Piedmont Health Alliance Settles FTC Price-fixing Charges

A North Carolina physician-hospital organization (PHO) and ten of its physician members have agreed to settle Federal Trade Commission charges that they fixed prices for the services of the PHO’s 450 physician members, hindered competition in four western North Carolina counties, and raised costs for consumers. The proposed consent order bans Piedmont Health Alliance, Inc. (PHA) and the ten physicians from collectively negotiating with payors on behalf of physicians and setting the prices or other terms on which physicians deal with payors. The proposed order also prevents PHA, for a period of time, from operating as a “messenger,”or contracting agent, on behalf of physicians in dealing with payors.

PHA is a for-profit PHO located in the “Unifour” area of west-central North Carolina, which encompasses Alexander, Burke, Caldwell, and Catawba counties. Most of the physicians in the Unifour area, and three of the five area hospitals, are PHA members. In December 2003, the FTC filed a Part 3 administrative complaint charging PHA and ten physicians who had served in leadership roles in PHA with unreasonably restraining prices for physician services and maintaining them at artificially high levels, in violation of federal antitrust law. The FTC alleged that PHA’s physician members signed agreements binding them to participate in all contracts PHA entered and to accept only PHA-negotiated prices. The FTC complaint also alleged that, despite adopting a “messenger model” for contracting with payors, PHA continued to negotiate with payors and jointly agreed on prices for its physician members’ services. According to the FTC, PHA jointly negotiated and entered into more than 50 payor contracts on behalf of its physician members since 1994.

The FTC’s complaint further alleged that the ten named physicians – Peter H. Bradshaw, S. Andrews Deekens, Daniel C. Dillon, Sanford D. Guttler, David L. Harvey, John W. Kessel, A. Gregory Rosenfeld, James R. Thompson, Robert A. Yapundich, and William Lee Young III – were voting members of the PHA Board and participated centrally in the challenged activities.

An administrative hearing regarding the allegations of the FTC’s complaint was scheduled to begin on August 10, 2004.

Earlier this year, Frye Regional Medical Center, Inc., an acute care hospital in Hickory, North Carolina, and its parent company Tenet Healthcare Corporation, a California-based for-profit corporation, settled FTC charges concerning their role in PHA’s allegedly unlawful activities. (Tenet Healthcare Corporation and Frye Regional Medical Center, Inc., Dkt. No.

The proposed consent order prohibits PHA and the ten named physicians from entering into or facilitating any agreement between or among any physicians practicing in the Unifour area: (1) to negotiate with payors on any physician’s behalf; (2) to deal, not to deal, or threaten not to deal with payors; (3) to designate the terms to deal with any payor; or (4) to refuse to deal individually with any payor, or to deal with any payor only through an arrangement involving PHA. The proposed order also prohibits PHA, for a period of time, from operating a “messenger model” or other arrangement for physicians in their dealings with a payor to facilitate readjustment of the market so that prices for physician services are determined by competition. The proposed order allows PHA to engage in potentially procompetitive activities, such as information technology and medical management services, that do not pose a significant risk of anticompetitive effects. Under the proposed order, the ten named physicians and PHA, after a period of time, may participate in any legitimate financially or clinically integrated joint arrangement among physicians.

The Commission vote to accept the proposed consent agreement was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until September 10, 2004, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Ave., 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 Commission’s complaint and proposed consent agreement 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 Docket No. 9314)