A few years ago Redwood City, Calif., neurosurgeon George Koenig, M.D., called a health plan to complain about the rates it offered to pay for his services. The plan flatly refused to negotiate. Rather than lose patients, Koenig signed the contract.
"Individually, we have no clout," says the frustrated 62-year-old solo practitioner, who now advocates less rigid antitrust rules for doctors. Health plans "can write their own ticket and we can only vote with our feet."
Like Koenig, a majority of physicians have joined networks in an attempt to increase their market power. An estimated 3,000 physician independent practice associations and 3,000 physician-hospital associations have formed, typically with hundreds of doctors apiece. Half the nation's 600,000 doctors negotiated through an IPA last year, according to the American Medical Association.
Physician networks have benefited from some leniency on the part of the Federal Trade Commission and the U.S. Justice Department, which agreed to judge them on a "rule-of-reason" analysis if they can demonstrate clinical or financial integration. Normally, it's illegal for independent competitors to set prices jointly.
Now some economists are sounding an alarm that physician organizations are mushrooming without proven benefits for consumers. As a result, they argue, more areas of the country could be saddled with monopolies that stifle competition not only for physician services but also for hospitals and HMOs.
Conversely, some HMOs are fostering the growth of large networks as a way to streamline contracting, control costs, impose capitation and improve customer service.
Drawing attention. The issue is drawing the attention of lawyers and economists who previously focused on hospital mergers.
"Five years ago, when most people thought about healthcare antitrust issues, they were thinking about hospital issues," says William Sage, associate professor of law at Columbia University. "I think the physician side was underappreciated by antitrust enforcement authorities until recently."
One key question is whether physician networks generate efficiencies that offset any anti-competitive impact. Martin Gaynor, professor of economics and health policy at Carnegie Mellon University, says studies prove medical groups achieve efficiencies and clinical integration that lead to better care. But he's not convinced the same is true of networks of independent practices.
"The claim is that there are large efficiencies from these networks. I am frankly dubious, but I think we should find out," Gaynor says.
His opinions are expressed in an article he co-wrote with Deborah Haas-Wilson, associate professor of economics at Smith College, that's expected to be published in an upcoming issue of Health Economics.
The federal government has prosecuted a few physician networks, generally involving more than 80% of physicians or specialists in a market. Since September 1995, four PHOs have settled charges including price-fixing, attempted monopolization and group boycotts. In addition, Mesa County Physicians IPA in Grand Junction, Colo., is nearing a settlement with the FTC. And Brown & Toland Medical Group, a capitated IPA with 1,250 physicians in San Francisco, recently disclosed it is under investigation.
Physician consolidation is tough to police. Unlike mergers of hospitals or large medical groups, physician networks can form without any required notice to federal agencies. Authorities usually find out about a monopolistic network once it operates, often through a physician who was left out or a managed-care plan that can't get business.
"In terms of knowing where there's a problem, it is true we can't know about all of them and don't try to," says Robert Leibenluft, chief of the healthcare antitrust section of the FTC.
Additionally, some health plans could be afraid to blow the whistle. Glenn Melnick, healthcare finance professor at the University of Southern California and a resident consultant at Rand Corp., a Santa Monica, Calif.-based research organization, says he knows health plan officials who gripe about physician monopolies in private but won't testify against them for fear of losing a contract or incurring a rate increase.
"Their view is, `As long as this group that has the monopoly charges this high price to my competitor, I'm not at a competitive disadvantage,'*" Melnick says.
Look at what happened to Blue Cross and Blue Shield United of Wisconsin, which sued Marshfield (Wis.) Clinic for antitrust violations in 1994. The Blues won a $48.5 million damage award from a jury, which found that the clinic engaged in such anti-competitive practices as refusing to provide cross coverage for competing doctors and controlling the credentialing committee of St. Joseph's Hospital in Marshfield.
In subsequent court actions, the damage award and injunctions against the clinic were thrown out, and the verdict partially overturned. The Blues is fighting to reinstate the damage award and injunctions and reverse an order that it pay about $200,000 in court costs. Meanwhile, last month the clinic reached a $4 million settlement in a consumer lawsuit.
Blues attorney Jim Troupis says the clinic refused to settle with his client because of "antipathy by Marshfield toward Blue Cross. They blame Blue Cross for many of their troubles."
Extending control. That case was based on one of the primary concerns about large physician networks: They could be used to control other markets, such as hospitals and insurers.
