Special Report: The FTC cracks down again

A New Mexico IPA is among the latest to run afoul of the law.

The Federal Trade Commission is working overtime again. In May, it settled with the Carlsbad Physician Association, a New Mexico IPA that represented more than 80 percent of the area's primary care doctors.

The Feds charged CPA with price-fixing and with refusing to negotiate with health plans except collectively. Those actions, the government's complaint alleged, led to higher prices for local consumers. As part of the agreement, CPA will be forced to dissolve, and its officers are barred from engaging in similar or related action for three years. The FTC's move against the Carlsbad doctors is another chapter in its efforts to define the boundaries of acceptable joint physician negotiation.

In his interview with Medical Economics this spring (May 9 issue), Jeffrey W. Brennan, assistant director of the Bureau of Competition, stressed that collective price-setting "might be justified" in cases where there's "legitimate integration that results in certain efficiencies." But in cases "where there's no integration," Brennan said, "we're simply left with competitors agreeing on prices, and that's illegal."

So what kind of "integration" would help inoculate physician practices against FTC scrutiny? In its analysis of the Carlsbad agreement, the FTC once again addresses this very question.

For the "general bar on joint negotiations" to be relaxed, it says, doctors must integrate either financially—as in a risk-sharing joint arrangement—or clinically. (MedSouth, a Denver-based IPA that got a green light from the FTC to conduct joint negotiations as part of a wider clinical integration, is an example of a clinical arrangement.*)

Whatever form the integration takes, the overall goal must be to control costs and enhance the quality of services. If there's an agreement regarding price for those services, that agreement must be "reasonably necessary" to achieving the twin goals of lower costs and better care.

In other words, joint negotiation for the purpose of price-setting can never be an end in itself; it must be part of a larger clinical or financial enterprise—the overall aim of which must clearly benefit consumers.

Measured by this yardstick, the Carlsbad Physician Association came up short. Said the FTC in its original complaint: "Respondents' joint negotiations of fees and other competitively significant terms has not been, and is not, reasonably related to any efficiency-enhancing integration."

The FTC also found no grounds for CPA's view of itself as a mere messenger, facilitating but not orchestrating collective negotiations. FP Richard L. Zizza, CPA president and chair of its contract committee, acknowledges that the association was "in technical violation" of the approved "messenger model." But he says CPA offered to come into compliance at the time of the initial complaint and was rebuffed by the FTC.