January 1, 1998

Federal agencies take aim at some physicians groups

Federal agencies take aim at some physicians groups

Price fixing ensures action by Justice Department, FTC

HEALTH LAW
ANTHONY V. MELLO
Editor˜s note: This issue marks the debut of Health Law, a new column by Ault attorney Anthony V. Mello. The column will run in The Business Report˜s quarterly Health Care sections.Faced with encroachment by managed-care organizations into the manner in which medicine is practiced, and managed care˜s endless attempts to reduce the fees paid to physicians, it often occurs that otherwise independent practitioners will attempt to band together by forming a physician network, seeking strength in numbers to hold the line against further reductions in revenue.
The problem with a physician network created solely for the purpose of agreeing on the minimum fees its members will charge to managed-care organizations is that such a network would be illegal, being in violation of antitrust laws for impeding competitive forces in the health-care market. Under antitrust law, independent physicians are competitors in the health-care marketplace: An agreement between competitors as to the fees they will charge the public constitutes illegal price fixing.
The Federal Trade Commission and the U.S. Department of Justice, which share jurisdiction over antitrust matters, have actively sought to reign in certain physician networks deemed to be "anticompetitive." In Colorado, last spring the FTC filed a complaint against the Mesa County Physicians IPA, a Grand Junction-based physician network that includes more than 85 percent of the independent physicians in the Grand Junction/Mesa County area.
The FTC˜s complaint alleged that the IPA obstructed competition and artificially raised physicians˜ fees by collectively refusing to deal with certain health plans and improperly colluding in the negotiation of fee contracts with other health plans. The FTC and attorneys for the IPA are negotiating the terms of a consent decree that will settle the lawsuit, which is likely to substantially curtail the activities of the IPA and the services it provides its member physicians.
The penalties could be worse: Generally, U.S. antitrust laws provide that the wrongdoing parties pay treble damages and attorneys˜ fees.
The potential for such harsh penalties need not discourage formation of legitimate physician networks, formed for a purpose other than to fix prices. There exists a "roadmap" to guide physician networks to antitrust compliance: Last fall, the FTC and Justice Department issued "Statements of Anti-Trust Enforcement Policy in Health Care," which outlines the agencies˜ positions with respect to physician network activities.
The statements make one thing clear: Any physician network whose sole purpose is to gain a competitive advantage over health plans and thereby raise (or hold the line on) prices is "per se" illegal.
On the other hand, the statements set forth certain "safety zones," which, if complied with, ensure that the physician network is safe from antitrust attack, such as when a network includes less than 30 percent of physicians in a given specialty, allows members to contract individually with health plans and provides physician services through "risk-sharing" contracts.
The FTC and Justice Department will examine each network on a case-by-case basis to determine its competitive impact on the health-care market. Here are some recommendations to avoid antitrust scrutiny:
n Share risk. A network of independent physicians who collectively negotiate contracts with health plans as a group will not violate antitrust laws if the contracts entered into are capitated-fee or "risk-pool" arrangements. Networks that negotiate only fee-for-service contracts on behalf of members likely run afoul of antitrust laws.
n Smaller is better. The statements provide that the agencies will look at the "market power" of a physician network, based upon both the percentage of physicians and the percentage of patients a network controls within its geographical market. For antitrust purposes, a network should seek to have its geographical market defined as broadly as possible to dilute its market power.
n Provide for efficient and cost-effective delivery of services. The statements encourage physician networks to implement measures that are designed to control costs and assure quality of care.
n Don˜t overreach. Ultimately, the actual purpose and practices of a physician network will determine its fate. If the network acts like a cartel, driving out competitors while driving up prices, it may be challenged by the FTC and the Justice Department.
As can be seen, the FTC and Justice Department are not hostile to all physician-network arrangements. In fact, these agencies encourage networks that provide for additional quality and cost containment in health-care services.
On the other hand, physicians considering creating or joining a network of independent practitioners should avoid any organization whose primary purpose is to fix prices. Government action against such organizations is possible (even likely).Anthony Mello is an Ault attorney specializing in health-care law. He can be reached at (970) 834-1333. His fax number is (970) 834-0280.

Federal agencies take aim at some physicians groups

Price fixing ensures action by Justice Department, FTC

HEALTH LAW
ANTHONY V. MELLO
Editor˜s note: This issue marks the debut of Health Law, a new column by Ault attorney Anthony V. Mello. The column will run in The Business Report˜s quarterly Health Care sections.Faced with encroachment by managed-care organizations into the manner in which medicine is practiced, and managed care˜s endless attempts to reduce the fees paid to physicians, it often occurs that otherwise independent practitioners will attempt to band together by forming a physician network, seeking strength in numbers to hold the line…

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