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Antitrust concerns in managed care provider negotiations.

Nationwide, there is an increasing number of acrimonious negotiations between managed care plans and providers. One of those encounters became a high-stakes game for three dentists in Tucson, Ariz., after the U.S. Department of Justice obtained indictments against them for a criminal conspiracy to fix prices in violation of the Sherman Act.[1]

While health plans in nearby communities had increased their levels of permissible copayments, prepaid dental plans in Tucson had not increased copayment fees for most dental services in 10 years. Some dentists in Tucson alleged that, as a result, they were not recouping costs on some routine services provided to health plans' members. Individual dentists made several unsuccessful attempts to convince the health plans to increase their fees. Finally, about 50 local dentists met at the request of Drs. Alston, Meyer, and Walker to discuss this situation. After the meeting, Dr. Alston sent all attendees a form letter to be sent to the plans. He included a cover letter saying that the form letter enclosure was the letter they had "agreed to send." A number of attendees did in fact send the form letter to the health plans. Ultimately, the health plans increased the copayment fees for dental services, which resulted in higher costs to health plan members.

The trial jury returned guilty verdicts against all three defendants. However, the district court judge granted acquittals for two of the dentists and a new trial to the third. The government appealed the district court judge's ruling to the Ninth Circuit Court of Appeals.[2]

The Court of Appeals noted that this the first criminal antitrust prosecution of health care professionals in half a century and seemed troubled by the decision of the government to criminally rather than civilly prosecute the dentists. Nonetheless, it reversed the district court's acquittal of Walker and Meyer but left the door open for the district court to order a new trial. The circuit court affirmed the district court's grant of a new trial to Dr. Alston. Generally, the circuit court found ample evidence to support the jury's conspiracy finding but respected the trial court judge's exercise of his discretion to grant a new trial based on his assessment of the evidence as supporting defendants' claim that the managed care plans had invited the defendants' joint review of a new fee schedule.

The circuit court was firm in its view that health care professionals are exposed to the same liability for agreements to fix prices and boycott purchasers as persons and firms in other industries. Nevertheless, the court suggested that some joint provider conduct may be necessary in dealing with health care plans. "[H]ealth care providers who must deal with consumers indirectly through plans such as the one in this case face an unusual situation that may legitimate certain collective actions. Medical plans serve, effectively, as the bargaining agents for large groups of consumers; they use the clout of their consumer base to drive down health care service fees .... In light of these departures from a normal competitive market, individual health care providers are entitled to take some joint action (short of price fixing or a group boycott) to level the bargaining imbalance created by the plans and provide some meaningful input into the setting of fee schedules."[3]

The Court went on to suggest that providers pool cost data and band together to negotiate nonprice aspects of their relationship with health plans. The aspects deemed to be collectively negotiable were "the type of documentation they must provide, the method of referring patients and the method for adjusting disputes."

Unfortunately, it may not always be easy to distinguish between terms of the managed care plan/provider relationship that implicate price and those that do not. Insofar as this opinion warns that explicit or implicit threats by groups of physicians to dictate terms to health plans are potentially criminal activities, providers must proceed with caution as they interface with managed care plan purchasers of their services. For instance, providers are advised to seek antitrust counsel before attending meetings, joining letter-writing campaigns, or engaging in other conduct that may be perceived as a threatened refusal to deal with, or an actual boycott of, a managed care payer.


1. A violation of Section 1 is a felony and "shall be punished by a fine not exceeding $10,000,000 if a corporation, or if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court." 15 U.S.C. [double section] 1.

2. United States v.A. Lanoy Alston, DMD, P.C. et al., 974 F.2d 1206 (9th Cir., Sept. 11, 1992).

3. 974 F.2d at 1214.

J. Edward Neugebauer is an attorney with the firm of Epstein, Becker & Green, Washington, D.C.
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Title Annotation:Health Law
Author:Neugebauer, J. Edward
Publication:Physician Executive
Date:Jan 1, 1993
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