Breaking a streak of decisions favorable to physicians, the U.S. Justice Department gave thumbs down to a proposed doctor network in New Jersey last week, ruling it could lead to anti-competitive behavior.
The negative business review letter is the first issued by the department after a string of at least 11 favorable decisions regarding physician networks dating back to fall 1993.
The negative ruling comes at a politically sensitive time for the Justice Department as well as the Federal Trade Commission, which are under fire from the American Medical Association. The AMA says the agencies are too tough on physician networks, and it has had legislation introduced that would ease the antitrust barriers for certain networks now considered illegal.
In fact, the AMA had accused the Justice Department of sitting on two physician network rulings while Congress debated similar antitrust legislation last fall as part of the fiscal 1996 budget bill (Jan. 8, p. 4).
The AMA said the department was playing politics with the two rulings, keeping them under wraps lest they become fodder for the association's lobbying effort. Justice Department officials denied the accusation, saying the ruling requests were taking a long time to consider because of inadequate documentation.
In January, the department released one of the two rulings, approving a proposed physician network in Oklahoma (Jan. 22, p. 6). Then on March 1, the department released the second ruling, but this time the result wasn't favorable to physicians.
The new ruling "certainly helps make the case for how narrow the government's enforcement guidelines are and how strictly they're construed by the Justice Department," said Michael Ile, an AMA attorney in Chicago.
In 1993 and again in 1994, the Justice Department and the FTC released healthcare antitrust enforcement guidelines. The guidelines created a "safety zone" for networks whose doctors share financial risk and that don't control more than 20% to 30% of the market, depending on the network.
In southern New Jersey, a group of 65 to 70 pediatricians sought the Justice Department's approval to form a single network, called Children's Healthcare, to collectively negotiate contracts with managed-care plans.
The physicians said their network wouldn't be anti-competitive for several reasons. First, the physicians said their share of the market fell far below the government's 20% threshold for exclusive networks, or networks that don't permit their members to join other plans. They said they competed in a wide geographic market that included parts of southeastern Pennsylvania and northern Delaware. And they said the market included family practitioners and other primary-care doctors who treat children.
And second, the physicians claimed they shared significant financial risk in the venture because they would accept capitated reimbursement contracts, although they also would offer payers a discounted fee schedule.
In its 14-page business review letter, the Justice Department rejected the physicians' arguments, concluding that the network would "injure competition, harm consumers, and therefore, violate the antitrust laws."
The department said other physicians weren't a legitimate substitute for pediatricians, and the network physicians competed in a smaller geographic market consisting of seven counties in New Jersey. Those parameters pushed the physicians' market share to 50% to 75%, it said.
The department also said the physicians' financial risk in the venture was "minimal," and said it found evidence that the physicians' primary purpose in forming the network was to gain an unfair negotiating advantage over managed-care plans.
The department said it's likely to challenge the network on antitrust grounds if it moves forward without any operational changes that would bring it into legal compliance.
That won't happen because the physicians scrapped their plans long ago, and they don't intend to submit a revised plan for review, said Robert Conroy, the physicians' attorney.
"It's a dead issue," he said. "They've moved on to other and better things."
Conroy said the physicians filed their initial request on July 14, 1994, and, although they dropped their network, resisted pressure from the Justice Department to withdraw their request.
"We wanted to demonstrate that the enforcement guidelines don't work," he said. "That's why we pursued it."
Not unaware of the possible political ramifications of the ruling, Anne Bingaman, assistant attorney general in charge of the department's antitrust division, pointed out in an accompanying press release that the department "firmly supports the formation of properly structured physician-controlled networks that offer the prospect of cutting costs and improving patient care."
Bingaman also noted the string of positive network approval letters, saying the networks involved all were structured to avoid anti-competitive risks.