• Fifth Circuit Upholds FTC Ruling against Fort worth IPA
  • June 12, 2008 | Authors: Edgar C. Morrison; Robert M. Cohan
  • Law Firms: Jackson Walker L.L.P. - San Antonio Office; Jackson Walker L.L.P. - Dallas Office
  • Physician independent practice associations (IPAs) were all the rage in the 1990s. Groups of previously unaffiliated physicians believed they could participate more equitably in managed care contracts if they were part of a larger organization. IPAs set up carefully arranged “messenger models,” whereby the IPA was careful not to actually negotiate prices on behalf of its members, but only “messenger” the managed care plan offers to its membership.  When properly structured, managed care plans benefited as well by having immediate access to provider networks of as many as several hundred physicians.  When not structured correctly, however, IPAs and their members risked scrutiny under federal antitrust laws.
    In the first court decision addressing the validity of the operations of a large physician owned IPA, the U.S. Court of Appeals for the Fifth Circuit has upheld a ruling of the Federal Trade Commission, finding that North Texas Specialty Physicians (NTSP), a 575 member physician independent practice association located in Fort Worth, violated the Sherman Act and the Federal Trade Commission Act by engaging in activities constituting horizontal price fixing.
    The FTC has actively scrutinized physician IPAs since the mid 1990s.  Almost all FTC actions against IPAs are settled through consent orders, however.  The NTSP case was the first one actually to be contested and tried before an administrative law judge.  NTSP maintained from the beginning that the overall impact of the NTSP physician contracting efforts was pro-competitive and provided clinical and economic benefits to patients and payors.  Thus, NTSP argued it was entitled to negotiate fee-for-service payor contracts on behalf of its members.
    While NTSP vigorously defended its operations, the FTC equally vigorously prosecuted the case, with the Commission concluding that NTSP’s conduct constituted concerted horizontal price fixing by its physician members.  The administrative law judge in 2004 upheld the FTC Administrative Complaint, and on appeal, the full Commission in 2005 upheld the ALJ ruling.  In turn, NTSP appealed to the Fifth Circuit for review of the FTC’s Opinion and Order.
    Six long years after the original investigation started, the Fifth Circuit upheld the FTC in its ultimate conclusion that “the activities [of NTSP], taken as a whole, amount to horizontal price fixing which is unrelated to any pro-competitive efficiencies.”  The Fifth Circuit agreed with the FTC’s ruling in that regard, particularly noting that even assuming that pro-competitive efficiencies exist, NTSP “does not address how [its] nebulous teamwork efficiencies are dependent on its price-fixing activities.”  In short, neither the FTC nor the Fifth Circuit was convinced that any pro-competitive effects alleged by NTSP were as a result of or necessarily connected to NTSP’s collective negotiation of fee-for-service physician contracts.
    Although the Fifth Circuit affirmed the FTC’s Order, it did agree with NTSP on one point.  The court held that a portion of the FTC ruling was overly broad and internally inconsistent and ordered the FTC to rephrase the portion of the Order which instructed NTSP to cease and desist from any action “to deal, refuse to deal, or threaten to refuse to deal with any payor.”  The FTC now must issue an amended order consistent with the court’s ruling.