicians have listings
or advertisements in local “Yellow Pages,” and some have
advertisements elsewhere, and even websites. Two physicians
who testified have a weekly television show, and one has a
radio show.
As noted, Dr. Hillman testified that physicians have become
dependent to some degree on MCOs for access to patients.
Contrary to the Petitioner (P. br. 6, 13, 93), however, the record
does not establish that AmeriHealth controls the physicians’
access to patients, or that the physicians’ own marketing efforts
are less important than AmeriHealth’s marketing efforts or the
marketing efforts of MCOs generally. The physicians continue
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 874
to advertise their practices, and there is evidence that patients or
employers may select an HMO based on which physicians are
in the HMO’s network. Indeed, one physician testified that his
patients rely on him to direct them to insurance companies with
whom the physician’s practice contracts as a provider, and
many of the physician’s senior citizen patients switched to
AmeriHealth on the physician’s recommendation. Ameri-
Health clearly has no control over the physicians’ access to
patients who are not AmeriHealth members. Even patients who
are AmeriHealth members may be employed by employers who
offer more than one health plan and have open enrollment peri-
ods. Or, an employer may switch plans and force its employees
into the new plan. Senior citizens covered by Medicare may be
members of Medicare HMOs that are unrelated to any em-
ployment, and may be able to change plans freely. This fluidity
explains why many physicians have contracted with a number
of insurance companies. One PCP testified that he wanted to
be signed up with as many HMOs as possible because he is
afraid that his patients’ employers may switch plans.
AmeriHealth has no direct financial interest in the physi-
cians’ practices, though, of course, AmeriHealth’s success de-
pends on recruiting and maintaining a broad network of physi-
cians who can provide skilled and efficient medical care to
AmeriHealth members. Around 40 percent of the physicians in
the unit sought are solo practitioners, another 20 percent prac-
tice with one other physician, and the remaining 40 percent are
part of group practices with numbers ranging from 3 to 17 phy-
sicians. Some of the physicians’ practices are incorporated as
professional corporations or associations, others operate as
medical partnerships, and some are neither. There is also a
wide variety of ownership arrangements. Some of the physi-
cians are employees of their practices’ corporations. The phy-
sicians establish and dissolve partnerships with other physicians
and structure their practices without any input or involvement
by AmeriHealth. They also affiliate and disaffiliate with hospi-
tals without input from AmeriHealth, other than a requirement
that each physician maintain admission privileges with at least
one hospital that is a participating provider with AmeriHealth.
The physicians maintain the identity of their practices, and
do business and advertise in their own names or the names of
the group practices with which they are associated. Ameri-
Health’s name is included in only a few of the physicians’ ad-
vertisements, and only among lists of other health insurance
companies with whom the physician or the physician’s practice
has contracts. There is no evidence that physicians include
AmeriHealth’s name or insignia on their letterheads, business
cards or prescription pads. Nor does AmeriHealth require that
the physicians or their staffs wear AmeriHealth uniforms or
display an AmeriHealth logo.
A little more than half the physicians’ practices have only
one location, another third have two locations, and the remain-
der have three or more locations. The physicians use a wide
variety of equipment at their facilities, some of which involve
large capital investment. Physicians are not required to have
separate waiting rooms, offices or equipment for AmeriHealth
members. The physicians choose their own facilities, office
space and equipment and decide whether to own or lease them,
design their own office layouts, and pay utilities and other
overhead expenses. Other than AmeriHealth’s basic facility
and equipment requirements, discussed below, and Ameri-
Health’s requirement that physicians report changes in loca-
tions, AmeriHealth has no involvement in the physicians’ deci-
sions about their facilities or equipment. The physicians are
free to expand the kinds of services they offer at their facilities.
One PCP who testified at the hearing also practices sports
medicine, and has added a “physical modalities therapy” unit to
his office. Another physician witness who practices general
and vascular surgery has added a “vascular lab” where he can
conduct diagnostic tests on his patients rather than referring
them elsewhere for the services. The physicians also arrange
and pay for their own malpractice insurance, though this is
required not just by AmeriHealth but by New Jersey law.
(N.J.A.C. 8:38–15.2(b)8)
Physicians do not work at facilities owned or operated by
AmeriHealth, and do not account for their hours of work to
AmeriHealth. Other than requiring, as described below, that
the physicians’ practices have certain minimum numbers of
office hours a week (depending on practice size and specialty),
and requiring that they be open for one evening or weekend
session per week, AmeriHealth is not involved in how the phy-
sicians set their working hours.
Nearly all of the physicians’ practices employ staff other
than physicians, such as nurse practitioners, RNs, LPNs, and
other technical employees, medical assistants, receptionists,
secretaries, office managers, and billing managers. Staff sizes
and job duties vary widely among the practices. The physicians
or their practices hire, fire, train, and supervise their staff, they
define staff duties, and set compensation and benefits. While
physicians have felt the need to hire additional clerical staff in
recent years to handle administrative work resulting from their
affiliation with AmeriHealth and other HMOs, AmeriHealth
has no involvement in determining the number, identity, duties,
supervision or compensation of the physicians’ staffs. Accord-
ing to the Physician Managed Care Agreement, physicians are
prohibited from assigning to others their “duties, rights or inter-
ests under the Agreement.” However, physicians routinely
delegate services, such as taking patient medical histories,
measurements, and vital signs, and performing throat cultures,
to staff members such as nurses and medical assistants.
The physicians are free to make other business decisions that
affect their practices’ profits or losses. Physicians set their own
accounting methods, use payroll and billing services, and retain
accountants, lawyers, and other business consultants. They
choose how to invest or spend practice profits, and determine
what portion of the practice revenues will be paid to the physi-
cians. Among the practices of the six physicians who testified
at the hearing, there were large differences in total practice
revenues, physician compensation (ranging from $115,000 to
$442,000 in 1997), and the portion of practice revenues that
were paid out as physician compensation. The figures intro-
duced into evidence, however, were those for the entire prac-
tices, and do not reflect profit and loss from the physicians’
work for AmeriHealth.
Credentialing and Recredentialing Procedures and Standards
AmeriHealth does not train its physician providers to be-
come medical doctors, recruit them out of medical school, or
assist them in establishing medical practices. Rather, it recruits
existing medical practices into its network of providers.
AmeriHealth identifies practices to recruit from the yellow
pages, medical staff lists from participating hospitals, other
insurance carriers’ lists of physicians, medical society member-
ship lists, and recommendations from physicians or members.
Physicians also approach AmeriHealth about affiliation.
AMERIHEALTH INC./AMERIHEALTH HMO 875
Physicians must be “credentialed” before they may become a
provider. In practice, AmeriHealth “credentials” and accepts
95 percent or more of the physicians who apply. AmeriHealth
requires that physicians fill out a standard “Provider Credential-
ing Application” form. Credentialing criteria include (1) an
unrestricted license to practice medicine in New Jersey; (2)
Board Certification in any claimed specialty, or appropriate
substitute such as training or continuing medical education
(CME) credits; (3) current Drug Enforcement Administration
certification, when applicable; (4) current malpractice insurance
coverage in compliance with minimum New Jersey require-
ments; (5) maintenance of staff privileges at a minimum of one
AmeriHealth participating hospital; (6) 24 hour-a-day, 7 day-a-
week coverage for AmeriHealth members by the applying phy-
sician or another participating physician; (7) disclosure of mal-
practice history, history of loss or restriction of license or privi-
leges, felony convictions, illegal drug use, and any reasons for
inability to practice medicine with reasonable skill and safety;
(8) eligibility to receive payment under Medicare/Medicaid;
and (9) provision of education, training and work history.
Credentialing applicants who are PCPs and high volume
specialty physicians (OB-GYNs, orthopedists and cardiolo-
gists) also receive site visits from AmeriHealth. Less than half
the physicians in the unit sought are PCPs or high volume spe-
cialty physicians. These visits are conducted by RNs who in-
spect the applicant’s office and medical records. Physicians
must receive “passing scores” on the inspections. If the physi-
cian’s practice has multiple sites, AmeriHealth visits only one
of them. The practice is reviewed to determine whether it
meets the following standards:

