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Anti-trust implications of independent practice associations.

On November 29, 2005 the Federal Trade Commission decided the case of North Texas Specialty Physicians, a case involving whether an independent physician association's (IPA) contracting activities with payers amounts to unlawful price fixing or is a competitively benign activity that may enhance efficiency and innovation in the delivery of health care.

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While the Federal Trade Commission has negotiated and accepted numerous consent orders involving illegal conduct regarding physician contracting and anti-trust issues, this is the first antitrust physician case in over 20 years to be decided by a full hearing (trial) at the Federal Trade Commission.

Accordingly, this case presents a unique opportunity for physicians to gain legal guidance concerning the appropriate boundary between pro-competitive IPAs, such as a properly managed messenger model organization, and illegal, anti-trust activities.

Background

The North Texas Specialty Physicians IPA (NTSP) was an organization of independent physicians and physician groups formed, managed and operated by physicians. Although its size varied, NTSP had approximately 575 members in 2003 and 480 in April 2004 (the time of the trial).

NTSP comprised practitioners in 26 medical specialties as well as some primary care physicians. The doctors were located primarily in the Tarrant County area, which includes the city of Fort Worth. Many of these physicians competed with one another.

NTSP's main functions were to:

* Negotiate and review contract proposals for member services that are submitted by payers, including insurance companies and health plans

* Review payment issues

* Act as a lobbyist for members' interests

NTSP negotiated both risk-sharing contracts and non-risk-sharing contracts. At the time of the trial, however, most of the contracts held by NTSP were non-risk contracts.

Specifically, NTSP's physicians entered into a physician participating agreement ("PPA") with NTSP that grants NTSP the right to receive all payer offers and imposes on the physicians a duty to forward payer offers to NTSP promptly.

The physicians agreed that they will not individually pursue a payer offer unless and until they are notified by NTSP that NTSP has permanently discontinued negotiations with the payer.

Each IPA member's PPA provided that NTSP promptly forward the fee reimbursement and other economic provisions of any non-risk offer to the member physicians. If more than 50 percent of the members accept those provisions, NTSP will then proceed to negotiate the payer contract.

At times, NTSP also gathered powers of attorney from its physicians, which gave NTSP the legal authority to negotiate non-risk contracts on behalf of those physicians.

NTSP also conducted annual polls of its physicians to determine minimum reimbursement rates for use in the negotiation of managed care contracts with payers. NTSP then used the poll responses to establish its minimum contract prices and reported these minimum fees back to participating physicians.

NTSP's minimum payment form explains to the participating physicians that NTSP queries its affiliates and membership to establish contract minimums. NTSP then utilizes these minimum payments when negotiating managed care contracts on behalf of its participants.

Because NTSP was not able to demonstrate that the participating physicians were financially or clinically integrated in performing its non-risk contracts, these actions by NTSP were illegal.

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Significant FTC trial findings

The FTC found that NTSP's use of a poll facilitated a price-fixing agreement among its competing physician members. NTSP physicians were aware that NTSP would use individual member's poll responses to create group "averages" that would be used by their organization in the coming year's negotiations with payers.

The FTC found that this was a way for physicians to communicate to their competitors what prices the physicians would like to get in the future, not what prices physicians had received in the past, or indeed, what physicians might settle for individually in a contract.

The FTC ruled that when physicians cast a vote on the desired minimum price for the group, they were not simply supporting past or current prices, they were telegraphing their intentions about future prices.

In addition, the matter in which NTSP utilized the minimum reimbursement schedule in its communications with payers also showed that NTSP was using the poll for much more than just an administrative or efficiency-enhancing tool.

For example, NTSP regularly informed payers that its physicians had established minimum fees for payer contracts, identified the fee minimums, and stated that NTSP would not enter into or forward any of its physician's payer offers that were below the minimums.

The physicians entered into a membership agreement (PPA) with NTSP that grants NTSP the right to receive all payer offers and imposes on the physicians a duty to promptly forward payer offers to NTSP. Essentially, the PPA granted NTSP the right of first negotiations with payers. It is this duty to forward contracts to NTSP and not independently negotiate with the managed care companies that is troublesome.

The FTC found that the PPA in effect renders NTSP as the sole bargaining agent of the competing physicians, and thus facilitates price fixing among competitor physicians. More to the point, the FTC found that although the terms of the PPA require NTSP to deliver contracts to its physicians, NTSP rejected and did not deliver any contracts that fell below its minimum reimbursement schedule.

The terms of the PPA and the manner in which NTSP utilized this agreement hindered the ability of payers to assemble a marketable physician network in the area without submitting to the collective bargaining systems set up by NTSP.

In sum, the FTC found that NTSP is able to exert collective bargaining power and fix prices because NTSP does not messenger contracts below its minimum reimbursement schedule. Instead, NTSP rejected the contracts outright on behalf of its physicians and NTSP's collective bargaining leverage is exerted illegally before its physicians even have a chance to opt in or opt out of a contract.

Powers of attorney

In several instances, NTSP gathered powers of attorney from its members where NTSP was appointed as their sole bargaining agent. The FTC found that NTSP used these powers of attorney in a manner similar to the way it used its PPAs, namely to solidify its power as a bargaining agent and facilitate its illegal price fixing.

