FTC finds price-fixing at physician IPAs, suggests legal alternatives

A pair of settlements with the Federal Trade Commission highlight some of the risks and obstacles involved when physician practices engage in collective negotiations with health insurers. But experts said the agreements also signal an increased effort by the commission to educate physicians on how they can collaborate legitimately -- through clinical or financial integration -- without running afoul of antitrust laws.

The FTC alleged that two multispecialty physician independent practice associations engaged in illegal price-fixing when they negotiated payer contracts on behalf of their members without any evidence of risk sharing or other cooperative clinical activities. The agency accused the two groups of threatening not to deal with various insurers unless the firms agreed to doctors' demands for higher rates on fee-for-service contracts. This constituted an unlawful restraint on price competition that could harm consumers, the FTC said.

The two proposed consent orders, agreed upon in December 2008, prohibit California-based AllCare IPA and Colorado-based Boulder Valley Individual Practice Assn. from facilitating any of the allegedly illegal agreements. That includes negotiating on doctors' behalf, designating contract terms or dispersing any information among physicians to influence individual contract negotiations. The IPAs denied any wrongdoing but opted not to undertake a lengthy or expensive appeal.

Still, the FTC stressed that the settlements do not prevent doctor groups from negotiating jointly with insurers in one of two ways: through financial integration with risk-sharing contracts or through clinical integration with the goal of setting uniform quality measures. The statements reinforce guidelines laid out by the FTC and the Justice Dept. in 1996 and 2004.

The enforcement actions are consistent with the FTC's stance that antitrust laws generally prohibit joint contracting by individual physicians, and they demonstrate FTC willingness to pursue violations aggressively, said John P. Marren, a partner and antitrust lawyer with Chicago-based Hogan Marren Ltd. The actions are among more than two dozen the FTC has brought against physician groups for anticompetitive conduct since 2002, according to the American Medical Association.

At the same time, the consent orders are among a series of recent FTC opinions that appear to encourage arrangements to benefit patient care, Marren said. He also pointed to a public workshop the commission held in May 2008 to study clinical integration.

"This doesn't reflect any change in enforcement strategy and the standards they apply -- if you are not integrated, you have no business negotiating. What the FTC is saying is: We are not going to get in the way if you are really creating efficiency," he said.

High standards

Some physicians say meeting the FTC's requirements is no easy task.

In Boulder Valley IPA's case, the FTC "paid no attention at all" to its clinical integration efforts, said Catherine Higgins, the group's executive director. Those activities include an electronic administrative and clinical information system. Letting physicians share test results and publish clinical guidelines makes the group's care more efficient, she said.

The system was modeled after one implemented by MedSouth Inc. and approved by the FTC in 2002. Yet Boulder Valley's efforts were rejected, Higgins said, turning what the FTC considers an appropriate level of integration into "a gray area."

Boulder Valley also offered payers a choice of how to contract with the IPA's 350 doctors -- whether individually, with the group as a whole or through a messenger. "We were hanging our hat on the fact that, if a payer has a choice, there is no per se violation of antitrust law," Higgins said.

The FTC disagreed, however, saying the insurers' only option was to sign on with the entire IPA network or face contract terminations.

In AllCare's case, the 500-member group largely negotiated risk-sharing contracts with insurers. But the FTC took issue when the group in 2005 began facilitating fee-for-service contracts that were unrelated to "any efficiency-enhancing integration" among its members.

Richard A. Feinstein, AllCare's attorney, said the fee-for-service contracts were only a "tiny fraction" of the company's capitated business, which is not affected by the consent decree.

Clinical integration was not an issue in AllCare's case. But financially integrated practices, though less common, also must prove that their programs will generate efficiencies in patient care, Marren said.

A separate but related dispute might make its way to the U.S. Supreme Court. The 5th U.S. Circuit Court of Appeals rejected arguments that the benefits from an IPA's risk-sharing contracts spilled over into the nonrisk side, thus improving quality and costs for all patients. The high court has not decided whether to accept the case, North Texas Specialty Physicians v. FTC.

The government tends to ignore the role of a largely consolidated managed care market, the AMA testified to the U.S. House Committee on Small Business in September 2008. "Physicians have little to no ability to influence insurer contracts that touch on virtually every aspect of the patient-physician relationship," said AMA Board of Trustees member William A. Hazel Jr., MD.

Marren said the FTC doesn't see it that way. "Doctors are sellers and [insurance] carriers are buyers, and antitrust laws have little control over what buyers do."