• The physician sees no more than 4 patients (PCP) or 6
patients (specialty physicians) per hour.
• Routine visits are scheduled within 1 week, 2 weeks, or a
month (depending on the kind of practice), complete
physicals within 4 weeks, sick visits within 24 hours
(PCPs) or 2 days (specialty physicians), and emergency
visits immediately.
• Phone calls are recorded and retained either in the medical
record or a daily log reviewed by a physician.
• A PCP’s office maintains at least the following hours: one
evening or weekend session per week, and a total of 20
hours per week for a solo practitioner, 30 hours per week
for a dual practice, and 35 hours per week for a group
practice. A specialty physician’s office maintains at least
one evening or weekend session per practice per week,
and a minimum of 12 office hours per week.
• The office has arranged for coverage 24 hours a day, 7
days a week.
• The office has policies and procedures to ensure confiden-
tiality and continuity of care (i.e., reminding patients to
keep their appointments, dealing with patients who miss
appointments or do not follow-up, and recalling patients
who need follow-up treatment or preventive care).
• The office is handicapped accessible and has adequate
parking, handicapped accessible patient rest rooms, a clean
and safe waiting room, private treatment rooms, otoscopes
and opthalmoscopes (and GYN tables and supplies for
family practice sites), blood pressure cuffs in pediatric,
medium and large sizes, thermometers, “general supplies,”
and clean walls and floors.
• The office follows certain safety practices, including that
drugs, prescription pads and syringes are not patient acces-
sible and biologicals/medications are stored in a refrigerator
not containing food; has a system to monitor the use of con-
trolled drugs; properly handles and disposes hazardous
waste; has a fire extinguisher, marked fire exits and a writ-
ten evacuation plan; keeps its corridors and rooms free of
clutter and obstruction; has a procedure for cleaning, steril-
izing and replacing equipment; has a system to comply with
OSHA regulations; ensures preventive maintenance on
equipment, and, if laboratory work is performed, that it is
performed in a separate area; and has at least one staff per-
son on duty during patient hours who is CPR certified.
•
• The office’s records meet certain requirements: all pages
in the patient’s record show the full patient name or ID
number, all entries are dated and signed/initialed by a phy-
sician, records are legible to someone other than the phy-
sician and staff, a separate problem list is completed for
each patient, the presence or absence of allergies is promi-
nently noted, the record contains past medical history (in-
cluding serious accidents, operations and illnesses) and
biographical and personal data, including a means of get-
ting in touch with the patient, the record indicates smoking
habits and alcohol and substance abuse, the physician ini-
tials consult summaries and lab and x-ray results, encoun-
ter forms show notation for a return visit or follow-up
care, and there is a separate immunization record for both
children and adults.

AmeriHealth “recredentials” all physician providers every 2
years by collecting essentially the same information that was
collected in the initial credentialing application. In addition,
physicians are required to submit evidence of 40 CME credits.
AmeriHealth makes recredentialing site visits at least every 2
years to PCPs, OB/GYNs and other high volume specialists.
Again, AmeriHealth requires that offices receiving site visits
obtain passing scores on the site visit and medical record stan-
dards. Finally, physicians must have maintained an acceptable
“profile” regarding malpractice history and maintenance of
AmeriHealth’s “Standards of Service,” which, as discussed
below, are almost identical to the credentialing site visit stan-
dards. A PCP must maintain an acceptable “Utilization Pro-
file,” which may include an evaluation of the PCP’s utilization
review scores, referral patterns, compliance with precertifica-
tion requirements, admission rates, and emergency room utili-
zation. A PCP must also pass audits of medical records, pre-
ventive services and diagnoses, and the PCP’s member com-
plaints and Subscriber Survey results are evaluated, with an
expected “subscriber satisfaction” rating of 90 percent.
In practice, it appears that credentialing and recredentialing
forms are often filled out by the physicians’ staffs. In addition,
the nurses who conduct site visits normally interact with the
physicians’ staff rather than the physicians themselves, and
they do not observe the physicians at work.
Standards of Service, Treatment Guidelines, and
Quality Management
AmeriHealth issues a Physician’s Office Manual to all phy-
sicians, and the Physician Managed Care Agreements require
that the physicians follow the Manual with respect to Ameri-
Health members. The Manual sets forth detailed “Standards of
Service,” “Medical Record Guidelines,” and “Site Standards”
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 876
that the physicians are expected to meet. These include the
credentialing site visit standards listed above, along with addi-
tional standards such as a 30-minute maximum waiting time for
patients, and a 30-minute maximum response time for after-
hours phone calls for “urgent” problems.
For PCPs, the Manual sets forth “Wellness Visits Practice
Guidelines” which “are a recommended schedule of wellness
visits and are not a statement of benefits.” PCPs are advised
that the Guidelines are reviewed at least every 2 years, and if
new “national Guidelines become available” then the PCPs
should “adapt their practices according to nationally recognized
Guidelines, without awaiting changes from the Plans.” The
Manual’s current Wellness Guidelines state how often members
should visit the PCP (e.g., annual visits from 11–18 years, visits
every 3 years for ages 19–40), and, at each “wellness” visit,
what information should be obtained, measurements taken (e.g.,
height, weight, blood pressure); immunizations, lab tests and
screenings administered (e.g., cholesterol screening, teta-
nus/diphtheria booster); education or counseling given (e.g.,
nutrition; dental health; household and automobile safety; to-
bacco, drug and alcohol use; and regular physical activity); and
specialized test referrals provided (e.g., mammography and
sigmoidoscopy).
The Manual incorporates AmeriHealth’s “Clinical Practice
Guidelines,” which are detailed, disease-specific guidelines for
the treatment of several particular kinds of medical problems,
including hypertension, asthma, congestive heart failure, cho-
lesterol, HIV/AIDS, diabetes, and smoking. These Guidelines
are all based on recommendations from recognized medical
authorities. The Manual states that the Clinical Practice Guide-
lines “are presented as a basis from which individual treatment
plans can be developed” and that “[v]ariation in application
related to individual need and severity of illness is expected.”
However, in a 1998 letter to physicians about the hypertension
and asthma guidelines, AmeriHealth stated that it would meas-
ure compliance with the guidelines in its annual medical record
review.
The manual describes the “Purpose” of AmeriHealth’s Qual-
ity Management Program as follows:

The Quality Management Program for the Managed Care
Products of AmeriHealth Health Plan, Inc. is designed to meet
our customer’s expectations of high quality, affordable health
care. It is AmeriHealth’s responsibility to assure that ade-
quate health maintenance, appropriate treatment of illness and
timeliness of clinical and administrative services meet those
expectations and needs.

Another important aspect of health is satisfaction with the
services provided. In recognition of the valid assessments that
customers can provide, the Quality Management Program
will pro-actively seek customer feedback and include educa-
tion in its improvement efforts.

To achieve improved health outcomes and satisfaction with
services, a continuous process of monitoring, evaluation and
improvement is implemented.

The Manual adds that, “Contracting providers are required to
participate in the AmeriHealth quality measurement and im-
provement activities.”
The Manual’s description of the quality management Pro-
gram includes a “Clinical Research and Evaluation” function,
which, inter alia, “assesses medical record documentation, pro-
vision of clinical care and continuity of care,” and “conducts
annual satisfaction surveys.” Physicians are advised that they
“must cooperate with the on-site medical review process and
must provide medical records when requested.” In a subsection
entitled “Provider Improvement,” the Manual states:

This function monitors individual provider performance in
member satisfaction, medical record quality, rates of com-
plaints, occurrences and transfers and under and over utiliza-
tion. Bi-annual reports are sent to participating providers. In-
terventions are targeted to improve performance when
needed. Providers must respond to investigations of member
complaints regarding quality of care and service. Providers
are also required to cooperate with the development of action
plans when measurements identify opportunities for im-
provement.

