MCO costs for physician services decrease as MCOs gain market power; that is, as the MCOs attain economies of scale. Once MCOs become established in a market, they become an almost irresistible force. In most markets, patient lives are divided between several managed care organizations. However, MCOs seldom compete in terms of the contracts they offer physicians. They may compete on the price they will pay for buying practices, but they hold the line on the contractual rights of the physicians delivering medical care services.

The cost of a practice is a one-time expenditure, but the costs and terms of physician contracts are long-term expenses that are key to the survival of MCOs. In many communities, physician contracts used by competing MCOs have identical terms. Although this might be parallel action based on similar needs, there also may be substantial collusion to ensure that no plan undermines the others by granting physicians substantially greater rights. In other businesses this would be an antitrust violation. MCOs are legally considered insurance companies, however, and they have McCarron-Ferguson immunity from federal antitrust laws. [15 U.S.C. § 1011 (1996).] They cannot be sued for most antitrust activities.

Unfortunately, physicians do not have the same immunity. Independent physician groups and local medical societies must be alert to potential antitrust violations. Independent contractor physicians who band together to resist cram- down contracts from MCOs can be held to have engaged in a group boycott or other violations of the Sherman Antitrust Act. Such groups have been prosecuted by the FTC. This limits collective action by physicians to those that are employees of an MCO. Physicians who are MCO employees can unionize by following National Labor Relations Board (NLRB) standards. Once in an NLRB- certified union, they can strike or take other actions. Independent contractor physicians cannot unionize to gain the protection of the NLRB. For independent contractor physicians, the only avenue for collective action is to petition their state legislatures and Congress for statutory protections. Such collective action to petition the government for redress is protected under the Noerr- Pennington doctrine as a form of political speech. [ Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965).]

A major problem for physicians who are trying to band together to bargain more effectively with MCOs has been the lack of both common law and regulatory guidance. In 1996, the Department of Justice and the Federal Trade Commission issued guidelines on medical care mergers and joint operating agreements. [United States Department of Justice & Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care sec. B1, Statement 8 (August 1996).] Although some commentators have seen these as greatly expanding physician’s right to take collective action, a close reading indicates no change from prevailing antitrust rules.

The only safety zones provided in the guidelines are for physician networks that involve significant shared financial risk and that do not have more than 20% of the market for exclusive arrangements, or 30% for nonexclusive arrangements. Although the guidelines say that it is possible to have complying networks without substantial shared financial risk, the criteria they use for evaluating these networks imply that it is unlikely many will pass. The guidelines make clear that informal associations of physicians that engage in anticompetitive activities, such as boycotts of MCOs or other bargaining activities, will be treated harshly: