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Doctors and price fixing: A law story

By leigh | April 4, 2012

Are you a Law-and-Order, John-Grisham type legal beagle? Do you like interesting true stories about the law? Here are some you might not have heard before.

First, some old-time history:

In 1848, the doctors of Charlottesville, Virginia, agreed to fix their prices above a certain minimum. Some examples:

Regular doctor visit, daytime, $1-2;
$2-4 for night visits.
Attendance on a sick patient through the day
(equivalent to minimal hospital care) $5;
through the night, $10.
Baby delivery, white mom $20; non-white mom, $10.
Difficult or forceps delivery, $20-100.
Amputation of arm or leg, $20.
Setting a fracture, $10.
Treatment of gonorrhea, $10; of syphilis, $20.
Catheterization or placement of a drain, $5.
Incision and drainage of an abscess, $1-2.
Tooth extraction, $1.

Here’s approximately what those dollar amounts might mean today:
Regular doctor visit, daytime; $30-55; $55-100, nighttime.
Attendance on a sick patient, all day, $140; all night, $275.
Baby delivery, white mom $550; non-white mom, $275.
Difficult or forceps delivery, $550-2800.
Amputation, arm or leg, $550.
Setting a fracture, $275.
Treatment of gonorrhea, $275; of syphilis, $550.
Catheterization or placement of a drain, $140.
Incision and drainage of an abscess, $30-55.
Tooth extraction, $30.

Administration of a medicinal enema, $55.
Pills (per dozen) or tincture/syrup/ointment (per ounce), $7-14.

This doesn’t mean a doctor couldn’t charge more – they just couldn’t charge less, except for charity, in which case the total bill had to be reduced, not individual parts of the bill. For example, the doctor couldn’t provide without charge “for charity” the cost of materials or the services of his helpers, while still charging for his own services.

Is it okay for doctors to fix prices? Nope, it’s against the law. Let’s fast-forward to some contemporary legal news around this topic.

In 2009, the Department of Justice issued a rule that restrains physicians from…
“(A) encouraging, facilitating, entering into, participating in, or attempting to engage in any actual or potential agreement or understanding with, between, or among competing physicians about:
any fee
the manner [in which they'll] deal with any payer (i.e., insurance corporation)…
or any refusal to deal or threatened refusal to deal with any payer…

(B) communicating with any competing physician about:
the acceptability of any proposed or existing payer…
any proposed or existing term of any payer contract…
[or] the manner of resolving disputes between any parties to any payer contract.”

But why?

Here’s why.

In Idaho, 2006-2008, some local orthopedists “agreed not to treat most patients covered by workers’ compensation insurance… to force the Idaho Industrial Commission to increase the rates at which orthopedists were paid for treating injured workers.

“The Idaho Industrial Commission [a state agency] sets the fee schedule.” (For example, most orthopedic procedures are reimbursed at $88 each.)

They also “threatened to terminate their contracts, to force Blue Cross of Idaho to offer better contract terms to orthopedists.”

“The [DOJ's] proposed settlement prevents [them] from agreeing with their competitors on fees and contract terms… [and] prohibits them from collectively denying medical care to patients,
refusing to deal with any payer,
or threatening to terminate contracts with any payer.”

Now, that sounds right, doesn’t it? Those selfish, greedy orthopedists!

Read on.

It’s quite unusual for the Justice Dept’s Antitrust Division (for criminal cases) to prosecute such a case. Usually the federal Trade Comission (for civil cases) has done so.

“…The Justice Department has unambiguously stated that refusal to accept government price controls is a form of illegal ‘price fixing’… [and more ominously] has linked a refusal to accept government price controls with a refusal to accept a private insurance company’s contract offer.

Basically, that means that refusing to accept an insurance corporation’s terms is treated like conspiring against the government.

Even if there’s no evidence of direct communication between physicians, if a large number of physicians in a given market individually reject a government price control scheme or insurance company contract, the Antitrust Division can simply ‘infer’ the existence of a conspiracy.

