Hospitals Plan for Collective Bargaining of Physicians Fees Likely Would Violate Federal Laws, FTC Staff Says

A proposed plan by a physician-hospital organization that would involve collective bargaining with insurers over doctor fees likely would violate federal antitrust laws, according to the FTC staff. The staff concluded that the price and other competitive restraints proposed by the network were not reasonably necessary to achieve any of its potential efficiencies.

Under the proposed program, Suburban Health Organization, an Indiana non-profit corporation, would be the exclusive bargaining and contracting agent with most insurers for 192 primary care physicians employed at SHO’s eight member hospitals. Under the proposed plan, SHO hospitals would deal only through SHO, at prices set by the group, when selling their employed physicians’ services to most insurers. An FTC staff advisory opinion letter states that the plan would eliminate price competition that otherwise would exist among the hospitals for the physicians’ services. Consequently, the staff analyzed whether the price agreement could be justified in light of the other aspects of SHO’s proposal to improve care and create efficiencies in the delivery of physician services.

SHO’s proposed program also involves: joint development of practice protocols and disease-specific treatment parameters regarding a limited set of medical conditions; centralized collection and use of data to monitor physician behavior and outcomes with respect to the treatment protocols and parameters; jointly produced educational materials for the participating physicians; and a commitment by the SHO hospitals to have their physicians abide by the program requirements, reinforced by a bonus pool to reward financially desirable behavior and results. The staff observed that these proposed activities have some potential to improve care and create efficiencies in the delivery of physician services provided by the physicians participating in the program.

The opinion letter noted, however, that the proposed program’s limited nature and scope appear to limit significantly its potential benefits. Because it only involves the SHO hospitals’ employed primary care physicians, the program would not apply to the full range of medical services that a patient might need. Consequently, anyone referred to a specialist physician, or any other provider not in the program, would lose the benefits of the program. In addition, the letter observed that most of the program’s integration and efficiencies are informational in character – relating to developing and disseminating information, and collecting data regarding performance – and do not involve integration or interdependence among the participating physicians in the actual provision of their medical services.

Finally, the staff considered each of SHO’s proffered justifications for restraining competition among its members, and concluded that the price agreement in SHO’s proposal was not reasonably necessary to achieve any of the potential efficiencies or consumer benefits.

The FTC staff’s position was stated in an advisory opinion letter to SHO’s counsel from David R. Pender, Acting Assistant Director in the FTC Bureau of Competition’s Health Care Services and Products Division.

NOTE: This letter sets out the views of the staff of the FTC’s Bureau of Competition, as authorized by the Commission’s Rules of Practice. It has not been reviewed or approved by the Commission. As the Commission’s rules explain, the staff’s advice is rendered “without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding.”

The FTC’s Bureau of Competition, in conjunction with the Bureau of Economics, 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 Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 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.