Alaska physicians settle FTC charges of price-fixing

Doctors in a Fairbanks physician association say they were trying to protect their patients; the FTC argues otherwise.

By Tanya Albert, amednews staff. Oct. 9, 2000.

Alaska Healthcare Network Inc., an association of 86 Fairbanks physicians, last month settled Federal Trade Commission charges that it restricted competition by fixing prices and by trying to stop new health plans from coming into the area.

Under the proposed settlement, AHN wouldn't be allowed to negotiate agreements with health plans or restrict individual doctors from dealing with plans if such activities reduce competition in the already small market. The Fairbanks metropolitan area has about 80,000 residents.

Physicians involved with the association say they were looking out for their patients' rights when they negotiated contracts with HMOs and other health plans and that they weren't fixing prices.

"We developed a model contract that we thought was fair on both sides," said orthopedic surgeon Richard Cobden, MD, AHN president. "One [HMO] contract said they could change the terms at any time. What kind of a contract is that? Why would you sign it?"

AHN formed in 1996 when several health plans were trying to contract with Fairbanks physicians.

More than 60% of the physicians with active medical staff privileges at Fairbanks Memorial Hospital -- the area's only private general acute care hospital -- used AHN to negotiate collectively with health care plans, according to the FTC. That included 48% of family and general physicians in greater Fairbanks, 72% of internists, 80% of obstetrician-gynecologists, 86% of general surgeons and 100% of pediatricians.

Claims of unfair practices

According to the FTC investigation that started more than a year ago, AHN:

Negotiated price and other contract terms with at least seven payers in 1997 and 1998, and refused to sign contracts unless the companies agreed to AHN terms.
Told physicians to tell plans who wanted to enter the market that they had to deal with AHN for contracts. Managed care executives believed they couldn't get around AHN to secure individual contracts with physicians, so they gave up trying.
Sent mailings to doctors telling them to let AHN negotiate contracts so they could get better prices and terms in the contracts. When health care companies sent mass mailings or called soliciting individual doctors, they didn't get any responses.

"To use the association as such a bargaining agent to set fees and to refuse to negotiate is not acceptable," said Howard Shapiro, spokesman for the FTC.

But Dr. Cobden said they did not send literature to physicians and that they told AHN members they were free to make their own contracts.

"We were very careful to avoid price-fixing," he said. "We thought we were safe."

Dr. Cobden said the physicians agreed to settle, which is not an admission of guilt, to avoid court costs that could reach $400,000 to $500,000.

The proposed settlement, which is subject to final approval later this month, calls for a five-year structural remedy to try to increase competition in the market. It is unique because Fairbanks is such a small market.

Federal policy guidelines suggest that, depending on what activity the AHN is involved in, only a certain percentage of physicians in a particular specialty could participate. For example, if AHN operates a qualified risk-sharing arrangement, AHN physicians in a particular specialty couldn't account for more than 30% of the doctors in greater Fairbanks with that specialty.

But that gets complicated in Fairbanks because the policy also grandfathers in "any one pre-existing practice group" that would be allowed to participate in AHN.

In greater Fairbanks there are only seven pediatricians, and five are in a grandfathered group, exceeding the percentage rule. The same is true for obstetrician-gynecologists -- six of the 10 are in a grandfathered group.

There is a fear that groups could coordinate their refusals to deal with payers without engaging in overt acts of collusion, according to the FTC.

"But we're not insisting that an existing group of five break up to comply with the order," said Richard Feinstein, assistant director of the FTC's bureau of competition in charge of health care. "We recognize that there can be efficiency."