I Was Investigated by the FTC

January 1, 2004
R. Todd Welter

A consultant gets a letter from the FTC saying he is fixing physician prices

The OB/GYN who came to my consulting firm was simultaneously frightened and angry. He had in hand a letter from one of the regional HMOs that made a very thinly veiled threat to terminate him from the network if he did not immediately sign a new contract amendment.

The new contract wording allowed his reimbursement to "float" on utilization standards set by the health plan. In other words, the physician would get a low, Medicare-based reimbursement -- a percent of Medicare. He would get additional payment only if his "pool" -- a payer-defined group of physicians -- met or exceeded the standards the health plan set for how many and what types of services the pool should be providing. However, he would receive less if the utilization standard was not met (that is, if he and the rest of the pool provided more services than the health plan expected).

As I interpreted the terms, the health plan was giving itself license to drop reimbursement to below the Medicare fee schedule the minute it had an opportunity to do so -- not to mention torturing physicians who were more concerned with doing what patients needed than what the plan forecast. It was basically a "take-it-or-leave-it" contract.

I advised the physician not to sign the amendment. But the situation turned out to be about more than one physician. After much discussion and research, I found out that this letter was sent to all the OB/GYN physicians in this market. Suddenly, it was a whole new ballgame.

Fighting back

Every specialty, every practice, has leverage to negotiate -- though most need a little help finding it and using it. It may be market timing, it may be a unique service or location, but leverage is everywhere. It just has to be used the right way.

Few specialties have as much leverage as obstetrics, gynecology, and pediatrics. Why? Women pick health plans. Health plans are marketed to women (watch their commercials). Health plans need OB/GYNs and pediatricians. This is not meant to be sexist; it is simply a statement about how the system works now -- women take care of the healthcare in most families. And, to ask the time-honored question, what do women want? The OB/GYN and pediatrician of their choice. Quality and selection come first when women think about care for themselves and their children. Price generally comes second.

Bottom line? It's very foolish for a payer to annoy all their OB/GYNs -- or pediatricians. They can't afford to lose them. A health plan that sends a threatening letter to every OB/GYN -- and every OB/GYN (or even a large number of them) says no to the demands -- is a health plan with a huge problem. It would lose out on one of the main things its female customers want: their OB/GYN of choice. In fact, after the president of this particular health plan found out what sort of letter his director of network operations had sent out, that director was outta there.

But a bigger storm was already brewing. One after another, OB/GYNs across the region refused to give in to the threat. They were turning the new contract terms down flat-out. A crisis was looming.

When a group of irate OBs asked me to come and speak at their meetings, we decided to form a messenger-model IPA. This is a contracting vehicle that allows physicians who have different tax ID numbers to communicate with the health plans through a messenger. The messenger does not negotiate, per se; he simply represents the physicians and their independent wishes.

We were ultimately successful in getting the HMO to send a more palatable agreement to the OB/GYNs. Some took the new agreement; some did not.

The physicians, thrilled to see results, wanted to turn to the next HMO and the next. We started working our way through many of the local health plans to try to get better contracts.

The FTC steps in

Things were progressing nicely until a year or so after the initial agreement, when somebody called the Federal Trade Commission (FTC) about our activities.

At the time, the FTC was researching two other local IPAs, suspicious of how they were organized. Both focused on primary care. Both were having great success assisting their membership in obtaining, scrutinizing, and signing more favorable agreements with the local HMOs. Our little group of OB/GYNs got caught up in the same scrutiny.


We went through some very agonizing times. We sought the assistance of legal counsel and complied with the FTC's request for documents. After lots of back and forth, the FTC sent us an order to stop. We did.

Toeing the line

Understand that our group was very careful to follow the guidelines available at the time. We did not, at the time we started working together, seek legal advice, as the group was not intended to be organized as a formal collection. My firm simply was charging by the hour for its services and dividing the cost among the physicians involved, amounting to a few dollars an hour per member. There was no Board of Directors, there were no dues, there was no legal entity at all. The co-op had no structure at all (legal or otherwise), but was held together by the will of a few physicians who were the local leaders in the specialty.

We were all very diligent about following the messenger model. No individual physician knew what another physician did on any agreement. Each agreement had lots of variation. I think we actually saved the health plans a lot of work and aggravation by getting contracts out to the individual physicians and providing much of the provider relations functions needed to make a network work seamlessly.

Nonetheless, we had developed too much leverage with the health plans. We made them nervous and set off all kinds of alarm bells. The FTC sees groups like ours -- even very loosely organized groups -- as unfair competition for health plans, which are perceived as extensions of the actual members. Even very loosely organized efforts to create leverage, by physicians who do not have the same tax ID number, appear as an unfair effort to fix prices.

The moral

Since the FTC told us to stop, we did. The physicians are still seeing patients, as far as I know the health plans continued to keep in place most of the contracts we had worked on, and everybody left the process a bit wiser -- if not with a few more gray hairs.

Since then, the market has continued to evolve. Most contracts in our market now are written on a discount, fee-for-service basis.

But the odd thing is that most of the contracts I see as I work with physician clients -- regardless of the payer -- offer nearly the exact same discounted reimbursement. I know this has to be a fluke, a coincidence, or the effect of random chance. What else could explain the odd consistency? The only other possible explanation is that the payer employees get together at their local monthly educational forum and discuss rates -- but they surely would never do that.

Todd Welter can be reached via editor@physicianspractice.com.

This article originally appeared in the January 2004 issue of Physicians Practice.

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