New Mexico PHO, Physician Group, and Their Agent Settle FTC Price-Fixing Charges

A physician-hospital organization (PHO) in New Mexico has agreed to settle Federal Trade Commission charges that it drove up the cost of health care for consumers in the Alamogordo, NM area by jointly fixing prices charged by physicians and by nurse anesthetists to health plans and other payors. The consent order prohibits White Sands Health Care System, L.L.C., the Alamogordo Physicians’ Cooperative, Inc., and their agent from negotiating, refusing to deal, and setting terms for dealing with payors on physicians’ and other providers’ collective behalf.

White Sands, created in 1996, is a PHO based in Alamogordo that consists of Alamogordo

Physicians, an independent practice association (IPA); Gerald Champion Regional Medical Center, the only hospital in the Alamogordo area; and 31 non-physician health care providers, including all five nurse anesthetists in the area. Alamogordo Physicians has 45 physician members, representing 84 percent of all physicians independently practicing in the area. The FTC’s complaint also names Dacite, Inc., and its president, James R. Laurenza, who provide consulting and payor contracting services to White Sands.

The FTC’s complaint charges that White Sands’ physician and nurse anesthetist members refuse to deal individually with health plans and instead enter into contracts that Laurenza negotiates on their behalf. The FTC’s complaint also states that White Sands claims to operate as a “messenger model.” Competing providers may lawfully use a “messenger” to reduce costs and facilitate contracting with payors, as long as the arrangement does not involve collective price-setting or other anticompetitive agreements among the providers. In this case, the FTC’s complaint alleges, the respondents engaged in collective negotiations with payors and orchestrated collective refusals to deal with payors that resisted their terms. According to the FTC, White Sands’ members’ joint negotiations did not enhance efficiency or consumer welfare.

The proposed consent order bars the respondents from entering into any collective agreement between providers: (1) to negotiate with payors on any provider’s behalf; (2) to deal or not deal with payors; (3) to designate the terms upon which any provider deals with any payor; or (4) to refuse to deal individually with any payor, or to deal with any payor only through an arrangement in which the respondents are involved. Certain kinds of agreements are excluded from the generic ban on joint negotiations, including participation in a “qualified risk-sharing arrangement” or “qualified clinically integrated joint arrangement,” as those terms are defined by the order.

The proposed order further prohibits Dacite and Laurenza from negotiating with any payor on behalf of White Sands, Alamogordo Physicians, or any of their members, and from advising any member on the terms of dealing with any payor. The respondents are also required to notify the FTC before entering any “messenger” arrangement with payors to negotiate the terms of a contract. The respondents are further required to distribute the Commission’s complaint and order to any health plans who have negotiated with them or expressed interest in doing so. Finally, the order contains standard record keeping and reporting requirements to assist the FTC in monitoring the respondents’ compliance.

The Commission vote to place the proposed consent agreement on the public record for comment was 5-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until October 28, 2004, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-159, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

(FTC File No. 031-0135)