Blues plan sues physicians who won't join network

Antitrust attorneys are watching the Montana case closely to see if the dispute breaks new legal ground in managed care negotiations and physician-hospital contracting.

By Robert Kazel — Posted Nov. 8, 2004

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Organized medicine has often argued that health plans exert an overwhelming amount of market power over physicians. But BlueCross BlueShield of Montana claims, in a federal antitrust lawsuit against a physician group, that the problem is the other way around.

In response, physicians say the Blues' action is more evidence of plans' willingness to bully physicians to accept their meager terms.

Antitrust attorneys across the nation are watching the progress of the Blues' lawsuit against Missoula Radiology, the only radiology practice in Missoula, Mont. The Blues plan says the suit, which seeks to break up a 12-physician group it calls a "predatory monopoly," is about market competition, not the group's refusal to be part of the plan's network.

But many doctors say if the Blues plan is successful in its case, it could embolden other plans to sue physicians who refuse to sign a contract. In fact, after the lawsuit was filed Sept. 14, a seven-physician neurology group and a six-physician surgery group announced they would drop their Blues contracts, in part to show solidarity with Missoula Radiology.

"They're going to prove with this [suit] they can do it and then subtly make an implicit threat to other groups: 'We can do this to you if you don't join our network,' " said Nick Chandler, MD, president of Missoula Neurological Associates.

Dr. Chandler, who is also chair of InterWest Health, a Missoula PPO that competes with BlueCross, said the suit bothers him from two perspectives. "As a physician it sends chills down my spine, and as a managed care executive I think there are certain business practices that managed care organizations can't ethically adopt."

The Blues is by far the largest managed care plan in the state, with about 93% of Montana doctors in its networks. It also has roughly two-thirds of the state's patients, according to Competition in Health Insurance: A Comprehensive Study of U.S. Markets, published by the AMA. Under guidelines set by the U.S. Dept. of Justice, the state's health insurance market easily qualifies as highly concentrated, thanks to the Blues' dominance.

But the plan is arguing that it's the radiology group, which dropped out of the Blues network in June 2003, that is wielding too much power.

BlueCross, along with four employers and five individuals, argue in their suit that Missoula Radiology exerts monopoly power by, for example, having exclusive contracts to provide radiology services at both of Missoula's hospitals. The plaintiffs also argue that the radiologists' establishment of Advanced Imaging, a scanning center owned jointly by the doctors and Community Medical Center in Missoula, has facilitated price fixing. Advanced Imaging also is a defendant in the lawsuit, filed in U.S. District Court in Butte, Mont.

Blues members, the suit argues, have paid $1.3 million in out-of-pocket rates as a result of Missoula Radiology not being in the Blues network.

The radiologists "have a lock on the market," said Mark Burzynski, vice president of health care management for the Blues plan. "BlueCross has a fiduciary responsibility on behalf of 250,000 Montanans to develop avenues of competition."

Other radiologists can't come into Missoula, the suit claims, because hospitals' and imaging facilities' contracts with Missoula Radiology contain non-compete clauses banning them from doing business with other radiologists. The lawsuit indicates BlueCross wishes to recruit and sponsor radiologists to move to the city.

According to Missoula Radiology president Dan Fruechte, MD, the hospitals' relationships with radiologists have been "exclusive" mainly because the hospitals want them that way. Tom Moser, president and CEO of Community Medical Center, said that "exclusivity has worked well for the hospital because it likes dealing with a single, strong and cohesive practice, he said. Contracting with a relatively large group provides the hospital with 24-hour coverage while allowing the radiologists to be on call less frequently, he added.

Talks break down

Missoula Radiology dropped out of BlueCross because fee negotiations led nowhere, Dr. Fruechte said. To help compensate BlueCross patients for having to pay out-of-network rates to Missoula Radiology, the group has given discounts, he added.

The American Medical Association and the Montana Medical Assn., among others, are studying the case, although as yet they have not formally stepped in. G. Brian Zins, executive vice president and CEO of the Montana Medical Assn., said news of the Blues plan's lawsuit "floored me."

"There has to be a better way to resolve these concerns," Zins said.

In the past, attorneys say, the FTC has stepped in if it appeared groups tried to work together illegally in negotiating contracts. And physicians have sued under antitrust laws if they were left out of physician-hospital contracts. But no one can remember a previous case in which an insurer used those same laws to accuse a practice of shutting out competition and fixing prices.

Antitrust attorneys say the case probably won't hinge on Missoula Radiology's status as the only such group in town. "A group is not an unlawful monopoly because it has all the radiologists," said Mike Cowie, a Washington, D.C., antitrust attorney.

Instead, attorneys expect the outcome will turn on how courts interpret the group's hospital contracts.

"The case could be a bellwether," said Arthur N. Lerner, a Washington, D.C., lawyer who formerly led the FTC's health care antitrust program. "The case could be an important step in attempting to draw lines" on exclusive physician-hospital contracts.

Because of the suit's uniqueness, physicians and health plans -- and antitrust lawyers -- will be awaiting the result, said Monica Noether, PhD, a health care economist and vice chair of the antitrust practice group of the American Health Lawyers Assn.

"I think it would be a case that would certainly be watched," she said.

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