AmeriHealth’s standard Physician Managed Care Agreement
requires that physicians “cooperate with AmeriHealth HMO to
facilitate the information and record exchanges necessary for
Quality Management, Utilization Management, peer review, or
other programs.” Physicians must provide “reasonable access
during regular business hours to specified clinical and medical
records of Participants.” “Upon reasonable notice at reasonable
hours,” the Agreement states, AmeriHealth “may inspect Phy-
sician’s premises and operations to ensure that they are ade-
quate to meet Participants’ needs.”
The office manual indicates that each PCP will receive an
“annual performance review” from AmeriHealth. Every year,
PCPs receive on-site visits from AmeriHealth nurses who audit
their patient records for purposes of reviewing the practice’s
performance. First, AmeriHealth sends letters announcing that
AmeriHealth is going to be conducting “the annual Primary
Care Physician Medical Record Review” in order to “measure
specific indicators that evaluate general record organization and
preventive care.” AmeriHealth provides a list of members
“whose charts have been randomly selected for review.” An
AmeriHealth quality management nurse visits soon thereafter
and reviews the selected patient charts. The visit normally
takes several hours, an at the end the nurse conducts an exit
interview which, according to AmeriHealth’s record review
notice letter, “provides a general overview of the findings and
is intended as an educational tool to improve documentation.”
During these on-site record reviews, AmeriHealth’s nurse gen-
erally deals with the physician’s staff, and not the physician,
and the nurse does not observe the physician treating patients.
Following the on-site record review, AmeriHealth sends the
PCP an “Annual Primary Office Practice Quality Assessment
Score (PQAS).” The PCP’s summary PQAS is derived from
office record reviews and member satisfaction surveys. The
“General Medical Record Review” indicates what percentage
of the patient records reviewed met AmeriHealth’s medical
record guidelines. In the “Preventive Care Delivery Review,”
AmeriHealth indicates the percentage of the charts reviewed
which indicated that the PCP had taken the measurements,
administered the screenings, given the counselings, and made
the lifestyle assessments that are included in AmeriHealth’s
Wellness Guidelines. The primary care Delivery review does
not cover all of the elements in the wellness guidelines. For
example, the review does not cover the frequency of wellness
visits. AmeriHealth General Manager Dr. Richard Gilfillan
testified that AmeriHealth does not require strict adherence to
the Guidelines’ schedule for services, although physicians are
AMERIHEALTH INC./AMERIHEALTH HMO 877
expected to provide the services “within time frames that are
close” to the Guidelines. Finally, a “Member Satisfaction Sur-
vey” is conducted “by telephone in a stratified random sam-
pling method, ensuring statistically significant results.” The
survey results provided to the PCP include scores for member
responses to questions under the general headings of overall
satisfaction, access, care, perceived access, and preventive ser-
vice counseling.
AmeriHealth also regularly sends PCPs a separate “Provider
Appraisal,” which shows figures for “office waiting time” (the
proportion of patients in the PCP’s practice “who indicated
waiting longer than 30 minutes for standard appointments, ex-
ceeding the Plan’s practice site standards”), the number of
member complaints and the “complaint rate,” the number of
patient transfers away from the PCP and the “transfer rate,” and
summary scores for the office record review and the member
satisfaction survey. On the appraisal, each of these results is
compared to a “mean” score for all PCPs in the network.
AmeriHealth’s cover letter to PCPs accompanying the PQAS
results states, “The results of the ORR [Office Record Review]
and MSS [Member Satisfaction Survey] will be reviewed annu-
ally and may affect your continued participation with Ameri-
Health.” AmeriHealth admits that it considers this information
in the recredentialing process, and indeed the office manual
advises physicians that the purpose of recredentialing is, among
other things, “to evaluate physician compliance with guidelines
and processes of the Plans and to assess customer satisfaction
with the provider.” There is no evidence, however, Ameri-
Health has ever terminated a physician’s participation in the
network because of poor office record review results or low
numbers on member satisfaction surveys, or for failure to fol-
low the Manual’s Wellness Guidelines or Clinical Practice
Guidelines. Nor does AmeriHealth impose any kind of finan-
cial penalties related to these performance reviews. On the
other hand, there is evidence that negative performance reviews
generate corrective action. AmeriHealth talks with physicians
who receive low scores on the record review or the member
satisfaction survey and request a plan to improve performance
(an “action plan”). If they still do not improve, then there is the
possibility that AmeriHealth would cancel the contract.
The Office Manual’s standards of service and site standards
apply to specialty physicians as well as PCPs, as do the Man-
ual’s and the Physician Managed Care Agreements’ provisions
on recordkeeping, access and inspection privileges. There is no
evidence, though, that AmeriHealth has conducted performance
reviews or appraisals of specialty physicians.
AmeriHealth obtains patient chart information from physi-
cians on a regular basis for planwide surveys required by the
National Committee for Quality Assurance (NCQA) (see dis-
cussion below) and the State of New Jersey. Under NCQA’s
Health Plan Employer Data and Information Set (HEDIS)
guidelines, AmeriHealth collects data on a randomly selected
set of patients. In 1996 and 1997, AmeriHealth apparently used
the HEDIS chart review information for performance evalua-
tions of individual physicians. However, in its 1998 HEDIS
chart review, AmeriHealth assured the physicians that the
HEDIS chart review was for planwide measurements (i.e., the
plan’s overall compliance with NCQA standards) and not for
individual provider evaluations. AmeriHealth performs similar
chart reviews to monitor planwide compliance with Ameri-
Health’s disease-specific Clinical Practice Guidelines. Ameri-
Health also actively promotes compliance with these guidelines
by, for example, sending out letters to patients and their physi-
cians that encourage patient visits to their physicians to receive
a particular screening or commence a particular program of
treatment.
As noted above, AmeriHealth’s Physician Managed Care
Agreement requires that physicians provide services to mem-
bers “with the same standard of care, skill and diligence cus-
tomarily used by similar physicians in the community in which
such services are rendered.” In practice, AmeriHealth does not
control or monitor the manner in which physicians perform
procedures on patients. Its representatives do not observe the
physicians as they work, or listen to their conversations with
patients, or direct the physicians in the details of how they per-
form the procedures. In fact, the physicians may go years
without meeting an AmeriHealth representative.
On the other hand, the physicians must provide AmeriHealth
with records showing much or all of the work they perform for
AmeriHealth members. Specialty physicians must submit an
AmeriHealth “Encounter/Referral form” along with an itemized
bill in order to receive payment for services. AmeriHealth also
requires that PCPs provide “encounter data on a timely basis
[within 60 days] showing all services provided to each Partici-
pant for whom Physician receives Capitation or Fee for Service
payments.” In practice, PCPs fill out and submit a copy of
AmeriHealth’s “Encounter/Referral form” for each member
visit. The form indicates, inter alia, the type of visit, whether it
is a “Wellness Visit,” if any acute or chronic illness was in-
volved, what kind of followup is required, and what kind of
immunization was administered.
Physician witnesses at the hearing testified that they attempt
to follow the Manual in their dealings with AmeriHealth mem-
bers, but do not necessarily consult the Manual themselves.
Instead, they may rely on their office staffs to inform them of
AmeriHealth’s unique guidelines and procedures. Many of the
Manual’s requirements are standard practices that physicians
routinely follow for all of their patients, both AmeriHealth
members and nonmembers.
Utilization Management
AmeriHealth’s utilization management program is called Pa-
tient Care Management. AmeriHealth’s Office Manual de-
scribes the program as follows:

The Patient Care Management program is composed of sev-
eral component programs, all of which are focused on ensur-
ing a balance of quality, access, and cost containment. The
focus is on directing providers and members to use the most
appropriate site and level of care. This is best accomplished
through intervention by the Patient Care Management team
before services are rendered. Therefore, wherever possible,
programs are structured for prospective review.

. . . .

The Patient Care Management philosophy is member fo-
cused. The use of clinically credible medical appropriateness
criteria and clinical standards for all key processes encourages
high-quality care and enables the Patient Care Management
Department to direct our members to the most appropriate
level of care.

AmeriHealth’s Patient Care Management Department’s “pro-
spective review” procedures include precertification, concur-
rent review, discharge planning, and episodic case manage-
ment. AmeriHealth engages in retrospective review of provider
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 878
decisions when it reviews their bills and decides whether to pay
them. Through these procedures, AmeriHealth directs provid-
ers and members to the “the most appropriate site and level of
care.”
Under AmeriHealth’s program, the “appropriate site” of care
is, in the first instance, the member’s designated PCP. With
only a few exceptions (e.g., routine OB/GYN care for women,
emergencies), a member must obtain a referral from his or her
PCP before receiving services from other health care providers.
Absent prior authorization from AmeriHealth, i.e., precertifica-
tion, the PCP’s referrals are limited to network providers. Spe-
cialty physicians must have a referral before performing ser-
vices, and are limited to the services indicated on the PCP’s
referral. If the member then needs additional services beyond
those specified in the referral, the member or the specialty phy-
sician must go back to the PCP for another referral.
AmeriHealth requires that certain outpatient services, such as
most radiological procedures, laboratory work, mental health
services and short-term rehabilitation therapy, be performed by
particular “capitated” providers. Precertification is required,
and usually not granted, for such services at providers other
than the “capitated sites.” For outpatient diagnostic radiology,
referrals must be to Radiology Consultants of New Jersey
(RADCON), a local network of radiology groups in southern
New Jersey which includes several physicians in the unit
sought. Short-term outpatient rehabilitation therapy and labora-
tory work must also be referred to “capitated” sites which are
selected by each PCP from a list of network providers, and
thereafter the PCP must refer members to the PCP’s designated
capitated site for such services, or obtain precertification for
referral anywhere else. Mental health and substance abuse
services must be referred to Green Spring of Eastern Pennsyl-
vania, which operates its own network of providers.
Physicians must refer patients to the capitated sites for radi-
ology, laboratory work, or physical therapy even if they have
the equipment in their own offices to perform the service, or
believe it would be in a patient’s best interest to perform the
service at the physician’s office or at a facility other than the
capitated site. As a result, physicians have, in some cases, sim-
ply performed such services in their own office without reim-
bursement. At the hearing, a PCP who also ordinarily provides
mental health care to his own patients testified that he cannot
do so for AmeriHealth patients, unless the patient is willing to
pay for the services outside their insurance coverage or he is
willing to provide the services for free, even though Green
Spring of Pennsylvania’s network is limited in New Jersey and
may require a long trip for the patients.
AmeriHealth’s Patient Care Management program controls
the “level of care” for its members through application of the
contractual limitation of “covered services” to those that are
“medically necessary.” The Member Handbook defines the
“medical necessity” as follows:
[T]he requirement that Covered Services or medical supplies
are needed, in the opinion of: (a) the Primary Care Physician;
(b) the Referred Specialist; and/or (c) AmeriHealth HMO and:

A. are consistent with AmeriHealth HMO
policies, coverage requirements and
utilization guidelines;
B. are necessary in order to diagnose
and/or treat a Member’s illness or in-
jury;
C. are provided in accordance with ac-
cepted standards of American medical
practice;
D. are essential to improve the Member’s
net health outcome and may be as
beneficial as any established alterna-
tives;
E. are as cost-effective as any established
alternative; and
F. are not solely for the Member’s con-
venience, or the convenience of the
Member’s family or health care Pro-
vider.

