FTC Charges San Francisco's Brown & Toland Medical Group with Price-Fixing

The Federal Trade Commission today issued an administrative complaint against California Pacific Medical Group, Inc., doing business as Brown & Toland, a San Francisco, California physicians' organization, for allegedly fixing the prices and terms under which its doctors would contract with payors to provide services for Preferred Provider Organization (PPO) enrollees. In filing the complaint, the FTC is seeking to prohibit Brown & Toland from unlawfully negotiating PPO contracts with health plans on behalf of its member physicians and to nullify the allegedly anticompetitive existing contracts the group has already negotiated with health plans. Brown & Toland also has organized a network of physicians to contract with Health Maintenance Organizations (HMOs), but the FTC's complaint focuses solely on allegations of price-fixing in connection with PPO contracts.

"The FTC's complaint charges Brown & Toland with orchestrating naked price fixing among its physician members to the detriment of San Francisco consumers," said Joe Simons, Director of the FTC's Bureau of Competition. "While, under certain circumstances, collective price negotiation may be necessary to achieve actual clinical or financial integration among providers, which in turn can benefit consumers, in this case Brown & Toland did not achieve such integration. Simply put, Brown & Toland fixed prices without providing any offsetting consumer benefit, a classic violation of the antitrust laws and the Federal Trade Commission Act."

Brown & Toland

Brown & Toland is a for-profit multi-specialty independent physicians' association (IPA) with more than 1,500 members providing services in San Francisco. Historically, it has provided physician services to HMO members under capitated agreements with health plans, under which the plans pay a set rate each month for each enrollee for certain services provided by the group's doctors. In 2001, with a subset of its physician members, Brown & Toland formed a PPO network and began negotiating fee-for-service reimbursement rates on behalf of its PPO network members.

The Commission's Complaint

According to the Commission, in violation of the FTC Act, Brown & Toland organized a horizontal agreement under which its competing member physicians agreed collectively on the price and other competitively significant terms on which they would enter into contracts with health plans or other third-party payors. To further the aims of this agreement, Brown & Toland allegedly directed its physicians to end their preexisting contracts with payors, required its physician members to charge specified prices in all PPO contracts, and approached other physicians' organizations to invite them to enter into similar price-fixing agreements. The Commission contends that this behavior had the purpose and effect of raising prices for physician services in San Francisco.

The complaint states that Brown & Toland's illegal anticompetitive actions led to agreements among payors to compensate Brown & Toland's PPO network physicians at a higher rate than they would have in the absence of such conduct. The effects of such conduct have been to unreasonably restrain trade and hinder competition in the provision of physician services in San Francisco in the following ways: 1) by unreasonably restraining price and other forms of competition among members of Brown & Toland's PPO physicians network; 2) by increasing prices for physician services; and 3) by depriving consumers, employers, and health plans of the benefits of physician competition. Finally, the FTC contends that Brown & Toland's PPO network was not clinically integrated, and Brown & Toland's actions were not reasonably necessary to achieve potential clinical efficiencies for its PPO network.

The Commission vote authorizing the staff to file the administrative Part III complaint was 5-0. In addition to filing the complaint, the FTC filed a notice of proposed relief in which it identifies provisions that may be appropriate in a final order resolving the charges. These include: 1) cease and desist provisions related to the direct negotiation of contracts by Brown & Toland on behalf of member physicians without clinical or financial integration; and 2) termination of contracts that Brown & Toland has negotiated with PPOs.

NOTE: The Commission issues or files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

Copies of the Commission's complaint 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.

(FTC File No.: 021-0143)