An administrative law judge's decision last week favoring the Federal Trade Commission over a Texas physician independent practice association has provided the agency with a rare litigation triumph, but it is unlikely to change the IPA business model or affect other price-fixing cases in the FTC's pipeline, industry experts said.
FTC Administrative Law Judge D. Michael Chappell issued his nearly 100-page opinion on Nov. 8, ruling against Fort Worth-based North Texas Specialty Physicians, Modern Healthcare has learned. The case marks the first time an IPA challenged the FTC's recent physician price-fixing allegations.
The ongoing inquiry, launched in 2001 by former FTC Chairman Timothy Muris, has resulted in more than 20 consent decrees from IPAs and physician hospital organizations. The decision comes at the same time federal antitrust regulators declared their approval for the clinical integration of IPAs to improve quality, patient care and safety. The FTC has stated that IPAs that demonstrate financial or clinical integration can jointly negotiate contracts with HMOs and PPOs. The agency is reviewing a handful of proposals by IPAs to earn FTC blessing for that clinical integration.
But the agency didn't believe North Texas' claims that it was clinically integrated, and neither did Chappell. He found that the actions of the 550-physician multispecialty IPA represented an "unreasonable restraint of trade." At deadline, his ruling had not yet been released publicly, but an unredacted version was sent to the FTC staff and North Texas last week for review. The final decision is expected to be released early this week.
Both FTC and North Texas officials declined comment, and FTC spokesman Mitch Katz said he could neither confirm nor deny that an opinion had been released.
Nicholas Koberstein, an antitrust attorney with the Washington office of McDermott Will & Emery, said the FTC victory marks the first hurdle in a legal process that could end up in federal appeals court. Koberstein, a former FTC attorney who defended another IPA in a similar price-fixing case, said parties challenging the agency recognize the administrative law process is stacked in the FTC's favor.
He suggested the physicians are likely to appeal the case to the full FTC, and if they don't prevail there, will probably appeal to the 5th U.S. Circuit Court of Appeals. He said a well-reasoned opinion by the commission would support the FTC staff's price-fixing theories in future cases but said an affirming opinion by the 5th Circuit would carry more weight. Resolution could take a year or two.
Koberstein, who said he had not read the opinion in the case, said the primary benefit of the FTC's victory is the experience gained by the agency's litigators.
"They've litigated one, so they'll be in a better position to do it again in the future," he said.
Officials at physician associations said they hadn't seen the decision yet and could not comment upon it but noted that the FTC's ongoing price-fixing investigations have affected IPAs.
Medical Group Management Association President William Jessee said the FTC scrutiny has made IPAs more careful to ensure that they're compliant with antitrust regulations and safe harbors.
"Those consent decrees indicate that a number of IPAs were not operating within legal safe harbors," Jessee said. "But there are still a lot of IPAs operating very successfully. They're either following the rules or haven't been caught yet."
Don Crane, president of the California Association of Physician Groups, said the FTC's enforcement activities have made IPAs in his state "careful and cognizant" of antitrust laws, but he said the spotlight has not appreciably altered the business model.
"We watched with great interest the report jointly issued by the FTC and the Justice Department's Antitrust Division (Improving Health Care: A Dose Of Competition) and saw an improving landscape for IPAs," Crane said. "That report indicated that the antitrust agencies encouraged groups to clinically integrate so they could engage in group PPO contracting. The IPA model is still viable."
Chappell said in his opinion that North Texas set uniform rates for all of its medical specialties, regardless of supply or demand in the market. He found that North Texas was able to extract far higher prices from insurers such as Aetna, Cigna Corp. and UnitedHealthcare than those insurers offered other providers. Chappell ordered North Texas to cease and desist from fixing prices and to terminate some of its provider contracts.
The FTC sent information requests to the IPA in 2001 and negotiated until filing an administrative complaint in September 2003. In that nine-page complaint, the agency alleged that North Texas illegally restrained trade by jointly negotiating on behalf of its otherwise competing physician members on price and other competitive terms. The government said the IPA refused to negotiate, except on collectively agreed-upon terms, and declined to submit payer offers to physician members unless and until price and other terms had been negotiated.
The government argued that area residents and payers paid higher prices for physician services because of North Texas' alleged anticompetitive practices and sizable market share in the Fort Worth area. It also said employers and health plans were deprived of the benefits of competition, in violation of Section 5 of the Federal Trade Commission Act.
North Texas denied the allegations and in administrative court said it was honor-bound to fight the charges. Its members refused to sign a consent decree that would have required it to terminate its fee-for-service contracts and sign a 20-year contract with the agency to monitor its negotiating practices.
North Texas was founded in late 1995 to take on risk contracts with managed-care organizations. The IPA covers 20,000 Medicare and commercial patients. It is funded from capitation surpluses from risk contracts and charges nominal, one-time fees to physicians who join. The IPA began accepting fee-for-service contracts several years later.
In its trial that ended May 24, the IPA presented evidence that it consistently scored higher on patient satisfaction and quality indicators than most Texas health plans at a lower per-patient cost. FTC experts, however, testified that the North Texas model did not achieve clinical integration and alleged that North Texas set prices and terms in contracts, which amounted to illegal price-fixing. Both parties typically appeal elements of the final decision at a hearing before the five FTC commissioners.