FTC snares doctors in price fixing trap

by Skip Oliva on December 31, 2006

The Federal Trade Commission ended its year by prosecuting a 1,900-member physician group in Chicago for price-fixing. Since 2001, the FTC and DOJ have coerced 29 physician groups—some with as few as six members—into signing consent orders that restrict the right of doctors to negotiate contracts.

The FTC and DOJ apply a double standard to doctors and third-party payers. Payers may represent thousands of individual consumers and present doctors with a “take it or leave it” contract offer. But if even a handful of doctors get together to present a counter-offer, it’s a “per se” antitrust violation.


The FTC says they’re trying to protect competition:

The FTC’s complaint challenges conduct during the period 1995 to 2004, during which the respondents collectively negotiated the prices and other contract terms at which their otherwise competing member physicians would provide services to the subscribers of health plans, without any efficiency-enhancing integration of their practices sufficient to justify their conduct. In particular, for a period of time AHP staff negotiated contracts on behalf of each PHO respondent, with each PHO respondent retaining authority to approve offers and counteroffers. Subsequently, AHP was given the authority to approve offers and counteroffers and, ultimately, to approve negotiated contracts on behalf of the AHP physicians, who could then opt in or out of the negotiated contract.

The complaint also alleges that in 2001, AHP terminated its members’ contracts with a health plan that rejected contract proposals for higher fees, and threatened that it would not contract with the plan for hospital services unless it stopped contracting with individual physicians and agreed to a group contract. The resulting contract included fees 20 percent to 30 percent higher than the health plan’s individual physician contracts.

Curiously, the FTC considers the federal government’s price controls for Medicare and Medicaid as the de facto “market price,” and any private contract that pays physicians too much more than the Medicare rate runs the risk of violating the antitrust laws. The FTC also infers “price fixing” if a majority of doctors within a group reject a contract individually, thereby depriving payers the right to unilaterally set (or “fix”) prices.

What’s more telling is how the FTC and DOJ have set a price fixing trap with their regulations governing how physicians may speak to one another about contracts. In 1993, the two agencies adopted a series of policy statements that purport to guide physicians in avoiding antitrust prosecution. Many of the government lawyers who drafted these statements went on to represent physician groups that were later prosecuted by the FTC. In at least a half-dozen cases where I was able to speak with the defendants the same story emerged: Physician groups retained expensive antitrust counsel, the doctors followed the advice they were given, and the FTC later showed up saying they had still broken the law.

FTC staff lawyers have given themselves unilateral authority to decide whether a physician contract is legal or illegal; and more often than not, if doctors don’t accept the first offer made by the insurer, it’s illegal. Former FTC Chairman Timothy Muris spearheaded this policy, in part because he was on the payroll (as an antitrust “consultant”) of several insurance companies just before joining the FTC in 2001.

It’s certainly a huge coincidence than just within the past six years, nearly 30 groups with over 16,000 physician-members have been found to engage in “price fixing.” In contrast, the FTC has never prosecuted a single insurance company for similar behavior, which most non-antitrust lawyers would simply call “negotiating.”

And because the FTC treats physician price-fixing as an administrative matter, defendants must either capitulate to the Commission’s demands immediately or pursue rigged administrative litigation, where the Commission appoints the judge and prosecutors, and acts as the first court of appeal. (Not coincidentally, the FTC has almost never rejected an administrative case it initiated.)

Only one physician group of the 29 prosecuted by the FTC has fought back, North Texas Specialty Physicians. NTSP lost at every stage of the administrative litigation, and more than three years later, the group’s petition for review is now before the Fifth Circuit Court of Appeals. If the Fifth Circuit upholds the FTC’s actions, it would likely discourage any other physician group from even asserting its due process rights in the future.

It must be emphasized that the FTC’s objective is not, contrary to its statements, to protect competition. The FTC’s primary concern is preventing the third-party payer market from paying physicians substantially more than the Medicare price control levels. Free competition would destroy Medicare, and the FTC is part of the same government that administers that program.