“…The DOJ has a number of tools the FTC does not, including the self-granted power to award amnesties from criminal prosecutions to the first ‘conspirator’ to step forward and provide evidence against one’s competitors… And if that doesn’t work, the DOJ can always seek wiretaps of physicians’ phones and computers, a power awarded the DOJ during a 2006 renewal of the Patriot Act.”

You remember the USA-PATRIOT act: the letters stand for “Uniting (and) Strengthening America (by) Providing Appropriate Tools Required (to) Intercept (and) Obstruct Terrorism.”

So now, complaining about insurances to another doctor can be in the same category as conspiring to commit an act of terrorism. Wouldn’t it be crazy if insurance corporations could use the Patriot Act and the Feds to put doctors out of business (or in prison), if they resisted corporate control? That would be so crazy, right?

Another doctor’s letter to the DOJ, three years earlier, regarding a similar case:

“Physicians were forced to react to anti-competitive behaviors by Cincinnati insurers because the Department of Justice did not enforce antitrust principles against those insurers.

“The DOJ allowed a monopsony of insurers to impose unrealistic contract terms on obstetricians and to fix prices below fair value…. which created an unsustainable financial loss for those doctors.

(A monopsony is like a monopoly; all the local doctors are forced to accept whatever the one or two major insurance corporations are willing to pay them, because those corporations are the only game in town.)

“The actions of the doctors are inaccurately described as a ‘conspiracy to artificially raise fees by healthcare insurers’…The doctors were actually trying to partially reverse the artificial depression of fees resulting from the concerted, unopposed and unwarranted fee depression by the insurance monopsony in Cincinnati.

… “The AMA has cited more than twenty antitrust cases against physicians in the last few years and not a single example of the DOJ prosecuting an insurance company for predatory contracting practices.

… Antitrust rules are supposed to prevent huge corporations from taking advantage of consumers (patients) and small businesses (doctor offices). The large insurers in this case and similar cases use the DOJ as a weapon against physician resistance to unfair contracts to increase insurer profits.”

Not quite the same idea as selfish greedy doctors denying care to patients in search of exorbitant fees.

Three years before that, in a review of 21 prosecutions by the Bush Administration:

“Each of these cases presents a similar scenario:
~ A group of independent physicians band together to deal with the administrative and regulatory burdens imposed by managed care.
~ The group negotiates contracts with various HMOs, PPOs, and employer-based plans.

~ The payers (i.e., insurance corporations) soon become unhappy with their contracts – they think the doctors should have agreed to lower prices – and they petition the DOJ or FTC (but mostly the latter) to intervene.
~ The FTC opens an investigation and demands the physician group turn over thousands of pages of documents at the group’s expense.

~ Then without further investigation, the FTC tells the group to sign a “consent order” invalidating its existing contracts and restricting the group’s future ability to represent its members (in some cases, the group is disbanded altogether.)
~ As a matter of FTC policy, the physicians are not afforded an opportunity to tell their side of the story.

… “When you contest an FTC complaint, you don’t get the constitutional luxury of a Seventh Amendment jury trial… Instead, you get a hearing before an administrative law judge appointed by the FTC, who also appoints the prosecutors and issues the complaint. If you prevail before the administrative judge, the FTC prosecutors then get to appeal to the FTC itself.

… “Most defendants throw up their hands and surrender the moment the FTC knocks on the door.

… “The consent orders themselves… prohibit physicians from negotiating future contracts as a group, [and] prohibit physicians from even talking to one another about future contracts. The mere act of speech is condemned by the government as an overt act of price-fixing.

… “If too many physicians reject a contract offer, the government can say there was illegal collusion.

… “Permitted exceptions are for so-called “risk sharing” models… [such as] capitation and withholding.”