AmeriHealth’s finding that any one of these requirements has
not been met could lead to a determination that a service is not
“medically necessary” or “medically appropriate.”
The Patient Care Management Department’s concurrent re-
view process determines how long AmeriHealth will cover a
patient’s stay in a hospital or other treatment facility, or what
level of care will be covered. AmeriHealth performs on-site
and tlephonic review, in coordination with hospital utilization
review personnel, “to certify elective, urgent, and emergency
admissions, to authorize admission or continued stay beyond
the expected length of stay, to assess the level of care, and to
identify and coordinate discharge planning.” AmeriHealth has
exercised concurrent review so as deny coverage for additional
hospital days as not “medically necessary,” notwithstanding the
treating physician’s judgment that continued hospital treatment
would be best for the patient. AmeriHealth has also exercised
this review so as to deny payment to a hospital for days of a
patient’s hospitalization, or deny payment to physicians for
services they performed in the hospital, after services have been
rendered, because “medical appropriateness could not be estab-
lished.”
In discharge planning, AmeriHealth reviews and approves
the level of care a patient receives following discharge from
inpatient admissions. In episodic case management, Ameri-
Health designs plans to provide services “in an alternative set-
ting for patients who otherwise would require continued hospi-
tal care” by early identification of such cases, and coordinating
resources among the patient’s family, involved health care pro-
fessionals, and the community.
AmeriHealth’s most frequently exercised form of utilization
review is precertification. AmeriHealth determines, through its
precertification procedure, whether the requested services are
“covered services,” and where they must be provided in order
for AmeriHealth to cover them. AmeriHealth requires
precertification for the following:

• All non-emergency inpatient services, whether at a hospi-
tal, skilled nursing facility, rehabilitation facility, or a
mental health/substance abuse facility, and all hospital
short procedures unit or ambulatory services, including
outpatient surgeries
• All procedures at “free-standing facilities” (i.e., surgical
centers or reproductive health centers), except termina-
tions of pregnancies
• Durable medical equipment or supplies that are purchased
for $100 or more, or are rented for any price
• Prosthetics and orthotics
• Outpatient therapy services, including speech, occupa-
tional, cardiac, respiratory and pulmonary therapies or re-
AMERIHEALTH INC./AMERIHEALTH HMO 879
habilitation, and infusion therapy (e.g. chemotherapy) at
hospitals, homes or cancer centers (but not in a physician’s
office)
• Home care of any kind
• Hospice care
• Out-of-network referrals
• Minor surgeries (such as bunionectomies, hemorrhoidec-
tomies, arthroscopic knee surgeries and diagnostic arthro-
scopy, and tonsillectomies)
• Sleep studies
• Selected laboratory or radiological tests, including CT
scans, MRIs, MRAs, and PET (positron emission tomo-
graphy) scans
• Sigmoidoscopies (unless performed in a physician’s of-
fice)
• Certain medications
• Obstetrical care
• Chiropractic care

Almost all services provided by specialty physicians require
a referral from a PCP, but only those listed above require pre-
certification. PCPs may provide “primary care covered ser-
vices” without precertification. According to AmeriHealth’s
standard, “HMO Primary Care Physician Program Attach-
ment,” these services include “office visits, phone and urgent
care, home and Emergency care, periodic health assessments,
adult EKG’s, minor surgical and diagnostic procedures in of-
fice, immunization and injections, vision and hearing screening
and laboratory screening procedures for assessment of acute
illness and impatient hospital visits.” According to the same
Attachment, other procedures paid by fee for service require
prior authorization. It appears, however, that AmeriHealth’s
Office Manual generally authorizes a number of procedures
commonly provided by PCPs, and that PCPs need not obtain
precertification for such procedures in order to obtain reim-
bursement.
Only a small portion of the procedures performed by PCPs
require precertification. According to AmeriHealth General
Manager Dr. Richard Gilfillan, for every 1000 members, there
are, on average, about 35 nonemergency hospital admissions
and 40 hospital outpatient surgeries each year that require pre-
certification, while those same 1000 members will visit net-
work physicians about seven times a year each (i.e., for about
7000 visits). There is no evidence in the record about the fre-
quency of the other services listed above that require certifica-
tion, but it appears that most services received by members in
any given year do not require precertification. However,
AmeriHealth is free to change its precertification requirements,
and the list of services requiring precertification has changed
from time to time. Whether a procedure requires precertifica-
tion may depend on where the procedure is to be performed, or
on what part of the body the screen or test is to be administered.
Physician office staff are also faced with different sets of rules
for patients with different health insurers, each of which may
have its own provider manual and unique precertification re-
quirements. Record evidence suggests that network physicians
or their staffs are often unsure of whether precertification is
required, and sometimes contact AmeriHealth’s Patient Care
Management Department for approval of services where, in
fact, no precertification is necessary.
The process of precertification normally involves a phone
call from the physician’s office to AmeriHealth’s Patient Care
Management department. The calls are initially answered by
“managed care assistants” who verify the patient’s eligibility to
receive Plan benefits. If the procedure requires precertification,
the managed care assistant obtains information about the physi-
cian’s diagnosis and the requested service. Managed care assis-
tants generally have no medical training and can only approve
or precertify a few minor procedures or tests. All other re-
quests are referred to “patient care coordinators,” most of
whom are nurses. Patient care coordinators obtain more infor-
mation from the physician’s office, including, on occasion,
faxed copies of the patient’s chart. They then use a computer
program called the Optimed Medical Appropriateness Screen-
ing Criteria to determine whether a precertification request
should be granted. If the request meets the Optimed criteria,
then the patient care coordinator grants the request. If not, the
request is referred to one of AmeriHealth’s Medical Directors,
all of whom are physicians. The Medical Director may grant or
deny the request. Neither managed care assistants nor patient
care coordinators have authority to deny a request. However, a
patient care coordinator may refuse to precertify a procedure
because the patient is not a member, or the caller has provided
insufficient information, or because the service does not require
precertification. While the record does not indicate precise
numbers for precertification requests and denials, an Ameri-
Health patient care coordinator testified that AmeriHealth ap-
proves about 95 percent of the precertification requests she
handles.
If the Medical Director denies the request, the member or re-
questing physician can speak directly with the Medical Director
by way of an immediate appeal. If that appeal is denied, then
either the physician or member may invoke a formal internal
appeals process. In the past year, there were fewer than ten
formal appeals of precertification denials. The record does not
indicate the frequency of immediate informal appeals by physi-
cians to the Medical Director, but suggests that such appeals are
far more common than formal appeals. Following the denial of
a formal appeal, a member may request external review through
an independent utilization review organization.
Calls to AmeriHealth for precertification are normally made
by the physician’s staff, and not by the physician. The volume
of calls from physicians’ offices to the Patient Care Manage-
ment department is high. Each managed care assistant handles
a minimum of 68 calls a day and may average 100 calls a day,
and patient care coordinators receive about 70 calls a day from
provider offices and make an additional 25 return calls. Con-
versations with managed care assistants and patient care coor-
dinators are normally only a few minutes each, but physician
staff who call for certification often have to wait while their
calls are routed to the appropriate desk, or for patient care co-
ordinators to return phone messages. Each request may involve
several phone conversations. Physician staff testified that pre-
certification requests each take 20 or 25 minutes of phone time.
As noted above, physicians and staff testified that time-
consuming referral and precertification procedures required by
HMOs have made it necessary for their practices to hire more
clericals.
Some of AmeriHealth’s denials of coverage, either by refus-
ing to precertify a service or refusing to reimburse a provider
for a service already rendered, are because the service was not
performed at a preferred site (e.g., the “capitated” site for radi-
ology), or because of a procedural error (e.g., failure to obtain a
referral or precertification). Other denials are based on Ameri-
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 880
Health’s determination that, contrary to the member’s physi-
cian, the service was not “medically necessary.” Thus, for
example, AmeriHealth denied a PCP’s precertification request
for chiropractic therapy for one of the physician’s patients on
the basis that “medical necessity could not be established.”
AmeriHealth denied another physician’s precertification re-
quest for acute inpatient rehabilitation for the same reason.
Physicians testified that when patients came to them with soft-
tissue injuries in knees, elbows, shoulders or muscles, the phy-
sicians have requested precertification for MRIs, but Ameri-
Health denied the requests because the patients had not first
received x-rays. The physicians considered x-rays to be an
unnecessary waste of time and potentially harmful to the pa-
tients because appropriate treatment was delayed.
AmeriHealth also may withhold precertification for treat-
ments it views as “experimental.” For example, physicians
have recently sought to test for the presence of H. Pylori bacte-
ria, a cause of gastric ulcers, using a new FDA-approved urea
breath test rather than an endoscopy with biopsy, which is more
invasive, less reliable and more expensive than the breath test,
and which requires sedation for a day or more that leaves the
patient feeling drowsy. As of the hearing, AmeriHealth had not
decided whether the breath test procedure is a “covered ser-
vice,” and therefore the physicians have been unable either to
obtain precertification and reimbursement from AmeriHealth or
to bill patients directly for the procedure.
AmeriHealth points out that its Patient Care Management
utilization rules do not control the physicians’ medical care
decisions, only AmeriHealth’s “coverage” for decisions. Ac-
cording to the Physician Managed Care Agreement, “Nothing
in this Agreement, including Physician’s participation in the
Quality Management and Utilization Management process,
shall be construed to interfere with or in any way affect Physi-
cian’s obligation to exercise independent medical judgment in
rendering health care services to Participants.” If a physician
believes that it is in the patient’s best interest to receive services
at a site that is not approved by AmeriHealth, or receive ser-
vices that AmeriHealth has decided are not “medically neces-
sary,” the patient is free to follow the physician’s recommenda-
tion, but AmeriHealth will not pay for the services. Ameri-
Health provides physicians with a form entitled “Member Con-
sent for Financial Responsibility for Unreferred/Non-Covered
Services.”
The Physician Managed Care Agreements provide that the
physicians “shall cooperate with any formulary adopted by
AmeriHealth HMO and HMO Program Requirements regard-
ing the substitution of generic pharmaceuticals.” AmeriHealth
gives all physicians a “Prescription Drug Formulary,” which
applies to medications dispensed to outpatients by participating
pharmacies (but not to inpatient medications or medications
obtained from, or administered by, the physicians themselves).
The Formulary is designed to “substantially reduce costs asso-
ciated with [AmeriHealth’s] prescription program.” According
to the Formulary:

