A New Mexico physicians’ association, its executive director and several physicians have agreed to a settlement with the Federal Trade Commission over charges that they agreed to fix prices and refused to deal with payers who would not accept certain terms.
The FTC had alleged that the Carlsbad Physician Association, or CPA; several physicians who were CPA members; and CPA’s executive director had violated Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition.
The Federal Trade Commission continues to pursue efforts that appear to constitute fee fixing.
According to the FTC’s complaint, CPA’s contract committee negotiated and reviewed proposed payer contracts before presenting contract information to CPA’s physician members. If a majority of the CPA physician members voted to approve a contract, the CPA’s Board of Directors would sign the agreement on behalf of CPA members.
CPA consisted at the time of about 38 physician members in Carlsbad, N.M. Approximately 83 percent of the primary care physicians and 76 percent of all physicians who practice in the Carlsbad area are members of CPA. The FTC complaint noted that since the closest major city was 75 miles away, health insurance plans must include a significant number of Carlsbad physicians in their networks to be competitive.
In its complaint, the FTC noted that CPA did not transmit any payer’s contract offer to CPA members unless the CPA contract committee had approved the contract terms. The complaint indicates that CPA had misrepresented itself as operating under the "messenger model." The messenger model permits health care providers in nonfinancially integrated networks to share information on acceptable fee and other provider contract terms with a third party who acts as a messenger and conveys this information to the payer offering the contract.
The messenger may not share the terms that are acceptable to each provider with other providers. The payer may then make individual contract offers to the providers through the messenger, and each provider can then make an independent decision on whether to sign the contract. The FTC and the U.S. Department of Justice, or DOJ, have indicated, in their joint Statements of Antitrust Enforcement Policy in Health Care, that they will be unlikely to challenge providers utilizing the messenger model.
However, the DOJ/FTC statements make it clear that this "antitrust safety zone" will not extend to any actual or threatened boycott of a plan that refuses to follow the providers’ recommendations, or to any attempt to coerce a plan to accept collectively determined fees or other reimbursement terms.
After the CPA contract committee and executive director negotiated contract terms acceptable to them, the FTC complaint alleged, they would present the contract to the CPA membership for a vote and recommend to the members whether they should accept the contract. The members usually followed those recommendations, the complaint states.
Furthermore, the FTC complaint charged that CPA members decided at general membership meetings whether to allow existing payer contracts to renew automatically, and whether to permit contract negotiations with payers to move forward. In addition, the complaint claimed that at these meetings CPA physicians often agreed on the fees they would demand from payers, and agreed to terminate contract negotiations with payers perceived to be making low-fee offers.
The FTC complaint also alleged that CPA members refused to consider contract offers made to them individually. Consequently, CPA had significant bargaining power with payers, and the complaint charged that payers had repeatedly agreed to CPA’s demands for "supracompetitive fees" for CPA members. The complaint stated that average fees for physicians’ services in New Mexico ranged from 120 percent to 150 percent of the fees established by the Medicare Resource-Based Relative Value System, or RBRVS. The FTC charged that through collective negotiations and threatened refusals to deal with payers, CPA’s physician members had negotiated the highest fees in New Mexico, ranging from 160 percent to 200 percent of RBRVS.
The FTC’s complaint contains specific allegations about CPA’s negotiations with Blue Cross & Blue Shield of New Mexico, Presbyterian Health Plan and United Health Care. The complaint stated that as a result of contract negotiations led by the CPA’s executive director and a CPA member, CPA eventually received fees "substantially in excess of 20 [percent] above Blue Cross’ initial offer." Regarding Presbyterian Health Plan, the FTC complaint states that this plan negotiated with CPA in 1999 and 2002, but that both times Presbyterian rejected CPA’s fee demands.
It is clear that any attempts to negotiate fee terms collectively will be subject to government enforcement actions.
In addition, the complaint describes contract negotiations over a number of years between CPA and United Health Care. The complaint claims that in 1999, CPA’s board and contract committee proposed fees "substantially higher" than those offered by United without conveying United’s offer to CPA members, and that United complained to CPA that it was committing an "FTC violation."
The complaint further alleged that United agreed to CPA’s fee demands in 2000 and entered a group contract with the organization. However, the complaint states, in May 2002, CPA’s members unanimously voted to threaten to terminate the contract unless United agreed to raise the fees paid to CPA members and reinstate a CPA member into its network. Then, in July 2002, CPA members voted unanimously to terminate the contract after United refused to agree to these terms.
