By Christopher Guadagnino, Ph.D.

Published March 2001

• React to this article in the Discussion Forum.

Robert A. Auclair, Esq., the managing partner of Coll & Auclair, P.C., in Media, PA and Woodbury, NJ, co-authored Antitrust for Physicians.

PND: Why do physicians need to be concerned about antitrust?

RA: Health care is treated like any other business under antitrust laws. Physician practices need to be concerned about how they’re affected by antitrust and how their conduct can affect others. Antitrust laws protect competition, that is, they prevent unlawful monopolies, price fixing, combinations in restraint of trade, concerted boycotts. Any conduct that reduces or eliminates competition is generally prohibited under antitrust laws. There are essentially four problem areas for physicians: relationships with payors, IPAs, practice mergers and staff privileges. With relationships with payors, examples would be the ability to negotiate collectively and have an influence over the business aspects providing services. Another example would be most favored nations clauses, where it’s evident that physicians have lost income because they are prevented from having the ability to negotiate lower rates with some payors that don’t necessarily dominate the marketplace. The problem area of IPAs is that, because they largely represent self-employed physicians, they can’t do as much as they’d like to collectively. With practice mergers, the problem area is to what extent the merger restrains trade and what effect it has on alternatives, prices and quality of care. With staff privileges, some of the problem areas are peer review immunity when colleagues/competitors review performance, and hospitals doing exclusive contracts which affect privileges.

PND: In the payor relations category, what do physicians have to do to stay within the law when using the third party messenger model?

RA: The problem with the messenger model is that it can expose the participants to Department of Justice (DOJ) lawsuits. The essence of the messenger model is confidentiality—the slightest breach of confidentiality contaminates the model. Physicians cannot share information regarding proposed fees. The messenger cannot evaluate or prioritize the information it receives from the physicians unless it is missing critical information and could not under any circumstances be considered a bona fide offer. The messenger cannot bargain on behalf of the physicians. The issue DOJ has with the messenger model is when it’s used as a cloak for collective bargaining. That is what’s clearly outside the law. The gray area is the extent to which the managed care company, on the other hand, can disseminate information to the doctors regarding each other. A breach of confidentiality would take place if somehow one physician finds out what another physician has proposed or what the pricing of the other physician is.

PND: Given the scrutiny by DOJ, some physicians may feel that the third party messenger model is difficult to use successfully without attracting lawsuits. How easy is it to use the model without crossing that line?

RA: There’s no doubt that the model is very cumbersome to use and there hasn’t been any fool-proof model as yet. There are various versions of this model, and some of these have been developed by the AMA in collaboration with various consulting companies. The model has been in the process of refinement for the last two years, based on the concerns expressed by important authorities. The intent of the participants is the main issue. If that is compromised, if any of the conduct of the participants is not strictly in accordance with the guidelines provided by the enforcement agencies, then antitrust enforcement agencies start scrutinizing.

PND: What is the "state action doctrine" and of what use is it to physicians?

RA: The state action doctrine allows states to over-ride federal antitrust laws by enacting legislation and actively supervising the carved-out area. The doctrine is an exception to the supremacy clause under the U.S. Constitution, which basically says that federal law over-rides state law. The state action doctrine perhaps should better be termed state action immunity, because it gives immunity against antitrust laws when the state has enacted laws allowing independent physicians to negotiate jointly under state supervision.

PND: How vulnerable to challenge do you think state action doctrine laws will be?

RA: If the state immunities are lacking supervision, then those laws could be challenged successfully. The immunity should be carefully defined as to what law is involved and what the immunity is intended to accomplish.

PND: Of what significance is it that Pennsylvania does not have its own antitrust laws?

RA: Vermont and Pennsylvania are the only two states that do not have antitrust laws. Without the state law, you can only go to federal court and litigate federal claims. Federal court is harder to get into and harder to stay in than state court, for the most part. You’d be suing under federal law such as violation of the Sherman Act and the Clayton Act.

PND: Is a federal antitrust waiver bill, like last year’s Campbell Bill for health care providers, consistent with antitrust exemptions for other industries such as labor and insurance companies?

