FTC Staff Opposes Washington State Proposal to Allow Physician Collective Bargaining

A bill introduced in the Washington state legislature that seeks to authorize competing physicians, and other providers, to engage in collective bargaining with health plans over a variety of contract terms and conditions, including fees, would significantly increase health care costs and harm consumers, according to the staff of the Federal Trade Commission. The Commission has opposed similar legislation at the federal level, and the staff has expressed concerns about similar bills before state legislatures on a number of occasions.

In response to a request for comment on Washington House Bill 2360 from Representative Brad Benson, Ranking Minority Member of the Financial Institutions and Insurance Committee of the Washington House of Representatives, the staffs of the Bureau of Competition, the Office of Policy Planning, and the FTC's Northwest Region note that the bill would authorize anticompetitive conduct without providing any corresponding benefit to the state's healthcare consumers.

According to the FTC staff opinion, the collective provider conduct authorized by the bill is likely to result in substantial consumer harm. Consumers and employers would face higher prices for health insurance coverage. Consumers would also face a reduction in access to care, as increasing costs likely would result in a reduction in health care benefit options. State Medicaid programs using managed care strategies would be forced to increase their budgets, cut optional benefits, or reduce the number of covered beneficiaries. State and local programs providing care for the uninsured would be adversely affected as well, as an increase in health care costs likely would add additional consumers to the ranks of the uninsured.

In addition to these general concerns, the FTC staff addresses a number of issues of particular interest to the Washington state legislature. In response to specific inquiries from Representative Benson, the staff opinion confirms that:

• House Bill 2360 would authorize conduct considered to be illegal price fixing under federal antitrust law;
• The bill is not needed to permit competing providers to exchange information in circumstances where the exchange is unlikely to harm consumers; and
• Agreements between insurance companies and providers relating to fees are not within the "business of insurance," and therefore may not be immunized from federal antitrust scrutiny under the McCarran-Ferguson Act.

The FTC staff opinion also concludes that the proposed regulatory structure to be established by the Washington bill likely would not satisfy the Supreme Court's requirements under the "state action" doctrine, which allows a state to override the national policy favoring competition only when the state expressly decides to govern aspects of its economy by state regulation rather than by market forces. Under the doctrine, the state legislature must clearly articulate a policy to displace competition with regulation, and state officials must actively supervise the private anticompetitive conduct.

As the FTC staff opinion notes, it is not at all clear that the regulatory structure created by House Bill 2360 would satisfy the "active supervision" requirement. The Supreme Court has held that active supervision requires a state to exercise "sufficient independent judgment and control so that the details of the rates or prices have been established as a product of deliberate state intervention, not simply by agreement among private parties." In this instance, the bill requires the Department of Health and the Office of Attorney General to determine whether particular conduct is authorized under the bill based on written submissions prepared by providers. However, the bill does not specify what information these submissions can, or should, contain or provide sufficient guidance regarding the manner in which the agencies should exercise their supervisory authority. Given these concerns, the bill may not provide the supervisory agencies with the necessary tools to exercise "independent judgment and control" over collective provider conduct and, as a result, providers acting in conformity with the bill may not be shielded from potential antitrust liability.

"Our view, in short," the FTC staff opinion concludes, "is that House Bill 2360 . . . threatens consumers with higher prices and restricted access to health care - without compensating benefits."

The letter represents the views of the FTC's Bureau of Competition, the Office of Policy Planning, and the FTC's Northwest Region. Although it does not necessarily represent the views of the Commission or any individual Commissioner, the Commission authorized submission of the letter by a vote of 5-0.

Copies of the staff opinion letter 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 Matter No.: V020009)