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September/October 2006 |
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James B. Wieland William E. Berlin Christi J. Braun Appeared in RBMA Bulletin Current antitrust issues for radiology practices participating in physician-managed care networks were examined in the March/April 2006 issue of the RBMA Bulletin . Two recent decisions, one by the Federal Trade Commission in North Texas Specialty Physicians (NTSP), the other by an arbitration panel in the Arbitration Between United Healthcare of Illinois, Inc. and Advocate Healthcare Network (Advocate) addressed similar conduct and legal issues. They also furnished some additional scission and possible guidance. Both tribunals analyzed joint negotiations with payors by a less than fully-integrated physician contracting network, and both declined to apply the per se rule to this conduct. Under antitrust doctrine, if an arrangement is a per se violation, no potential justifications will be considered — it is a violation in and of itself. Arrangements that are not judged per se violations are judged under the "rule of reason," which permits balancing the benefits to competition against possible anti-competitive effects. The arbitration panel in Advocate upheld the joint negotiations, while the Commission in NTSP summarily condemned the negotiations after a brief analysis. In this article, we focus on the justifications alleged in each case, as well as other practical differences to explore why the tribunals arrived at such divergent conclusions. The FTC held that the NTSP network violated the Federal Trade Commission Act through price-fixing and other agreements among competing providers that restrained competition. An IPA with approximately 500 physician members in and around Ft. Worth, Texas, NTSP negotiated both financial risk-sharing and fee-for-service contracts on behalf of its member physicians with various health plans. The FTC examined NTSP's alleged anti-competitive conduct regarding its fee-for-service contracts, including its (1) annual minimum price polls of members (by which members provided it with the minimum prices they would accept), which NTSP used to determine the minimum prices it would accept in payor contract negotiations; (2) physician participation agreements, requiring members to forward all payor contract offers to NTSP and refrain from pursuing those offers until NTSP discontinued its negotiations with the payor; (3) powers of attorney obtained from members, permitting it to negotiate on behalf those members and to terminate, or threaten to terminate, payor contracts as a means of extracting price concessions from payors; and (4) refusing to "messenger" contracts to its members unless the payors' price offers met the minimum price requirements of at least 50 percent of its membership. The FTC found that this conduct, in the aggregate, was "inherently suspect." Accordingly, it turned to the question of whether NTSP's asserted justifications for its conduct were legitimate. NTSP's first justification was that using the physician participation agreement, powers of attorney, refusals to deal, and minimum price polls helped it identify and sign contracts of interest to its risk panel physicians, ensuring "spillover" efficiencies from the risk contract to the non-risk contracts. The FTC rejected this justification because NTSP failed to articulate a "logical nexus," or link, between the activities resulting in price-fixing and the claimed competitive efficiencies. NTSP's second justification was that the restraints in question had plausible benefits of their own. NTSP claimed, for example, that the right of first refusal and member obligations to notify it of offers they received "increase[d] NTSP's contracting opportunities." With regard to its refusal to messenger offers not meeting its minimum fee requirements to participating physicians, NTSP argued that its refusal was "efficient" because conveying contract offers acceptable to less than 50% of the physicians would waste resources. The FTC found these justifications did not carry weight because they were based on an argument that competition itself is inefficient. Moreover, the evidence did not support them. Rather, it showed that the purpose for the conduct was not "to increase efficiency from spillover effects, or to conserve resources, or to spread pro-competitive benefits of information sharing," but rather "to enhance bargaining clout." Given NTSP's failure to establish a legitimate justification for its inherently suspect conduct, the FTC summarily condemned the conduct as a violation of a federal antitrust law. The day after NTSP, an arbitration panel decided a case similar to it in favor of the physician contracting organization. United Healthcare, a large payor, claimed that Advocate, a Chicago-area health care system engaged in a price-fixing agreement by contracting, and attempting to contract, with United on behalf of over 2,500 competing physicians. Advocate employed some of the physicians, but most practiced independently in the community and had privileges at Advocate hospitals. United's claims focused on two separate contracting episodes: negotiations resulting in contracts effective between the years 2000 and 2002, and negotiations in 2003 that failed to result in a contract. Unlike the FTC in NTSP, the panel made no effort to examine whether the justifications were sufficient to support the arrangement under antitrust law. The panel held (seemingly in the context of deciding the appropriate standard of analysis to apply, rather than in applying the rule