First FTC Action to Charge an Organization with Price-Fixing in the Provision of Hospital Services
The Federal Trade Commission today has reached an agreement with a network of doctors and hospitals in northeast Maine, under which the organization will stop negotiating jointly on behalf of its members with third-party payors such as insurance companies. Today’s announcement of a proposed consent order with the Maine Health Alliance (the Alliance) and its executive director, William R. Diggins, resolves the Commission’s charges that the Alliance’s member doctors and hospitals engaged in illegal price-fixing that raised health-care costs in five Maine counties. The case is the first brought by the FTC involving charges that a provider organization engaged in price-fixing and other anticompetitive collusive conduct in the provision of hospital services.
“The Maine Health Alliance fixed prices not in just one health-care sector, but two – hospital services and physician services,” said Joe Simons, Director of the FTC’s Bureau of Competition. “Through this and other collusive practices, the Alliance and its members raised the cost of health care in Maine. Today’s Commission action should put a stop to the doctors’ and hospitals’ illegal behavior.”
Simons expressed appreciation for the assistance provided by Maine’s Office of the Attorney General, whose staff worked closely with Commission personnel in investigating the Alliance’s activities.
Maine Health Alliance
The Alliance, which consists of approximately 325 physicians and 11 hospitals, was formed in 1995 by the majority of doctors and hospitals in five counties in northeast Maine – Penobscot, Aroostook, Washington, Hancock, and Piscataquis. According to the FTC, its purpose was to negotiate payor contracts that contained higher compensation and more advantageous contract terms than the doctors and hospitals could have achieved by negotiating individually. More than 85 percent of the doctors on staff at Alliance-member hospitals are Alliance members, as are nearly 70 percent of the hospitals in the five-county area. The doctor and hospital members designated the Alliance as their negotiating agent to contract with payors, and also authorized the Alliance to enter into contracts with payors on their behalf.
The Alliance is a non-profit corporation. While Section 4 of the FTC Act excludes certain types of non-profit corporations from Commission jurisdiction, the agency has jurisdiction over the Alliance. Its for-profit physicians comprise a significant percentage of the organization’s membership, and the Alliance provides substantial financial benefits for these physicians.
The Commission’s Complaint
According to the Commission, the Alliance’s members agreed to limit competition among themselves by negotiating contracts collectively – including price terms – with third-party payors in northeast Maine, and by refusing to contract individually with those payors unwilling to meet the Alliance’s collective terms. These agreements allegedly have included concerted refusals to deal among otherwise competing hospitals and among otherwise competing physicians, leading to health care prices that are higher than they would have been in the absence of such activities. Based on these allegations, the Commission has charged the Alliance and Diggins, a principal Alliance contract negotiator with payors, with violating the FTC Act’s prohibition on illegal anticompetitive conduct.
Terms of the Proposed Consent Order
The proposed consent order reached with the Commission contains a range of provisions designed to remedy the Alliance’s allegedly anticompetitive conduct. First, the Alliance is barred from participating in, or creating, future unlawful agreements for physician services. This includes a prohibition on the Alliance and Diggins entering into or facilitating any agreement between or among any physicians: 1) to negotiate with payors on any physician’s behalf; 2) to deal, not to deal, or threaten not to deal with payors; 3) to determine on what terms to deal with any payor; or 4) not to deal individually with any payor, or to deal with any payor only through the Alliance. The order further prohibits the Alliance and Diggins from facilitating the exchange of information among physicians, or any hospital, that would lead to such collective behavior, as well as from inducing anyone to engage in such behavior.
The proposed order also specifies certain exemptions to these provisions that will permit the Alliance under certain circumstances to engage in conduct that is reasonably necessary to form or participate in legitimate joint contracting arrangements among competing hospitals or physicians through a “qualified risk-sharing joint arrangement” or a “qualified clinically integrated joint arrangement,” as these terms are defined in the order.
Further, the proposed order prohibits Diggins from negotiating with any payor on behalf of any Alliance physician or hospital member, and from advising any Alliance physician or hospital member to accept or reject any term, condition, or requirement of dealing with a payor for three years. As with the terms regarding the Alliance, Diggins would, under certain circumstances, be allowed to act in furtherance of the activities of a “qualified risk-sharing joint arrangement” or a “qualified clinically integrated joint arrangement.”
Finally, both the Alliance and Diggins are required to distribute the FTC’s complaint and order to all physician and hospital groups that have been represented by the Alliance, and that Diggins represents in contracting with payors. Diggins also must distribute the complaint and order to payors with which he has dealt in contracting while representing any physician or hospital group. In addition, the proposed order requires the Alliance, at any payor’s request and without penalty, to terminate its current physician provider contracts. The proposed order also contains monitoring provisions to ensure the respondents’ compliance with its terms. The order will expire in 20 years.
The Commission vote to place the proposed consent order on the public record for comment was 5-0. An announcement regarding the proposed order will be published in the Federal Register shortly. It will be subject to public comment for 30 days, until August 18, 2003, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC worked closely with the Maine Office of the Attorney General in bringing this matter, and Maine filed a parallel order regarding the Alliance.
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 Commission’s complaint, proposed consent order, and analysis to aid 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: firstname.lastname@example.org; 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.
(FTC File No.: 021-0017)
Office of Public Affairs
Jeffrey W. Brennan
FTC Bureau of Competition