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FTC orders don’t merely restrict business models. They also ban speech deemed likely to improve physicians’ bargaining position. A standard clause bans the IPA, which is the freely chosen representative of the physicians, from “exchanging or facilitating in any manner the exchange or transfer of information among physicians concerning any physician’s willingness to deal with a payer, or the terms or conditions, including price terms, on which the physician is willing to deal with a payer.” Some orders are even more explicit, stating that the IPA cannot “suggest,” “encourage,” or “advise” a physician to take any action with regard to a proposed contract.
In other words, the FTC/DOJ statements and subsequent orders impose a speech code on doctors. Physicians are prohibited from seeking advice from their colleagues and outside consultants on the best way to deal with payers, because the unrestricted flow of information might improve the doctors’ bargaining position. In 2005 then-FTC Commissioner Thomas Leary complained that IPAs “have the cart before the horse. Their prime focus is on using negotiations and contracts for the purpose of enhancing their bargaining power.” Instead, Leary declared, they should focus on “clinical integration” along federally approved lines.
Government by Consent Order
Cathy Higgins got into trouble after she publicly criticized the FTC order against Boulder Valley Individual Practice Association (BVIPA). In December 2008, the FTC had said her group “actively discouraged” members from signing individual contracts with payers, thus “forcing” insurers to pay higher prices. Higgins and the BVIPA released a statement denying the FTC’s charges. They said payers were offered a number of contracting options, and that in any case, “It is difficult to see how a group of doctors in Boulder County could ‘force’ billion-dollar insurance companies to do anything.” The charges, Higgins concluded, were “not only false, they are affirmatively disproved by unmitigated facts.”
Still, BVIPA did not legally contest the FTC’s charges, signing a “consent order” restricting the speech and contracting rights of the IPA and its members. Higgins was then separately prosecuted and forced to sign an order containing terms under which she “cannot possibly do her job to the fullest extent,” according to Commissioner Rosch, since she could not represent any BVIPA member in negotiations with an insurer for two years.
So why did the association and its chief sign orders based on what they believed to be false charges? “Regrettably,” the group explained in a press release, “the cost of a fight with the FTC in this case is more than the IPA can afford.” That shouldn’t surprise anyone. The FTC is going after small groups with limited financial resources (one targeted IPA had just six members), and the entire process, from investigation through trial and appeal, is controlled by the commission. In theory, an IPA can appeal the regulators’ final decision in federal court, but it can take several years just to reach that stage, and federal law presumes that the FTC’s factual findings are correct. Of the three dozen IPAs prosecuted since 2001, only one has contested the charges.
That lone holdout was North Texas Specialty Physicians (NTSP), a Fort Worth association that spent more than five years fighting the feds. First there was an investigation conducted by FTC staff prosecutors, followed by a trial before an FTC administrative law judge and an appeal to the five FTC commissioners who initially approved the prosecutors, judge, and complaint. After navigating that minefield, NTSP finally was allowed to seek independent review before the U.S. Court of Appeals for the 5th Circuit, which announced in a 2008 decision that it was compelled by precedent to respect the FTC’s experience and judgment.
The association’s offense? It polled its members annually on the minimum rates each would accept for certain contracts. The group then used the poll results to decide which contracts its members were likely to approve and, thus, which it would “messenger.” The FTC deemed this arrangement “horizontal price fixing.”
The courts generally consider price fixing a per se antitrust violation, which means that once the act has been established the commission need not prove it actually harmed consumers or competition. The Texas group wanted to apply the more flexible “rule of reason” standard, under which the group could present evidence in its defense. The FTC and the 5th Circuit opted for an “abbreviated” rule of reason, which amounts to dressing up the per se rule with a flimsy negligee of due process.
The 5th Circuit acknowledged that the commission “did not rely on empirical evidence” in condemning NTSP. Instead it “relied on the theoretical basis for the anticompetitive and procompetitive effects of NTSP’s challenged practices.” The court said the FTC did not even have to show that insurers paid higher prices as a result of NTSP’s member survey; it only had to argue that NTSP gathered and disseminated information that improved its members’ “bargaining power.”
The net effect of the 5th Circuit’s decision was that no IPA is likely to challenge the FTC’s authority any time in the near future. But even signing pre-trial consent orders, as every other targeted IPA now does, carries a substantial cost.
Consider the FTC’s 2002 orders against two Colorado associations and their outside consultant, a woman named Marcia Brauchler. In June 2001 Brauchler, a self-employed sole proprietor working out of her home, was informed she was under investigation for price fixing. First came a demand for documents about her business relationship with the two IPAs: nearly 14,000 pages, reproduced with a rented copier she installed in her living room. (The FTC asked Brauchler to provide these documents “voluntarily,” but refusing would have invited a subpoena, which could only be challenged before the FTC itself.) Next the FTC demanded that Brauchler sign a consent order before she could even see a complaint specifying charges against her. While Brauchler could have suggested narrow, technical changes to the order, the “negotiations” would not allow any deviation from the boilerplate FTC language used against every other IPA. Refusal to sign could have resulted in penalties beyond mere restriction of her business practices: She and her clients could face “disgorgement” of unjust profits to provide “restitution” to their victims.
The “victims” in question were Colorado’s largest insurance companies. During roughly the same time period that Anthem reported a nearly $7 million profit in the state, Brauchler billed a bit more than $33,000 in fees to her two IPAs. (Anthem, incidentally, is the same payer that forcefully lobbied the FTC to crack down even harder on the Boulder Valley IPA.) Despite all the FTC’s hand wringing over physicians’ bargaining power, one of Brauchler’s IPAs noted that its provider contracts covered just 15 percent of the patients in Aurora, Colorado, and no more than 2 percent of the patients in metropolitan Denver. Hardly the stuff of Standard Oil or Microsoft.
Scapegoating and Scaremongering
Insurers realize that the FTC’s enforcement practices give them a huge advantage over physicians in contract negotiations. If the government deems an IPA’s practices anticompetitive, the resulting consent orders allow payers to terminate their existing contracts without penalty and negotiate new ones under more favorable terms. This means insurers can refuse to honor contracts by lobbying antitrust regulators, claiming evil doctors made them agree to unreasonably high rates.