Further, the FTC found that the terms of the powers of attorney improperly granted NTSP authority to negotiate the terms of, enter into, execute, amend, modify, extend, or terminate the relevant contracts--activities prohibited by a legitimate messenger model.

Additionally, to induce physicians to grant these powers of attorney, NTSP would include in its solicitations information about the number of physicians who had already executed powers of attorney. Once this was done, NTSP advised payers in negotiations that it personally represented IPA member physicians through these powers of attorney.

In one case, NTSP sent an HMO a list of 180 physicians who had executed powers of attorney appointing NTSP as the bargaining agent for any direct contracting with this HMO. Unrebutted testimony at the hearing revealed that the HMO understood this as a clear message that these physicians would not negotiate directly with the HMO and therefore concluded that they were trapped with no practical alternative to dealing with NTSP.

NTSP's deviation from the messenger model

Most physicians who participate with IPAs understand that a "messenger model" should be used when discussing pricing and contracts with physician competitors.

Properly used, a messenger model is an arrangement designed to reduce transaction costs associated with negotiation of contracts between providers and payers; it is not a device for facilitating agreements among providers on prices or price-related terms.

In a messenger model, a physician network uses the messenger to convey to payers information obtained individually from the providers about the prices or price-related terms that the providers are willing to accept, but the messenger does not negotiate on behalf of the providers. The messenger may convey to the providers all contract offers made by purchasers and each provider then makes an independent, unilateral decision to accept or reject the contract offers.

Alternatively, the messenger may receive authority from individual providers to accept contract offers that meet certain criteria as long as the messenger does not negotiate on the provider's behalf. The messenger can also assist providers to understand the contracts offered by supplying objective or empirical information about the terms of an offer.

For example, the messenger may provide a comparison of the offered terms with other contracts agreed to by network participants; however, it would be legally dangerous for the messenger to express an opinion on the terms offered.

If a messenger model is used improperly, it can facilitate an unlawful price-fixing agreement. In a legal messenger model, the messenger only facilitates independent, unilateral decisions of the network providers. It is illegal to use the messenger model in a way that creates or facilitates collective decisions by physicians on prices or price-related terms that the anti-trust laws forbid.

A fundamental question in the legal analysis of a messenger model is whether the actions of the messenger are designed to facilitate communications or, instead, to enhance the bargaining power of providers. It is important to remember that any time a messenger for a group of competitors engages in any discussions that hinge on the prices they will charge, the parties are in an anti-trust danger zone.

NTSP's refusal to messenger contracts where it determined that less than 50 percent of NTSP's physicians would join is precisely the type of conduct that is illegal. The refusal eliminates the ability of NTSP physicians to decide unilaterally whether to accept the un-messengered contracts and hinders the ability of the payers to contract individually with NTSP physicians.

Further, NTSP's PPAs use of powers of attorney and the activities associated with its minimum fee inquiries are inconsistent with the acceptable use of a messenger model. The PPA and the powers of attorney allow NTSP to negotiate on behalf of its physicians, something expressly forbidden in a proper messenger model.

Additionally, as the minimum-fee schedule enabled NTSP to coordinate physician responses to payer proposals, such activities went beyond the bounds of a legitimate messenger activity when NTSP expressed its opinion to both its physicians and to the payers themselves concerning the adequacy of price terms in the contract proposals.

FTC findings

The FTC found that NTSP engaged in the unlawful negotiation of agreements on price and other terms, refused to deal with payers except on collectively agreed-upon terms, and refused to submit payer offers to its physicians unless the terms complied with NTSP's minimum fee schedule. All of these findings amounted to illegal price fixing and a federal antitrust violation.

Also troublesome were the PPAs giving NTSP the exclusive right initially to negotiate with payers and requiring physicians to negotiate individually with payers only after NTSP discontinues its efforts. Further, the use of physician powers of attorney and NTSP urging its members to tell payers to communicate their offers directly to NTSP were troublesome.

The FTC ordered NTSP to terminate any non-risk, messenger model contracts it currently has, and required the IPA to notify the FTC in advance of any future non-risk contracts it wants to negotiate and allow FTC oversight of the negotiations of the contracts.

There are no monetary damages at this point. The real issue of monetary damages may come if some of the managed care companies sue the IPA in civil court for damages.

Since the FTC has already found an anti-trust violation, the managed care companies will not need to reprove an anti-trust violation in civil court, they can use the FTC's finding. Then, if they can prove they were damaged by the IPA's activity (i.e., lost profits from lost business, lost profits because they had to pay too much for the business they had under the illegally negotiated contract), the IPA will have to pay triple damages to the managed care organizations that sue.

Physicians and their health care attorneys could benefit from the studying the mistakes NTSP made, causing that IPA to violate the federal anti-trust laws. As physicians struggle to negotiate reasonable contracts with large managed care companies, physicians should keep in mind the legal pitfalls of the otherwise very useful IPAs.

Timothy McIntire, MD, JD, MBA, CPE, FACPE, practices health law at the firm of Gideon & Wiseman in Nashville, Tenn. He can be reached at 615-254-0400 or tim@gideonwiseman.com

By Timothy McIntire, MD, JD, MBA, CPE, FACPE
COPYRIGHT 2006 American College of Physician Executives
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Title Annotation:Health Law Update; North Texas Specialty Physicians
Author:McIntire, Timothy
Publication:Physician Executive
Geographic Code:1USA
Date:May 1, 2006
Words:2046
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