Doctors’ Orders

The government’s war on medical “price fixing” squelches speech without helping consumers.

(Page 3 of 3)

That’s what happened to James Laurenza, a Kentucky-based health care consultant who was managing a New Mexico IPA when he ran headlong into the system in 2004. When Laurenza met with an executive from Cimarron to insist that the HMO honor its existing contract before entering into new agreements with the association’s members, “counsel and myself were shocked that the managed care executive threatened twice to bring the wrath of the FTC upon our small network management company,” he later wrote on his personal website. Cimarron followed through on its threat, and the FTC forced Laurenza and the IPA to repent for their “refusal to deal” with the HMO on its terms.

So far congressional efforts to stop FTC bullying have been unsuccessful. In June 2000 the House passed a bipartisan bill, introduced by then-Rep. Tom Campbell (R-Calif.), that would have afforded IPAs the same antitrust exemption as labor unions when they negotiate joint contracts with payers. The measure died in the Senate. 

The bill has been reintroduced in the House in every succeeding Congress by Rep. Ron Paul (R-Texas), himself a physician. In a 2003 letter to then-FTC Chairman Timothy Muris, Paul criticized the agency’s prosecution of Southwest Physicians Associates, a Texas IPA, based on its refusal to continue following a commission-approved contracting model that resulted in substantial losses. “Am I to conclude the FTC expects doctors to adhere to money-losing business models rather than exercise their protected right to free association,” Paul wrote, “and that this is somehow in the public’s interest?”

As Paul noted, the problem isn’t price-fixing doctors but “government policies [that] have enforced over-reliance on third party payers.…To suggest that when groups of physicians combine to negotiate contracts with HMOs, they distort an otherwise free market, betrays a misunderstanding about the current health care industry.”

The FTC has opposed any congressional effort to end its physician prosecution racket. At a 1998 hearing on the exemption bill before the House Judiciary Committee, Campbell, himself a former FTC official, said it was ridiculous that “three eye doctors in Elgin, Illinois,” could have lunch together to discuss an HMO contract and get a letter from the FTC claiming they violated the Sherman Act, while every steelworker in Gary, Indiana, could go on strike without penalty. Then-FTC Chairman Robert Pitofsky responded with his own horror scenario: “All of the doctors in Elgin, Illinois, get together over lunch and say, ‘We are not making enough money, our kids are going to expensive colleges, and we are not driving the luxury car we prefer. Let’s go to this one HMO that is committed to cost containment, and we’ll say we are going on strike. Unless you pay us twice as much money, we are going on strike. We are not going to take care of people in your organization.’ ”

Such scaremongering is especially comic given that the FTC’s own intervention in health care markets raises costs—by forcing physicians to retain antitrust counsel—without any evidence of consumer benefits. The commission can’t point to any data or independent studies that show its IPA prosecutions reduce prices or improve the quality of patient care. Nor does the agency ever consider the costs of complying with its investigations and orders. Ultimately, there’s no demonstrable link between prosecuting IPAs and controlling health care costs. If anything, by making it more difficult for physicians to contract with insurers, the FTC may actually be driving physicians out of the marketplace altogether, which is certainly bad for consumers.

 

The Feds Reach Further

The FTC’s health care appetite isn’t restricted to a diet of IPAs. In 2008, after a two-year investigation, the agency challenged a proposed partnership between Prince William Hospital in Manassas, Virginia, and the larger Inova Health System. Although these were nonprofit hospital groups, the FTC had no qualms about subjecting them to one of the longest merger reviews in commission history, ultimately costing Prince William Hospital nearly $250 million in proposed capital investment from Inova, forcing both hospital groups to rack up legal bills of more than $15 million, and damaging Prince William Hospital’s credit rating.

In this case, Commissioner Rosch proved to be the villain, not the civil liberties champion he played in the Cathy Higgins case. Rosch personally oversaw the staff investigation of the hospital merger. The commission’s administrative law judges had recently exhibited a streak of independent thought in rejecting some key antitrust complaints, so he arranged to have himself appointed to sit as trial judge. Rosch insisted that he was the most qualified arbiter (in fact, he had never been a judge of any type) while laughably maintaining that he would be impartial. In fact, Rosch himself had personally supervised the staff’s investigation of the merger, which led to the decision to issue a complaint in the first place. The hospitals saw right through this, decided the process was rigged, and dropped their two-year-old merger plans. (Prince William Hospital later found another merger partner that met with the FTC’s approval.)

