Texas IPA's contract talks are price-fixing, appeals court rules

Physicians say the limited analysis by the court and the FTC does not allow them to show the pro-competitive effects of their joint activities.

By — Posted June 23, 2008

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Physicians fear that a ruling handed down by the 5th U.S. Circuit Court of Appeals in May could stifle efforts to integrate or find other new ways to practice medicine more efficiently.

The decision also highlights some of the risks involved when clinically or financially integrated practices engage in collective negotiations with health insurers, experts said.

A three-judge panel of the 5th Circuit upheld a 2005 Federal Trade Commission ruling that a Texas-based independent practice association had engaged in illegal price-fixing when it negotiated contracts that didn't involve risk sharing with payers on behalf of its 600 doctor members.

FTC guidelines outline two ways doctors may negotiate collectively with insurers: by financial integration with risk-sharing contracts or by clinical integration with the goal of setting uniform quality measures to streamline practices and save money.

But the court found that North Texas Specialty Physicians' joint contracting activities did not save money or improve quality. Judges said the IPA inappropriately used the messenger model by polling members to find out the minimum fees they would accept before negotiating with insurers and sending out payer contracts to individual doctors. The messenger model allows physician networks to use a single agent to relay contract information between a payer and the group to save money. It does not permit the group to set contract terms or negotiate on behalf of doctors.

Although physician members were free to deal independently with insurers, the court said the group encouraged members not to do so until the IPA finished its negotiations. The 5th Circuit concluded that North Texas Specialty's conduct reduced competition among doctors and impeded open bargaining with insurers, which ultimately could increase prices and hurt access to care. North Texas Specialty is considering an appeal.

Doctors urge a closer look

The IPA argued in court documents that there were "spillover" effects from its experience with risk-sharing contracts into the non-risk side that helped improve the quality of care and lower costs for all patients, but that the FTC prevented the group from showing such evidence. For example, patient information created on the risk side is available to doctors in the non-risk treatment setting. North Texas Specialty also trains its primary care physicians and specialists to work together as teams to coordinate care more efficiently.

Physicians say the narrow analysis of such joint ventures by the court and the FTC will prevent doctors from demonstrating the pro-competitive benefits of their activities and if they legitimately outweigh any possible negative effects on competition.

The government and the courts also tend to ignore the role of the largely consolidated managed care market when evaluating physicians' collective activity, said Bruce A. Blefeld, an attorney representing the Litigation Center of the American Medical Association and State Medical Societies and the Texas Medical Assn., which jointly filed a friend-of-the-court brief in the case.

"The problem is the court blinked and didn't delve into the underlying economics of a particular IPA's practices ... or look at the practical effects of physicians with very little bargaining power trying to negotiate with large, sophisticated payers," Blefeld said. Such a decision is "likely to prevent doctors from trying to come up with efficient and innovative ways of coming together to practice medicine."

But the court said such an in-depth analysis was not necessary because the FTC reasonably concluded that the joint activity was likely to have an "obvious" anticompetitive effect on the health care market.

"The lesson to be learned here is physicians may in fact have a legitimate need for engaging in certain coordinated conduct, but there has to be a demonstrated link between the efficiencies generated by that conduct and the need to engage in the challenged conduct," said Michele Arington, a lawyer in the FTC's Office of General Counsel.

In this case, the court and the commission found no "plausible" connection between the two, she said. Absent such evidence, Supreme Court precedent has recognized that a "full-blown" market analysis is not required, Arington said.

Messenger model at issue

Northern Texas Specialty denied any wrongdoing. The group still found some good in the decision.

Chris Gavras, a spokesman for North Texas Specialty, noted that the court found no evidence that the IPA obtained higher prices for its members than other unaffiliated doctors, nor that individual members consulted in how they would respond to polls or contract offers. Judges also found that North Texas Specialty doctors performed as well or better than nonmembers in terms of quality.

In addition, the court ruled a portion of the FTC's original order prohibiting the IPA from facilitating any contract negotiations on behalf of its members overbroad and sent it back to the commission to be fixed. Arington declined to comment, saying the matter was still under review.

Gavras said the court-requested change will allow the group to oversee insurer negotiations without having to send out every contract regardless of potential risks to doctors or patients. "If an IPA looks at an offer and feels it's ill-suited for top-notch patient care, they need to have the flexibility to go back and say, 'Let's fix some things' before having to messenger it out to every doctor."

He said North Texas Specialty used the polling for a similar goal. "The purpose was to get a sense of where our doctors collectively believed we should be heading in our negotiations, not just financially, but in practice terms, as well." The IPA, which has been fighting unfavorable rulings from the FTC in this case since 2003, has since discontinued such use of the polls, Gavras said.

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Case at a glance

Did an integrated physician practice's collective negotiations with insurers constitute illegal price-fixing?

The court said yes.

Impact: Doctors said failure of the court and the Federal Trade Commission to analyze thoroughly the cost and quality benefits of these ventures could deter doctors from finding ways to improve their practices. An FTC lawyer said the agency weighs any possible benefits from the joint activity against the anticompetitive risks.

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External links

North Texas Specialty Physicians v. Federal Trade Commission, 5th U.S. Circuit Court of Appeals May 14, in pdf (link)

In the Matter of North Texas Specialty Physicians, Federal Trade Commission, Nov. 29, 2005, in pdf (link)

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