The U.S. Justice Department is suing a physicians' union local in Delaware, alleging that the group has organized an illegal boycott aimed at price-fixing.
The lawsuit, believed to be the first ever filed against a physicians' union by the federal government, could have a chilling effect on the union movement among physicians.
In 1990, the Colorado Union of Physicians and Surgeons settled charges of price-fixing and antitrust violations with the state of Colorado before the case got to trial. The union was permanently barred from negotiating on behalf of its members as part of that settlement.
Filed in U.S. District Court in Wilmington, Del., the Justice Department's complaint accuses the Federation of Physicians and Dentists of being a sham union, soiling the traditional independent practice association model and twisting it into "the hub of a conspiracy to oppose and prevent proposed reductions in payments for orthopedic services" (See chart).
Jack Seddon, the federation's executive director, said, "We don't believe we violated the law." The 7,500-member organization represents physicians of various specialties in at least 14 states, including 250 physicians in Delaware.
The union, which is affiliated with the American Federation of State, County and Municipal Employees, had previously turned down the Justice Department's offer to enter a "mild consent decree" that would have resolved the matter (Feb. 23, p. 6). That could mean both sides are headed for a bitter, precedent-setting legal battle.
The lawsuit is the climax of a 7-month-old Justice Department investigation initiated by complaints from Blue Cross and Blue Shield plans in several states.
In what the government described as a typical "messenger-model IPA," a group of physicians in private practice contract with HMOs using a third-party administrator or agent. The administrator is prohibited by law from sharing rate information among the physicians.
In this case, 44 orthopedic surgeons first joined the Tallahassee, Fla.-based federation, creating a union local to negotiate fees they would accept from Blue Cross and Blue Shield of Delaware.
When the Blues declined to deal with the federation, the union "redoubled its efforts to persuade doctors to deal with Blue Cross only through the federation," the lawsuit states. Ultimately, all orthopedists associated with the federation terminated their contracts with the Blues because the fees suggested were too low.
"There was never a refusal to communicate with an insurer," Seddon said. "This is a lockout, not a boycott."
Health plans typically win lower rates by negotiating individually with physicians competing in a certain specialty, playing them off one another. Antitrust laws prohibit competitors from getting together and agreeing to a set price for their goods or services.
A number of physicians that had joined the federation have since returned to contracting directly with the Blues network in the wake of the investigation, said Kerin Hearn, a Blues spokeswoman.
The Justice Department is seeking unspecified fines and an injunction against the federation and its member physicians, preventing them from doing the alleged activities or any other arrangement that could lead to price-fixing.
The government's investigation of the federation is continuing in Connecticut, Florida, Ohio and Pennsylvania. The lawsuit could expand to those states.
"This (Delaware case) could be a strong indicator that physician groups do need protection from the antitrust laws," said Jeff Miles, an antitrust attorney with Ober Kaler Grimes & Shriver in Washington, who is not involved in the case. "On the other side, it could be disastrous to have protection if it results in price-fixing activities."