Fairbanks, Alaska Physician's Group to Settle FTC Charges Price-Fixing and Concerted Refusals to Deal with Health Plans

Alaska Healthcare Network (AHN), an association of 86 physicians who practice in the Fairbanks, Alaska area, has agreed to settle Federal Trade Commission charges that AHN and its members agreed to fix prices and other terms of dealing with health plans, and obstructed the entry of new health plans into Fairbanks. The result, the FTC said, was higher prices and fewer choices for patients of Fairbanks physicians. The proposed settlement would prohibit the illegal concerted actions alleged in the complaint, while allowing the respondent's members to engage in legitimate joint conduct. The settlement also includes a temporary structural remedy, which would limit for five years the proportion of Fairbanks physicians that can use AHN as a vehicle for contracting with health plans.

"AHN and its members engaged in a conspiracy to set prices and hamper the entry of managed care plans into the Fairbanks market, resulting in higher prices and limited choices for physician services," said Richard G. Parker, Director of the FTC's Bureau of Competition. "The proposed settlement is designed to prevent a repeat of such anticompetitive behavior by AHN."

Fairbanks is the second largest city in Alaska. AHN's members include over 60 per cent of the physicians in full-time, year-round private practice in Fairbanks, including almost half of the family and general practitioners, and from 70 to 100 per cent of the internists, pediatricians, obstetrician-gynecologists, and general surgeons.

The FTC's complaint alleges that AHN orchestrated agreements among its members to fix the prices they would accept from health plans, and operated de facto as its members' exclusive bargaining agent with payors. When AHN was formed in 1996, a wide range of health plans, including PPOs, HMOs, and government health care purchasing cooperatives, were seeking to contract with Fairbanks physicians. From early 1997 through 1998, AHN negotiated price and other contract terms on behalf of its physician members with at least seven third-party payors. According to the complaint, AHN devised a fee schedule based on members' current prices for use in negotiations with payors and engaged in protracted rate negotiations with payors on behalf of AHN members. With the exception of one payor, these negotiations ended with no resolution. In addition, AHN refused to transmit contract offers to its members unless negotiations were concluded to its satisfaction, and advised its members to deal with payors only through AHN in order to obtain better prices and other terms. The FTC complaint alleges that through these actions AHN succeeded in blocking the entry of several health plans into the Fairbanks area, and substantially delayed others.

The proposed settlement would prohibit the respondent from entering into any agreement: (1) to negotiate or refuse to deal with health plans; (2) to determine the terms upon which physicians deal with health plans; and (3) to restrict the ability of physicians to deal with any health plan, whether on an individual basis or through any other arrangement.

The proposed consent order would not prevent AHN from operating or participating in legitimate joint ventures. It may engage in conduct (including collectively determining reimbursement and other terms of contracts) that is reasonably necessary to operate any "qualified risk-sharing joint arrangement" or "qualified clinically-integrated joint arrangement," as defined in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care.

In addition, Paragraph III of the proposed order imposes a structural remedy for a period of five years. If AHN operates a qualified risk-sharing or clinically-integrated joint arrangement, its participating physicians may constitute no more than 30 percent of Fairbanks physicians in the medical specialties of family practice and general internal medicine, obstetrics and/or gynecology, pediatrics, general surgery, and orthopedic surgery. The proposed order further provides that, when offering the services of its physicians through any other arrangement permitted by the order (e.g., if AHN acts as a "messenger" without facilitating agreements among its members on terms of dealing), AHN's participating physicians may constitute no more than 50 percent of Fairbanks physicians in those specialties.

The structural remedy is qualified to reflect practical considerations. Thus, AHN may include as a participating physician any single physician or any one pre-existing physician practice group, even if to do so means AHN exceeds the percentage limitations. In addition, AHN may exceed the percentage limitations where the excess results from certain changes in the marketplace beyond AHN's control, such as the exit of physicians from the market.

The Commission's analysis of the proposed order, issued along with the proposed settlement, explains that this time-limited structural remedy is warranted given the particular facts in this case, which indicate that there is a significant risk of continuing collusion among

AHN members that would not be addressed by an order limited to prohibiting certain specific conduct. For example, AHN purported to operate as a "messenger model", but actually acted as the collective bargaining agent of its members, orchestrating agreements on price and other terms. The five-year size limits are designed to protect consumers from continued coordination among AHN members on terms of dealing with health plans, without the need for more detailed Commission oversight of AHN activities.

The proposed settlement also contains a number of recordkeeping and reporting requirements designed to assist the FTC in monitoring compliance with the terms of the order.

The Commission vote to accept the proposed settlement and place it on the public record for comment was 5-0, with Commissioners Orson Swindle and Thomas B. Leary issuing a separate statement. In their statement, the Commissioners opposed the "structural" remedy provision in Paragraph III of the proposed order, which imposes a "cap" on the number of Fairbanks physicians in each of five "relevant physician markets" who may participate in AHN. "Although we believe that limits on a physician group's market shares' in particular specialties can be appropriate fencing-in relief for the type of conduct involved in this case, we are not persuaded that this provision will operate in a rational and predictable way in a market as small as Fairbanks," the Commissioners wrote.

The statement said this concern was compounded by the first proviso to Paragraph III, which allows the respondent to "grandfather" in "any one pre-existing practice group" -- no matter how large. Citing examples of the markets where a significant proportion of participating practitioners would be "grandfathered," Swindle and Leary said, "We can certainly understand the desire to refrain from forcing the breakup of a presumably efficient practice group, but this proviso makes the percentage caps ineffective for those specialties. On the other hand, the order itself potentially inhibits the formation of similarly efficient practice groups in the specialties where the caps are effective."

The Commissioners concluded their statement by saying, "We hope that the public comment period on this consent agreement will yield some illuminating advice from the bar, the medical community, and the public at large, both with respect to the general appropriateness of structural measures in conduct' cases and with regard to whether such measures make sense in a thinly populated market such as Fairbanks."

An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until October 20, 2000, 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, 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 per day.

Copies of the complaint and proposed settlement, an analysis of the agreement to aid in public comment, and the statement by Commissioners Swindle and Leary, 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; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No.: 991 0103)