Three rural hospitals and three independent practice associations in New Mexico have been snared in a 2-year-old national Federal Trade Commission probe investigating alleged physician price-fixing, Modern Healthcare has learned.
When he took office in 2001, FTC Chairman Timothy Muris vowed to attack anticompetitive healthcare industry practices, in particular collective bargaining by otherwise competing providers. In the past two years, the FTC has filed antitrust complaints against 15 independent practice associations, or IPAs, and physician hospital organizations, or PHOs, and signed consent decrees with 13.
That FTC investigation has recently widened to include hospitals. In February, the agency challenged the 2000 merger that created Evanston (Ill.) Northwestern Healthcare and also charged that the three-hospital system illegally fixed prices on behalf of its physicians (Feb. 16, p. 6). In December 2003, when the FTC charged a PHO known as the Piedmont Health Alliance in Hickory, N.C., with fixing prices on behalf of its 10 physician members, it also for the first time charged a hospital PHO member (Jan. 5, p. 14). Frye Regional Medical Center in Hickory and its parent, Tenet Healthcare Corp., have since settled without paying a fine.
In the latest example, the FTC has subpoenaed contract and pricing information from health plans and providers about 149-bed Eastern New Mexico Medical Center in Roswell, which is owned by Community Health Systems; 77-bed Gerald Champion Regional Medical Center in Alamogordo, a joint military-community hospital managed by Quorum Health Resources; and 151-bed San Juan Regional Medical Center in Farmington. The FTC is also seeking records involving IPAs affiliated with the hospitals: the San Juan Independent Practice Association in Farmington, Southeastern New Mexico Physicians IPA in Roswell and the Alamogordo Physicians Cooperative. In Alamogordo the investigation's focus is on a PHO joint venture between the Gerald Champion hospital and an IPA called White Sands Health Care System.
Jeffrey Brennan, who heads the healthcare section of the FTC's Bureau of Competition, said he "could neither confirm nor deny the existence of an FTC investigation in New Mexico or anywhere else."
But sources close to the situation said another New Mexico IPA price-fixing inquiry may have sparked the investigations (May 19, 2003, p. 30). In May 2003, the FTC settled price-fixing allegations with the 38-member Carlsbad (N.M.) Physicians Association, an IPA that former FTC Bureau of Competition Director Joe Simons said "served no function other than to jointly fix prices on behalf of its members during the health plan contracting process."
According to providers and health plan officials who've been subpoenaed, the FTC is seeking evidence of possible price-fixing on behalf of the IPAs and is looking into alleged anticompetitive contracting practices by the hospitals and the Alamogordo PHO. To date the FTC has not filed any formal complaints against the New Mexico providers.
"It's clear that hospital roles in those networks are coming under increased FTC scrutiny," said former FTC official Richard Feinstein, now a healthcare antitrust lawyer with Boies, Schiller & Flexner. "This is becoming a front-burner issue."
American Hospital Association spokesman Richard Wade said it's still unclear what the FTC is examining or whom it's targeting. "I think right now this is more of a warning shot for hospitals to look at the relationships they've created and see if they pass the smell test," Wade said.
The hospitals and IPAs are located in geographically isolated cities of under 50,000 in one of the poorest states in the nation. Sources there said they have two key things in common: a lack of competition and the highest physician and hospital costs in the state.
Officials from the hospitals, IPAs and PHO disagree on the focus of the investigation and some, such as Lonnie Ray, vice president of operations at Southeastern New Mexico Physicians IPA, declined to comment, citing the pending investigation. Officials at San Juan Regional Medical Center and San Juan IPA agreed that the FTC investigation is targeting the IPA. Richard Robinson, CEO of Eastern New Mexico Medical Center, said he knew about the FTC investigation into the Roswell IPA but was unaware of any FTC inquiry into his hospital.
Lawyer Robert Wilson of Smith Moore, who represents the White Sands PHO in Alamogordo, said the company received FTC subpoenas in August 2003. Wilson said negotiations with the FTC are continuing and expects the issues to be resolved amicably. He declined to disclose the nature of the FTC inquiry.
Officials at San Juan Regional deferred questions to Dawn Brooks, CEO of the 122-physician San Juan IPA. Brooks said the IPA is a separate entity from the hospital, though some of its members are employed physicians there. "We're not completely sure what they're looking for yet," she said.
But some of those who have received subpoenas think they know what the agency is seeking. Ron Calisher, president and CEO of healthcare consulting firm Calisher & Associates, said the FTC asked numerous questions about attempted exclusive contracting arrangements with health plans by the Roswell hospital that would exclude the Roswell ambulatory surgery center his firm operates. Calisher & Associates manages and co-owns eight ambulatory surgery centers with physician partners, including the Center for Ambulatory Surgery & Endoscopy of Southeastern New Mexico, which competes with the existing hospital.
Bob Simmons, vice president of medical affairs and operations at Albuquerque-based Cimarron Health Plans, said the FTC is seeking information about alleged exclusive contracting by the Roswell hospital and alleged tying arrangements-which require the purchase of certain services in order to obtain others-in Alamogordo.
Simmons said payers don't have much leverage in negotiating contracts in these three one-hospital towns. Simmons said he's unsure of the impact of the FTC investigation on the already frayed relations between doctors and hospitals.
"But sunlight is a tremendous disinfectant," he said. "The fact that there are investigations and analysis being completed is in the best interest of patients and members. When you know there's a cop on the expressway, speeding goes down. And that's a good thing."