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Physician non-profit organization found to violate antitrust laws - In the Matter of North Texas Specialty Physicians, FTC Docket No. 9312 (2004)

Brief by Tom McLean, MD, JD

This is an important ALJ case because it significantly undermines the use of the messenger model by physicians in their negotiations with managed care organizations (MCOs); and as it’s a well-written comprehensive opinion that will very likely survive further judicial review. As only the highlights of this 100-page opinion are reviewed here, interested parties are encouraged to consult the opinion directly. The opinion is available at the Federal Trade Commission’s (FTC’s) web page (http://www.ftc.gov/os/adjpro/d9312/index.htm).

FACTS: North Texas Specialty Physicians (NTSP) was a not-for-profit organization formed in 1995 as an independent practice association of 500 physicians. NTSP provided physicians who joined two services. First, NTSP negotiated capitation contracts with MCOs wherein the NTSP would organize it members to provided medical services for an MCO for a fixed price. By several parameters, however, such transactions with the MCOs accounted for only a small portion of NTSP’s business. Second, most of the NTSP’s business involved it as a messenger between the NTSP’s physicians and the MCOs to obtain fee-for-services (FFS) contracts. In its capacity as a messenger, NTSP would poll the physicians who had joined to establish what would be the lowest acceptable dollar figure for remuneration. (It turned out that the lowest acceptable figure was 125% above the Medicare allowable figure of a particular CPT code.) The association would then assist the physicians in their negotiations with the MCOs. Still, when it came to FFS agreements not only were the physicians free to negotiate independently; NTSP was not authorized to enter into binding agreements. 

From the FTC’s perspective, the NTSP was engaging in fixing prices. Nor where there mitigating circumstances to make such conduct to be reasonable because the NTSP was neither a vertically integrated healthcare provider; nor was a substantial portion of its business involved in at-risk contracts. In its complaint, the FTC asserted that through the use of this price information, the physicians who had joined the NTSP were able to leverage the MCO into granting them better reimbursement. Accordingly, the FTC charged the NTSP with violating the Sherman Antitrust Act, 15 U.S.C. § 5, which prohibits contracts, combinations, and conspiracy which unreasonably restricts trade. The NTSP answered that: (1) as “memberless non-profit corporation” the FTC lacked jurisdiction; (2) its activities did not constitute “commerce;” and (3) its conduct, even if it did constitute commerce, was fair, reasonable and justified.

I. The first sentence in this opinion is: “This is a horizontal price fixing case.” The remainder of this opinion flow directly from this statement.

Turing first to the issue of jurisdiction, the court observed that a business entity must be organized to carry out business to make a profit and that its activities must affect interstate commerce for the FTC to have jurisdiction. McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 242 (1980). However, the mere form of the business entity does not place it beyond the reach of the FTC. Community Blood Bank v. FTC, 405 F.2d 1011, 1019 (8th Cir. 1969). FTC has jurisdiction over not-for-profit organizations “when a substantial part of the entity’s total activities provide economic benefits for its members.” California Dental Assoc. v. FTC, 526 U.S. 756, 767 (1999); In re American Med. Ass’n, 94 F.T.C. 701, 994 (1979). In matters of commerce, the FTC’s jurisdiction “is coextensive with the broad-range of the Congress under the Commerce Clause.” Chatham Condo. Ass’n. v. Century Village, 597 F.2d 1002, 1007 (5th Cir. 1979). However, the FTC does not have to show actually effect on interstate commerce to obtain jurisdiction. Summit Health v. Pinhas, 500 U.S. 322, 331 (1991). This means that a showing of a reduction “in the amount medicine and supplies purchased from out-of-state sellers; diminished revenues from out-of-state insurance companies or the federal government” have been held to effect interstate commerce. Hosp. Bldg. v. Trs. of Rex Hosp., 425 U.S. 738, 745-6 (1976). In the instant case the physician paid dues, participated in NTSP activities, and elected a board. This made the physicians were members of the NTSP. Moreover, “NTSP acts for the pecuniary benefits of its ‘members,’” and its activities did have effect on out-of-state organizations. Therefore, the FTC had jurisdiction over NTSP.

II. Next the court had to determine if the NTSP’s activities had resulted in an unreasonable restraint of trade. Just because a trade association’s activities, are by the associations nature, involve the collective action of competitors that does not mean that all trade associations are “walking conspiracy.” Viazis v. Am. Ass’m of Orthodontists, 314 F.3d 758, 761 (5th Cir. 2002). However, when a trade association by majority vote determines the maximum fee a member can charge that is an illegal conspiracy. Arizonia v. Maricopa Co. Med. Soc’y, U.S. 332, 356-57 (1982). Here, although there is no evidence that physicians themselves discussed prices, it was clear that the NTSP “entered into agreements with physicians to negotiate non-risk contracts on behalf of those physicians.” The net effect of the NTSP’s and physicians’ actions was to have the MCOs paying a premium for medical services. Because medical services end up being purchased at a premium the court could not find a pro-competitive effect for the NTSP’s activities. Thus, the NTSP’s massager activities constituted an unreasonable restraint on trade in violation of the Sherman Act. As an after though the court added that the evidence presented “tends to exclude the possibility that the alleged conspirators acted independently.” Matsushita Elec. Indus. v. Zenith Radio, 475 U.S. 574, 588 (1986).

V. In short, the FTC found that NTSP had engaged in price fixing. The remedy applied (as apposed to remedies that could have been applied) could have been worse. More specifically, NTSP was to: (1) immediately cease and desist from collective price fixing for its physician-members; (2) take steps to terminate existing non-risk contracts; (3) for a period of 60 days notify the FTC prior to entering into any new agreements wherein NTSP acted as a messenger; and (4) for a period of 20 years the NTSP must notify the FTC if it changes it structure in anyway.

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