Texas Physicians' Group Agrees To Settle FTC Charges of Collective Bargaining

A nonprofit corporation representing approximately 1,000 participating physicians in the Dallas/Fort Worth, Texas metropolitan area has agreed to settle Federal Trade Commission charges that collective bargaining on behalf of its members has led to decreased competition and increased prices for the provision of medical services to the area's consumers. Under the terms of the proposed consent order reached with the Commission and announced today, Southwest Physician Associates (SPA) will be barred from jointly negotiating fees and other competitively significant terms on behalf of its physicians, unless certain conditions are met.

"The FTC remains 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. "We believe that SPA's actions were in violation of the law and caused consumers to pay illegally inflated prices for medical services."

Southwest Physician Associates

SPA is a nonprofit corporation that contracts with third-party payors - such as insurance companies and preferred provider organizations - for the provision of medical services on behalf of its approximately 1,000 participating physicians. It is organized and operated to further the financial interest of these physicians, who are licensed to practice in Texas and who provide services in the eastern part of the Dallas-Fort Worth metropolitan area.

Absent agreements among competing physicians, each physician decides independently whether, and on which price and other terms, he or she will contract with third-party payors to provide medical services to the payor's subscribers. To be competitively marketable in the Dallas area, a payor must include in its physician network a large number of primary care physicians and specialists who practice in that area. Many of these physicians are members of SPA, and accordingly, payors must include many of its members in its network to provide adequate health coverage to the area's consumers.

The Commission's Complaint

The Commission's complaint alleges that, in violation of the FTC Act, SPA actively bargained with third-party payors, often negotiating fee schedules for its members. The complaint states that to maintain its bargaining power, SPA discouraged its participating physicians from unilaterally entering into agreements with third-party payors, sometimes telling these physicians that it had determined that specific fees and other contract terms offered by payors was inadequate. As a result, many of SPA's participating physicians allegedly have been unwilling to negotiate individually with third-party payors and have told this to payors that have resisted SPA's collective demands.

According to the complaint, instead of simply acting as a "messenger" for its member physicians - conveying information from payors to enable the physicians to enter into unilateral decisions - SPA facilitated and implemented agreements among its members on price and other competitively significant contract terms. The FTC contends that SPA actively sought higher prices for its members and often failed to convey to its members third-party offers that it deemed insufficient, including those that failed to satisfy its board of directors. Only after the payor agreed to fee and other contract terms that were acceptable to SPA, the complaint states, would SPA convey the proposed contract to its participating physicians. As a result, the FTC contends that SPA often received more favorable fees and other contract terms for its members than the physicians could have gotten if acting on their own.

According to the FTC, SPA's joint negotiation of fees and other competitively significant contract terms is not reasonably related to any efficiencies gained by the group. Instead, SPA's actions have allegedly unreasonably restrained trade and hindered competition regarding the provision of physician services in the Dallas area, and harmed patients and other purchasers of medical services by restricting choice and increasing costs.

The Proposed Consent Order

The proposed consent order is designed to remedy SPA's allegedly illegal anticompetitive behavior, while allowing it to engage in legitimate joint conduct on behalf of its members. First, the proposed order prohibits SPA from entering into or facilitating agreements among providers: 1) to negotiate on behalf of any provider with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to determine on what terms to deal with any payor; and 4) not to deal individually with any payor or through any arrangement other than SPA.

Next, the proposed order prohibits SPA from exchanging or facilitating the transfer of information among providers concerning any provider's willingness to deal with a payor, or the terms or conditions (including price) on which the provider is willing to deal. Third, SPA is prohibited from attempting to engage in any of the previously described actions and from encouraging, pressuring, or attempting to induce any person to engage in any actions prohibited by the proposed order.

Finally, the proposed order contains a proviso allowing SPA to engage in conduct that is reasonably necessary to the formation or operation of a "qualified risk-sharing joint agreement" or "qualified clinically integrated joint arrangement," as defined in the proposed settlement. The proposed order contains a second proviso to preserve payor contract provisions defining post-termination obligations relating to the continuation of care during a previously begun course of treatment. The proposed order, which will expire in 20 years, also contains reporting and record-keeping requirements, as well as terms defining how and when SPA must distribute the order to its members.

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 July 8, 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.

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 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, 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 Commission 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.: 011-0197)