Two Denver-area Physician Groups Agree To Settle FTC Charges of Fixing Fees

Groups Used Non-Physician Agent to Negotiate Higher Fees with Payors

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Two Denver, Colorado-area physician organizations, Physician Integrated Services of Denver, Inc. (PISD), and Aurora Associated Primary Care Physicians, L.L.C. (AAPCP), along with their respective physician leaders and non-physician agent, have agreed to settle Federal Trade Commission charges that the organizations and their members entered into agreements to fix fees and to refuse to deal with payors except on collectively agreed-upon terms. According to the FTC, PISD and AAPCP engaged in anticompetitive conduct that has restrained price and other forms of competition among their members; caused fees for physician services to rise; and harmed purchasers of health care services, including health plans, employers, and individual patients. The proposed settlement in each case contains an order designed to prevent recurrence of these illegal concerted actions.

"These cases reflect our ongoing effort to ensure that consumers are protected from anticompetitive activity in the health care sector," said Joseph Simons, Director of the FTC's Bureau of Competition. "The conduct challenged here had the purpose and effect of raising prices for physician services, and the physicians were not engaged in any legitimate cooperative activity that could justify agreements on fees. In addition, today's actions demonstrate the Commission will not hesitate to hold agents responsible in appropriate cases."

The Complaints

The FTC has issued two complaints. In one, the named respondents are PISD; its president and sole director, Michael J. Guese, M.D.; and its non-physician consultant, Marcia A. Brauchler. In the other, the named respondents are AAPCP, two members of its Board of Managers, Richard A. Patt, M.D. and Gary L. Gaede, M.D.; and its non-physician consultant, the same Marcia A. Brauchler.

According to the complaints, PISD's approximately 41 members compete with each other as internists, pediatricians, family physicians, or general practitioners in offices located in the southern part of the Denver, Colorado, metropolitan area. AAPCP's approximately 45 members compete with each other as internists, pediatricians, family physicians, or general practitioners in offices located in the Aurora, Colorado, area. The members formed PISD and AAPCP, respectively, as vehicles to negotiate contracts with payors on behalf of group members, and thereby to achieve contracts containing higher fees and other, more advantageous terms than the individual physicians could obtain unilaterally.

Sometimes a network of competing physicians uses an agent to convey to payors information obtained individually from the physicians about fees or other significant contract terms that the physicians are willing to accept. The agent also may convey all payor contract offers to the physicians, which the physicians then unilaterally decide whether to accept or reject. Such a "messenger model" arrangement, which is described in the 1996 Statements of Antitrust Enforcement Policy in Health Care jointly issued by the Federal Trade Commission and U.S. Department of Justice (see http://www.ftc.gov/reports/hlth3s.htm), can facilitate contracting between physicians and payors and minimize the costs involved, without fostering an agreement among competing physicians on fees or fee-related terms.

The complaints allege that PISD and AAPCP, along with their physician leaders and Ms. Brauchler, did not use a legitimate messenger model arrangement, but instead orchestrated boycotts and agreements among physicians to fix the prices and other terms they would accept from payors. Respondents and their members have not engaged in any cooperative joint activity that would justify collective negotiations over their terms of dealing with health plans.

PISD, Dr. Guese, and Ms. Brauchler negotiated fees and other competitively significant terms on behalf of PISD members from 1999 through 2001. AAPCP, Dr. Patt, Dr. Gaede, and Ms. Brauchler negotiated fees and other competitively significant terms on behalf of AAPCP members in 2000 and 2001. The named physicians and Ms. Brauchler also refused to convey to PISD and AAPCP members, respectively, contract offers containing price and other terms that the negotiators deemed to be deficient. Instead, according to the complaints, Dr. Patt and Dr. Gaede, on AAPCP's behalf, Dr. Guese on PISD's behalf, and Ms. Brauchler, on behalf of each organization, demanded and received contract terms that were more economically advantageous, from the members' perspective, than the members themselves could have obtained by negotiating individually.

