Published 3/1/2015
Minal Tapadia, JD, MD, MA; John Froelich, MD; Roshan Shah, MD, JD

A Brief Overview of Antitrust Issues Facing Surgeons

Collective bargaining efforts that lead to monopolies are prohibited under several state and federal laws, including the Sherman Antitrust Act and the Clayton Act. The public policy behind this is to maintain competition that promotes innovation and drives down prices to protect consumers.

In a 1975 case, Goldfarb v Virginia State Bar, the court stated that “learned professions are not exempt from antitrust laws,” thus bringing physicians under the purview of antitrust law. A 1982 case, Arizona v Maricopa County Medical Society, further solidified prohibitions against collective bargaining by physicians. That ruling found that agreement among a preferred provider organization’s network of physicians to set maximum prices amounted to a violation of the Sherman Act. Moreover, unlike nurses and other hospital workers who are considered “employees” and thus have the right to unionize under the National Labor Relations Act, doctors are considered independent contractors without the ability to unionize. This has made it very difficult for physicians to bargain collectively.

When the Idaho Industrial Commission lowered payments to physicians for worker’s compensation cases, for example, a group of orthopaedic surgeons refused to see injured workers. The Department of Justice’s (DOJ) Antitrust Division, joined by the Idaho Attorney General’s office, filed a civil antitrust lawsuit against the Idaho Orthopaedic Society, the group practice, and five individual orthopaedists.

Antitrust penalties can be severe. Criminal violations of the Sherman Act are felonies punishable by imprisonment for up to 3 years and/or fines of up to $350,000 for individuals and $10 million for corporations per violation. In some cases, damages can be tripled.

Insurers, on the other hand, are exempt from many antitrust provisions under the McCarran-Ferguson Act. This has resulted in consolidation and concentration within the insurance industry, leaving patients with fewer options and limiting patients’ ability to influence the marketplace with their business.

For many physicians, the end result is a fear of prosecution by the DOJ or the Federal Trade Commission (FTC). Ultimately, physicians have just three choices: a) do not negotiate at all, b) passively accept decreased reimbursements, or c) change their practice patterns, thus limiting access to care.

Leveling the playing field
The Quality Health Care Coalition Act, introduced by Rep. Tom Campbell (R-Calif.) in 1999, would have placed physicians on par with labor unions. The bill passed the House but was not taken up by the Senate and the movement lost momentum after Rep. Campbell left Congress.

More recently, Reps. John Con­yers Jr (D-Mich.) and Dan Benishek, MD (R-Mich), introduced the Quality Health Care Coalition Act of 2014 (HR 4077), which provides limited antitrust protections for physicians in negotiations with private insurance companies. Specifically, this bill would make illegal both unilateral modifications to reimbursement contracts and unilateral, non-negotiable, “take-it-or-leave-it” contracts. The bill was referred to a subcommittee, which has not taken any action on it.

Several state legislatures have also tried to tackle the issue, including Texas, California, and New York. In 2008, California passed a measure that prohibited confidentiality clauses in provider reimbursement contracts. This made public the agreements individual physicians have with insurance companies. Although intended to achieve pricing transparency, the bill did not directly help physicians gain collective bargaining power.

Another proposed measure in California would have given the state the power to police insurer-provider contracts to prevent unfair provisions. It was defeated due to the anticipated costs of such oversight.

In 2009, a bill introduced in the New York state legislature would have given physicians the right to bargain collectively with insurance companies when an imbalance of power exists in the market, but it failed to become law. Several other state attempts have been made, some successful and some not, and collective bargaining by physicians remains illegal.

A changing landscape?
Accountable care organizations (ACOs) and independent practice associations (IPAs) have introduced new complexity with regard to antitrust issues. Unfortunately, the Patient Protection and Affordable Care Act (ACA) fails to offer clear insight regarding the boundaries of the ability of these new practice models to negotiate reimbursements with insurance companies.

An IPA is an organization of competing independent physicians who maintain their own practices but can negotiate as a single entity with insurers. However, FTC guidelines from the 1990s state that physicians must either share financial risk or clinically integrate for the entity to comply with antitrust laws. The FTC’s rationale was that this requirement would encourage cost reduction, promote efficiencies, and improve care coordination. Under the FTC guidelines, capitation agreements, shared savings agreements, and bundled payment arrangements have generally been considered acceptable. However, an IPA negotiating fee-for-service agreements must be clinically integrated or share financial risk to avoid price-fixing implications under the Sherman Antitrust Act.

The standards for clinical or financial integration are rigorous and depend on the size of the geographic market. Importantly, such integration is not an absolute defense against an antitrust action. It simply evokes a review standard that considers market share, exclusivity, and a commitment to clinical quality in determining whether a physician group runs afoul of antitrust law. Because there is no statute of limitations, if an affiliation or merger eventually is used to manipulate market forces, the entity can be prosecuted.

Addressing the power imbalance has been tried using the “messenger model,” in which a third party surveys individual physicians on fees they would accept and aggregates that data for insurers. The insurer then determines what fee schedule to offer, based on the proportion of physicians willing to accept terms. The messenger model is cumbersome, requires insurer buy-in and strict adherence to the process to avoid antitrust violations, and is ultimately ineffective. When it was tried in Delaware, for example, 80 DOJ actions against physicians resulted, leading to a ban of its use.

Practice mergers and buyouts are emerging as a counterbalance to insurer negotiating power. Mergers are attractive for building bargaining power because they offer complete clinical and financial integration, generally avoiding antitrust issues. Yet, they can trigger antitrust scrutiny depending on the share of the market affected.

In FTC v Saltzer, a primary care physician group in Idaho was prevented from joining a large healthcare system because the combined entity would employ 80 percent of primary care doctors in the local geographic area. The court reasoned that such a merger would tip the scale too far toward the providers, giving them excessive collective bargaining power and monopoly control over pricing of some services, with the increased costs being passed on to patients. The decision is now being appealed.

The power imbalance between individual physicians and insurance companies will continue as long as the ban on collective bargaining by physicians exists. Although ACOs, IPAs, and mergers may offer some advantages, each of these models remains vulnerable to significant antitrust action.

In the end, each of those options involves much larger issues and changes to a physician’s practice, such that contract negotiation concerns alone rarely determine participation decisions. Physicians need to support legislation aimed at leveling the playing field with insurers.

For more information on antitrust issues and legislation, visit the AAOS office of government relations website at www.aaos.org/dc; to find out how you can help support AAOS efforts in this arena, visit the Orthopaedic Political Action Committee website, www.aaos.org/pac

Minal Tapadia, JD, MD, MA, is a PGY-3 orthopaedic resident at the University of California–Irvine; John Froelich, MD, and Roshan Shah, MD, JD, are the 2011–2012 Washington Health Policy Fellows.