Physicians are expected to comply with the Drug For-
mulary when prescribing medications for participants. If a
pharmacist receives a prescription for a non-formulary
medication, the pharmacist is expected to contact the phy-
sician to request a change to a formulary product. If the
physician is unwilling to change, or is unavailable, the
pharmacist will dispense the prescription as written and
record the results of the call. The P&T Committee
[AmeriHealth’s Pharmacy and Therapeutics Committee]
will monitor prescriptions written and dispensed in non-
conformance with the formulary and communicate with
physicians to encourage better compliance with formulary
products.

The Formulary lists drugs by category, and indicates the
relative cost of the drugs within each category. For a number
of specified non-formulary medications, the Formulary desig-
nates “brand interchange drugs” which “produce similar thera-
peutic effects” as the non-formulary medications but not neces-
sarily the same effects. With respect to other medications, the
Formulary directs physicians use a generic equivalent. Certain
medications also require prior authorization, in which case the
physician must provide AmeriHealth with patient clinical in-
formation. At the hearing, physicians testified that Ameri-
Health’s Formulary did not include certain drugs that they be-
lieved were more effective than the Formulary drugs, and that
certain dosage limitations in the Formulary are too low for
some patients. If a physician prescribes a medication not on the
Formulary, or prescribes a name-brand medication rather than a
generic equivalent, or prescribes a dosage above the limit indi-
cated in the Formulary, the member may get the prescription
filled at a pharmacy, but may have a higher copay or have pay
the difference between the cost of the prescribed medication
and the cost of the medication authorized by the Formulary.
According to AmeriHealth’s “Patient Care Management
1998 Program Description,” AmeriHealth uses “Medco” as its
“Pharmacy Benefit Management Company.” In August 1998,
two physicians received similar mailings from Merck-Medco
Managed Care, which identified itself as the manager for
AmeriHealth’s drug benefit program. The letters questioned
the physicians’ continued prescription of Pepcid, a drug used to
treat ulcers, and recommended a different therapy “as a means
to eliminate the need” for the use of Pepcid. The Merck-Medco
letters included “response forms” on which the physicians were
expected to indicate either their agreement with the recommen-
dation or their reasons for continuing the Pepcid treatment.
One physician testified that he receives such letters regularly,
and when he does he reviews the relevant patient chart to de-
termine whether Merck-Medco’s recommendation are appro-
priate, but he follows the recommendation only 10 percent of
the time. Another physician’s billing manager testified that
when her office receives such mailings, the physician’s office
responds by requesting a fee for the physician to review the
patient’s medical records, and that Merck-Medco never pays
the fee and the physician never performs the review. The re-
cord does not indicate whether AmeriHealth has taken any
action against physicians for failing to adhere to the Formulary
or follow Merck-Medco’s recommendations.
State Regulation
New Jersey law requires that HMOs “establish and imple-
ment a comprehensive utilization management program to
monitor access to and appropriate utilization of health care and
services” (N.J.A.C. 8:38–8.1(a)), and that provider contracts
specify that providers “shall comply with the HMO’s quality
assurance and utilization review programs.” (N.J.A.C. 8:38–
15.2(b)7) For the most part, New Jersey law does not dictate
HMOs’ treatment policies, protocols, quality assurance activi-
ties or utilization management decisions, but only requires that
they be “based on generally accepted standards of health care
practice.” (N.J.S.A. 26:2S–6a)
AMERIHEALTH INC./AMERIHEALTH HMO 881
New Jersey law requires that HMOs have credentialing, “re-
certification” and performance review procedures, but does not
specify the content of these procedures or the standards they
apply, other than the physicians have certain training and li-
censing qualifications. (N.J.A.C. 8:38–4.2) State law requires
that HMOs provide “basic health care services,” but these refer
to general areas of required coverage and several particular
preventive care services (N.J.A.C. 8:38–5.1 et seq.; N.J.S.A.
26:2J–4.3a,–4.4,–4.6), and do not include the range or level of
health care services AmeriHealth assures its members and in-
cludes in its Wellness Guidelines and Clinical Practice Guide-
lines. The State sets minimum requirements for PCP availabil-
ity that are echoed in AmeriHealth’s Standard of Service, i.e.,
that the HMO and PCPs assume “mutual responsibility” to
ensure emergency and urgent care for members 24 hours a day,
seven days a week and that emergency care be provided imme-
diately, that urgent care be provided within 24 hours, and that
routine appointments be scheduled within 2 weeks. (N.J.A.C.
8:38–6.2, -15.2(c)2) In most other respects, AmeriHealth’s
Standards of Service and Site Standards are more stringent than
those mandated by State law. The State also requires that
HMOs have a “system-wide continuous quality improvement
program” which includes “specifications of standards of care,
criteria and procedures for the assessment of the quality of
services provided and the adequacy and appropriateness of
health care resources utilized,” but does not dictate what the
standards, criteria or procedures must be. (N.J.A.C. 8:38–
7.1(a)6) State law requires, as part of the “continuous quality
improvement program,” that an HMO have “a mechanism for
evaluating all providers,” but does not mandate the elements of
AmeriHealth’s performance appraisals for PCPs. With respect
to utilization management, New Jersey law requires that any
“utilization management decision” to deny coverage because
the service is “not medically necessary” must be made by a
physician and be based on written clinical criteria and protocols
and generally accepted medical standards. New Jersey does
not, however, require that an HMO precertify procedures, or
deny coverage if its judgment of “medical necessity” differs
from a provider’s judgment. (N.J.S.A. 26:2S–6; N.J.A.C. 8:38–
8.1,–8.3)
Many of AmeriHealth’s quality assurance and utilization
management rules, procedures and standards are derived from
those recommended by the National Committee for Quality
Assurance (NCQA). Contrary to AmeriHealth, though, New
Jersey does not require that AmeriHealth meet NCQA’s stan-
dards. NCQA is a private organization created by the managed
care industry in an attempt at self-regulation. Its mission is “to
provide information to purchasers and consumers of managed
health care to distinguish among plans based on quality,
thereby allowing them to make more informed health care pur-
chasing decisions.” New Jersey’s Department of Health re-
quires that each HMO undergo a “comprehensive assessment
review” every 3 years. (N.J.A.C. 8:38-2.4) As part of that
triennial review, the HMO must submit evidence of its most
recent “external quality audit” by an “external quality review
organization” approved by the State. If the HMO receives ac-
creditation by the external quality review organization, then the
HMO is exempted from examination by the Department of
Health in any area where the review organization’s audit dem-
onstrated substantial compliance with New Jersey’s standards.
(N.J.A.C. 8:38-7.2) In fact, NCQA’s standards are far more
comprehensive and stringent than New Jersey’s standards.
AmeriHealth has chosen to be audited by NCQA and to submit
that audit to meet the State’s requirement, but AmeriHealth is
not required to select NCQA as its auditor. Similarly, Ameri-
Health may avoid examination by the Department of Health by
meeting NCQA’s standards and obtaining NCQA’s accredita-
tion, but again, it is not required to do so.
Negotiability of Contract Terms
AmeriHealth offers the same standard Physician Managed
Care Agreement, with Program Attachments and Addendums,
to all physicians. AmeriHealth agrees to language modifica-
tions in only 2 to 5 percent of its Agreements with physicians,
and then only to modifications in certain provisions of the
Agreement. The only example AmeriHealth provided of an
Agreement where a physician successfully negotiated modified
language was an Agreement with an OB/GYN specialty physi-
cian in a geographic area where there are few such specialists.
There is no evidence that AmeriHealth has negotiated with
individual physicians over its capitation rates, and in fact these
rates are set forth in the Office Manual. AmeriHealth offers
and generally obtains agreement to its standard fee for service
schedules, but may enter into “special pricing arrangements.”
As of mid-1998 when AmeriHealth implemented significant
changes in its fee schedule, only about 10 percent of the physi-
cians in southern New Jersey had a “special pricing arrange-
ment.” These enhanced prices may only apply to a few of the
procedures that a “special price” recipient performs. Ameri-
Health grants these arrangements where it believes that it needs
to have a particular physician or group of physicians in the
network. AmeriHealth Provider Relations Vice President
Glenn Chong testified that AmeriHealth never refuses to dis-
cuss fees with a physician. Physicians and their staff testified
that they felt unable to negotiate over contracts or fees with
AmeriHealth because the terms were presented to them by
AmeriHealth representatives as nonnegotiable, but the record is
unclear as to what efforts these physicians or their staffs made
to negotiate.
AmeriHealth’s standard Physician Managed Care Agreement
limits the physicians’ ability to negotiate prices by limiting the
information available to them about what AmeriHealth pays
other physicians. According to the Agreement, “Physician
agrees to maintain the confidentiality of all information related
to fees, charges, expenses and utilization derived from, through,
or provided by AmeriHealth.” When one physician sought to
negotiate over fees and asked Provider Relations Vice President
Chong whether AmeriHealth’s offer to him was consistent with
other offers AmeriHealth had made, Chong replied that he “was
not at liberty to talk about that” because “fees are a private
matter.”
According to AmeriHealth’s standard Physician Managed
Care Agreements, AmeriHealth promises to reimburse physi-
cians for fee for service care based on AmeriHealth’s fee
schedule “in effect” at the time of the service. AmeriHealth’s
fee schedules are subject to unilateral modification. At the end
of May 1998, AmeriHealth announced to 90 percent of the unit
physicians, i.e., those who did not have “special pricing” fee
arrangements, that a new fee schedule would be effective on
July 1, 1998. Some of the new fees were higher, but many
were substantially lower than the pre-July 1998 fees. One set
of “sample fees” for general surgery and vascular surgery
showed reductions for all but two of the procedures listed, and
the fee reductions ranged as high as $476. For example,
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 882
AmeriHealth’s reimbursements for various bypass grafts were
all reduced, with the reductions ranging from 8 to 31 percent.
The record revealed four instances where physicians ob-
tained from AmeriHealth offers to make changes to the July
1998 fee schedule, though the record does not indicate how
significant those changes were. One surgeon responded to the
new rates by sending a notice of termination. AmeriHealth
replied by making him an offer that varied from the new fee
schedule. The surgeon made efforts to negotiate higher rates
by, among other things, demanding the same “special pricing”
fee schedule paid to another local physician, but AmeriHealth
refused. The surgeon ultimately agreed to AmeriHealth’s offer.
One OB/GYN specialty physician was granted fee revisions for
10 procedures. Another specialty physician received an offer to
revise the new fees for certain procedures and patients, but the
physician’s practice group rejected the offer and terminated its
relationship with AmeriHealth. Yet another physician’s prac-
tice objected to AmeriHealth that the newly imposed fee sched-
ule was “below Medicare rates.” AmeriHealth responded with
an offer to increase the fee schedule to “Medicare rates.”
Discussion
Section 2(3) of the Act provides that the term “employee”
shall not include “any individual having the status of an inde-
pendent contractor.” Recently, in Roadway Package System,
326 NLRB 842 (1998), the Board reexamined the test for de-
termining whether an individual is an employee or an inde-
pendent contractor. The Board observed that the Supreme
Court in NLRB v. United Insurance Co. of America, 390 U.S.
254 (1968); Community for Creative Non-Violence v. Reid, 490
U.S. 730 (1989); Nationwide Mutual Insurance Co. v. Darden,
503 U.S. 318 (1992); and NLRB v. Town & Country Electric,
516 U.S. 85 (1995), applied the traditional common law of
agency standard, and the Board concluded that it had no author-
ity to apply a different one. The multifactor common-law
analysis, articulated in terms of masters and servants, is set
forth in the Restatement (Second) of Agency, Section 220, pp.
485–486 (1958):

(1) A servant is a person employed to perform services
in the affairs of another and who with respect to the physi-
cal conduct in the performance of the services is subject to
the other’s control or right to control.
(2) In determining whether one acting for another is a
servant or an independent contractor, the following mat-
ters of fact, among others, are considered:

(a) the extent of control which, by the agreement,
the master may exercise over the details of the work;
(b) whether or not the one employed is engaged in
a distinct occupation or business;
(c) the kind of occupation, with reference to
whether, in the locality, the work is usually done under
the direction of the employer or by a specialist without
supervision;
(d) the skill required in the particular occupation;
(e) whether the employer or the workman supplies
the instrumentalities, tools, and the place of work for
the person doing the work;
(f) the length of time for which the person is em-
ployed;
(g) the method of payment, whether by the time or
by the job;
(h) whether or not the work is a part of the regular
business of the employer;
(i) whether or not the parties believe they are creat-
ing the relation of master and servant; and
(j) whether the principal is or is not in business.

The Board in Roadway Package System rejected the argument
that the predominant factor in the analysis is whether an em-
ployer has a “right to control” the manner and means of the
work performed by the individual whose status is at issue:

While we recognize that the common-law agency test de-
scribed by the Restatement ultimately assesses the amount or
degree of control exercised by an employing entity over an
individual, we find insufficient basis for the proposition that
those factors which do not include the concept of “control”
are insignificant when compared to those that do.