In another example, in Vicksburg, Miss., Columbia/HCA Healthcare Corp. unsuccessfully sued to challenge the merger of a rival hospital, Parkview Regional Medical Center, and local physician groups that have a majority of the city's doctors. Columbia accused the hospital and physician groups of ganging up to deny business to its Vicksburg Medical Center. Columbia lost the case and was ordered to pay the opposition lawyers' fees and court costs (March 3, p. 76).
Another cause for worry, according to some economists, is the potential for collusion among physician networks. They cite an eight-day strike by doctors in Puerto Rico in 1996, which, according to the FTC, forced thousands of patients to do without nonemergency care or go to hospitals for services they would have received in a physician's office.
In October the FTC settled with the College of Physicians-Surgeons of Puerto Rico and three large physician groups that supported the strike. The economic damage was so conspicuous that the government was able to extract a $300,000 settlement -- the first monetary settlement in healthcare antitrust enforcement history, according to the FTC.
Economists worry not so much about this sort of flagrant act but more subtle ones, such as one network setting prices and others following suit. As William White, professor at the department of economics and the Institute of Government and Public Affairs at the University of Illinois at Chicago, puts it: "What happens when the CEOs from the three networks play golf on Sunday?"
The other guys. Physicians counter that hospitals and health plans enjoy large market shares.
"I think there's a residual fear because at one time physicians were a pretty collegial, homogeneous group and they naturally stood together," says Edward Hirshfeld, associate general counsel of the American Medical Association. "Things are much different now."
He says physician oversupply, diversity of practice settings and increasing specialization have generated more competition among doctors.
In some markets, HMOs have encouraged the growth of large doctor networks. For example, Blue Cross and Blue Shield of Florida's Health Options HMO approached key physicians and asked them to develop specialty networks so it could capitate specialty care.
Ultimately, 15 specialty networks were formed, including Vivra ENT Specialty Partners. Vivra claims 95 of the approximately 160 otolaryngologists in the Miami market, according to a study of single-specialty networks published by Policy Planning Associates, based in Crystal Lake, Ill.
In California, PacifiCare Health Systems considers large physician groups its best allies in meeting employer and state mandates. Large groups win the highest patient satisfaction ratings and work on innovative programs such as Express Referrals and Ready Reply programs, which, respectively, are intended to streamline the process of specialist referrals and address member complaints within one business day.
"They're much more willing to want to work with us as opposed to some of the other physicians who are hoping that fee-for-service will come back," says PacifiCare spokeswoman Susan Whyte Simon.
Setting limits. There is evidence, however, that payers want some limits on network size to ensure quality and cost controls. A selective panel is important from a marketing perspective, argues the Policy Planning Associates study, which was sponsored by the AMA and seven other physician associations.
Last year's federal antitrust guidelines, which spell out antitrust "safe harbors" for physicians' financial or clinical integration, have been well-received by attorneys, economists, consultants and physician organizations.
In addition, federal regulators have shown flexibility, rejecting only four out of 48 proposed physician networks that asked for business review letters between September 1993 and December 1996, says Robert Bloch, a partner with law firm May, Brown & Platt in Washington. Forty of the approved networks fell outside the government's safe harbors.
Bloch, former chief of the Justice Department's healthcare antitrust enforcement, says most networks continue to win approval. "I have not heard much complaining in the market by people who want to form (networks)," he says.
Still, some physicians argue that in many cases they should not have to integrate their practices financially or clinically, nor should they have to negotiate through third-party "messenger model" IPAs.
In the extreme, physicians want total exemption from antitrust laws when negotiating with managed-care companies.
"This at least would level the playing field," says Koenig, who is past president of the California Association of Neurological Surgeons. He says forming an organization to accept financial risk "takes an extreme amount of capital that physicians don't ordinarily have."
In June AMA members voted to back legislation that would give collective bargaining rights to independent doctors. But the AMA board of trustees decided that was an unrealistic goal. Instead, it voted to champion safe harbors for nonintegrated networks.
The AMA leadership wants protection for exclusive networks of up to 20% of doctors in a market and for nonexclusive networks of up to 30% of doctors. The protection would apply in markets with up to four health plans.
A bill is expected to be introduced in Congress in January by U.S. Rep. Tom Campbell (R-Calif.).
"Some people love to be in (integrated) groups. Some people hate it," says AMA board member Daniel Johnson, M.D. "What we are asking is to set up reasonable rules for the marketplace."