Texas Doctors Group Settles FTC Price-Fixing Charges

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A Houston, Texas-based physicians’ group has agreed to settle FTC charges that it increased costs for consumers, employers, and health plans by fixing prices jointly in contract negotiations with payors, in violation of federal antitrust laws. The consent agreement with Memorial Hermann Health Network Providers (MHHNP) is designed to remedy MHHNP’s allegedly anticompetitive price-fixing practices. According to the FTC, such conduct is detrimental to consumers in the Houston area and has resulted in higher prices for the services MHHNP’s physicians provide.

MHHNP is a non-profit corporation with approximately 3,000 participating physician members, first incorporated in 1982 under the name Memorial Healthnet Providers, Inc. MHHNP is governed by a Board of Directors which includes 16 “Voting Directors,” all of whom are physician members. The Board members are elected by MHHNP’s physician members. Among other things, the Board, according to the FTC, develops guidelines for payor contracts; approves price terms for dealing with payors; establishes procedures for selecting new members; and establishes certain payment and billing procedures for physician members. MHHNP’s “Membership and Credentialing Committee,” a 13-member panel of Board members and appointees, evaluates the credentials of each potential physician member and recommends to the Board the physician’s eligibility for membership. Prior to 1999, MHHNP engaged in risk contracting with some payors. In 1999 or 2000, MHHNP terminated all such existing contracts and renegotiated non-risk contracts with those payors.

The FTC’s complaint states that physician members, through their elected representatives on the Board, actively participate in MHHNP’s management and business activities, which substantially advance members’ economic interests. According to the FTC, MHHNP negotiates non-risk contracts with payors for its physicians, seeking – and often obtaining – higher fees and other more advantageous terms than members could have obtained negotiating unilaterally.

The FTC alleges that MHHNP regularly has negotiated with payors fees and other terms relating to the medical care its physician members offer. MHHNP allegedly periodically polls its members, asking each to disclose the minimum fee he or she would accept in return for providing medical services. The Board then calculates minimum acceptable fees for use in payor negotiations. The FTC’s complaint states that MHHNP tells payors that it will not enter into any offer that does not satisfy the fee minimums. In some instances, payors allegedly have revised their proposed fee schedules, resulting in higher fees than those that would have been offered without MHHNP negotiations. The complaint further alleges that MHHNP, which represents itself as a “messenger model” IPA, has misused the messenger model by refusing to submit payor offers that did not meet MHHNP’s minimum fees to its members to permit them to decide unilaterally to accept or reject the offers.

The FTC further alleges that in some instances, MHHNP has instructed payors whose proposed fee schedules did not meet MHHNP members’ minimum fees to resubmit the proposals with revised fee schedules. The FTC’s complaint states that payors either have submitted new offers with higher fees or accepted the higher fees proposed by MHHNP as a result of these negotiations. In addition, the FTC charges that MHHNP has discouraged and prevented participating physicians from contracting directly with payors.

The FTC charges that MHHNP has acted anticompetitively and violated the FTC Act by: a) negotiating agreements among its physician members on price and other competitively significant terms; b) refusing to deal with payors except on collectively agreed-upon terms; c) seeking or entering into contracts with third-party payors that restrict the payors’ freedom to enter into contracts with individual physicians; and d) refusing to accept payor offers that do not conform to MHHNP’s fee standards. The FTC alleges that this has hindered competition by unreasonably restraining price and other forms of competition, increasing prices for physician services, and depriving health plans, employers, and individual consumers of the benefits of competition among physicians.

The proposed consent order directs MHHNP to cease and desist from a) entering into any agreement between physicians to negotiate with a payor on behalf of any physician, to deal or refuse to deal with any payor based on price or other competitively significant terms, or not to deal individually with any payor; b) exchanging information among physicians about any physician’s willingness to deal with a payor or the terms on which he or she is willing to deal with a payor; and c) pressuring any person to engage in such action. The proposed consent also contains standard recordkeeping provisions to assist the FTC in monitoring MHHNP’s compliance.

The Commission vote to authorize staff to place the proposed consent agreement on the public record for comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until December 24, 2003, after which the Commission will decide to make it 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 complaint and proposed consent order 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.


Jen Schwartzman
Office of Public Affairs


Alan B. Loughnan or Barbara Anthony
FTC Northeast Regional Office

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