RA: The Campbell Bill was designed to give exemptions to physicians in price negotiations with managed care companies, for the most part. That’s where the bill really had an uphill battle to pass: there were no other examples of self-employed professionals being able to negotiate collectively with antitrust immunity. So it was not consistent with the other exemptions that are out there, which essentially go to businesses or industries as a whole. The exemption that the insurance industry has extends only to insureds. Insurance companies do not have an antitrust exemption in dealing with providers. The exemption is limited to the business of insurance, as defined by the Supreme Court and in the McCarran-Ferguson Act. There have been enormous interpretive problems around the term, "business of insurance." As far as the eye can see, courts have confused more issues than they have settled. In many cases, even conduct such as price fixing among insurers has been protected.

PND: Have there been enforcement actions against health insurance companies for antitrust violations?

RA: You either have instances where the DOJ has outright filed a lawsuit to prevent a merger, as they did in Texas with the Aetna-Prudential merger, or instances where they influenced the process so that the merger doesn’t occur or there’s been a consent agreement where the merger has been broken up. Federal regulators defer largely to the states. The insurance commissioner or attorney general’s offices have historically given insurance company combinations a reluctant blessing. The big smoking gun would be who is being helped and who is being hindered by the proposed relationship. You may be hindering physicians, but there’s some presumption on the part of the state that you’re helping to keep health care prices down and you’re not negatively impacting access to services, for the most part.

PND: Would an exemption for health care professionals, like under a Campbell Bill, level the playing field for physicians?

RA: It would put the physicians on a much different level than any other similarly situated professionals in other areas. I think that was the main problem with it. Can you imagine lawyers and architects, engineers and CPAs having a Campbell-type bill that would allow them to negotiate their contracts with municipalities or real estate developers? There are also concerns expressed by the Federal Trade Commission and the Department of Justice that the price of health insurance would go up, that there is a great potential for abuse by health care providers to raise prices, and that the price for health care in general will go up. In that sense, physicians would have a better hand as opposed to the buyers of medical services. That was the opposing point of view to the bill. Currently, there is an unlevel playing field for doctors, certainly from their perspective. On the other hand, doctors would also be hard-pressed to convincingly argue that their combining to negotiate would benefit consumers far more, for example, than it would benefit physicians. Sometimes health insurance companies squeeze physicians very hard and have an upper hand in negotiations, and the physicians’ complaint is legitimate. There should be something done to address that problem, but the Campbell Bill is not the answer.

PND: What qualifies physicians for antitrust exemption under federal labor laws?

RA: To negotiate fees with a managed care company they would literally need to be employees of that company, as opposed to merely independent professionals doing arms-length business transactions. There are many physicians employed by HMOs who do jointly negotiate their salaries and benefits. Other candidates for collective bargaining under federal labor law include employees of hospitals. To be eligible, physicians must not have supervisory functions. That is a gray area because it is sometimes difficult to define whether a particular position is supervisory in nature. A presumption that underlies this is that one can’t be both rank and file and management, and it’s the rank and file bona fide employees that would have the ability to do collective bargaining. The medical director who is employed by the hospital and also a part owner is probably not a collective bargaining candidate.

PND: Recently in New Jersey, some physicians have unsuccessfully argued to the NLRB that, given the control that HMOs have over medical policy and reimbursable medical practices, that the physicians are de facto employees of HMOs and therefore eligible for the labor federal antitrust exemption. Does that argument have any merit?

RA: The AmeriHealth case is a good example where physicians presented excellent arguments why they were "employees." But the opposing side presented equally meritorious arguments that they were not. There has been a laundry list of conditions given by the courts over the years and, by and large, physicians are not de facto employees of HMOs. An interesting approach, but not one that got much mileage nor has potential to, I would think. The shortcomings of the argument are the extent to which the HMO controls clinical judgment, and controls where and when the services are provided. Other issues are how the physicians were paid, i.e., were they paid a salary or paid under a contract rate?

PND: The NLRB recently allowed residents and fellows to qualify for antitrust exemption as employees. What was the reason for them to change policy?

RA: The notion that they are employees takes into consideration who dictates their work hours, who has clinical control, whether or not they are eligible for benefits such as workers compensation and so forth. So the change came, I think, based on the realization that the duties were there all along and the policy needed to be changed accordingly.

PND: After this year’s malpractice insurance premium spike in Pa., some physicians have held public meetings to discuss ways to address that problem, including the option of surgeons changing their status to non-surgery only. What constitutes conspiracy of price fixing in this situation?

