FTC's Finding of Price Fixing by Texas Doctors' Group Upheld

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission's determination that the conduct of the North Texas Specialty Physicians (NTSP), an organization of independent physicians and physician groups principally located in and around the city of Fort Worth, amounted to horizontal price fixing has been upheld by the U.S. Court of Appeals in New Orleans.

The Commission's 2005 decision (2005-2 Trade Cases ¶75,032) affirmed an administrative law judge's initial decision that the NTSP had illegally fixed prices in its negotiations with payors, including insurance companies and health plans. The court did, however, remand the matter to the Commission to modify a provision in the remedial order that was overly broad.

Horizontal Price Fixing

The FTC properly concluded that certain aspects of the non-risk contract business of NTSP, when considered on the whole, combined to result in horizontal price fixing, the court held. These practices included the disclosure to all affiliated physicians of the median, mean, and mode results of polls to determine the minimum rates physicians would accept, the “reminder” to physicians of those results when subsequent polls were taken for the purpose of establishing a minimum price, and NTSP’s use of that minimum price when it negotiated with payors on behalf of physicians.

NTSP’s participating physicians took collective action to obtain higher fees from payors. That physicians could reject offers negotiated by NTSP did not establish that there was no agreement on price. Although NTSP argued that it was a single entity—a “memberless, non-profit corporation”—antitrust liability did not depend upon a particular form or business structure.

The challenged practices erected barriers between payors and physicians who otherwise would have been willing to negotiate directly with those payors, according to the court. NTSP also erected obstacles to price communications between payors and physicians. The Commission properly concluded that NTSP engaged in concerted action to increase its bargaining power. The fact that there was no evidence in the record that NTSP obtained higher prices for its physicians than other physicians received did not foreclose a determination that NTSP’s practices had anticompetitive effects.

Procompetitive effects proffered by NTSP did not meet the threshold that they “might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on competition,” in the court's view.

Jurisdiction

At the outset, the court determined that the agency had jurisdiction over NTSP. If the organization’s efforts to maintain physicians’ fees were successful, the advantages of competition would have been adversely affected for out-of-state employers and payors, the court reasoned. NTSP unsuccessfully argued that its alleged anticompetitive conduct was not “in or affecting commerce” because effects on interstate commerce had to be “more than de minimis when considered in proportion to the parties’ business as a whole” and its conduct “was never shown to have even a de minimis effect on the business of any payor as a whole.”

“Inherently Suspect” Analysis

The FTC properly scrutinized the challenged conduct through the somewhat-abbreviated “quick-look” rule-of-reason analysis. Quick-look analysis is appropriate when the likelihood of anticompetitive effects is obvious. In this instance, the anticompetitive effects of certain of NTSP’s practices were obvious, and procompetitive justifications could not result in a net procompetitive effect or no effect at all.

Remand

Because one provision in a remedial order was overly broad and internally inconsistent, the court remanded the matter to the Commission to modify its order. The provision could have had the effect of compelling NTSP to messenger contracts or become a party to contracts sent to it by payors, regardless of potential risks to the NTSP, its member physicians, and its patients.

The provision prohibited the respondent from facilitating an agreement among members with respect to their provision of physician services: (1) to negotiate on behalf of any physician with any payor; (2) to deal, refuse to deal, or threaten to refuse to deal with any payor; (3) regarding any term, condition, or requirement upon which any physician deals, or is willing to deal, with any payor, including, but not limited to, price terms; or (4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than respondent.

The May 14, 2008, decision in North Texas Specialty Physicians v. FTC, 06-60023, will appear at 2008-1 Trade Cases ¶76,146. Further details appears here on the FTC website.