Doctors’ Orders
The government’s war on medical “price fixing” squelches speech without helping consumers.
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GoogleDoctors 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.
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Is that a picture of Scott Farkas?
"He had yellow eyes - so help me; yellow eyes!"
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Do you mean Scut Farkas?
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I thought it was a zombie doctor of some kind.
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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.
When UNIONS do it, it's not "price fixing." When doctors do it (or anybody else), it's price fixing. See how government works, kiddies???
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If you don't pay your tribute, the Imperial Bureaucracy doesn't let you play.
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Dont forget: When government does it, its not price fixing.
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Can anyone explain to me again why it's an antitrust violation when individual doctors get together to collectively bargain with the big companies that pay them, but when workers unionize to do the same thing, it's exercising some sort of sacred right, even if they have to brutalize a few people to make it happen?
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The doctors aren't employees of the companies.
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Unions are wrong and should never have been tolerated
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There are a million things wrong with unions, but that whole "should never have been tolerated" bit is nonsense. People should be able to form whatever organizations and contracts they want.
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I agree; though new employees should not be forced to join unions--as is often the case.
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Republicans have been the big price-fixers in recent memory - from Dick Nixon and his Wage and Price Controls to Dumbya and his Medicare Pharma Welfare Price-Fix and Profit Guarantee of 2003.
Tom DeLay and Billy Tauzin are still sucking Dumbya's dick for Big Pharma.
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OMG teacher! B-b-but they totally did it too!
Grow the fuck up.
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I Agree, they both suck.
Yet the propensity among POSTERS here is the GOP is some Small Gov Paragon - which is a laugh.
The GOP is for BIGGER Gov - yet they still both suck.
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Yeah, everyone here is TOTALLY CONVINCED that the GOP is for small government. You found us out.
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You do realize that we libertarians got our start thanks to Nixon's wage and price controls?
(Well, I'm technically not part of the "we" as I was born in 1972.)
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A good video on Obama's new policies against insurance companies.
http://youtu.be/cw8_U-ia7OM
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right - so that must be why Aetna, Cigna, and UHC have risen 30-50% since the passage of HIR.
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A related but jsut a stupid government screw up is when doctors try to get together and provide pre-paid medical service. In some states at least, the state goverment has gone after them for providing an illegal insurance product when they try this.
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I recommend all of these doctors stop playing the game and go to a private place in Colorado.
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IPA's are great. I've heard of primary care docs in them who are making over half a million. Which in my opinion is what they should make r to begin with.
The only problem I've seen is that some of these operate under the capitation model; the less they spend on health care services for their patients, the more they pocket. It's generally no big deall, but every so often you find a rather unscrupulous doc who will hold off on hospitalizing a patient who needs it.
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Sorry, I forgot -
Great article!
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This is very interesting. I do have some sympathy, but not much. Physicians have brought this upon themselves by instituting state-mandated monopolies through the licensing process across the country. Until they give up their monopolies in the states, I can only wish them the best in their battle vs. the FTC. They asked for the government to protect them and the profession, so now they must deal with the consequences. If I were in med school, I'd start filling out the dermatology and plastics residency applications right away.
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If I were in med school, I'd start filling out the dermatology and plastics residency applications right away.
And unless you were in the top 10 or 15 of your class, said applications would be a waste of time.
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I'm a physician in Seattle with a few comments. First, physicians are great doctors and terrible business people. And why would that be?
I finally learned why when I was on vacation and met up with a hedge fund manager. He said " you guys are always a day late and a dollar short because you went to medical school to become physicians and take care of people. The business people went to business school to learn how to screw people like you."
There is no free market when it comes to physician fees. But we are still required to take care of people regardless of their ability to pay i.e. work for free, and forced to by government regulations. There is a term for this and it is addressed in the 13th Admendment to the US Constitution.
The government and insurance companies can regulate us, sue us, evaluate us and pay us next to nothing. But they can't force us to work. There will be a rebellion.
Have to go now, my pager just went off.
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But we are still required to take care of people regardless of their ability to pay i.e. work for free, and forced to by government regulations.
Not that it's much of a solution, but what you're supposed to do is be extremely surly when you treat those the government regulations force you to. Make the DMV and TSA look like pikers.
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Jacob, there are other specialties that reap wonderful salaries: radiology, ortho, ophthalmology, etc...
Jonathan, I couldn't agree with you more. I only wish physicians would drop Medicaid/Medicare support and allow greater flexibility for midlevel practitioners to compete and lower prices for more common medical care that has been found to be effective. I find it incredibly sad when I hear primary care/family practice physicians complain about payment and then support something like the recent healthcare legislation.
What you highlight is incredibly critical for arguing against those who believe healthcare in and of itself is a "right." If it is a right, then this means you must force someone to provide it for you. Of course like most everything else, "progressive" statists don't think through to the outcomes of the policies they think will create "social justice."
Let the rebellion begin.
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Back during the "Hillarycare" debate, I always thought we should subject lawyers to the same restrictions they want to impose on doctors.
"Legal care alliances" for people like Hillary, who would be drawing up wills for little old ladies in Watertown, NY.
And only getting minimum wage, since there's no lawyer in the country who does anything worth more than minimum wage.
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"Jacob, there are other specialties that reap wonderful salaries: radiology, ortho, ophthalmology, etc..."
Did I say that only derm and plastics had nice salaries?
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potentially a genius plot by the socialists to make the medical industry disappear which will then be used as an excuse to implement socialistic medicine and employment.
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potentially a genius plot by the socialists to make the medical industry disappear which will then be used as an excuse to implement socialistic medicine and employment.
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sorry double post.
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Pharmer, you said...
"I find it incredibly sad when I hear primary care/family practice physicians complain about payment and then support something like the recent healthcare legislation."
One of the reasons that the recent healthcare legislation is supported by primary care docs is this. Since we are mandated to take care patients on an emergency basis, we feel it is only just to mandate people buy insurance to pay for said care. It's called being responsible. Which I always thought was a conservative value.
I just can't stand the arrogance of people who think it's fine for docs and hospitals to be required to take care of people emergently, and in the same breath say they don't want to be forced to buy health insurance.
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Two wrongs don't make it right.
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And who said we are conservatives here?
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Everything starts with health insurance if you have one you will have a treatment but if you do not have..... I now one case where because of this crise it can not pay anymore for the insurance
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Better to just eliminate the medical and insurance, monopolies. Also provide medical quality control by some means other than the hyper expensive tort system. Then free market competition will keep prices low. The current de jure oligopoly system costs twice as much as European centrally planned systems, and many times as much as free market systems.
Cash customers should be getting the best prices (no paperwork), not the highest prices.
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thank u
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thank you
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And the poor man always suffer, that is the future.