RA: Any action that affects prices up or down, including boycotts and the like, restrain trade and can constitute price fixing. Any individual physician or any individual practice can make a business decision not to engage in a certain activity because of, for example, skyrocketing insurance costs. But when otherwise unrelated physicians meet and collectively decide to take the same action, they are actually engaged in a concerted action and their conduct can be viewed as a concerted boycott. Antitrust laws in this regard frown upon coincidences—if groups of physicians meet and say that one of their options is to all suspend doing surgery, and there’s some agreement that they will do that collectively. They wouldn’t do it individually, but if others were willing to do with them, they would. That is when you’ve already crossed the threshold into a problem area. There’s nothing wrong with a group of people taking a position on an issue or trying to bring an issue to the public’s attention. But, ultimately, the action and the decision to act is something that has to be done individually.

PND: What do physicians need to do to collectively negotiate as an IPA?

RA: The important thing to remember about IPA negotiations is staying in the safety zones established by regulators that embrace many conditions, including risk sharing and clinical integration, financial integration and the number of IPA participants from the universe of physicians available in an area. It matters whether or not physicians in an IPA are free to be involved with other IPAs or to negotiate on their own as individuals; whether or not IPA members have all pooled their monetary resources into that IPA; whether or not physicians are sharing risk; whether or not the IPA uses clinically integrated methodologies and achieves significant efficiencies. The requirements IPAs have to meet in order to collectively negotiate have become more relaxed over the years.

PND: With regard to practice mergers, how do physicians go about defining a market geographically and by specialty in order to stay within antitrust law?

RA: The geographic market is very difficult to define. The question to ask is, "To what extent would competition be reduced?" If the merged entity were to raise its prices, would consumers have other places to turn without inconvenience? Mergers will always reduce competition, but not necessarily reduce the availability of reasonably priced competitors or access to quality care. If two specialty practices were to merge, what would be left? Would there be sufficient specialists for patients to turn to as an alternative? There are substitutes for certain specialties. For example, there are several procedures in gastroenterology that are performed by general practitioners who could be alternate providers in case merged gastroenterology practices might have raised their price. The limitations on practice mergers are essentially, "Will the merged entity create barriers of entry to that market?" Are alternate physicians available, both in the geographic and product market?

PND: How can physicians find out what practice merger limitations exist for their specific circumstances?

RA: They can do a preliminary study of the market—literally have someone gather data and try to determine what the impact could be. Another tool that’s available is to ask the Department of Justice or the FTC for an opinion, which they will provide at no cost. I think it takes anywhere from eight months to a year or so, depending on the complexity involved and the department’s work load.

PND: Is the peer review process being abused to limit competition?

RA: It certainly has that potential. There’s a body of case law on both sides of the issue. Some plaintiffs try to use peer review to uncover incompetence. Some defendants try to use peer review to derail competitors. The Health Care Quality Improvement Act of 1986 is what grants the review immunity at the federal level. There are state immunities also. The plaintiff would allege the peer review procedures had been breached and that therefore peer review immunity didn’t attach. Under antitrust laws the plaintiff could allege attempted monopolization or conspiracy to restrain trade under the Sherman Act. There are also several state law claims which can be raised, such as tortious interference with a contractual relation, or defamation. Victims of peer review abuse have no or very little recourse in state or federal court. None of the laws are there to protect such individuals and very few courts have supported such individuals. Most of the courts have supported the hospitals because the courts did not want to second guess the hospital’s actions or actions of a review body.

PND: What protection does a reviewer have against frivolous lawsuits?

RA: Based on a strict adherence to peer review procedures there should be an absolute protection against frivolous lawsuits. Also, one is protected against frivolous lawsuits generally by state and federal law and rules of court. Pennsylvania essentially has two laws that give someone recourse for a frivolous lawsuit. Once the lawsuit has been rather convincingly lost by the plaintiff, then there is a cause of action that the defendant can bring. There is also a procedure in Pennsylvania in the mist of a lawsuit for a motion to dismiss to be filed with the court whereby not only is the plaintiff’s case dismissed, but they’re ordered to pay attorney’s fees and costs.

PND: How does antitrust law apply to exclusive hospital staff privileges?

RA: You need to look at the circumstances, such as the market share of the hospital. Can patients go elsewhere? Under the circumstances, is the exclusivity reasonable? For example, is it reasonable for the hospital to tie a service such as anesthesiology to a primary package of surgical services? Courts will look for benefits and whether they out-weigh the burden on competitors and consumers.