Competition – Sauce for the Goose?

Feds Continue To Target Physician Groups For Antitrust Violations
Mark S. Kopson
As published in the December 2008 edition of Greater Detroit M.D. News

The past seven years have witnessed tremendous consolidation of health plans. At the beginning of this decade, the two largest plans, Aetna and UnitedHealth Group, had a combined total of 32 million covered lives. During the following seven years, WellPoint, Inc. and UnitedHealth Group each acquired 11 insurers, giving them a combined total of 67 million covered lives or 36 percent of the entire 2007 U.S. health insurance market.  Moreover, the consolidation trend shows little sign of ending any time soon. In March 2007, UnitedHealth Group announced its intent to purchase Sierra Health Services. If completed, that acquisition will give UnitedHealth Group nearly 630,000 additional covered lives.

This pattern of consolidation has generally proven lucrative for the shareholders of the consolidating health plans. However, it also has had an undeniable impact on the relative bargaining power of physicians and those plans. A 2007 study by the American Medical Association’s (AMA) Public Sector Advocacy Unit found that in 96 percent of surveyed metropolitan areas, at least one health plan had a combined HMO/PPO market share of 30 percent or more, while 24 percent of metropolitan areas had at least one plan with a combined HMO/PPO market share of 70 percent or more.  Further evidence of the potential negative impact of plan consolidation upon physicians can be found in California, where physicians saw fee cuts of 20-30 percent after the PacifiCare – UnitedHealth and WellPoint – Anthem mergers. 

In short, one might reasonably conclude that seven years of health plan consolidation have left the relative bargaining strength of physicians at an all-time low. You may therefore be surprised to learn that those same seven years have also seen an increasing number of physicians being targeted by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) for federal antitrust violations. Even more surprising is the conduct that led to those prosecutions.

Since 2002, the FTC and DOJ have filed antitrust complaints against more than 25 targeted physician networks or groups of healthcare providers. What did the physicians do that led to those prosecutions? The overwhelming majority of the complaints alleged that the network physicians, with or without hospital involvement, engaged in anticompetitive behavior and restraint of trade through group boycotts and collusion to fix prices that health plans would pay for their services. In other words, the physicians joined together in attempts to consolidate and enhance their relative bargaining strength with the plans.

Ironically, many of those antitrust enforcement actions originated from or were bolstered by complaints to the FTC and DOJ by some of the nation’s largest health plans that have benefited from their own consolidation. Some complained that they were unable to obtain participation agreements with the targeted physicians. Others that had obtained contracts complained that the physicians’ collective conduct had increased their reimbursement rates and thus, the plan’s costs of contracting with them.   

While more than 25 of the physician antitrust complaints were settled by Consent Orders in which the providers agreed to cease their illegal conduct and implement preventive measures, one case was prosecuted to conclusion. The FTC filed its complaint against North Texas Specialty Physicians on September 2003, and in November 2004, and an administrative law judge ruled that the physicians had engaged in illegal horizontal price fixing. The full FTC affirmed that decision in November 2005, and ordered North Texas Specialty Physicians to, among other things, (1) cease and desist from engaging in any collusion or conspiracy of physicians regarding any health plan; (2) terminate, without penalty or charge, many of its contracts with health plans upon the plans’ request; and (3) engage in extensive reporting and disclosures. In May of this year, the FTC’s decision was affirmed by the U.S. Court of Appeals for the Fifth Circuit. On Sept. 12, 2008, five years and untold legal fees, blood, sweat and tears after the case began, the FTC finalized its order against North Texas Specialty Physicians and lifted all stays of enforcement of its terms.

The moral of the story? When it comes to business planning, there are right ways to enhance your competitive advantage and there are wrong ways. The former lead to smiling faces and healthy profits, and the latter to empty wallets and a five-year battle with Uncle Sam’s lawyers. Which would you prefer?