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System Health Providers (SHP) and its parent corporation, Genesis Physicians Group, Inc. (GPG), most of whose approximately 1,250 members are physicians practicing in the eastern part of the Dallas-Fort Worth metropolitan area, have agreed to settle Â鶹´«Ã½ Trade Commission charges that they have restrained trade unreasonably and hindered competition in the provision of physician services in the Dallas area. According to the FTC, the respondents unreasonably restrained price and other forms of competition among GPG’s members, to the detriment of health insurance firms, employers, and individual consumers. The proposed settlement contains a proposed order designed to prevent recurrence of the alleged illegal concerted actions.

According to the FTC’s complaint, the respondents violated Section 5 of the Â鶹´«Ã½ Trade Commission Act by facilitating and implementing agreements among GPG members on price and other competitively significant terms; refusing to deal with health insurance firms and other third-party payors (payors) except on collectively agreed-upon terms; negotiating uniform fees and other competitively significant terms in payor contracts; and refusing to convey to GPG members payor offers that do not conform to respondent SHP’s standards for contracts.

"The FTC is committed to stopping fee-fixing and other forms of anticompetitive conduct among health care industry participants," said Joe Simons, Director of the FTC’s Bureau of Competition. "This settlement should prevent a recurrence of the alleged illegal actions."

The Complaint

According to the FTC, physicians often enter into contracts with payors to establish the terms and conditions, including price terms, under which the physicians will render services to the payors’ subscribers. Physicians entering into such contracts often agree to lower compensation to obtain access to additional patients through the payor. In the absence of agreements among them, competing physicians decide individually whether to enter into payor contracts and at what prices to do so.

The complaint alleges that, in order to compete effectively in the Dallas area, a payor must provide patient access to a large number of primary care physicians (PCPs) and other physicians who practice in the Dallas area. Many such physicians who practice in the Dallas area are members of GPG. Accordingly, many payors concluded that they could not establish a viable physician network, particularly in areas in which GPG physicians are concentrated, without including a large number of GPG physicians in that network.

Sometimes a group of competing physicians uses an agent to relay 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 relay 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 Â鶹´«Ã½ Policy in Health Care jointly issued by the FTC 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 complaint alleges that, rather than acting simply as a "messenger," SHP actively bargained with payors for contracts on GPG members’ collective behalf – often proposing and counter-proposing fee schedules, among other terms. The complaint further alleges that, to maintain its bargaining power, SHP discouraged GPG members from entering into unilateral agreements with payors. SHP also allegedly advised GPG members that they would enhance their bargaining advantage by negotiating with payors collectively through SHP, and that payors were offering fees and other contract terms that were "not comparable to market standards" or were otherwise inadequate. According to the FTC’s complaint, many GPG members have been unwilling to negotiate with payors apart from SHP, and communicated that fact to payors seeking to resist SHP’s collective demands.

The FTC also alleges that SHP had a practice – inconsistent with a messenger model arrangement – of not relaying to GPG members payor offers that provided for fees that SHP deemed deficient. SHP instead demanded, and often received, more favorable fee and other contract terms – terms that payors would not have offered to GPG members had those members engaged in unilateral, rather than collective, negotiations with the payors. Only after the payor acceded to fee and other contract terms acceptable to SHP, the FTC alleges, would SHP convey that payor’s proposed contract to GPG members for their consideration.

The FTC alleges that by discouraging GPG members from contracting directly with payors and by not conveying payors’ proposed contracts to GPG members unless those contracts were acceptable to SHP, SHP constrained the ability of, and made it more costly for, payors to establish competitive physician networks in the Dallas area without first coming to terms with SHP. As a result, payors often acceded to SHP’s demands to pay supracompetitive fees to all GPG members.

Since July of 1999, GPG, its members, and SHP have entered only fee-for-service controls with payors, pursuant to which GPG, its members, and SHP did not undertake financial risk-sharing. Further, GPG members have not integrated their practices to create significant potential efficiencies. Therefore, the complaint alleges, the respondents’ joint negotiation of fees and other competitively significant terms has not been, and is not, reasonably related to any efficiency-enhancing integration.

The Proposed Consent Order

The proposed consent order is designed to prevent recurrence of the illegal concerted actions alleged in the complaint while allowing the respondents and member-physicians to engage in legitimate joint conduct.

The proposed settlement would prohibit the respondents from entering into or facilitating agreements among physicians: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) regarding any term upon which any providers deal, or are willing to deal, with any payor; and 4) not to deal individually with any payor or through any arrangement other than SHP or GPG.

In addition, the proposed order would prohibit the respondents from exchanging or facilitating the transfer of information among physicians concerning any physician’s willingness to deal with a payor, or the terms or conditions, including price terms, on which the provider is willing to deal.

The proposed settlement provides that the respondents may engage in conduct that is reasonably necessary to the formation or operation of a "qualified risk-sharing joint arrangement" or a "qualified clinically-integrated joint arrangement," so long as the arrangement does not restrict the ability, or facilitate the refusal, of participating physicians to deal with payors on an individual basis or through any other arrangement. To be a "qualified risk-sharing joint arrangement," an arrangement must satisfy two conditions. First, all participating physicians must share substantial financial risk through the arrangement and thereby create incentives for the 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.

To be a "qualified clinically-integrated joint arrangement," an arrangement also must satisfy two conditions. First, all participants must join in active and ongoing programs to evaluate and modify their clinical practice patterns, creating a high degree of interdependence and cooperation among physicians 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. Both definitions reflect the analyses contained in the 1996 FTC/DOJ Statements of Antitrust Â鶹´«Ã½ Policy in Health Care.

The proposed order also would require SHP to distribute the complaint and order to GPG members, payors with which it previously contracted, and specified others, and to terminate, without penalty, payor contracts that it had entered into during the collusive period, at any such payor’s request. This provision is intended to eliminate the effects of respondents’ joint price-setting.

Finally, the proposed settlement 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 agreement on the public record for comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Â鶹´«Ã½ Register shortly. The agreement will be subject to public comment for 30 days, until September 19, 2002, 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, D.C. 20580.

On September 9-10, 2002, the Â鶹´«Ã½ Trade Commission will host a workshop to consider the impact of competition law and policy on the cost, quality, and availability of health care, and on the incentives for innovation in the field. The agenda for the workshop is available at the Web page for the workshop, which can be found at http://www.ftc.gov/ogc/healthcare/index.htm.

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, proposed consent agreement and order, and an analysis of the agreement 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, Â鶹´«Ã½ 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