FTC to doctors: Price fixing won't fly

The Feds are cracking down against "price-fixing" by doctors. A top enforcer explains how. And the AMA's president-elect responds.

By Wayne J. Guglielmo
Senior Editor

Tread carefully in fee negotiations with health plans. The Federal Trade Commission is stepping up its scrutiny of possible antitrust abuses, and it's setting its sights not only on hospitals and pharmaceutical companies, but on physician practices, as well.

To find out more about recent enforcement efforts, we spoke to the government's point man—Jeffrey W. Brennan, assistant director of the FTC's Bureau of Competition, who's responsible for the Health Care Services and Products Division. We also got Brennan's reaction to several other issues: doctors' charges that the playing field is tilted in favor of the managed care industry, the AMA's most recent study of US health insurance markets, and the sticky subject of "clinical integration"—attempts by doctors to deliver services and share clinical information in a coordinated fashion.

What triggered the FTC's recent scrutiny of physician practices?

Brennan: The Commission has a long history of antitrust enforcement in health care. When he took office in June 2001, FTC Chairman [Timothy J.] Muris said that among his top agenda items was a strong emphasis in this area. As part of those efforts, the division I'm responsible for has been investigating agreements by otherwise competing doctors to collectively negotiate rates with health care plans. In the last year, the Bureau of Competition has brought a number of cases, in different parts of the country, that involve physicians engaged in what seemed to us to be pretty overt price-fixing.

Generally, if there's legitimate integration that results in certain efficiencies, then collective price setting, under the right set of circumstances, might be justified. But where there's no integration, as in these law-enforcement cases, we're simply left with competitors agreeing on prices—and that's illegal.

One of the higher profile cases the FTC brought was against System Health Providers in Dallas/Fort Worth and its parent corporation Genesis Physicians Group. What conduct were you looking at?

Brennan: My colleagues in our New York regional office handled that case. The Commission, which challenged alleged agreements on price by physicians who were competitors, reached a consent agreement to settle the charges. The Commission's complaint alleges that more than 1,200 physicians used their nonintegrated membership organization to fix prices and other contract terms, to bargain on the physicians' behalf with health plans for more lucrative terms, and to refuse to deal with payers that did not meet their collective contract demands. The consent order requires the physicians to cease and desist from the allegedly illegal conduct, terminate the payers' contracts that were allegedly obtained through collusion, and take various steps to comply with the order.

Last year, the FTC gave a tentative green light to MedSouth, a Denver-based IPA that wanted to negotiate jointly on fee-for-service contracts with local managed care plans. What was different in that case?

Brennan: We issued a staff advisory opinion in response to MedSouth's inquiry into whether FTC staff would recommend a law enforcement action if it went ahead with a plan to form a joint venture. In the plan, the doctors will partially integrate their medical practices and then negotiate as a single group for health plan contracts.

Looking at all the information we received, we concluded that the proposed venture would not amount to per se illegal price fixing. We were satisfied that—given the [clinical] integration MedSouth was proposing and its potential for increasing quality or lowering costs—joint price setting would likely help the overall plan work. We were also assured that the group would be non-exclusive—that is, individual members would be able to contract on their own, apart from the group.

Given all this, we believed the venture justified a more elaborate "rule of reason" treatment—by which we look at all the facts [rather than declare the venture a per se violation of antitrust law]. But the proof is ultimately in the pudding. Once the venture gets off the ground, we'll want to know how many physicians participate? Has the integration plan really created significant efficiencies? And, on balance, how does the whole operation affect consumers?

As you know, the AMA puts out a comprehensive study of US health insurance markets. This year, as in the past, doctors charge that many areas are dominated by a few companies that have significant power over the marketplace. What's your reaction?

Brennan: It's worth noting that in Colorado, where we recently settled three physician price-fixing cases, insurer concentration, using AMA data, is on the low end of the scale relative to other states. More generally, I don't think that price fixing by doctors is a necessary and appropriate response to high market concentration that insurance companies might have in different geographical areas. In virtually any market involving buyers and sellers, there will be firms on one side or the other of the bargaining table that have a bigger size and scope. But that doesn't justify collusion by the smaller entities, and the law rightly condemns it.

If physicians want to grow their practices through efficient integration—for example through outright merger or some form of risk-sharing or clinical arrangement that reduces costs or enhances quality—the antitrust laws aren't usually an impediment. But where there is no efficiency generated, then there's no upside for consumers in terms of higher quality or lower cost. To the contrary, experience shows that collusion stifles competition and is bad for the consumer. And consumers are the people that the FTC is here to protect.