Roadway Package System, supra, 326 NLRB 842, 850 (1998).
Noting that the Restatement factors are not exclusive, and spe-
cifically permit the consideration of other relevant factors, the
Board stated that the test “encompasses a careful examination
of all factors and not just those that involve a right of control.”
In summary, the Board held that “in determining the distinction
between an employee and an independent contractor under
Section 2(3) of the Act, we shall apply the common-law agency
test and consider all the incidents of the individual’s relation-
ship to the employing entity.” Id.
The Board’s application of this test is often difficult, and is
complicated by the fact that, as noted by the Restatement’s
drafters, the policies underlying employment-related statutes
such as the Act “have not much in common with the policies
underlying the rules” of common-law agency. Restatement,
supra at § 3. The language of Section 2(3) expressly excluding
“independent contractors” from the Act’s protections was
added by amendment in the 1947 Labor Management Relations
Act (the Taft-Hartley Act) because Congress disagreed with the
broader definition of “employee” applied by the Board and
Supreme Court in NLRB v. Hearst Publications, 322 U.S. 111,
126 (1944). In that case, the Court held that the standard
should be consistent with the Act’s purposes “to encourage
collective bargaining and to remedy the individual worker’s
inequality of bargaining power” by protecting the exercise of
freedom of association, self-organization, and designation of
representatives. Subsequently, the Court held in NLRB v.
United Insurance Co., supra, 390 U.S. at 256, that the Taft-
Hartley amendment mandated application of the narrower
common-law definition. In contrast to the labor policy-related
standard applied in Hearst Publications, the common-law rules
of masters and servants are concerned with tort liability. The
relation of master and servant is a particular form of agency,
which the Restatement addresses in order to set forth the unique
liability of a master for harm caused to third persons by the tort
of a servant, and the special tort-related duties and immunities
between masters and servants. Restatement, supra at §13, 479–
480, 480–481. The Restatement distinguishes between ser-
vants, who are a kind of agent, and independent contractors,
who may or may not be agents and to whom the tort rules of
masters and servants do not apply. Id. at § 12–14.
Thus, the legal issue presented in the instant case is not
whether collective bargaining by the unit physicians would
benefit them or their patients, or whether “inequality in bar-
gaining power,” if it exists, between the physicians and Ameri-
Health could be remedied by the Act’s protections. Nor is the
AMERIHEALTH INC./AMERIHEALTH HMO 883
issue whether the physicians have become agents of Ameri-
Health in its efforts to control health care costs. Rather, the
issue is whether the physicians, in their work for AmeriHealth,
are so integrated with and controlled by AmeriHealth that they
meet the statutory definition of employees which, in turn, is
based on the common-law definition of “servants.”
The Board’s recent decisions in Roadway Package System
and Dial-A-Mattress Operating Corp., 326 NLRB 884 (1998),
which issued the same day, addressed the status of pickup and
delivery drivers and owner-operators, questions the Board has
faced in numerous cases over the years. As the Board noted in
its Decision on Review, in the instant case, “the issue of the
relationship between physicians and HMOs is raised for the
first time.” While it may seem anomalous to consider whether
a licensed and practicing medical doctor could possibly meet
the definition of a “servant,” the Restatement cautions against
drawing conclusions from the everyday use of the term:

As stated more fully in Section 220, the term servant does not
denote menial or manual service. Many servants perform ex-
acting work requiring intelligence rather than muscle. Thus
the officers of a corporation or a ship, the interne in a hospital,
all of whom give their time to their employers, are servants
equally with the janitor and others performing manual labor.
[Restatement, supra at § 14.]

The definition of servants [in the Restatement] is based on the
theory that they are a particular kind of agent; . . . that persons
who are doing things for others are servants if there is the very
close economic relation and control described in this Section;
and, that this is true whether or not the persons are primarily
engaged to do manual work or to make contracts. Indeed,
fully employed but highly placed employees of a corporation,
such as presidents and general managers, are not less servants
because they are not controlled in their day-to-day work by
other human beings. Their physical activities are controlled
by their sense of obligation to devote their time and energies
to the interests of the enterprise. [Id. at 478–479]