The FTC’s complaint charges that CPA’s actions unreasonably restrained competition in that physician fees were increased and health plans, employers and individual consumers were deprived of the benefits of competition among physicians. Under the proposed consent order, the CPA, its executive director and the named physicians would agree to refrain from jointly negotiating on behalf of any physician with any payer over reimbursement or other terms; and from jointly dealing, refusing to deal or threatening to refuse to deal with any payer.
The CPA and other parties also would agree not to exchange or facilitate the exchange of any information regarding any physician’s willingness to deal with a payer, or the terms under which any physician would be willing to deal. The CPA and other parties would be prohibited from encouraging or pressuring any person to engage in activities prohibited by the consent order. Furthermore, for three years after the consent order becomes final, the parties would be prohibited from acting as an intermediary on behalf of any physicians, or using an intermediary who is also an agent for any other physician, in dealing with health plans regarding provider contracts. Finally, CPA would be ordered to cease doing business, and to terminate any existing provider contracts entered into by this organization.
This proposed consent order was the first in a series of similar settlements agreed to by the FTC in recent months. Two such agreements followed the FTC’s proposed settlement with CPA. In one, a nonprofit corporation that contracts with third-party payers for the provision of medical services by its approximately 1,000 participating physicians in the Dallas-Fort Worth metropolitan area agreed to settle similar allegations made by the FTC. The FTC alleged that SPA Health Organization, doing business as Southwest Physician Associates, violated Section 5 of the FTC Act by facilitating and implementing agreements among SPA members on price and other competitively significant terms, refusing to deal with payers except on collectively agreed-upon terms; and negotiating fees and other competitively significant terms in payer contracts and refusing to submit to members payer offers that did not confirm to SPA’s standards for contracts.
The most recent proposed settlement involved Washington University Physician Network, or WUPN, which consists of 1,500 physicians who provide services in the St. Louis area. WUPN’s member physicians sign an agreement appointing WUPN as their agent in contract negotiations with payers. The FTC alleged that WUPN’s joint negotiation of fee and other contract terms—and its refusal to deal with payers except on collectively agreed-upon terms—violated Section 5 of the FTC Act.
Similar to the FTC’s proposed consent agreement with CPA, SPA and WUPN would be prohibited from negotiating on behalf of any physician with any payer over reimbursement or other terms; and from dealing, refusing to deal or threatening to refuse to deal with any payer. SPA and WUPN also would agree not to exchange or facilitate the exchange of any information regarding any physician’s willingness to deal with a payer, or the terms under which any physician would be willing to deal. Furthermore, SPA and WUPN would be barred from encouraging or pressuring any person to engage in activities prohibited by the consent order.
All the proposed settlements reviewed in this article would remain in effect for 20 years after the consent orders are entered. None of the organizations or individuals who would be subject to the consent orders has admitted any wrongdoing.
These proposed consent orders demonstrate that the FTC continues its aggressive pursuit of enforcement actions against health care providers who engage in improper collective negotiation, particularly if those negotiations involve fees. However, as explored in last month’s column, the U.S. Court of Appeals for the Ninth Circuit recently upheld the dismissal of an antitrust lawsuit that involved collective negotiation of nonfee terms of health plan provider contracts.1 In its decision, the Ninth Circuit gave significant weight to several factors:
- – there was no collective negotiation of fee terms or threat of a boycott;
- – the organizations engaging in collective negotiations had no authority to bind individual physicians;
- – individual physicians made independent decisions on whether to sign the contracts at issue.
In contrast, the cases that led to the proposed consent orders reviewed in this article all involved allegations of collective negotiation of fees and refusals to deal by organizations that were acting as the agents for individual physicians.
Thus, members should be aware that the FTC continues to pursue efforts that appear to constitute fee fixing. It is clear that any attempts to negotiate fee terms collectively, particularly when those negotiations are accompanied by collective threats to boycott a company unless proposed fees are increased, will be subject to government enforcement actions.
Any group of dentists contemplating working through an association to raise concerns about nonfee terms of provider contracts—or seeking to implement the "messenger model" of contract negotiations reviewed in this article—is strongly advised to consult counsel with expertise in antitrust law.
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