Colorado Physician Group To Settle FTC Charges that They Conspired To Raise Prices and Limit Choice for Consumers

A western Colorado physicians' organization -- which comprises at least 85 percent of the doctors in private practice in Mesa County -- has agreed to settle Federal Trade Commission charges that it fixed prices and prevented or deterred entry into the county by third-party payers.

The FTC alleged that the result of this anticompetitive behavior was higher prices for physician services and the exclusion of a wide range of third-party payers who might have offered alternative health insurance programs to the area's consumers. The settlement would prevent Mesa physicians from acting exclusively through their independent practice association (IPA) in the future, and would reduce the likelihood that the IPA would be used to facilitate other anticompetitive behavior by its members.

"This case is part of the Commission's continued effort to prevent anticompetitive conduct by health care providers who conspire to fix prices and prevent consumer choice," said William J. Baer, Director of the FTC's Bureau of Competition. "Last May, the Commission issued a complaint charging the Mesa County physicians with violating federal law. The result of the agency's action has been increased price competition among doctors and more choices for consumers in western Colorado. The settlement announced today will ensure that this trend continues and that consumers will receive the benefits of new and innovative forms of health care financing."

On May 13, the Commission issued an administrative complaint alleging that the Mesa County Physicians Independent Practice Association has acted as the de facto exclusive bargaining agent for its membership, which includes more than 180 physicians -- at least 85 percent of all the physicians and at least 90 percent of the primary care physicians -- in private practice in Mesa County, an area of over 100,000 people. Mesa IPA and its members agreed to restrain competition, the FTC said, by fixing the terms on which they deal with health plans, and by collectively refusing to deal with some health plans. The agreement resulted in higher prices for physician services and hindered the development of alternative health care financing and delivery systems in Mesa County, the Commission alleged.

According to the Commission, the issuance of the Commission's complaint appears to have accelerated competitive changes in the Mesa County physician services market. Physicians who formerly would contract with health plans only through Mesa IPA are now contracting through alternative organizations and thus producing increased competition, the agency said. Also, several health plans have been able to successfully enter the market.

The IPA was formed in 1987 to protect the economic interests of Mesa County physicians in their dealings with third-party payers. According to the Commission, Mesa IPA contracted with Rocky Mountain Health Maintenance Organization, a third-party payer based in Mesa County, whose enrollees comprise at least 50 percent of the total patient volume of Mesa IPA's members. In 1993, Mesa IPA began negotiating on behalf of its members with several third-party payers seeking to enter Mesa County. Mesa IPA encouraged its physician members not to deal individually with third-party payers, or to do so only on terms that were approved by the IPA's Contract Review Committee, the FTC alleged. Mesa IPA's Board of Directors approved a set of guidelines and a schedule of fee conversion factors to be used by the IPA's Contract Review Committee in reviewing contract offers from payers. According to the Commission, the conversion factors resulted in significantly higher prices for physician services being charged to several payers than would have been charged absent the agreement among the IPA's members.

The Commission's complaint charges that Mesa IPA's members had not integrated their medical practices so as to create efficiencies sufficient to justify their collective contract negotiations and other conduct alleged in the complaint. The FTC alleged that as a result of Mesa IPA's activities, a wide range of arrangements to pay for healthcare services, including preferred provider organizations, health maintenance organizations, and employer health care purchasing cooperatives were prevented from doing business in Mesa County.

The proposed consent agreement to settle the FTC's charges, announced today for public comment, would prevent illegal activity as alleged in the complaint but would allow Mesa IPA to engage in legitimate joint conduct. The order would prohibit Mesa IPA from, among other things, engaging in collective negotiations on behalf of its members; collectively refusing to contract with payers; acting as an exclusive bargaining agent for its members; restricting its members from dealing with third-party payers through an entity other than Mesa IPA; exchanging information among physicians about the terms upon which physicians are willing to deal with third-party payers; and encouraging or pressuring others to engage in any activities prohibited by the order.

The proposed consent order would stop illegal price-fixing and other types of conduct that harms consumers, but still allow Mesa IPA to engage in legitimate activities that have the potential to benefit consumers. The order would not prevent Mesa IPA from engaging in conduct that is reasonably necessary to operate any "qualified risk-sharing joint arrangement" or any "qualified clinically integrated joint arrangement." A "qualified risk-sharing joint arrangement" must be one in which the physicians share substantial financial risk and also must be non-exclusive, both in name and fact, the FTC said. A "qualified clinically integrated joint arrangement" includes arrangements in which the physicians undertake cooperative activities to achieve efficiencies in the delivery of clinical services, without necessarily sharing substantial financial risk. These arrangements also must be non-exclusive. In addition, Mesa IPA must comply with the order's prior notification requirement for these latter types of arrangements in order to help guard against the recurrence of allegedly illegal activity that restrains competition and consumer choice.

In accordance with the Statements of Antitrust Enforcement Policy in Health Care, issued jointly by the FTC and the Department of Justice, these provisions are designed to ensure that physicians have the latitude to achieve efficiencies through a variety of arrangements.

Under the order, Mesa IPA also must notify its members and certain third parties about the order; amend its "Physician Manual" to bring it into compliance with the order; and abolish its Contract Review Committee. Mesa IPA also would have to give third-party payers the option to terminate any existing contracts with the IPA that do not comply with the order. For the next five years, Mesa IPA would be required to publish and distribute copies of the complaint and order to its members.

The Commission vote to accept the proposed settlement for public comment was 4-0, with Commissioner Mary L. Azcuenaga not participating.

An analysis of the proposed agreement will appear in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and 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, the proposed consent order and the analysis of the proposed consent order to aid 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, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.