In its Decision on Review in the instant case, the Board noted
that “[t]he physicians working with HMOs maintain their own
offices and staffs and are not ‘as obviously employees as are
production workers in a factory,’” but that “the HMOs place
certain conditions and restrictions on the physicians which
indicate that they do not have the independence normally asso-
ciated with an independent contractor.” The Board expressed
particular interest in the development of a record on the extent
to which HMOs control “the physicians’ delivery of health care
services and access to patients.”
The record establishes that AmeriHealth controls, or has the
right to control, many details of the services the physicians
deliver to AmeriHealth members pursuant to the physicians’
contractual relationships with AmeriHealth. See Restatement,
supra, Section 220(2)(a). To begin with, the physicians must
accept and treat AmeriHealth members who select the physi-
cians or are referred to them. Though PCPs can opt to limit
their panel size after it reaches a minimum of 150, they must
continue treating the AmeriHealth patients they have. As the
Physicians Managed Care Agreement automatically renews
each year, a physician’s obligation to treat AmeriHealth pa-
tients continues indefinitely, until either party terminates the
Agreement. See Restatement, Section 220(2)(f). AmeriHealth
has only rarely terminated Agreements. The record does not
indicate how often physicians terminate Agreements, but sug-
gests that they are generally unwilling to do so for fear of los-
ing their AmeriHealth patients.
In providing services to AmeriHealth members, the physi-
cians are required to adhere to detailed standards of service and
site standards for their office facilities, equipment, accessibility,
safety practices and recordkeeping. Some of these standards
appear to be State-mandated minimums or generally-followed
professional standards. Others are AmeriHealth’s own stan-
dards, such as the maximum number of patients a physician
may see each hour, the size of the patient waiting room, and the
maximum length of time a patient may be kept waiting there.
AmeriHealth also expects physicians to adhere to its Wellness
Guidelines for preventive care and Clinical Practice Guidelines
for treating certain medical conditions. AmeriHealth monitors
adherence to its Standards and Guidelines through recredential-
ing site visits and record reviews for PCPs and high-volume
specialty physicians, and annual performance reviews and ap-
praisals of PCPs. AmeriHealth attempts to enforce compliance
through performance improvement plans and the threat of ter-
mination. Indeed, the physicians’ Agreements with Ameri-
Health give AmeriHealth the unilateral right to terminate the
contract for “contract breach” if the physician fails to adhere
AmeriHealth’s rules, standards or guidelines. To date, Ameri-
Health has not exercised such a right of termination, and does
not regularly monitor adherence to its quality assurance stan-
dards and guidelines by most specialty physicians. However,
the common law agency test examines a master’s right to con-
trol, and not just his exercise of control. See Restatement, Sec-
tion 220(1). Here, AmeriHealth’s standards and guidelines
apply to all physicians, as do AmeriHealth’s contractual rights
of access and inspection. Though a few of AmeriHealth’s
guidelines and standards are mandated by State law, most are
unilaterally determined by AmeriHealth.
On the other hand, the record does not support the Peti-
tioner’s assertion that “what goes on” in the physicians’ offices
is “closely monitored and regulated by AmeriHealth.” (P. br.
77.) At most, AmeriHealth representatives visit physician of-
fices for a few hours once every year or two, and even then
they only conduct random spot checks of patient records.
Many physicians never receive any site visits. AmeriHealth
requires that it be notified of services rendered and have access
to the physicians’ records of such services, but AmeriHealth’s
standards and guidelines do not attempt to control or supervise
the manner in which the physicians or their staffs actually per-
form the medical procedures and tests for which AmeriHealth
pays them. AmeriHealth does not observe the physicians or
their staffs providing medical care, and, as a practical matter,
has no way of doing so. The Agreements require that the phy-
sicians provide services to members “with the same standard of
care, skill and diligence customarily used by similar physicians
in the community,” but AmeriHealth does not define that stan-
dard or, as far as the record indicates, attempt to enforce it. For
the most part, the medical procedures involved in this case are
not performed “under the direction” of AmeriHealth, but “by a
specialist without supervision.” See Restatement, Section
220(2)(c).
AmeriHealth controls, through its Patient Care Management
program, a wide variety of decisions about what services physi-
cians may provide pursuant to their contracts with AmeriHealth
(i.e., services for which AmeriHealth will pay them). Ameri-
Health determines the sites where certain services must be per-
formed in order to be covered. Through precertification, con-
DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD 884
current review and other case management procedures, Ameri-
Health reviews the “medical appropriateness” or “necessity” of
procedures recommended by physicians. AmeriHealth also
requests and monitors compliance with its Drug Formulary.
Notwithstanding this evidence of control, the record does not
support the Petitioner’s assertion that physicians “must get the
approval from AmeriHealth for every significant step in the
process of treating a patient.” (P. br. 76; see also br. 80) Many,
if not most procedures performed by the physicians currently
require no precertification. In particular, many routine referrals
to specialty physicians are controlled by PCPs, not Ameri-
Health. However, AmeriHealth unilaterally sets the scope of its
precertification requirements. The set of procedures it reviews
is neither mandated nor controlled by State law, and Ameri-
Health is free to expand the requirements to encompass other
services. Although AmeriHealth ultimately approves most
precertification requests, it retains the right to deny them.
As noted above, the record fails to support the Petitioner’s
assertion that AmeriHealth and other HMOs control the physi-
cians’ access to patients. (P. br. 6, 13, 78–79, and 93) Ameri-
Health’s market share of insured patients in Atlantic and Cape
May Counties is less than 10 percent. HMOs have enrolled
about 35 percent of the insured population nationwide, though
no figures on Atlantic and Cape May Counties were offered
into evidence. Given current trends, these market shares may
increase, but at the present time there are many insured patients
who are not enrolled with AmeriHealth or any other HMO.
Not all physicians in Cape May and Atlantic Counties have
signed contracts with AmeriHealth. Some who signed, includ-
ing one of the six physician witnesses at the hearing, have ter-
minated their relationships. It may be true that, in the short-
term, an HMO controls access to the HMO’s own members
because members are unlikely to use out-of-network providers,
but there appears to be considerable movement of patients be-
tween plans, and physicians appear to have some, albeit lim-
ited, influence on where they move. At any rate, the petitioned-
for physicians do not exclusively rely on AmeriHealth’s mar-
keting to obtain patients, but instead advertise and promote
themselves on their own, and add new lines of services to at-
tract patients and increase revenues.
In addition, the physicians maintain their separateness from
AmeriHealth. See Restatement, Section 220(2)(h). Ameri-
Health has no direct financial interest in the physicians’ prac-
tices. The physicians are free to contract with other insurance
companies, including competing HMOs, and all or nearly all
have done so. In fact, AmeriHealth patients account for only a
small portion of the medical services the physicians provide.
Physicians are also free to provide noncovered services to
AmeriHealth members, if the members are willing to pay for
them. The physicians advertise and do business in their own
names or the names of their practices, and not in AmeriHealth’s
name. They compete for patients against other physicians
within AmeriHealth’s network. The physicians are highly
skilled professionals engaged in a distinct occupation who re-
ceive no training from AmeriHealth. See Restatement, Section
220(2)(b) and (d). As members of their profession they must
abide by standards and ethical rules apart from any require-
ments that AmeriHealth may impose. They do not work at
AmeriHealth’s facilities, but instead supply “the instrumentali-
ties, tools and the place of work.” See Restatement, Section
