Montana Physicians Agree to Settle FTC Charges that they Conspired To Raise Prices and Limit Choices for Consumers

Physicians in Billings, Montana, have agreed to settle Federal Trade Commission charges that they obstructed the entry of managed care plans into Billings, agreed on prices that they would accept from third-party payers, and otherwise acted to thwart cost-containment measures. The result, the FTC said, was higher prices and fewer health care choices for patients of Billings physicians. Under the settlements the FTC has negotiated, two organizations--Montana Associated Physicians, Inc. (MAPI), and Billings Physician Hospital Alliance, Inc. (BPHA)-- would be prohibited from negotiating or refusing to deal with third-party payers; determining the terms upon which physicians deal with such payers; or raising, maintaining, or adjusting the fees charged for any physician’s services.

“This case reflects our continuing concern with health care providers who join together to obstruct competition and cost-containment efforts, which raises prices and limits the range of options available to consumers,” said William J. Baer, Director of the FTC’s Bureau of Competition. “This concern is especially strong here, because the market for physician services is highly concentrated, there is a history of conduct opposing managed care entry, and there are no efficiencies justifying the challenged conduct. This is the first Commission enforcement action addressing physicians’ organizations since the adoption of the revised Statements of Antitrust Enforcement Policy in Health Care. Today’s action reflects our ongoing efforts to ensure that consumers receive the benefits of new and innovative health care arrangements while being protected from anticompetitive activity.”

MAPI is an association of approximately 115 physicians in about 36 independent practices in Billings, representing over 80% of all “independent” physicians in that city -- that is, those that are not part of a large multispecialty clinic in Billings. Billings is the largest city in Montana.

According to the FTC complaint, MAPI orchestrated boycotts and agreements among its physician members to fix the prices they would accept from third-party payers. The complaint alleges that MAPI was formed in 1987 in substantial part to be a vehicle for its members to deal collectively with managed care plans. At that time, there were no health maintenance organizations (HMOs) or preferred provider organizations (PPOs) operating in Billings, according to the FTC. But, physicians were concerned that such plans would soon attempt to enter Billings, and that competitive pressure could force physicians to deal with such plans at reduced prices or on other than the usual fee-for-service terms. The formation of MAPI enabled the physicians to obtain greater bargaining power by presenting a “united front” to managed care plans, and the purpose and effect of MAPI’s negotiating activities was to impede the entry of managed care and other forms of alternative health care financing and to maintain fee levels, the FTC alleged.

The FTC complaint alleges that MAPI blocked the entry of an HMO into Billings, and organized resistance to a PPO that was seeking to enter. MAPI also urged its members to submit higher prices to the PPO than they currently were charging in order to inflate the fee schedule that the PPO was developing. It also used detailed fee and reimbursement information collected from competing MAPI physicians to facilitate price increases for physicians, the FTC alleged.

BPHA is a physician-hospital organization (PHO), whose primary function was to negotiate on behalf of physicians with third-party payers, including insurance companies and managed care plans. Its membership consists of Saint Vincent Hospital and Health Center of Billings, Montana, and 126 physician members on this hospital’s staff. The physician members of BPHA are primarily MAPI members.

BPHA, created in 1991, was a vehicle for continuing MAPI’s illegal conduct, the FTC said. Through BPHA’s Physician Agreements, MAPI was designated as the agent of almost all BPHA physicians. MAPI had the authority to accept or reject all contracts negotiated by BPHA with third-party payers, as well as elect or remove physician members of BPHA’s Board of Directors. BPHA did not enter into any contract for physician services until nearly two years after its creation, after the time BPHA and MAPI became aware of the Commission’s investigation.

The proposed consent agreement to settle the charges, announced today for public comment, would prohibit MAPI and BPHA from engaging in any agreement with physicians to (1) negotiate or refuse to deal with any third-party payer; (2) determine the terms upon which physicians deal with such payers; or (3) fix the fees charged for any physician’s services. MAPI also would be prohibited from advising physicians to raise, maintain, or otherwise adjust the fees charged for their medical services or encouraging adherence to any fee schedule for physician’s services.

The proposed consent order would not prevent MAPI and BPHA from operating, or participating in, legitimate joint ventures. MAPI and BPHA, if they are operating through a joint venture that involves the sharing of substantial financial risk, may enter into agreements with physicians regarding terms of dealing with third-party payers, provided that the physicians participating in the venture remain free to deal individually with third-party payers. The order also would allow MAPI and BPHA to operate or participate in other types of joint ventures that involve collective price setting by competing physicians and do not involve risk-sharing, provided that they first receive the prior approval of the Commission. In accordance with the recently issued Statements of Antitrust Enforcement Policy in Health Care, this provision allows careful consideration of a wide range of efficiencies.

MAPI and BPHA also would be required to publish and distribute copies of the order to their members and officers.

The Commission vote to accept the proposed settlement for public comment was 5-0.

Commissioner Mary L. Azcuenaga concurred in the decision and observed, "the complaint and order do not directly challenge the organization and conduct of the Billings Physician Hospital Alliance, Inc., as a physician hospital organization (PHO), and in my view, this order should cast no shadow on the activities of PHO’s." She added, "this negotiated order is not, and should not be viewed as, a guide for what a PHO can and cannot do."

The proposed agreement will appear in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final.

Comments should be addressed to the FTC, Office of the Secretary, 6th Street and 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 up to $10,000.

(FTC File No. 911 0008)