FTC Staff Opposes Alaska Physicians' Health Plan Legislation:

The staff of the Federal Trade Commission recently told the Alaska House of Representatives' Committee on Labor and Commerce that legislation authorizing collective bargaining among the state's physicians would significantly increase health care costs in the state and harm its consumers. Testifying on March 22, 2002, on behalf of the agency staff, R. Ted Cruz, Director of the FTC's Office of Policy Planning, said that the proposed antitrust exemption for physician collective bargaining in Alaska Senate Bill 37 significantly would increase health care costs and harm consumers by authorizing horizontal price fixing by physicians, as well as collusive refusals to deal with health plans. The Commission has opposed similar legislation at the federal level, and the Commission staff has expressed concerns about similar bills before other state legislatures on a number of occasions.

According to the FTC staff testimony, permitting such anticompetitive physician conduct is likely to result in substantial consumer harm as follows:

• Consumers and employers would face higher prices for health insurance coverage.
• Consumers also would face a reduction in access to care, as increasing costs likely would result in a reduction in health care benefit options.
• State Medicaid programs using managed care strategies would be forced to increase their budgets, cut optional benefits, or reduce the number of covered beneficiaries.
• State and local programs providing care for the uninsured would be adversely affected as well, as an increase in health care costs likely would add additional consumers to the ranks of the uninsured.

In addition, Cruz testified that the proposed regulatory structure to be established by the Alaska bill does not satisfy the Supreme Court's requirements under the "state action" doctrine, which allows a state to override the national policy favoring competition only where it expressly decides to govern aspects of its economy by state regulation rather than market forces. Under that doctrine, a state may adopt a regulatory scheme that limits competition, but the state must substitute its own active control for the discipline that competition would otherwise provide. To that end, the state legislature must articulate clearly a policy to displace competition with regulation, and state officials actively must supervise the private anticompetitive conduct.

Cruz testified that Senate Bill 37 falls far short of the "active supervision" required by Supreme Court case law. He noted that the Supreme Court has made it clear that the active supervision standard is a rigorous one, designed to ensure that an anticompetitive act of a private party is shielded from antitrust liability only when "the State has effectively made [the challenged] conduct its own." The Court has also held that active supervision requires a state to exercise "sufficient independent judgment and control so that the details of the rates or prices have been established as a product of deliberate state intervention, not simply by agreement among private parties." In this instance, the bill does not provide the Attorney General with the means to exercise sufficient independent judgment and control, according to Cruz. As a result, anticompetitive conduct undertaken in conformity with the bill would not be immunized, and could subject physicians to antitrust liability.

Summarizing its arguments concerning the proposed antitrust exemption for physician collective bargaining contained in Senate Bill 37, Cruz testified that "the proposed antitrust exemption for physician collective bargaining is likely to result in increased consumer costs and threatens to reduce access to care. Furthermore, the risk of consumer harm does not appear to be offset by any substantial procompetitive benefits or increase quality of care."

The testimony represents the views of the FTC's Bureau of Competition and Office of Policy Planning and does not necessarily represent the views of the Commission or any individual commissioner. The Commission authorized presentation of the testimony by a vote of 5-0.

Copies of the testimony 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.