According to the complaints, PISD and AAPCP functioned as their members' de facto exclusive contracting representatives with payors. PISD, through Dr. Guese and Ms. Brauchler, and AAPCP, through Dr. Patt, Dr. Gaede, and Ms. Brauchler, each told payors that it had the authority to negotiate and sign contracts on behalf of all of its members. Members themselves sent letters to payors, asserting that they would deal with payors only through PISD or AAPCP, respectively, the physician leaders, and Ms. Brauchler. Further, the complaints allege that PISD and AAPCP successfully used coercive tactics to induce health plans to offer higher fees to member physicians. For example, they advised their members to terminate, or threaten to terminate, their pre-existing, individual contracts with payors. Many members complied, pressuring payors to offer new contracts with higher fees.

According to the complaints, the terminations and threats of termination left payors in the position of either paying higher fees to PISD's and AAPCP's members or losing those members from the payors' respective provider networks. The latter was generally not an option for payors because, to be marketable to employers and other purchasers, a health plan's network of participating physicians must include an adequate number of primary care physicians who practice in the relevant geographic area. As a consequence of this conduct, PISD, AAPCP, or their members contracted with various payors for fees that were significantly higher than the fees such payors had agreed to pay other primary care physicians in the area, the complaints allege.

The Settlements

The Commission has issued two proposed orders. One applies to PISD, Dr. Guese, and Ms. Brauchler; and the other applies to AAPCP, Dr. Patt, Dr. Gaede, and Ms. Brauchler. Each order is designed to prevent recurrence of these illegal concerted actions, while allowing the respondents to engage in legitimate conduct that does not impair competition. Under the core provisions of the orders, the Respondents would be prohibited from entering into, participating in, or facilitating: 1) any agreement to negotiate on behalf of physicians with any payor or provider; 2) any agreement to deal, or to refuse to deal, with any payor or provider; 3) any agreement regarding any term or condition on which physicians deal, or are willing to deal, with any payor; or 4) any agreement not to deal individually with any payor, or not to deal with any payor through any arrangement other than PISD or AAPCP. The order would also bar the Respondents from exchanging or facilitating the exchange of information concerning any physician's willingness to deal with a payor, or the terms or conditions on which any physician is willing to deal with a payor.

Both orders provide that the Respondents are not prohibited from participating in a "qualified risk-sharing joint arrangement" or a "qualified clinically-integrated joint arrangement." This provision applies to AAPCP and PISD so long as they do not prevent the participating physicians from contracting individually or through other arrangements.

As defined in the proposed order, a "qualified risk-sharing joint arrangement" must satisfy two conditions. First, all physician participants must share substantial financial risk through the arrangement and thereby create incentives for the physician participants jointly to control costs and improve quality by managing the provision of services. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

As defined in the proposed order, a "qualified clinically-integrated joint arrangement" also must satisfy two conditions. First, all physician participants must participate in active and ongoing programs to evaluate and modify their clinical practice patterns, creating a high degree of interdependence and cooperation among physicians in order to control costs and ensure the quality of services provided. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

Order provisions that apply to Ms. Brauchler and the individual physician respondents also permit them to facilitate agreements between physicians if the physicians are part of the same medical group practice. Each order also would prohibit Ms. Brauchler, for three years, from negotiating with any payor on behalf of any current or past member of PISD or AAPCP, respectively, and from advising any current or past member of the organization to accept or reject any term, condition, or requirement of dealing with any payor.

Finally, each of the proposed settlements contains a number of record-keeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.

The Commission vote to place the proposed consent agreements on the public record for comment was 5-0. An announcement regarding the proposed consent agreements will be published in the Federal Register shortly. The agreements will be subject to public comment for 30 days, until June 12, 2002, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaints, proposed consent agreements and orders, and an analysis of each to aid in public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

Contact Information

Media Contact:
Howard Shapiro,
Office of Public Affairs
202-326-2176
Staff CONTACT:
Jeffrey W. Brennan
Bureau of Competition
202-326-3688