of reason) that "the joint contracting provided United . . . [has] competitive benefit sufficient to offset any potential harm to consumers." Turning then to the market-power issue, the panel held that Advocate's market share, about 15 percent, was not enough to constitute market power. Regarding the 2003 negotiations, the panel held at the outset that there could be no price-fixing violation because no agreement was ever signed, a holding that may be questionable. Moreover, the panel explained that, even if there were an agreement, the per se standard would not apply because the evidence established Advocate was "prepared" to proceed with a clinically integrated contract with United. In reaching this conclusion, the arbitrators identified several payors who signed agreements with Advocate for its product, which included "certain" clinically integrated services. Despite the fact that the program was "clearly a developing work in progress," the panel concluded that the "proposed" benefits from such a program "sufficiently justify Advocate's conduct in attempting to reach a joint contract with United on what Advocate characterized as a ‘clinically integrated' basis." Given the market power analysis conducted in the previous section, the panel concluded that United's claim also would fail with respect to the 2003 negotiations. Since both the FTC in NTSP, and the arbitration panel in Advocate analyzed similar price-fixing claims arising out of physician network joint contracting, what then explains the different result each tribunal reached? One seemingly obvious explanation is the purported business justifications offered by the respondents in each case, given the important role those justifications played in the FTC's and panel's analyses. The Commission determined that NTSP's justifications were not sufficient, while the panel concluded that Advocate's efficiencies justified its joint contracting. At first blush, it appears that the justifications proffered in each case differ in several respects. First, the Commission noted that NTSP was not sufficiently clinically integrated to justify an in-depth inquiry regarding its non-risk contracts. In contrast, the panel in Advocate concluded that the "proposed" benefits from Advocate's clinically integrated program "sufficiently justify Advocate's conduct [in the 2003 negotiations] in attempting to reach a joint contract with United on what Advocate characterized as a ‘clinically integrated' basis." In reaching this conclusion, the arbitrators identified several payors that signed contracts with Advocate, which included "certain" (unspecified in the decision) clinically integrated services. A second difference mentioned in both decisions is the reaction of payors to the alleged efficiency-generating conduct. The Commission determined that NTSP's "spillover" efficiencies justification was not sufficient because NTSP's actions were perceived by payors as an attempt to restrict their access to the "more-desired" non-risk product. In Advocate, the panel stated that both payors and providers in the Chicago area believed the joint contracting arrangements "served their interests and freely entered into [them]." This distinction highlights the importance of payors' views, and often their testimony, in provider-payor contracting disputes and litigation. Third, the FTC rejected NTSP's claimed "team-oriented improvements in cost and quality" and "spillover" efficiencies from the risk contract to the non-risk contracts because the NTSP failed to articulate a link between the activities that facilitated price- fixing and the claimed efficiencies. In other words, the FTC found that the joint contracting by the network was not necessary to achieve the claimed efficiencies. Although the Advocate decision is confusing on this point, the panel appears to have disavowed the need to establish a link between the activities that facilitated price-fixing and the claimed efficiencies, as the FTC required in NTSP. Fourth, and perhaps most significantly, the Commission stated that because there is "no antitrust exception for particularly efficient, higher quality market participants; NTSP is not entitled to ‘preempt' the working of the market to produce the result that it believes payors should choose." Similarly, the FTC rejected NTSP's claims that the restraints in question — minimum price polls, physician participation agreements, powers of attorney giving NTSP exclusive negotiating rights, and its refusals to messenger contracts — were efficient for the physicians, stating that these justifications are based on the idea that competition itself is inefficient. These are not, in themselves, cognizable justifications that enable respondent to act in a way that improves competition, such as by improving product quality, service, or innovation. The Commission stated that a justification will fail "if it contradicts the pro-competitive aim of the antitrust laws." In contrast, the Advocate panel accepted Advocate's justification that the jointly negotiated contract was efficient for United, if not all payors, by helping United establish and stabilize its network, providing United with substantial administrative efficiencies, and allowing payors to assemble networks of thousands of physicians "without the need to seek individual contracts." The key distinction here is that NTSP's justifications focused on efficiency for the collaborating competitor physicians, while the panel appeared to view the payors as the consumers who received benefits from the efficiency of Advocate's contracting activities. A fifth, and more mundane explanation