Napa Valley OB/GYN Group Settles FTC Antitrust Charges

A doctors' group consisting of virtually every obstetrician and gynecologist (OB/GYN) with active medical staff privileges at the two general acute care hospitals in Napa County, California, and its members have agreed to settle Federal Trade Commission charges that they engaged in anticompetitive conduct by facilitating or implementing agreements to fix fees and other terms of dealing with payors. In addition, they allegedly refused to deal with payors except on collectively determined terms. To settle these allegations, they have agreed to disband the group and to refrain from engaging in similar anticompetitive conduct in the future.

According to the FTC's complaint, the actions of Obstetrics & Gynecology Medical Corp. of Napa Valley (OGMC), a for-profit corporation and a single-specialty independent practice association (IPA), restrained price and other forms of competition among OB/GYNs in Napa County. The actions, the FTC said, harmed consumers - including health plans, employers, and individual consumers - by increasing the fees for physician services.

"We believe OGMC's actions were in violation of the law and caused consumers to pay illegally inflated prices for medical services," said Joseph Simons, Director of the FTC's Bureau of Competition. "The Commission takes such behavior very seriously and is committed to stopping such collusive activities from occurring."

The Commission's Complaint

The FTC's complaint states that in the 1990s, OGMC's physicians had been members of Napa Valley Physicians (NVP), a multi-specialty IPA in Napa County. Through such an IPA, physicians can be paid for the services they provide to health plan enrollees. At times, physicians who participate in IPAs share the risk of financial loss with other participants if the total costs of services provided exceed anticipated amounts of service. NVP was such a risk-sharing IPA, and also provided quality assurance and other services.

Beginning in 1998, the FTC contends in its complaint, OB/GYNs in NVP became dissatisfied with the level and timeliness of reimbursement from NVP. They resigned from NVP and, in February 2000, formed OGMC to promote, among other things, their collective economic interests by increasing their negotiating power with NVP. Both before OGMC was formed and continuing into 2001, the FTC alleges, the group's OB/GYNs refused to contract individually with NVP or any health plan. They also agreed on the fees they would charge and agreed to boycott NVP in an attempt to coerce it to meet their fee demands. As a result, the complaint states, NVP did not have enough OB/GYNs to serve adequately the enrollees under its Health Maintenance Organization (HMO) contracts. NVP shut down in early 2001, and some health plans discontinued providing HMO coverage in Napa County.

Finally, according to the complaint, OGMC did not engage in any activity that might justify the collective fee agreements that its members developed. For example, the OB/GYNs have not clinically or financially integrated their practices to create efficiencies to offset their alleged anticompetitive actions.

The Proposed Consent Order

The proposed consent order will prevent the recurrence of the allegedly illegal behavior, while allowing the OB/GYNs to engage in legitimate joint contracting. Under its core provisions, the OB/GYNs would be prohibited from entering into, participating in, or facilitating: 1) any agreement to negotiate on behalf of physicians with any payor or provider; 2) any agreement to deal, or to refuse to deal, with any payor or provider; or 3) any agreement regarding any term on which physicians deal, or are willing to deal, with any payor or provider. In addition, the order would bar the OB/GYNs from "attempting to engage in" a violation of any prohibited action described above and from "encouraging, suggesting, advising, pressuring, inducing, or attempting to induce" anyone to engage in activities that would be prohibited if the person were subject to the order.

The proposed order allows the OB/GYNs to engage in conduct (including collectively determining reimbursement and other terms of contracts) deemed reasonably necessary to operate any "qualified risk-sharing joint arrangement" or "qualified clinically integrated joint arrangement." As defined, the former term must satisfy two conditions: 1) all physician participants must share substantial financial risk through the arrangement; and 2) any agreement on fees or terms of reimbursement must be reasonably necessary to obtain significant efficiencies through the joint arrangement. In a "qualified clinically integrated joint arrangement," the physicians undertake cooperative activities to achieve efficiencies in the delivery of clinical services, without necessarily sharing substantial financial risk. Participating physicians must establish a high degree of interdependence and cooperation through their use of programs to evaluate and modify their clinical practice patterns. Any agreement on fees or terms of reimbursement must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

Finally, the order also requires the dissolution of OGMC within 120 days and the distribution of the proposed order and complaint to specific individuals and firms. The proposed order expires in 20 years.

The Commission vote to accept the proposed consent order was 4-0, with Commissioner Sheila Anthony not participating. A summary of the consent order will be published in the Federal Register shortly. The order will be subject to public comment until May 6, 2002, after which the Commission will vote on whether to make it final. Comments can be sent to: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 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 Commission's complaint, consent order, and an analysis to aid 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. 011-0153)