To the Federal Trade Commission, price-fixing isn't just for physicians anymore. For the first time, the FTC said, it has nabbed a hospital as part of an alleged scheme to fix physician prices. That hospital belongs to the already beleaguered Tenet Healthcare Corp.
Tenet's Frye Regional Medical Center in Hickory, N.C., agreed to settle charges that its executives helped concoct a price-fixing arrangement with physicians by forming the Piedmont Health Alliance, a for-profit physician-hospital organization, the FTC said. The agency also charged Piedmont and 10 physicians who were centrally involved with the alleged price-fixing. Tenet said it paid no fine and admitted no wrongdoing under the consent order, which requires Frye to renegotiate some contracts with physicians. In a news release, Piedmont officials said their contracting activities are lawful but added they haven't decided what action to take.
The FTC brought charges or agreed to settlements in 11 physician price-fixing cases in 2003, according to FTC news releases. One case was a settlement of both hospital and physician price-fixing with the Maine Health Alliance, which has a similar structure to Piedmont, but the physician and hospital members of the Maine alliance were not charged directly. FTC Chairman Timothy Muris has made such cases one of the priorities for the agency's renewed focus on healthcare (Feb. 17, 2003, p. 27).
Frye executives hatched the plan for Piedmont in 1993, winning approval from the hospital's board before approaching the physicians, the FTC said. Frye executives sought physicians who practiced at the hospital to form Piedmont as a way to better battle managed-care organizations in a four-county area of North Carolina, the FTC said. Piedmont was incorporated in 1994 in Hickory and has about 450 physician members. Two independent, not-for-profit hospitals-Caldwell Memorial Hospital, Lenoir, N.C.; and Grace Hospital, Morganton, N.C., which is managed under contract by Carolinas Healthcare System-joined Piedmont in 1996. Neither hospital was charged by the FTC.
Frye executives said they believed that the arrangements were legal under their interpretation of FTC guidelines, Tenet spokesman Steven Campanini said, but the settlement "was a compromise that we could live with."
By settling, Tenet avoided another federal probe. The U.S. attorney in San Diego has won indictments against two executives at Alvarado Hospital Medical Center, the hospital itself and the Tenet subsidiary that owns the hospital in an alleged scheme to use physician-relocation agreements to illegally induce patient referrals. The U.S. attorney in Los Angeles and HHS' inspector general's office also are looking at Tenet's physician-relocation practices, and Tenet, as Modern Healthcare first reported on its Web site, modernhealthcare.com, is nearing a settlement of a whistleblower lawsuit alleging Tenet paid more than fair-market value for physician practices in South Florida as a way of inducing referrals.
Fred Soule, president and chief executive officer of Caldwell Memorial, said his hospital was called on to testify before the FTC. The hospital may have to renegotiate some contracts in light of the settlement, he said.
Soule said he believes Piedmont followed the so-called messenger model, in which a physician-hospital organization or other agent communicates offers from payers to physicians and vice versa without actually controlling the bargaining.