Northwest New Mexico Physicians Agree to Settle FTC Charges That They Fixed Prices

San Juan IPA, Inc., a physicians’ independent practice association operating in northwestern New Mexico, has agreed to settle Federal Trade Commission charges that it orchestrated and carried out agreements among its member doctors to set the price that they would accept from health plans, to bargain collectively to obtain the group’s desired price terms, and to refuse to deal with health plans except on collectively determined price terms. The effect of this conduct, the FTC states, was higher prices for medical services for the area’s consumers. The consent order settling the FTC’s charges would prohibit the association from collectively negotiating with health plans on behalf of its physicians and from setting their terms of dealing with such purchasers.

Background

San Juan IPA does business in the Farmington, New Mexico, area, which is in the northwestern corner of the state. San Juan IPA’s 120 physician members constitute approximately 80 percent of the doctors practicing independently in and around the Farmington area.

The Commission’s Complaint Allegations

According to the Commission’s complaint, San Juan IPA restrained competition among physicians in northwestern New Mexico by orchestrating and implementing agreements among its member physicians to fix prices and other terms on which they would deal with health plans, and to refuse to deal with such payors except on collectively determined terms, in violation of Section 5 of the FTC Act.

Physicians that would otherwise have competed with each other agreed to have the IPA negotiate contracts on their behalf and agreed not to deal individually with third-party payors. Acting first through a joint venture with a local hospital, and then on its own, San Juan IPA adopted and implemented a “PPO Strategy” that required health plans to pay IPA physicians their full billed charges minus a 10 percent discount. A payment method based on a discount off billed charges allows physicians to increase their compensation by increasing their billed charges. The IPA estimated that its PPO Strategy increased its members’ payments by as much as 60 percent. Later, the IPA undertook collective bargaining regarding other types of fee arrangements as well. When payors sought to avoid San Juan IPA’s fee demands by offering contracts directly to member physicians, the IPA instructed its members to ignore these offers.

As a result of its activities, San Juan IPA was able to force many health plans to raise the fees paid to its member physicians, thereby raising the cost of medical care in the Farmington area. The FTC complaint states that the IPA created no efficiencies that would make such conduct beneficial for Farmington consumers.

The Consent Order

The Commission’s proposed consent order is designed to eliminate the illegal anticompetitive conduct alleged in the complaint. It would prohibit San Juan IPA from entering into or facilitating agreements between or among physicians: 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 one involving San Juan IPA.

The consent order permits the IPA to undertake certain kinds of joint contracting arrangements – “qualified risk-sharing joint arrangements” and “qualified clinically integrated joint arrangements” – terms that are defined in the order. These are types of arrangements in which physician participants engage in joint activities to control costs and improve quality by managing the provision of services, and 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 requires San Juan IPA to notify the FTC for three years before participating in contracting with health plans on behalf of a qualified risk-sharing joint arrangement or clinically integrated joint arrangement. In addition, for three years, the IPA must notify the FTC before entering into any agreement under which it would act as a messenger or agent on behalf of any physicians with payors regarding contracts.

Finally, the order requires San Juan IPA to distribute the complaint and order to all doctors who have participated in it, and to payors with which it has negotiated contracts or which have expressed interest in contracting with San Juan IPA for three years. It also contains compliance and reporting requirements. 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 June 17, 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. 031-0181)