Chicago-Area Physicians Group Agrees Not to Fix Prices

Under the terms of a consent order with the Federal Trade Commission announced today, a Chicago-area physicians’ group has agreed to stop collectively bargaining on behalf of its members, as such joint negotiations allegedly led to reduced competition and higher prices paid by health plans and other payors to the group’s salaried and independent doctors.

The order settles the FTC’s complaint against Evanston Northwestern Healthcare Corporation (ENH) and ENH Medical Group, Inc. (ENH Medical Group). The allegations against the respondents are contained in Count III of the Commission’s larger complaint concerning ENH’s acquisition of Highland Park Hospital in Highland Park, Illinois. Counts I and II of the complaint, which charge that the hospital acquisition was illegal and anticompetitive, have not been settled. A hearing on the merits of these charges is currently pending before an independent administrative law judge.

The Respondent

ENH is a nonprofit corporation that owns ENH Faculty Practice Associates (Faculty Practice Associates), which also is a nonprofit corporation. Faculty Practice Associates employs about 460 salaried doctors who practice medicine in several offices in Cook and Lake Counties, Illinois, and primarily serve ENH’s patients. Faculty Practice Associates is the sole shareholder of ENH Medical Group, a for-profit corporation that represents member physicians, negotiating on their behalf and entering into contracts with health plans and other third-party payors. The doctors then provide their medical services to patients insured by payors for the fees set by the Group.

ENH Medical Group jointly represented two categories of doctors in its contract negotiations with payors: Faculty Practice Associates’ salaried physicians and about 450 other doctors who also practiced in the counties but were considered independent practitioners.
Without the contracts negotiated on their behalf by ENH, the FTC contends, the Group’s physicians would compete in the same geographic area for the sale of comparable healthcare services.

The Commission’s Complaint

According to the Commission’s complaint, the respondent violated Section 5 of the FTC Act by facilitating and implementing agreements among rival physicians to fix prices and other terms of dealing with health plans and other third-party payors, and by refusing to deal with such payors except on jointly determined terms. There was no physician practice integration that may have led to increased efficiency, the complaint states. As a result, the FTC contends, ENH Medical Group deprived payors, employers, and individuals of the benefits of physician competition. By eliminating this competition, ENH Medical Group was able to increase the prices that payors paid to the salaried and independent physicians in the Group.

The Consent Order

The consent order settles all allegations in Count III of the Commission’s complaint against ENH and ENH Medical Group. It bars the respondent from entering into or facilitating any agreement between or among physicians: 1) to negotiate with payors on any physician’s behalf; 2) to deal, not to deal, or threaten not to deal with payors; 3) to designate the terms on which to deal with any payor; or 4) to refuse to deal individually with any payor, or to deal with any payor only through the respondent’s arrangements.

The order reinforces these general provisions by: 1) prohibiting the respondent from facilitating information exchanges between or among any physicians concerning whether, or on what terms, to contract with a payor; and 2) banning them from attempting to engage in any other actions prohibited by the order.

The order provides that the respondents are not prohibited from participating in a “qualified risk-sharing joint arrangement” or a “qualified clinically integrated joint arrangement.” As defined in the 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 to jointly 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.

As defined in the 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.

Other Terms of the Order

Finally, the consent order contains a number of record-keeping and reporting requirements designed to assist the FTC in monitoring compliance with its terms. It also requires the respondent to notify the FTC before entering into certain contracting or negotiating agreements, and to distribute the complaint and order to all doctors that have participated in ENH Medical Group since January 1, 2000, as well as to selected payors. ENH also is required to terminate its current contracts with any payor at the payor’s request within one year after the order becomes final. The order will expire in 20 years.

The Commission vote to place the consent order on the public record for comment and publish a copy in the Federal Register was 4-0-1, with Chairman Deborah Platt Majoras not participating. The Commission is accepting comments on the order for 30 days, until May 2, 2005, after which it will decide whether to make it final. Comments should be sent to: FTC Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 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, consent order, and an analysis 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.

Elizabeth A. Piotrowski,
Bureau of Competition
202-326-2623

(FTC Docket No. 9315)