Doctors who own independent practices sometimes band together to provide a bulk offering of services, at a collectively negotiated rate, for third-party payers such as large health insurance carriers. These groups are called “independent practice associations,” or IPAs, and they’ve been around since the 1950s. IPAs provide tangible value for physicians and patients alike: Doctors get a middleman to deal with the insurance bureaucracies, and patients get access to a wide range of health care providers at discounted prices. But thanks to the ever-expanding mission of antitrust regulators, the associations are also under constant attack from the federal government.
Since 2001, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division have prosecuted 36 IPA groups, representing more than 18,000 physicians, for the crime of “price fixing”—that is, for jointly negotiating with insurance companies. By setting some of their prices on a group level, the theory goes, doctors are illegally colluding in a way that thwarts competition at the expense of insurance companies, other third-party payers, and ultimately patients.
This crackdown goes far beyond the level of business practice and into the realm of free speech. When the feds turned their attention in 2008 to the Boulder Valley Independent Practice Association, a 365-member organization in Colorado, its executive director, Mary Catherine Higgins, took the rare step of protesting in the press that the charges were “false” and “affirmatively disproved.” Higgins was promptly hit with a “consent order” that banned her from individually dealing with any insurance company for two years.
Even Federal Trade Commissioner J. Thomas Rosch, one of the agency’s staunchest advocates of antitrust intervention, found this order disturbing. “I am gravely concerned,” he wrote in February, “that the Commission’s abrupt decision…can be viewed as retaliation for Ms. Higgins’ decision to exercise her First Amendment rights.” This was, the commissioner said, “a sad conclusion to an unnecessarily sordid tale.”
Rosch’s concern for free speech is admirable. But the FTC is systematically depriving physicians of their First Amendment and other constitutional rights, producing “unnecessarily sordid” tales from coast to coast. When antitrust lawyers butt into the private health care industry, rights and common sense go out the window.
Speech Codes for Doctors
Beginning in the 1990s, under President George H.W. Bush and with bipartisan support thereafter, the FTC and DOJ issued a series of “statements” on how they planned to expand health-care industry enforcement of antitrust laws, which until then had been only sporadically applied.
These statements were never debated or adopted by Congress. They never even rose to the level of a “rulemaking,” the usual process of hearings and debate and public comment by which the FTC and other federal government agencies promulgate new regulations. Instead, the statements merely represented the prevailing views of the government’s antitrust lawyers, who decided that IPAs could not negotiate physician reimbursement rates with insurance companies unless the doctors in question were clinically and financially “integrated”—that is, if they coordinated actual patient care and assumed the majority of the financial risk of providing that care. The FTC and DOJ wanted to minimize—to subsidize—the financial risk to insurers. Absent “integration,” the associations were allowed to adopt a “messenger model,” in which they’d relay offers from the payers to the physicians, so long as that conversation only went one direction: Doctors were forbidden from using the IPA “messenger” to deliver a joint price negotiation to insurers.
You may wonder what the FTC was so exercised about. After all, labor unions collectively bargain on behalf of thousands of individuals, and federal law even mandates exclusive union bargaining if a simple majority of employees demands it. In contrast, IPAs are fully voluntary, nonexclusive entities. Physicians can and do belong to multiple IPAs and are free to negotiate with any payer without going through their associations.
Congress created this contradiction by exempting “the labor of a human being” from antitrust laws, thus permitting collective bargaining while excluding similar cooperation among self-employed professionals, such as physicians. The FTC therefore considers individual physicians “competitors,” legally required to act independently unless the commission permits otherwise. Obtaining these permissions is a tricky, unpredictable process.
The three dozen IPAs prosecuted to date have mostly fallen into the same trap: They tried to apply the messenger model, only to have the commission reply, “That’s not what we meant!” Many were acting upon the advice of well-paid attorneys, frequently former FTC and DOJ staffers, who were offering supposed insider expertise on what the 1990s statements did and did not allow. But the meaning of these regulations has depended on the whims of mid-level government lawyers, so conformance has not been easy.
In a February order, the commission complained that the members of another Colorado group, the Roaring Fork Valley IPA, “agreed to refuse and refused to enter into individual contracts with payers,” including major insurers such as Anthem and CIGNA. Specifically, the IPA refused to “messenger” proposed payer contracts offering the same rates of reimbursement as Medicare. Instead, Roaring Fork Valley established its own set of rates, at the behest of its members, and “messengered” those back to the payers. The IPA believed that it should not be forced to tie its private contracts to Medicare, which frequently cuts reimbursements to providers without accounting for their increased costs. The FTC said this “boycott” of Medicare-based pricing constituted price fixing.
Think about this for a moment. The FTC said antitrust law prohibiting price fixing required the association to messenger contracts based on the fee schedule of Medicare, which itself is an instrument of government price fixing. Physicians have ample reason to not want their private-payer reimbursements tied to Medicare rates, since those are set by congressional fiat instead of the market. But in all of its IPA cases, the commission has insisted that Medicare rates are a reliable indicator of “competitive” prices.
More generally—and alarmingly—the FTC is asserting itself as the best arbiter of what business models are appropriate for physicians. IPA prosecutions and settlements are thick with lengthy discussions of how physicians must negotiate their future contracts, and in many cases the chastened associations must pre-clear their subsequent pricing agreements with FTC staff. Although the agency claims to be promoting competition among independent physicians, this “competition” is only permitted through FTC-designed models.
In this heavily circumscribed universe, it doesn’t even matter what the payers want. In the Boulder Valley case, the IPA did engage in some joint contracting, but it did so at the request of the payer, which found that collective negotiations reduced contracting expenses. The FTC still condemned the arrangement as illegal.