Austin, TX Surgeon Groups Agree to Settle FTC Charges of Price-Fixing and Concerted Refusals to Deal with Health Plans

An independent practice association ("IPA") containing most of the general surgeons in the Austin, Texas area, and six competing general surgery practice groups that include nearly all of the IPA members, have agreed to settle Federal Trade Commission charges that they conspired to restrain competition among general surgeons in the Austin area. According to the FTC, Texas Surgeons, P.A. ("Texas Surgeons IPA") served as a vehicle for the six competing general surgery practice groups to collectively refuse to deal with two health plans, thereby forcing the plans to accept the IPA's demands to raise surgical rates. As a result, the plans, patients, and employers (including the State of Texas Employees Retirement System and other self-insured employers that utilized the plans' physician networks) were forced to bear more than $1,000,000 in increased costs for surgical services in 1998 and 1999. The proposed settlement is designed to prevent recurrence of the illegal concerted actions alleged in the complaint, while allowing the respondents to engage in legitimate joint conduct.

The conduct that gave rise to the proposed consent agreement occurred prior to enactment of a 1999 Texas statute that permits the State Attorney General to approve, under certain conditions, joint negotiations between health plans and groups of competing physicians. Because the statute places various limitations on collective negotiation of fees, it is unclear whether conduct of the type described in the complaint could meet the conditions for approval set forth in that statute. The proposed FTC order permits future conduct by the respondents that is approved and supervised by the State of Texas, insofar as that conduct is protected from liability under the federal antitrust laws pursuant to the "state action" doctrine. The state action doctrine shields private conduct that is both: (1) in accordance with a clearly articulated and affirmatively expressed state policy to supplant competition; and (2) actively supervised by the state itself.

The FTC's complaint charges that the Texas Surgeons IPA orchestrated agreements among its physician members to coerce health plans to raise surgical rates to levels demanded by the IPA. The six general surgery practice groups actively participated in the unlawful conduct, the complaint alleges, through their collective control of the Texas Surgeons IPA board of directors, and through their direct participation in collective rate negotiations. The Texas Surgeons IPA, the complaint states, did not engage in any activity that might justify collective agreements on the prices members would accept for their services.

According to the FTC's complaint, in April 1997, Blue Cross Blue Shield of Texas ("Blue Cross") implemented its previously-announced proposal to change its reimbursement system from one based on historical charges to one similar to the system used by the federal government in its Medicare program. The effect of this change was to increase rates paid to primary care physicians, and to reduce rates to all physician specialists (including general surgeons). Soon thereafter, the respondents, through the Texas Surgeons IPA, began collectively negotiating to obtain higher rates.

Despite multiple attempts by Blue Cross to negotiate individually with the six respondent general surgery practice groups, those groups insisted on negotiating only through the Texas Surgeons IPA, the complaint charges. In September 1997, the Texas Surgeons IPA sent Blue Cross a package of identically worded contract termination notices for each general surgeon member of the Texas Surgeons IPA, with a cover letter stating that the termination notices were due to Blue Cross's "unacceptable" rate reductions. In December 1997, the Texas Surgeons IPA members, dissatisfied with Blue Cross's rate offers, collectively effected their resignations from Blue Cross, and jointly announced that action in a prominent advertisement in Austin's major daily newspaper.

In early 1998, after Blue Cross experienced difficulty in securing the services of a general surgeon for an emergency room patient, Blue Cross concluded that it needed to reach a rate agreement with the respondents as soon as possible to avoid inadequate general surgery coverage for Blue Cross subscribers in the Austin area. Soon thereafter, the respondents collectively negotiated a rate agreement with Blue Cross, increasing Blue Cross surgery rates nearly 30% above the April 1997 levels, according to the FTC.

The complaint also charges that in early November 1997, United HealthCare of Texas ("United") received a written notice from the Texas Surgeons IPA that all of its members would be terminating their contracts with United effective January 1, 1998, due to proposed fee reductions for 1998 that United announced in October 1997. United's proposed fee reductions went into effect on January 1, 1998 for surgical procedures not usually performed by general surgeons, but, due to respondents' unlawful concerted action, the comparable proposed fee reductions for general surgeries never went into effect. After the Texas Surgeons IPA rejected United's request to negotiate with the six respondent general surgery practice groups on an individual basis, and after United explored the possibility of creating a panel of general surgeons that did not include general surgeons from the six respondent general surgery practice groups, it concluded that it had no realistic alternative other than to begin collective fee negotiations with the Texas Surgeons IPA.

The complaint alleges that, in November 1997, the Texas Surgeons IPA required United to sign a waiver of its right to bring a private antitrust action against the Texas Surgeons IPA or its members stemming from respondents' collective fee negotiations with United. The complaint charges that the respondents then demanded and received an agreement from United to increase general surgery fees for United's various plans between 12% to 40% above the fees that United announced in October 1997.

The proposed settlement would prohibit the respondents from entering into or facilitating any agreement: (1) to negotiate on behalf of any physicians with any health plan; (2) to deal, refuse to deal, or threaten to refuse to deal with any health plan; (3) regarding any term on which any physicians deal, or are willing to deal, with any health plan; or (4) to restrict the ability, or facilitate the refusal, of any physician to deal with any health plan on an individual basis or through any other arrangement.

In addition, the settlement would prohibit the respondents from exchanging, or facilitating the exchange of information among Austin area physicians concerning: (1) negotiations with any health plan regarding reimbursement terms; or (2) any physician's actual or contemplated intentions or decisions with respect to any terms, dealings, or refusals to deal with any health plan. The proposed settlement permits each respondent general surgery practice group to participate in arrangements for the provision of physician services that are limited to physicians from the same practice group and allows the respondents to engage in conduct (including collectively determining reimbursement rates with health plans) that is reasonably necessary to operate any "risk-sharing" or "clinically-integrated" joint arrangement (as those terms are defined in the order).

The Commission vote to accept the proposed settlement and place it on the public record for comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until May 15, 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.

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 per day.

Copies of the complaint and proposed settlement, 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; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No.: 981 0124)