The worst is probably yet to come. While efforts to protect physicians have languished in Congress, the House recently passed legislation that would revoke the insurance industry’s limited antitrust exemption, in effect rewarding the FTC with expanded jurisdiction. This will add an additional layer of antitrust review—state antitrust laws already apply to insurers—that, according to the Congressional Budget Office, could lead to an increase in insurance premiums.

And the new Patient Protection and Affordable Care Act only puts more pressure on physicians to accept across-the-board price controls. If they refuse, they won’t just have to worry about the FTC. In May, the Justice Department’s Antitrust Division entered the physician-prosecution racket, joining the Idaho attorney general against a group of Boise orthopedists. The physicians were charged not just with illegally rejecting an insurance company’s contract offer but also refusing to accept patients under Idaho’s worker’s compensation system. That system, however, requires all participating doctors to accept a uniform fee schedule adopted by the state’s commissioners—in other words, government price controls. Still, the DOJ insists it was the physicians, not the state, who suppressed competition.

Although the Idaho case resulted in a civil settlement, physician groups must now be on alert for possible criminal liability. There’s no statutory distinction between civil and criminal price fixing, and the DOJ can easily convert a civil settlement into a criminal plea bargain—complete with multimillion-dollar fines and jail time for individual physicians and cartel “ringleaders” like Cathy Higgins and Marcia Brauchler.

Criminalizing physician-insurer contract negotiations would be unjust, ineffective, and disastrous for patient care. The Justice Department now also has the authority to seek wiretaps in antitrust cases, meaning the FBI could listen in even on privileged doctor-patient calls. Cracking down on the collective bargaining of self-employed doctors will do nothing to reduce rising health care prices, while serving to dampen the competition the government claims to defend. Such are the perils of letting routine contract negotiations become subject to the whims of federal lawyers.

S.M. Oliva (smoliva@inbox.com) is a writer and paralegal living in Charlottesville, Virginia.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Barely Suppressed Rage||

    Is that a picture of Scott Farkas?

    "He had yellow eyes - so help me; yellow eyes!"

  • Robert||

    Do you mean Scut Farkas?

  • Some Guy||

    I thought it was a zombie doctor of some kind.

  • Old Mexican||

    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???

  • Anonymous Coward||

    If you don't pay your tribute, the Imperial Bureaucracy doesn't let you play.

  • El Duderino||

    Dont forget: When government does it, its not price fixing.

  • cynical||

    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?

  • Robert||

    The doctors aren't employees of the companies.

  • Realist||

    Unions are wrong and should never have been tolerated

  • Meh||

    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.

  • Botox Porcupine||

    I agree; though new employees should not be forced to join unions--as is often the case.

  • ||

    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.

  • shorter shrike||

    OMG teacher! B-b-but they totally did it too!

    Grow the fuck up.

  • ||

    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.

  • Meh||

    Yeah, everyone here is TOTALLY CONVINCED that the GOP is for small government. You found us out.

  • Ted S.||

    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.)

  • ||

    A good video on Obama's new policies against insurance companies.

    http://youtu.be/cw8_U-ia7OM

  • ||

    right - so that must be why Aetna, Cigna, and UHC have risen 30-50% since the passage of HIR.

  • CrackertyAssCracker||

    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.

  • ||

    I recommend all of these doctors stop playing the game and go to a private place in Colorado.

  • jacob||

    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.

  • jacob||

    Sorry, I forgot -

    Great article!

  • ||

    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.

  • jacob||

    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.

  • Jonathan||

    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.

  • Ted S.||

    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.

  • ||

    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.

  • Ted S.||

    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.

  • jacob||

    "Jacob, there are other specialties that reap wonderful salaries: radiology, ortho, ophthalmology, etc..."

    Did I say that only derm and plastics had nice salaries?

  • ||

    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.

  • ||

    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.

  • ||

    sorry double post.

  • Jonathan||

    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.

  • Dylan||

    Two wrongs don't make it right.

  • wuestenfuchs||

    And who said we are conservatives here?

  • pariuri sportive||

    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

  • Ekim||

    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.

  • قبلة الوداع||

    thank u

  • منتديات العراق||

  • DietSolutionGuide.com||

    And the poor man always suffer, that is the future.

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