Background - Practices (Details)



The Fifth Circuit Affirms the FTC’s Ruling and Order Against North Texas Specialty Physicians


On May 14, 2008, the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") affirmed the Federal Trade Commission's ("FTC") holding that the so-called "messenger model" activities of North Texas Specialty Physicians ("NTSP") constituted naked price-fixing in violation of Section 5 of the Federal Trade Commission Act, and ordering NTSP to "cease and desist" from these activities. Although the FTC has charged many provider networks with price-fixing, group boycotts or other restraints of trade in violation of Section 5, this is the first time a provider network has fought those charges in federal court rather then resolving them through a negotiated consent order. Antitrust enforcement authorities and private plaintiffs will find support in the Fifth Circuit ruling.

NTSP is a large organization of independent physicians and physician groups located in the greater Fort Worth, TX area. In 2003, the organization had approximately 575 members, including practitioners in 26 medical specialties as well as some primary care physicians. It included a majority of certain types of specialists (e.g., 80 percent of pulmonologists, 59 percent of cardiologists, and 69 percent of urologists).

Like many existing physician organizations, NTSP originally was formed in the mid-1990's by providers seeking to engage in risk contracting with third party payors. As payor interest in risk contracting declined, NTSP's focus turned to non-risk contracting. At the time of the FTC's administrative hearing, NTSP had approximately twenty non-risk contracts and only one risk contract. Only approximately one-half of the NTSP physicians were participating in the risk contract.

The FTC challenged only NTSP's non-risk contracting. NTSP purported to operate a "messenger model" for its non-risk contracts. In practice, its activities included the following:

  • NTSP polled participating physicians on an annual basis, asking the minimum rate each would accept in a non-risk contract. NTSP used the poll responses to calculate the mean, median, and mode of the minimum acceptable fees identified by its physicians, and transmitted this information to the participating physicians. Based on these calculations, NTSP determined a minimum contract fee that it utilized when negotiating managed care contracts on behalf of its participants.
  • NTSP regularly informed payors that NTSP would not enter into, or forward to any of its physicians, payor offers that were below NTSP's minimum fee schedule. And, NTSP in fact refused to deliver contract proposals that fell below its minimum fee schedule.
  • NTSP actively encouraged physicians to reject offers below its minimum fee schedule. And, payors who attempted to negotiate directly with individual physicians were told by those physicians that they must negotiate with NTSP.
  • NTSP obtained powers of attorney from its physicians. During negotiations with one payor, NTSP sent the payor a list of 180 physicians who had appointed NTSP as their bargaining agent. The payor testified that it understood this as a message that the physicians would not negotiate directly, and there was no practical alternative to dealing with NTSP.
  • NTSP coordinated concerted withdrawals of its physicians from payor contracts as well as refusals to deal except on collective terms.

In affirming the FTC's ruling, the Fifth Circuit considered and rejected NTSP's argument that it operated as a "single entity" and its actions therefore could not qualify as "concerted action" or constitute agreements in restraint of trade. The court explained that competing physicians ultimately controlled NTSP's actions through their election of board members and also through their response to the polls regarding fees. The court agreed with the FTC's conclusion that NTSP's activities constituted price fixing because "it is enough that participating physicians individually authorized NTSP to take certain actions on their behalf, knowing that others were doing the same thing." As the court further explained, "[t]he physicians knew . . . that negotiations by NTSP were for the physicians' collective benefit on price and other material terms." In other words, antitrust liability "does not depend upon a particular form or business structure."

The Fifth Circuit also rejected NTSP's argument that the FTC failed to acknowledge its procompetitive accomplishments, despite having some evidence in the record of spillover effects from the risk contract to non-risk panels and that NTSP physicians perform as well or better than non-NTSP groups. The court concluded that NTSP failed to articulate a connection between these benefits and the particular activities found to be anticompetitive.

The Fifth Circuit granted NTSP's appeal in part, however, with respect to the FTC's remedial order. NTSP argued that the order was internally inconsistent because it required the organization to cease and desist from (among other things) "deal[ing] or refus[ing] to deal . . . with any payor." The court agreed, noting that it "is difficult to see how NTSP can both deal and refuse to deal with any payor." The court rejected NTSP's other challenges to the breadth of the order. Of particular note, the court affirmed provisions in the order requiring NTSP to cancel all existing non-risk contracts with payors.

The Fifth Circuit's decision is available at: 

This material is made available for information purposes only, and should not be relied upon to resolve specific legal questions.

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