for the opposite results in NTSP and Advocate is that the actual facts and evidence supporting Advocate's efficiencies simply were more compelling than those supporting NTSP's justifications. It is hard to disagree with the FTC's ultimate conclusion rejecting NTSP's claimed justifications, at least as the record is represented in that opinion. The Commission found that the purported justifications were unsupported by, or simply inconsistent with, the evidence that established the reason for the NTSP's restraints was to exploit its collective bargaining leverage over payors, not to achieve efficiencies. Advocate's justifications are more difficult to assess, mainly because they are not as well-detailed in the decision. The panel stated that there was sufficient evidence that the joint contracting provided payors "competitive benefit sufficient to offset any potential harm to consumers," and one would think that, unlike NTSP, there was no compelling evidence showing Advocate's anticompetitive intent to increase bargaining clout with payors or increase prices. Finally, although these differences between the purported legitimate business justifications may explain the different outcomes, perhaps the question is better answered by the other issues commonly addressed in a rule of reason analysis of physician contracting networks. Other factors mentioned, if not analyzed, in both decisions that may explain the different results include several significant factors. For one, NTSP had the exclusive initial right to negotiate with payors, and reinforced this exclusivity by powers of attorney appointing NTSP as the physicians' sole bargaining agent. In Advocate, by contrast, the panel repeatedly emphasized that the affiliated physician contracts were non-exclusive. United was free to contract with each Advocate-affiliated physician, and, in fact, United was able to quickly enter into direct contracts with 90% of the affiliated physicians. Additionally, market power was different in each case. The FTC stated that NTSP was comprised of a large percentage of physicians in Ft. Worth and had become a "gorilla network" with collective power over price. In contrast, the panel in Advocate specifically found that Advocate did not have market power based on its 15% share of the hospital and physician markets. Finally, there were the actual anti-competitive effects from the physician joint contracting. The Commission accepted the testimony of an economic expert finding that the negotiations using NTSP's minimum price had "a tendency to increase prices overall." The arbitration panel, however, questioned the methodology used by United's economic expert and ultimately disagreed with his conclusion that there was actual consumer harm in the form of higher prices resulting from the joint contracting. Indeed, the differences in the evidence of exclusivity, market power, and anti-competitive effects may be greater than the differences between the purported efficiencies in each case. It can be argued that the claimed justifications in these cases are more alike than different. First, as discussed above, the Advocate panel accepted that Advocate's proposed 2004 contract would provide sufficient integration to justify an in-depth rule of reason inquiry, while the Commission determined that the non-risk contracts in NTSP were not sufficiently integrated. Yet, in both cases, the clinical integration programs were "clearly a developing work in progress" (Advocate) or "not there yet" (NTSP). Similarly, the panel in Advocate focused on the one-stop shopping benefits and efficiencies for payors (and to a lesser extent providers) resulting from joint rather than individual contracting. In NTSP, however, the Commission flatly rejected a very similar transaction cost savings justification, although as noted above NTSP's justification focused on the benefits to the conspiring providers themselves rather than payors. Nonetheless, the Advocate panel's approval of the single-signature contract justification seems too facile and susceptible to the FTC's criticism that the "problem with these arguments is that most efforts by competitors to collectively agree on prices could be said to save costs in negotiations with consumers." In sum, it is not unreasonable to think that the Commission may have reached the opposite conclusion if presented with Advocate's claimed justifications. In fact, the different results simply may be explained by the fact that a different tribunal considered each case. The Commission may be more skeptical of a defendant's claimed justifications, and indeed take a much stricter view of all the elements in a case than would a panel of commercial arbitrators deciding a contracting dispute between two business entities. This explanation seems even more plausible here, where the Advocate panel determined that the parties were "relative equals in terms of bargaining power" and "bargained for their best economic advantage in a complex market for health-care insurance and services of health-care providers." In the end, radiology practices should not place too much reliance on, or draw too much comfort from, efficiencies like those articulated in Advocate. Transaction cost savings in the contract negotiation process, proposed or incomplete integration arrangements, and initial payor acquiescence in the contracting arrangement may not pass muster as justifications for past collective negotiations by competing providers when reviewed by a government enforcement agency or court. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia |
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