220(2)(e). Thus, the physicians lack the “close economic rela-
tion” and integration with AmeriHealth that would support a
finding of employee status. See Restatement, supra at 479.
The physicians also make important business decisions that
affect the profitability of their practices. AmeriHealth pays
physicians not “by the time” but “by the job.” See Restate-
ment, Section 220(2)(g). The physicians receive a flat rate
either per member/per month under capitation or per service
under fee for service, while they are responsible for all the ex-
penses of their practices. Thus, physicians have the opportunity
to use their professional and business judgment to operate effi-
ciently to maximize their profits or compensation. They decide
whether they will associate with other physicians, and how
their practices will be organized and owned. Beyond Ameri-
Health’s very basic equipment and facility requirements, the
physicians make all decisions about how many locations to
operate, what facilities and medical equipment to use and
whether to purchase or lease them. Physicians are free to ex-
pand their facilities, offer new services, contract their practices
or sell them. They decide how many staff members to employ,
determine their duties and compensation, and supervise them.
Other than having to meet AmeriHealth’s minimum office
hours requirements, the physicians set their own hours. Physi-
cians use payroll and billing services, accountants, lawyers, and
business consultants to assist them in managing their practices.
They make investment decisions, and decide how much they
will be compensated after other practice expenses are paid.
Finally, the record does not support the Petitioner’s assertion
that “the physicians do not have a meaningful opportunity to
negotiate over the terms, or the fees provided by AmeriHealth
for their services.” (P. br. 13; see also P. Br. 77, 95–96 )
Clearly, AmeriHealth attempts to maintain a standard fee struc-
ture and discourages individual negotiations. Nonetheless, it
has negotiated “special prices” with 10 percent or more of the
physicians. For many physicians, AmeriHealth can impose its
own price schedules, as evidenced by AmeriHealth’s unilateral
imposition of fee for service reductions in July 1998. However,
in response to those new fees a number of physicians sought
and obtained revised offers from AmeriHealth. The Board
found in Dial-A-Mattress Operating Corp., supra, 893 that the
owner-operators in that case had “freedom to negotiate special
deals” because the record showed that some had done so, and
that this freedom did not “become illusory simply because Dial
rejected offers from other owner-operators under different cir-
cumstances.”
The Petitioner advances another argument in support of its
position that warrants consideration. It contends that the physi-
cians’ dealings with other HMOs should not be considered a
factor weighing against a finding of employee status. Rather,
the Petitioner argues, the physicians are “in effect, part-time
employees of several different HMOs.” (P. br. 11, fn. 20) By
this argument, the physicians are employees of AmeriHealth
with respect to the work they perform for AmeriHealth patients,
and perhaps also employees of other HMOs with respect the
work they perform for the other HMOs’ patients.
In Town & Country Electric, supra, 516 U.S. at 94–95, the
Supreme Court applied common-law agency doctrine in hold-
ing that an individual may be a statutory employee of two em-
ployers at the same time, so long as service to one does not
involve abandonment of the service to the other. See Restate-
ment, supra, Section 226. The Board has found individuals to
be employees of an employer, even though the employees may
perform the same work for others during the same period.
AMERIHEALTH INC./AMERIHEALTH HMO 885
Thus, for example, the Board found that contract photographers
for a newspaper were employees and not independent contrac-
tors, despite the fact that they were paid a fixed sum per as-
signment, used their own camera equipment and supplies, cov-
ered their own expenses for local assignments, had discretion to
determine the manner in which assignments were performed,
and were free to sell their work to others. The News-Journal
Co., 227 NLRB 568, 570–572 (1976). However, unlike the
physicians in this case, the photographers were not allowed to
sell their work to the employer’s competitors. They were also
guaranteed a minimum number of assignments per week, and
regularly used the employer facilities for darkroom work.
The facts of the instant case are more similar to the relation-
ship between the advertising agency and the freelance adver-
tisement photographers who were found to be independent
contractors in Young & Rubicam International, 226 NLRB
1271 (1976). Those photographers, like the physicians in this
case, were highly skilled professionals with particular special-
ties. They rented and maintained their own facilities at their
own expense, invested in expensive photographic equipment,
employed their own employees whom they compensated with
wages and benefits, were incorporated as businesses, retained
agents, and ran advertisements to promote their businesses, and
were paid a flat fee for most assignments. The photographers’
work was often closely monitored and supervised by art direc-
tors for the advertising agency so as to achieve the agency cli-
ent’s desired result. However, the technical means by which
the photographers carried out the art directors’ instructions
were left to the photographer. The Board found that the charac-
ter of the freelance photographers’ operations was essentially
entrepreneurial, in that they received a flat fee from which they
had to cover a number of unreimbursed expenses over which
the photographer, and not the advertising agency, had control.
In concluding that the photographers were independent contrac-
tors notwithstanding the control exercised by the artistic direc-
tors, the Board quoted from an earlier decision:

When one engages a contractor to build a house, the contrac-
tor does not become any less independent because the pur-
chaser determines the kind of house, where it is to be placed,
the kind of materials to be used, the times of construction, or
even the times of day when building shall take place.

Id. at 1275, quoting from Associated Musicians Local 16 (The
Manor), 206 NLRB 581, 589 (1973), enfd. 512 F.2d 991 (D.C.
Cir. 1975). See also DIC Animation City, 295 NLRB 989
(1989); Big East Conference, 282 NLRB 335 (1986), enfd. 836
F.2d 143 (3d Cir. 1987); Boston After Dark, 210 NLRB 38, 42–
43 (1974); and WFMF, 198 NLRB 923 (1972).
In the instant case, the record evidence describes a complex
relationship between an HMO and private practice physicians
where, previously, no similar relationship existed. Applying
the common-law of agency standard set forth in the Restate-
ment, I find that while AmeriHealth controls, or has the right to
control, which particular health care services the physicians
provide AmeriHealth members that will be covered by Ameri-
Health’s insurance plans, AmeriHealth lacks substantial control
“with respect to the physical conduct in the performance of the
services” the physicians provide. The means by which the
physicians examine patients, administer screens, diagnose ill-
nesses, and perform procedures, are generally left to the physi-
cians’ discretion. Although the physicians’ relationship with
AmeriHealth is continuing and indefinite in duration, the physi-
cians retain their economic separateness from AmeriHealth.
They are engaged in a distinct occupation and practices that
exist independently of AmeriHealth, and do business and ad-
vertise in their names. They are skilled specialists who supply
the instrumentalities and tools of their trade, and who perform
the work at their own facilities without AmeriHealth’s supervi-
sion. They are paid fees “by the job” from which they must
cover a wide variety of unreimbursed expenses, including the
wages and benefits of their own employees. It is the physi-
cians, and not AmeriHealth, who control these expenses.
While the economics of the industry may be changing, the re-
cord shows that the physicians in this case retain wide entre-
preneurial discretion in how they run their practices and make
profits. The physicians’ activities are not “controlled by their
sense of obligation to devote their time and energies to the in-
terests” of AmeriHealth’s enterprise, but to the interests of their
patients and practices. See Restatement, supra at § 479. Ac-
cordingly, I find that the factors of the common-law agency test
weigh heavily in favor of independent contractor status for the
petitioned-for physicians, and conclude that the physicians are
not employees of AmeriHealth but are independent contractors
within the meaning of the Act.
ORDER
IT IS ORDERED that the petition filed here be, and it is, dis-
missed.