FTC Settles Price-Fixing Charges Against Two Separate Physicians' Groups

On December 24, 2008, the Federal Trade Commission (FTC) announced the settlement of two administrative actions, each of which dealt with a different physician group that negotiated fees collectively and refused, or threatened to refuse, to deal with health insurance companies (payers) unless the payers agreed to rate increases. The proposed settlements prohibit the physician groups from engaging in such future conduct and, most notably, provide guidance as to how they may lawfully enter into collective arrangements through clinical and financial integration. In structuring a means of escaping antitrust liability for joint contracting through financial and clinical integration, the FTC again signals its desire for health care organizations to pursue efficiencies in this manner. However, it also underscores that unless a physician group qualifies as a financial risk sharing or clinically integrated joint arrangement, physicians should negotiate fees with payers independently or face serious antitrust risk.

The FTC alleged that the physician groups violated the Federal Trade Commission Act through agreements among competing physicians, acting through the physician groups, to refuse or to threaten to refuse to deal with payers unless they consented to an increase in fees paid to the physician groups’ doctors, which unreasonably restrained price competition and other forms of competition, thereby harming consumers.

These enforcement actions are consistent with, and in furtherance of, the FTC’s health care enforcement priorities over the past several years. The agency views physician joint contracting (absent financial or clinical integration) as a violation of the antitrust laws and has repeatedly demonstrated its willingness to pursue aggressively cases of this nature. At the same time, the FTC recognizes that integration among health care providers can give rise to improvements in patient care and efficiencies in the delivery of care, and has actively encouraged health care organizations to pursue these arrangements with a goal of maximizing benefits for consumers and minimizing harm to competition. In line with this goal, the two settlements discussed below set forth detailed “roadmaps” by which the physician groups may enter into lawful, efficient, and quality-enhancing arrangements that will permit joint contracting where “reasonably necessary” to achieve significant benefits.

In In the Matter of Independent Physician Associates Medical Group, Inc., d/b/a AllCare IPA, the FTC alleged that AllCare IPA, (AllCare), a multispecialty independent practice association with approximately 500 physician members in Modesto, California, restrained competition on fee-for-service contracts in 2005 and 2006. AllCare and its doctors had contracted with preferred provider organizations (PPOs) to provide care on a fee-for-service basis. In these PPO arrangements, the payer compensates the doctors for services in accordance with agreed-upon fee schedules. The FTC alleged that AllCare restrained competition by:

• Facilitating, entering into, and implementing agreements, express or implied, to fix the prices and other terms at which they would contract with payers
• Engaging in collective negotiations over terms and conditions of dealing with payers
• Insisting that AllCare members refrain from negotiating individually with payers or contracting on terms other than those that AllCare approved

As a result of this conduct, many AllCare member physicians did in fact send termination letters to payers thereby ending their individual agreements with the payers.

In In the Matter of Boulder Valley Individual Practice Association, the FTC alleged that from 2001 to 2006, Boulder Valley Individual Practice Association (BVIPA), a multispecialty independent practice association with approximately 365 physicians in the Boulder County, Colorado area, negotiated and signed agreements with payers to increase rates for services. In the course of these negotiations, the FTC alleged that BVIPA threatened payers facing rate increases with contract termination if they refused to negotiate with the group or otherwise respond to the group’s demands. BVIPA purportedly claimed to provide payers with a choice of contracting methods, but BVIPA only utilized the single-signature contract and would only sign the agreement if the new rate was deemed sufficiently high. BVIPA newsletters actively discouraged members from contracting directly with payers, and some of the specialty physician members did, in fact, refuse to contract with payers outside of BVIPA.

The FTC maintained that the conduct of AllCare and BVIPA in collectively negotiating and refusing to deal with payers, without justification, constituted illegal price fixing in violation of federal law. Because neither group engaged in any activity reasonably related to quality or efficiency-enhancing integration (such as sharing financial risk in providing services or collaborating to monitor and modify their practice programs to control costs or ensure quality), the FTC concluded that the groups’ actions had the effect of restraining trade unreasonably and hindering competition.

With the intention of eliminating the illegal anticompetitive conduct alleged in the complaints, the FTC’s proposed consent orders prohibit AllCare and BVIPA from entering into, adhering to, maintaining, or facilitating agreements among or between physicians for all the following purposes:

• To negotiate on behalf of any physician with any payer
• To refuse to deal, or threaten to refuse to deal, with any payer
• To designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payer, including, but not limited to, price terms
• Not to deal individually with any payer, or not to deal with any payer through any arrangement other than one involving AllCare or BVIPA, respectively

The proposed orders do not prohibit, however, any agreement or conduct of either AllCare or BVIPA that is reasonably necessary to form, participate in, or further a qualified risk-sharing joint arrangement or clinically integrated joint arrangement. As defined in the orders, a qualified risk-sharing joint arrangement must satisfy two conditions: (1) all physician participants must share substantial financial risk through the arrangement; and (2) any agreement on fees or terms of reimbursement must be reasonably necessary to obtain significant efficiencies through the joint arrangement. A qualified clinically integrated joint arrangement requires that the physicians:

• Undertake cooperative activities to achieve efficiencies in delivery of clinical services (without necessarily sharing substantial financial risk)
• Establish a high degree of interdependence and cooperation through the use of programs to evaluate and modify their clinical practice patterns
• Only agree on fees or terms of reimbursement where reasonably necessary to obtain significant efficiencies through the joint arrangement

The proposed orders prohibit AllCare and BVIPA from exchanging information among physicians concerning whether, or on what terms, to contract with a payer and from encouraging, suggesting, advertising, pressuring, inducing, or attempting to induce anyone into any actions otherwise prohibited under the orders. The orders require AllCare and BVIPA to notify the FTC before acting as an agent or messenger on behalf of their member physicians for arrangements with any payers, and when contracting with payers on behalf of their member physicians pursuant to qualified risk-sharing or clinically integrated joint arrangements.

Both groups must meet other reporting and monitoring terms as well. AllCare and BVIPA must:

• Terminate certain contracts entered into illegally (absent a payer’s request for an extension)
• Allow the FTC access to information, records, and employees upon request to ensure compliance with the orders
• File verified written reports regarding their individual compliance with the orders for three years

Both orders will expire 20 years after becoming effective. The FTC is accepting comments on the orders for 30 days, until January 22, 2008, at which point it will decide whether to make the orders final.

While the FTC recognizes that integration among health care providers can improve patient care and efficiencies in the delivery of care, the proposed orders reinforce prior precedent indicating that unless a physician group qualifies as a risk-sharing joint arrangement or clinically integrated joint arrangement, physicians should independently negotiate fees with payers or face serious risk of antitrust liability.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Authors

David W. Simon
Milwaukee, Wisconsin
414.297.5519
dsimon@foley.com

Heather Holden Brooks
Milwaukee, Wisconsin
414.297.5711
hbrooks@foley.com

Elizabeth A. N. Haas
Milwaukee, Wisconsin
414.297.5083
ehaas@foley.com

Additional Contacts

James T. McKeown
Milwaukee, Wisconsin
414.297.5530
jmckeown@foley.com

Michael A. Naranjo
San Francisco, California
415.984.9847
mnaranjo@foley.com

Chris E. Rossman
Detroit, Michigan
313.234.7112
crossman@foley.com

J. Mark Waxman
Boston, Massachusetts
617.342.4055
jwaxman@foley.com