Managed Care Contract Negotiations
Jul 25

Texas Physician Group Seeks Reconsideration

From the American Health Lawyer’s Association (www.healthlawyers.org):

A Texas physician group has filed a petition in the U.S. Court of Appeals for the Fifth Circuit, seeking a rehearing en banc of a recent Fifth Circuit panel decision which found that the group had violated the antitrust laws by collectively negotiating with health plans on behalf of member physicians. The petition for rehearing was filed on July 2, 2008.

In May 2008, a three-judge panel of the Fifth Circuit affirmed a 2005 decision by the FTC that found the group—North Texas Specialty Physicians (NTSP)—guilty of unlawfully restraining competition through horizontal price-fixing in violation of Section 5 of the FTC Act. Specifically, the FTC had concluded that NTSP, an independent practice association comprising hundreds of physicians across multiple specialties, had negotiated agreements on behalf of its member physicians on price and other terms, refused to deal with payors except on collectively agreed-upon terms, refused to submit payor offers to participating doctors unless the offers’ terms complied with NTSP’s minimum-fee standards, illegally polled the member physicians to determine the minimum fee they would accept for their services, and discouraged payors and physicians from directly negotiating with each other. NTSP appealed the Commission’s 2005 decision to a three-judge panel of the Fifth Circuit, which ultimately upheld the majority of the FTC’s findings. In so doing, it dismissed NTSP’s argument that it is a sole actor—rather than an organization controlled by competing physicians—for purposes of the antitrust laws. The court noted that the NTSP physicians have taken collective action to obtain higher fees from payors, and that "when an organization is controlled by a group of competitors, it is considered to be a conspiracy of its members." The Fifth Circuit also upheld the legal framework used by the FTC in finding NTSP liable, in which the FTC applied its "inherently suspect" analysis (also known as a "quick look" analysis), rather than a strict per se approach (as is commonly employed in cases of horizontal price-fixing) or a full rule-of-reason analysis (as NTSP argued was required). As to the merits of the alleged violation, the Fifth Circuit concluded that the evidence supported the FTC’s factual findings that NTSP’s activities amounted to horizontal price fixing, and that NTSP actively encouraged physicians to reject offers from payors that fell below NTSP’s minimum-fee standards.

In its appeal to the full Fifth Circuit, NTSP argues that the three-judge panel erred by relying on evidence of "attempt" to conspire to support an antitrust violation, in apparent contradiction with other Fifth Circuit cases expressly disallowing a cause of action for merely "attempting" or "encouraging" a conspiracy. NTSP argues that the panel relied extensively on "the hypothetical effects of attempted or encouraged collusion between NTSP physicians which never occurred," and it insists that reliance on such purported "encouragement" of collusion cannot be a basis for finding an anticompetitive effect of NTSP’s actions. NTSP also argues on appeal that the three-judge panel improperly relied upon the "theoretical" and "logical" effects of physicians not found to have conspired as evidence of an antitrust violation. NTSP emphasizes that there were "no agreements among physicians whether to accept or reject contract offers, and no physicians knew how any other physician would respond" to such offers. Additionally, NTSP argues that the Commission failed to prove a relevant market, NTSP’s market share, or any higher prices to NTSP physicians as part of its case, and therefore presented no data or proof that NTSP’s actions had any market impact. Therefore, NTSP argues that it was improper for the Fifth Circuit to find an antitrust violation in the absence of data showing anticompetitive effects.

Absent from NTSP’s petition for rehearing is any mention of the Fifth Circuit’s reliance on the D.C. Circuit’s Polygram case, in which the D.C. Circuit upheld the FTC’s "quick look" approach. The Fifth Circuit had concluded that, because "the net anticompetitive effects of certain of NTSP’s practices were obvious," the "quick look" approach allowed the FTC to properly consider the proffered pro-competitive effects of NTSP’s actions. The Polygram analysis is consistent with the U.S. Supreme Court’s Indiana Federation of Dentists case, which held that a full-blown rule-of-reason analysis may not always be necessary in Sherman Act cases. In its petition, NTSP omits any reference to these cases and argues that, under a complete rule of reason analysis, the data fails to show any anticompetitive effects of NTSP’s actions.

Also notable is NTSP’s argument that the FTC was required to prove "a conspiracy among competing members of an organization with demonstrated market effects." In its petition, NTSP compares its own structure to that of a trade association and argues that all trade associations by their nature involve collective action by competitors, but that courts have not found such associations to be "walking conspiracies." NTSP, however, is an independent practice association, and thus the inferences that can be drawn from its conduct are different from those that may be drawn from the conduct of a trade association. As an independent practice association, NTSP’s purpose is to contract with health insurers on behalf of competing providers. A trade association, by contrast, has several additional functions that may have nothing to do with the competitive conduct of its members. Nevertheless, NTSP’s petition relies heavily on caselaw relating to trade associations to explain why the FTC and the court erred in finding a violation of the antitrust laws.

Access the NTSP’s petition for rehearing.

About Reed Tinsley, CPA

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