Okay, I know your eyes are starting to glaze over, but this part is important. These legal-beagle details really help to answer the questions of why our health care system is so broken, why you’re having so much trouble finding a primary doctor, and why medical attention costs so damned much.

~ “Capitation is the basis of most managed care organizations: The insurer pays a fixed price per service… regardless of the actual cost to the physician. Thus, if a physician receives $5,000 to treat a heart attack patient, but the physician’s actual cost of treatment is $8,000, the physician must absorb the loss.

~ “Withholds… allow the insurer to set arbitrary cost-control goals and ‘withhold’ a percentage of the physician’s reimbursement unless goals are met, such as limiting the number of specialist referrals per year.

… “Both of these models shift risk from the insurer to the physician while simultaneously distorting the price paid by the ultimate consumer. It is illegal for consumers to know the true cost of health care and for the physicians to take any action that might enable services to be produced more efficiently.

I’ll repeat that: “It is illegal for consumers to know the true cost of health care and for the physicians to take any action that might enable services to be produced more efficiently.

“The only beneficiaries are the third-party insurers, which are cartels exercising the state’s authority by proxy.”

[I talk to my patients about capitation all the time; I didn't know about withholding. (I suppose in the context of an employee doctor's employment contract, it has some other name, like "bonus incentive plan" or something.) The conversation we generally have is about Medicaid. See below for the Medicaid implications of these rules.]

A lot of angry doctors on the internets – a group of very privileged and politically conservative people overall – are now blaming all of this on “Obamacare,” although the laws of concern were established in like 1993, and mainly started being used to attack doctors during the Bush II administration. These folks see the current government’s teensy little dip-a-big-toe-into-the-pool effort at universal medical care coverage as the long arm of the law.

Whatever. If the citizenry gets together and declares in its wisdom that every doctor should accept Medicare prices for all services, so be it; it’s a democracy. But what I find absolutely horrifying is that the rules and tools of democracy are being employed for the benefit of the most voracious profiteers in our system today – private insurance companies, feeding off the vulnerability of the suffering, with their profit margins enforced by the Department of Justice.

One last note: about a possible exemption allowing physicians to talk to one another about insurances, and what it means in the context of Medicaid.

One recent review stated that Accountable Care Organizations might be one way physicians can speak freely to one another about medical-economic conditions, without being presumed to be in a Standard-Oil-style monopoly-establishing conspiracy.

What are ACOs? Same old, same old: capitation and witholding, obliging doctors to do the insurance company’s work of denying services, unless they agree instead to go broke.

How do they affect physican free speech? It changes their status, so they can not be presumed to be “competing” against one another any more. Now they are all employees, working for the same corporate masters.

So they can complain all they want. It won’t make any difference.

What did the State of Oregon recently get a big fat grant to establish? Yup, Accountable Care Organizations to administer Medicaid.

ACOs are a hot topic in the health-profiteer press these days – there’s a lot of gushing. For example, “The success of an ACO will depend on how they will land within the “sweet spot” of not cutting too many services and getting enough bonuses and if they can influence their decision-makers (the individual clinicians!) to provide only reasonable services and referrals that will increase quality.”

“Success,” I suppose, means financial success, although it’s politically correct in these settings to tip the hat to ‘quality care’ or ‘outcomes’ in a way that is reminiscent of actual concern for actual patient wellness. The “sweet spot” mentioned above is one in which doctors are willing to deny care in exchange for a bonus. The bonus, I suspect, actually consists of avoidance of “withholding” penalties – but they make it sound nicer. Yippee.

Will ACOs really make doctors immune from prosecution for complaining about crummy insurance rules? That remains to be seen. Personally, I doubt it – why should they? The insurance industry has already been reassured that the Justice Dept. and the FTC would review an ACO with a 50% or greater share of any common service that two or more independent ACO participants provide to patients in the same primary service area.”

“Review” = well, all of what I just discussed.

Meet the new boss. Watch your step.

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