FTC Continues Crackdown on Unlawful Collective Fee Negotiations

The Federal Trade Commission’s (FTC) aggressive enforcement of the antitrust laws regarding collective fee negotiations continued this month when the FTC sued a California independent practice association (IPA) for allegedly fixing the prices charged to healthcare insurers. The FTC simultaneously released a proposed settlement with the IPA that would prohibit it from collectively negotiating fee-for-service reimbursements with payors.

The IPA, Alta Bates Medical Group, Inc., consists of multiple, independent medical practices and totals approximately 600 physician members. Alta Bates contracts with payors on behalf of its members both on a capitated basis, under which an insurer pays a physician group a fixed amount over a given time period with little regard to patient utilization, and on a fee-for-service basis, under which the insurer compensates physicians for services actually rendered. The FTC alleges that since 2001, Alta Bates has lessened competition for fee-for-service contracts in violation of Section 5 of the FTC Act, 15 U.S.C. § 45, by (1) fixing the prices and other terms at which they would contract with payors, (2) engaging in collective negotiations over terms and conditions of dealing with payors, and (3) refraining Alta Bates’ members from negotiating individually with payors or contracting on terms other than those they have approved. See Complaint, In re Alta Bates Medical Group, Inc., FTC, No. 051 0260.

While Alta Bates argued that it operated under a “messenger model,” the FTC alleged that Alta Bates “did not rely on financial and other parameters identified by its individual physician members,” and instead decided itself what rates and/or terms it used in communications with the PPO health plans. The FTC further alleged that Alta Bates collectively negotiated by “making proposals or counter-proposals, as well as accepting or rejecting offers, without transmitting the payors’ offers to its individual physician members” until Alta Bates had approved the negotiated prices. The FTC noted in the analysis that “[Alta Bates] did not engage in any activity that might justify collective agreements” on price and did not “clinically or financially integrate their practices to create efficiencies.” The June 4 proposed order prohibits Alta Bates from entering into or facilitating any price-fixing or concerted refusals to deal, and additionally requires Alta Bates to notify the FTC before entering into certain contracts with insurers.

The FTC’s continued enforcement in this area underscores the importance of careful review of “messenger model” negotiations, as provider groups’ self-described “messenger models” are often a misnomer. A lawful “messenger model” requires each provider to negotiate independently with payors, and the “messenger” may not make or decide on offers without consulting individual providers unless the providers have previously given it parameters for making such decisions. In general, any model in which a non-integrated provider group exercises independent judgment about the merits of a proposal is likely to invite antitrust scrutiny.