FTC Halts Physician Price-Fixing in Cincinnati Area

The Federal Trade Commission today announced a consent order settling charges that an independent practice association, representing two orthopaedic groups in Cincinnati, Ohio, violated antitrust laws by jointly negotiating contracts regarding the rates its physician members would charge health plans and other payors for their services. Under the terms of the order, New Millennium Orthopaedics, LLC (NMO) will be disbanded and its two constituent groups will be prohibited from similar collective bargaining in the future.

The consent order announced today settles the Commission’s complaint against the following respondents: NMO; Orthopaedic Consultants of Cincinnati, Inc., d/b/a Wellington Orthopaedics & Sports Medicine (Wellington), and Beacon Orthopaedics & Sports Medicine (Beacon).

Background

NMO is a single-specialty independent practice association that consists of two orthopaedic physician groups – Wellington and Beacon. Both Wellington, which has 22 orthopaedic physician members, and Beacon, which has 10, provide surgical and nonsurgical orthopaedic services in and around Cincinnati.

The FTC alleges that in 2002, Wellington and Beacon formed NMO to act as their negotiating agent with health plans. Through NMO, the two groups agreed on prices to propose to health plans for all of the services their physicians provided. In August 2002, NMO representatives sent letters to the four major health plans in Cincinnati proposing an arrangement that would implement a guaranteed base fee schedule and bonus scheme for NMO’s participating physicians.

The agreed-upon bonus scheme would reward all NMO physicians with higher base rates if NMO, as a whole, met established performance targets for increasing the percentage of surgical procedures performed by some NMO physicians at ambulatory surgery centers (ASCs). The bonus scheme targeted only one aspect of the practices of some NMO physicians – outpatient surgery. Thus, the measured change in the physicians’ behavior was limited to the movement of patients to ASCs. Nevertheless, all NMO physicians, including non-surgeons, would receive higher reimbursement rates as a result of the joint negotiations.

The Commission also alleges that NMO performed no role in enhancing the ability of the physicians to increase the number of procedures performed at ASCs instead of at hospitals. For example, NMO allegedly did not implement any enforcement mechanisms to monitor and control the physicians’ compliance with the bonus scheme.

The complaint alleges that, while one of the health plans agreed to NMO’s terms, three others did not. Nevertheless, NMO continued to attempt to negotiate with the other plans into 2004. NMO enforced its joint negotiation efforts with one of the three resistant health plans by refusing to deal with it except under a contract that was favorable to the group. Both Wellington and Beacon later jointly terminated their individual agreements with the health plan at the direction of NMO’s board of directors to pursue contracts through NMO.

The Commission’s Complaint

According to the Commission’s complaint, Wellington and Beacon, through NMO, violated Section 5 of the FTC Act by orchestrating and implementing agreements between competing orthopaedic physician groups to fix prices charged to health plans, and by refusing to deal with one of the health plans that would not agree to the collectively determined terms.

The Consent Order

The Commission’s consent order is designed to prevent the illegal anticompetitive conduct alleged in the complaint. In addition to requiring the dissolution of NMO, it specifically prohibits the respondents from entering into or facilitating agreements between or among any health care providers: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payor, including, but not limited to price terms; 4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than NMO.

Certain kinds of agreements, however, are excluded from the general ban on joint negotiations, including “qualified risk-sharing joint arrangements” or “qualified clinically integrated joint arrangements.” 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 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.

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, 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.

To eliminate the effects of NMO’s joint price-setting behavior, the terms of the consent order require Wellington and Beacon to notify any payors who had communications with NMO about the payors’ right to terminate their agreements with Wellington and Beacon. The order also contains standard record keeping and reporting requirements to assist the FTC in monitoring the respondents’ compliance.
 

The Commission vote to place the consent order on the public record for comment and publish a copy in the Federal Register was 5-0. The Commission is accepting comments on the order for 30 days, until May 31, 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.

(FTC File No. 031-0087)