Related links:
Doctor-Assisted Price Fixing?
Chart of physician groups prosecuted since 2001

{ 3 comments }

1 Nicolas Martin 12.31.06 at 10:22 pm

If the FTC sincerely objected to anti-competitive medicine, it would start by demanding an end to state licensure and prescription drug laws. Not bloody likely.

2 Ted Mittelstaedt 01.01.07 at 8:25 am

In 1994 I was fully covered by an employer paid Blue Cross HMO and was diagnosed with cancer. I won’t go into the details other than to say my cancer was cured. The total medical bill was something like $200,000 using preferred providers. The HMO disallowed about 50% of this and paid the rest of it. I paid about $1500 total, if that. (I don’t think actually that it was even that high)

This was an example of where the HMO system worked. When I was diagnosed I was a young pup making probably $22K a year. If I hadn’t been covered I would have almost certainly declared bankruptcy and the doctors would have gotten nothing. That time was also probably the height of the HMOs.

Since then I’ve seen every year the HMO out of pocket costs for the patient get higher and higher, the costs for the businesses for managed care plans get higher and higher and more employers dumping managed care plans because they cannot afford them.

Today my employer plan is a standard catastrophic plan and I pay all med costs up to a stop loss of $5K a year. (using preferred providers) There are preferred providers in the traditional plan but very few in my area, and we don’t use them for standard medical services (checkups, etc.) only for major surgical and such. Which effectively means in every year since going out from under the HMO and to the traditional plan I’ve paid 100% of all medical costs. Yet my payroll deductions for the traditional plan are so much lower than under the HMO that my yearly grand total out of pocket medical costs for services plus premiums are lower after employer contributions.

I have directly experienced the best and the worst of the managed health care providers and clearly, if for me, an ex cancer patient, a traditional plan not using preferred providers is today cheaper than a managed plan using preferred providers, then managed care is in my opinion, effectively dead. Most likely most employers and employees under an existing employer paid HMO have not yet run the numbers and realized today that they would get a better financial deal under a traditional plan.

Now, we all presumably know that the only incentive a 3rd party payer has to get a physican group to even consider signing a contract with them is the referrals they would get for being on the preferred provider list. What I am guessing though, is that if a physicians group were to take the revolutionary step of simply not contracting with any 3rd party payer at all for any listing as a preferred provider, and instead take the money they are spending on a billing coordinator to fight with insurance companies all day long and instead spend it on a patient analyst who could help patients to analyse their total medical costs and come up with payment plans on a non-managed insurance plan, that these groups might find themselves making no less money than dealing with the preferred provider system. I wonder if the day of the preferred provider contracts is drawing to a close.

There is no question that today, if I was diagnosed with cancer, I would pay $5K instead of $1.5K for treatment. But so what? The total cost would probably be more like $300K, the HMO would write off 50% and I probably would end up paying more like $3-$4K in nickle and dime charges under the HMO anyhow.

I realize what the FTC is doing with the physicians groups is wrong. But, nobody is holding a gun to anyone’s head and telling them they have to become a doctor. The doctors can simply ignore any contract overtures by any 3rd party payers and be done with it. In my area there’s already a large number of doctors that don’t take medicaid patients, the usual statement they make is “we are not accepting new medicaid patients” and there’s also some doctors that are not on any preferred provider lists on any insurance company, they will only bill your insurance company their rate, and you pay the difference. So my take on it is that the FTC sees all this coming and is fighting a losing battle to hold on to what they got. I’m just glad for now I’m not anywhere near old enough to have to depend on Medicade, it sure looks like the makings of a giant crash and burn for that program.

3 Supremacy Claus 01.01.07 at 9:48 am

Skip: Before a lawyer deletes my comment, quickly read this enacted regulation on disqualification of FTC employees.

http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/cfr_2001/janqtr/pdf/16cfr4.17.pdf

Lawyers stick together. The doctor must insist on an attempt to disqualify the biased FTC lawyer. His defense attorney will never consider this tactic, except under threat of legal malpractice claim by the doctor.

The biased FTC lawyer is the source of his income. Why on earth would the defense attorney want to do anything that would even upset him? Perhaps, they are even friends.

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