The antitrust laws also permit many kinds of legitimate sharing of information, as our recent advisory opinion to Dayton physicians describes. As part of a public campaign, the doctors plan to collect and publish the amounts that insurers have paid in Dayton for various services. Sharing truthful information is usually pro-competition and consistent with the antitrust laws, we advised the doctors, so long as they collect and publish the data in a way that doesn't invite future price collusion.

But doctors would say that the kind of integration proposed by MedSouth, for instance—in which primary and specialty services are delivered in a coordinated fashion and clinical data, practice guidelines, and performance benchmarks are shared—is prohibitively expensive.^* Isn't cost a limiting factor for many physician practices trying to integrate clinically?

Brennan: That could be the case for some physician practices in certain areas. But MedSouth is only one model that was put before us; there could be any number of practice models that create higher quality and lower costs. We do not try to dictate the kinds of integrative arrangements that providers should form. Let the marketplace dictate that. Our job is to ensure there are no inappropriate restraints on competition so that rivalry is vigorous and beneficial to consumers.

Finally, the AMA and other physician organizations in the past have supported legislation that would, in effect, exempt physicians under certain circumstances from antitrust laws governing collective negotiations. What's your reaction to such proposals?

Brennan: The FTC has been consistent in opposing any such exemptions, and I think for very good reasons. The antitrust laws are sufficiently flexible for innovations in the marketplace, without having to create an exemption for patently anticompetitive conduct. Fixing prices leads to higher prices and higher prices injure consumers. Health care consumers should have the same access to competitive markets as consumers in any other industry.

AMA to the FTC: Level the playing field

Recently, we sat down with AMA President-elect Donald J. Palmisano, a New Orleans general and vascular surgeon, and asked him what he thought about recent FTC actions. Palmisano, who's also an attorney and is the AMA's chief spokesman on this issue, has been critical of the FTC's scrutiny of physicians and its comparative lack of scrutiny of health insurance companies and HMOs.

What's the AMA's reaction to the FTC's new get-tough policy?

The AMA wants every physician in America to be ethical and follow the law. Under no circumstance are we telling people to price fix. But there would be no need [for groups] to try to get together and talk to insurers in the first place if there were a level playing field.

The FTC hasn't looked into the [health insurance] market concentration that we describe in the study. The only investigations have been against physicians. Certainly, we're encouraged by the decision by the Department of Justice to look into health plan activities. But the FTC and DOJ can both look into these giant players.

In our opinion, health plans have what is called monopsony power [a variation of the traditional monopoly concept]—the power of a purchaser of services to exploit those providing the services through the fees it pays them. This is illegal—and not in the best interests of anybody, including patients.

What are the effects of this so-called monopsony power on doctors?

If I do a surgery, a health plan can decide what to pay me. I have no choice. This isn't a contract—it's coercion. Similarly, if my partners and I go over a contract and scratch out undesirable clauses, the plans say, "We don't want you." And if you live in an area of town where a large percentage of your practice is controlled by this plan, you're out of business. It's ludicrous.

The MedSouth model—in which doctors negotiate jointly as part of a larger effort to integrate clinical services—has passed initial FTC muster. What's your reaction to this model?

It's a model that's been available since the mid-1990's, when the FTC and the Justice Department issued their combined guidelines. One of our AMA attorneys was a key player in those negotiations. But it's a small step forward. For one thing, there's no guarantee that MedSouth won't be prosecuted down the road. For another thing, clinical integration of this kind is very expensive. MedSouth was able to do it because it has a partner who supplied a lot of the technical resources free of charge. That's not an option for most physician practices, which are small business, run by professional, ethical practitioners.

In 2000, the AMA supported federal legislation that, under certain circumstances, would exempt from antitrust laws physicians who wanted to negotiate jointly. Legislation introduced last year—the Barr-Conyers "Health Care Antitrust Improvements Act"—takes a slightly different tack. Could you explain?

We're not asking to be exempt in this legislation. We're simply asking that, when the FTC looks into physician practices, it takes into account individual circumstances and considers the effect of whatever decision it reaches on quality and access to care. In other words, the FTC should apply the rule of reason when looking at physician joint negotiation. That would be a great step.

^*See "The Feds ease antitrust rules—cautiously," June 21, 2002.

Wayne Guglielmo. FTC to doctors: Price fixing won't fly.

Medical Economics

May 9, 2003;80:85.