Physician fee-setting requires scrutiny - column

To avoid antitrust liability from physician fee-setting in HMOS and PPOs, participating physicians should share the risk of profit and loss. "Health Law" is a regular feature of Physician Executive contributed by the law firm of Epstein Becker and Green, P.C. Douglas A. Hastings, Esq., a partner in the firm's Washington, D.C., offices serves as column editor.

Recent enforcement agency actions and court decisions regarding price fixing by physicians dramatize the need for physicians to understand the impact of antitrust laws on fee-setting arrangements. Physicians involved in fee-setting in managed care plans should carefully scrutinize their behavior. Probably the most controversial development for physicians is the recent increased reliance by the Justice Department on criminal enforcement of antitrust laws against individual physicians. In the past year, the agency has instituted three such criminal investigations. One investigation involves allegations of price fixing among dental insurance organizations in Arizona, another involves allegations of price fixing among allergists in Massachusetts, and the third alleges that obstetricians in Georgia conspired to set obstetrical fees. Recent court decisions also indicate that an understanding of antitrust laws is crucial for physicians involved in fee-setting for health care plans. The recent $32 million settlement in the Choice Care case exemplifies the severe financial consequences associated with a jury verdict of anticompetitive price fixing. The Ninth Circuit's decision in Hahn v. Oregon Physcians Service, reversing the district court's grant of summary judgment to the Oregon Physicians' Service, continues a 10year-old antitrust suit and illustrates the exorbitant amount of time antitrust cases can consume. Finally, the Michigan District Court's decision in Hassan v. Independent Practice Associates, P.C., demonstrates how to properly structure health care plan fee decisions to avoid time consuming court fights and million dollar judgements. In a well-reasoned opinion, a federal district court in Michigan has determined that an independent practice association (IPA) that contracted with a health maintenance organization (HMO) on a capitated basis was a legitimate joint venture, not a conspiracy of competing physicians. The court also held that the IPA did not violate antitrust laws by terminating two physicians and subsequently refusing their request for readmittance for purely economic reasons. In Hassan, the court granted the defendant's motion for summary judgement, holding that the defendant IPA, which sets maximum fees for physician members and terminated two allergists, for overutilizing laboratory tests, did not fix prices or boycott the plaintiffs in violation of Section I of the Sherman Act. This decision directly conflicts with an earlier jury verdict and settlement in the Choice Care case. Hassan, however, provides an opinion explaining how price fixing questions should be analyzed and likely will have greater precedential value. In Hassan, the plaintiffs alleged, among other things, that the maximum fee schedule established by physician members of the defendant IPA set physician fees at lower than competitive levels, which drove the plaintiffs out of the market in violation of the price fixing prohibitions under the Sherman Act. The facts revealed, however, that Health Plus of Michigan, an HMO, paid the defendant IPA a capitation amount per member per month, retaining approximately 12 percent of that amount as a risk withhold. The risk withhold was paid to the IPA when a sufficient surplus was available to the HMO. In turn, the defendant IPA paid its members on a fee-for-service basis, which was determined by a maximum fee schedule devised by the IPA to reflect the capitation payments from the HMO. The court determined that the IPA's fee-setting procedures did not harm consumers. Consequently the plaintiffs lacked standing to even bring the price feeling claims, because they failed to show that they sustained the type of injury the antitrust laws were designed to prevent. The court's decision implicitly upheld the now well-recognized policy that antitrust laws are designed to protect competition and not competitors. Even if the plaintiffs had standing, however, the court decided that there was no conclusive presumption of illegal price fixing, because the defendant IPA was a legitimate joint venture. Applying traditional joint venture theory, the court rejected the plaintiffs' argument that the defendant IPA's maximum fee schedule amounted to a per se violation (i.e., presumed to be unreasonable without regard to effect on competition) of the antitrust laws and decided that the defendant IPA's price fixing agreement was a necessary part of the integration of resources that made the IPA-HMO effective. Important to the court was the fact that the HMO made capitation payments to the IPA and that individual physician members of the IPA were reimbursed subject to a withhold. Together, these factors meant that the members of the EPA shared both the risk of loss and the opportunity for profit. The court also focused on the fact that the IPA model HMO offers services different from traditional fee-for-service services and creates a new product that the court described as "guaranteed comprehensive physician services for a prepaid premium." The court next analyzed the alleged price-fixing scheme under the rule of reason to determine its reasonableness. Under the rule of reason, courts weigh the anticompetitive aspects (if any) of the alleged restraint against its procompetitive aspects (if any). Only if the"net effect" of the restraint is to lessen competition is the challenged activity likely to be held to violate the antitrust laws. After weighing the procompetitive and anticompetitive aspects of the IPA pricing procedure, the court found that the joint venture did not unreasonably restrain trade because the IPA's method of fee setting did not suppress competition. Distinguishing the prices charged to consumers from the defendant IPA's physician reimbursements, the court characterized the IPA fee setting as a method of distributing revenues from the HMO to IPA members that did not affect competition. The plaintiffs also alleged that the defendant IPA's decision to exclude them because of alleged overutilization of laboratory tests amounted to a boycott, a per se violation of Section 1 of the Sherman Act. In order to apply the per se test to activities that are alleged to be concerted refusals to deal, the court required the plaintiffs to show that the challenge practice was not intended to make markets more competitive and that the defendant possessed both market power and exclusive access to an element essential to effective competition. Applying the facts to this test, the court first determined that the plaintiffs were expelled from the defendant IPA pursuant to an allergy testing policy that was designed to prevent excess use of costly tests. That policy was based on cost containment objectives that the court found to be pro- competitive. Then the court found that the defendant did not possess the requisite market power-it had only 20 percent of the health care financing market, which had no barriers to entry. Finally, the court decided that the defendant IPA did not have the ability to raise prices without losing customers to its competitors. The court also rejected the plaintiffs' boycott claim under the rule of reason. Indeed, the court found that the plaintiffs' expulsion and subsequent rejection for readmission had no overall effect on competition. The court reasoned that as long as the physicians were replaced or could be replaced so that the market was served by enough physicians, there was no anticompetitive effect from physician exclusions. The Hassan case illustrates an appropriate structure for fee-setting in managed care plans to avoid liability under antitrust laws. Key to that structure is the finding that the managed care plan was integrated"-participating physicians shared the risk of profit and loss. Factors indicative of such integration were capitation payments to the physician-controlled plan and individual physician reimbursement based on a withhold. To avoid the rigors of a criminal investigation and endless litigation, or the financial burden of treble damages awards, physicians involved in fee-setting decisions in managed health care plans would be well-advised to carefully review the fee-setting process to ensure conformance with antitrust laws.

COPYRIGHT 1989 American College of Physician Executives
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