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Alta Bates Medical Group, Inc. (Alta Bates), a 600-physician independent practice association serving the Berkeley and Oakland, California, area, has agreed to settle Federal Trade Commission charges that it violated federal antitrust law by fixing prices charged to health care insurers. A proposed consent order would prohibit Alta Bates from collectively negotiating fee-for-service reimbursements and engaging in related anticompetitive conduct.

The FTC’s complaint focuses on Alta Bates’s contracts with health plans to provide fee-for-service medical care. Under these arrangements, the payor compensates physicians for services pursuant to agreed-upon fee schedules. According to the complaint, since at least 2001, Alta Bates has orchestrated collective negotiations for fee-for-service contracts. Alta Bates proposed, rejected, and countered offers to insurers without consulting with its individual physician members regarding the prices each independently would accept and transmitted the insurers’ offers to its individual physician members only after the group had approved the negotiated prices.

In addition to price-fixing of fee-for-service reimbursements, the FTC’s complaint alleges an unlawful concerted refusal to deal. The complaint alleges that this conduct constituted an attempt to limit Kaiser’s product offerings to consumers. Although Alta Bates’s refusal to deal was ultimately unsuccessful, the sole purpose of this action was to impede competition in the provision of physician services in and around Berkeley and Oakland.

The FTC’s complaint charges that Alta Bates did not engage in any activity that might justify collective agreements on the prices its members would accept for their services from insurers under fee-for-service arrangements. For example, the physicians in Alta Bates have not clinically or financially integrated their practices to create efficiencies sufficient to justify the complained of conduct. As a consequence, Alta Bates’s actions have restrained price and other forms of competition among physicians in the Berkeley and Oakland, California area and harmed consumers by increasing the prices for physician services, according to the FTC’s complaint.

Alta Bates also has negotiated group contracts with insurers under which it receives a flat monthly fee for each enrollee (“capitated” payments), which shift the risk of patient illness to Alta Bates and its physicians. The complaint does not challenge Alta Bates’s activities concerning these contracts.

The proposed consent order is designed to prevent the continuance and recurrence of the illegal conduct alleged in the complaint while allowing Alta Bates to engage in legitimate joint conduct. The proposed order, which would not affect Alta Bates’s activities in contracting with insurers on a capitated basis, otherwise would prohibit Alta Bates from entering into or facilitating any price-fixing or concerted refusals to deal.

As in other Commission orders addressing health care providers’ collective bargaining with health care insurers, certain kinds of agreements are excluded from the general bar on joint negotiations. Notably, the proposed order would not preclude Alta Bates from engaging in conduct reasonably necessary to form or participate in legitimate “qualified risk-sharing” or “qualified clinically-integrated” joint arrangements, as defined in the proposed order.

In addition, the proposed order would require Alta Bates to notify the Commission before it initiates certain contacts with insurers, to distribute copies of the complaint and consent order to its physician members, its management and staff, and certain insurers, and to terminate, without penalty, certain pre-existing payor contracts to eliminate the effects of Alta Bates’s illegal collective behavior.

The Commission vote to place the proposed consent order on the public record for comment and publish a copy in the Federal Register was 4-0. The Commission is accepting comments on the proposed order for 30 days, until July 6, 2009, after which it will decide whether to make them final. Comments should be sent to: FTC Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. To file a public comment electronically, please click on: http://www.ftc.gov/os/2009/06/0510260publiccomment.pdf and follow the instructions at that site.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants actually have violated the law.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $16,000.

Copies of the proposed consent order are available now on the FTC’s Web site and as a link to this press release. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 051-0260)
(Alta Bates.final.wpd)