FTC Settles Price-fixing Charges Against Large Physician-hospital Organization in South Georgia

The Federal Trade Commission today announced it has settled charges that South Georgia Health Partners, L.L.C. (SGHP) – a large Georgia physician-hospital organization (PHO) – along with its five owner PHOs and three associated physician independent practice associations (IPAs) illegally entered into agreements to fix physician and hospital prices and to refuse to deal with third-party payors such as insurance companies, except on collectively agreed-upon terms.

According to the Commission, SHGP’s conduct harmed consumers in a region encompassing more than 550,000 people, by causing physician and hospital prices to rise and denying consumers the benefits of unrestrained competition among providers of health care. Through the proposed consent order settling the charges, SGHP, the owner PHOs, and the IPAs will be barred from engaging in similar allegedly anticompetitive conduct in the future.

“SGHP and the other respondents allegedly fixed prices across a broad region in two health care sectors – physician services and hospital services,” said Susan Creighton, Director of the FTC’s Bureau of Competition. “These physician and hospital organizations engaged in anti-consumer practices that violate fundamental antitrust principles.” Creighton added, “The FTC’s proposed order in this case is an effective and appropriate law enforcement response to the allegedly anticompetitive behavior.”

South Georgia Health Partners

SGHP’s membership consists of 15 hospitals – with 2,247 staffed beds – and approximately 500 physicians. SGHP operates in a very large section south Georgia, including the cities of Valdosta, Tifton, Thomasville, Moultrie, and Waycross. Each of the respondent- owner PHOs and IPAs are based in one of these cities. SGHP’s physician members represent approximately 90 percent of all physicians practicing in the region.

The Commission’s Complaint

The FTC’s complaint charges that four PHOs organized SGHP in 1995 as a vehicle through which competing hospitals and physicians could bargain collectively with health plans to obtain higher fees for themselves. A fifth PHO joined SGHP in 2001. The owner PHOs, member hospitals, and member physicians canceled contracts with payors and informed them that SGHP would be the sole entity through which they would enter into payor contracts. To contract with SGHP, payors allegedly have had to accept SGHP’s fixed physician fee schedule and fixed discount of no more than 10 percent off hospital list prices. The prices that SGHP demanded and obtained are substantially higher than the physicians and hospitals could have obtained by negotiating unilaterally.

The FTC’s complaint charges that the organization’s members have refused to deal with health plans on an individual basis, collectively fixing the prices they would charge for their services. Under SGHP’s operating agreement, member hospitals were limited in their ability to contract independently, and the organization’s physicians routinely refused to sign individual contracts with payors, the complaint states. The complaint further states that SGHP and the other respondents have succeeded in forcing numerous payors to pay higher prices to member physicians and hospitals, leading to increases in the cost of medical care in the south Georgia area.

According to the FTC, SGHP members have not integrated in a manner that is sufficient to create efficiencies and to justify their price-fixing practices. Instead, the complaint charges, SGHP members have: 1) orchestrated collective agreements on fees and other terms of dealing with health plans; 2) carried out collective negotiations with several health plans; and 3) orchestrated refusals to deal and threats to refuse to deal with health plans who resisted their desired terms. These actions, the Commission contends, are anticompetitive, harmful to south Georgia consumers, and violate the FTC Act.

Terms of the Proposed Settlement

The proposed consent order is designed to remedy the alleged illegal conduct described in the complaint. Under its terms, the respondents will be prohibited in the future from entering into or facilitating any agreement between or among any physicians: 1) to negotiate with payors on any physician’s behalf; 2) to deal, or not to deal, or threaten not to deal with payors; 3) on what terms to deal with any payor; or 4) not to deal individually with any payor, or not to deal with any payor through an arrangement other than the respondents’. Similar provisions apply to the provision of hospital services.

Owner PHOs and the IPAs would not be precluded from engaging in conduct that is reasonably necessary to form or participate in legitimate joint contracting agreements among competing physicians or hospitals, whether they are “qualified risk-sharing joint agreements” or “qualified clinically integrated joint agreements.” Each of these terms is defined in the Commission’s proposed order. Prior Commission notification is required before entering into such an arrangement.

SGHP or the owner PHOs are required to distribute the proposed order, the complaint, and a letter of notice to each payor they have been in contact with since January 1, 1995. SGHP members also must receive copies of the complaint and order. The proposed order expires in 20 years.

The Commission vote to place the proposed consent agreement on the public record for comment was 4-0-1, with Commissioner Pamela Jones Harbour not participating. An announcement regarding the proposed consent agreements will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until October 9, 2003 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, 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, proposed consent agreement and 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, DC 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, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Commission enforces, the FTC 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.: 011-0222)