Denver-Area Physician Practice Groups and Their Agent Agree to Settle FTC Charges of Fixing Fees

Eight Denver, Colorado, area physician practice groups specializing in obstetrics and gynecology (OB/GYNs), along with their non-physician agent and his corporation, have agreed to settle Federal Trade Commission charges that the practice groups and other physicians, through their common agent, entered into agreements to fix fees and to refuse to deal with payors except on collectively agreed-upon terms. According to the FTC, the OB/GYNs engaged in anticompetitive conduct that has restrained price and other forms of competition among Denver-area OB/GYNs; caused fees for OB/GYN services to rise; and harmed purchasers of health care services, including health plans, employers, and individual patients. The proposed settlement contains an order designed to prevent recurrence of these illegal concerted actions.

The FTC alleges that the physician practice groups and their agent violated Section 5 of the Federal Trade Commission Act by facilitating and implementing agreements among the obstetricians and gynecologists represented by the agent to fix prices and other terms of dealing with health insurance firms and other third-party payors (payors), and to refuse to deal with payors except on collectively determined terms.

"This case is part of our continuing law enforcement efforts directed at anticompetitive conduct involving health care," said Joe Simons, Director of the FTC's Bureau of Competition. "The Commission's settlement ensures that the agent and physicians who participated in the illegal fee-fixing and refusals to deal will not engage in such activities again."

The Complaint

The FTC's complaint names as respondents R. Todd Welter (a non-physician consultant), R.T. Welter & Associates, Inc. (RTWA), and eight physician practice groups: Cohen and Womack, M.D., P.C.; Consultants in Obstetrics and Gynecology, P.C.; Mid Town Obstetrics & Gynecology, P.C.; Mile High OB/GYN Associates, P.C.; The OB-GYN Associates Professional Corporation; Rocky Mountain OB-GYN, P.C.; The Women's Health Group, P.C.; and Westside Women's Care, L.L.P.

According to the complaint, Welter organized competing Denver-area OB/GYN practice groups (comprised of more than 80 physicians) into a concerted arrangement for the purpose of engaging in collective contract negotiations with health insurance firms and other third-party payors. Welter and the OB/GYNs named their concerted arrangement "Professionals in Women's Care," or "PIWC." The complaint alleges that Welter and the named practice groups orchestrated boycotts and agreements among the PIWC physicians to fix the prices and other terms they would accept from payors. The respondents did not engage in any cooperative joint activity that would justify their collective contract negotiations with health plans, the FTC's complaint states.

Sometimes a network of competing physicians uses an agent to convey to payors information obtained individually from the physicians about fees or other significant contract terms that the physicians are willing to accept. The agent also may convey all payor contract offers to the physicians, which the physicians then unilaterally decide whether to accept or reject. Such a "messenger model" arrangement, which is described in the 1996 Statements of Antitrust Enforcement Policy in Health Care jointly issued by the FTC and U.S. Department of Justice (see http://www.ftc.gov/reports/hlth3s.htm), can facilitate contracting between physicians and payors and minimize the costs involved, without fostering an agreement among competing physicians on fees or fee-related terms.

According to the complaint, Welter and the named practice groups purported, but failed, to operate a legitimate messenger arrangement. From 1999 to 2001, they negotiated fees and other competitively significant terms on behalf of the physicians participating in PIWC. Welter refused to convey payor contract offers to the PIWC physicians if he and the named practice groups considered the terms deficient. They demanded and received fees and other terms that were more economically advantageous than the physicians could have obtained by negotiating individually with the payors.

The complaint alleges that Welter and the named practice groups enhanced PIWC's bargaining strength by convincing the PIWC physicians to terminate relationships with independent practice associations and practice management groups. They exploited this strength by demanding higher fees and more favorable price-related terms from payors. Welter advised the PIWC physicians to terminate, or threaten to terminate, their pre-existing individual contracts with payors. Many PIWC participants complied, pressuring payors to offer new contracts with higher fees.

The complaint alleges that these terminations and threats of termination forced payors to choose between either paying higher fees to PIWC physicians or being denied the ability to include those physicians in their health plan provider networks. The latter was not a plausible option for the payors. To be marketable in the Denver area to employers and other purchasers, a health plan's network of participating physicians must include an adequate number of OB/GYNs who practice in the Denver area. Through the conduct described in the complaint, the PIWC physicians were able to obtain payor contracts containing fees that were allegedly significantly higher than the fees those payors were paying other OB/GYNs in the area.

The Proposed Settlement

The Commission has issued a proposed order applicable to RTWA, Welter, and the eight named practice groups. The order is designed to prevent recurrence of the illegal concerted action, while allowing the respondents to engage in legitimate conduct that does not impair competition. Under the proposed order's core provisions, the respondents would be prohibited from entering into, participating in, or facilitating any agreement: 1) to negotiate on behalf of physicians with any payor or health care provider; 2) to deal or, to refuse to deal, with any payor or health care provider; 3) regarding any term or condition on which physicians deal, or are willing to deal, with any payor; or 4) not to deal individually with any payor, or to deal with any payor only through an arrangement involving the respondent(s). The proposed order also would bar the respondents from exchanging information concerning any physician's willingness to deal with a payor.

The order would not prohibit the respondents from facilitating agreements between physicians, if the physicians are part of the same medical group practice. In addition, the respondents would not be prohibited from participating in a "qualified risk-sharing joint arrangement" or "qualified clinically-integrated joint arrangement." As defined in the proposed order, a "qualified risk-sharing joint arrangement" must satisfy two conditions. First, all physician participants must share substantial financial risk through the arrangement and thereby create incentives for the physician participants jointly to control costs and improve quality by managing the provision of services. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

Under the proposed order, a "qualified clinically-integrated joint arrangement" also must satisfy two conditions. First, all physician participants must participate in active and ongoing programs to evaluate and modify their clinical practice patterns, creating a high degree of interdependence and cooperation among physicians in order to control costs and ensure the quality of services provided. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

The order would prohibit Welter, for three years, from negotiating with any payor on behalf of any current or past participant in PIWC, and from advising any current or past PIWC participant to accept or reject any term, condition, or requirement of dealing with any payor.

The order also would require the respondent practice groups to terminate, without penalty, at any payor's request, current contracts, with respect to providing physician services, negotiated by Welter with payors. This provision is intended to eliminate the effects of the respondents' anticompetitive concerted actions.

Finally, the proposed settlement contains a number of record-keeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms.

The Commission vote to place the proposed consent agreement 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 for 30 days, until September 19, 2002, 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.

On September 9-10, 2002, the Federal Trade Commission will host a workshop to consider the impact of competition law and policy on the cost, quality, and availability of health care, and on the incentives for innovation in the field. The agenda for the workshop is available at the Web page for the workshop, which can be found at http://www.ftc.gov/ogc/healthcare/index.htm.

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 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. 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. 011-0175)