For Release:
December 24, 2003
FTC Charges Piedmont Health Alliance And
10 Physicians with Price Fixing
Frye Regional Medical Center
and Tenet Healthcare Corporation Settle FTC Charges About
Their Role in Physician Price Fixing
The Federal Trade Commission has issued an administrative
complaint against Piedmont Health Alliance, Inc. (PHA), a
physician-hospital organization (PHO) in North
Carolina, and ten individual physicians who participated centrally in PHA’s
allegedly unlawful activities for allegedly fixing prices for the services of
its physician members. The FTC complaint charges that the respondents’ anticompetitive
conduct harmed consumers in four North Carolina counties and violated Section
5 of the FTC Act. Frye Regional Medical Center, Inc. (Frye), an acute care hospital
in Hickory, North Carolina, and its parent company Tenet Healthcare Corporation,
a California-based for-profit corporation, have settled FTC charges concerning
their role in PHA’s allegedly unlawful activities.
The FTC alleges
that PHA, a for-profit PHO with approximately 450 physician
members, collectively
set the prices it demanded for physician services from payors, thereby
eliminating price competition among these physicians in the “Unifour” area
of Western North Carolina, which comprises Alexander, Burke, Caldwell, and Catawba
counties. According to the FTC’s complaint, PHA’s physician members
signed agreements that bound them to participate in all contracts PHA entered
and to accept PHA-negotiated prices. The FTC alleges that PHA’s Contracts
Committee negotiated contracts, including physician fees, with payors on behalf
of PHA and its members, and that all contracts were approved by PHA’s
Board of Directors. Since 1994, PHA jointly negotiated and entered into more
than 50
payor contracts on behalf of its physician members.
The FTC’s complaint also states that, starting in
2001, PHA began using what PHA calls a “modified messenger
model” to enter into contracts with some payors. Competing
physicians sometimes use a “messenger” to facilitate
their contracting with payors, in ways that do not constitute
unlawful agreements on prices. Legitimate messenger arrangements
can reduce contracting costs between payors
and physicians, but without involving or facilitating coordinated
responses by the physicians. In this case, however, the FTC
alleges that the approach employed by PHA was not a legitimate
messenger model, and instead represents coordinated behavior
by PHA and its physicians. In particular, the complaint alleges
that PHA sent preexisting, PHA-negotiated contract prices
to its physician members, which many used to develop their
individual prices; negotiated with payors on the overall
average price levels to be paid to PHA physician members
under PHA’s contracts with payors, and then set fee
schedules based on those price levels; and collectively agreed
on other contract terms. The FTC further alleges that PHA
told its members that the new contracting method would not
apply to existing PHA payor contracts or contracts in the
final stages of negotiation, many of which have since been
renewed or negotiated without being processed through PHA’s
so-called “messenger” model.
The FTC’s complaint also names
10 individual physicians: Peter H. Bradshaw, S. Andrews
Deekens, Daniel C. Dillon, Sanford D. Guttler, David L. Harvey,
John W. Kessel, A. Gregory Rosenfeld, James
R. Thompson, Robert A. Yapundich, and William Lee Young III.
According to the FTC, these physicians
were voting members of the PHA Board, participating in decisions
to approve or reject proposed contracts with payors; authorize
negotiations with payors; authorize the development of, and
approve physician fee schedules for negotiations; terminate
contracts between PHA and payors; approve recommendations
of the PHA Contracts Committee concerning payor contracts
and contract terms; and determine whether payors could obtain
an exception from PHA’s requirement that payors agree
to refuse to deal with non-PHA physicians. The FTC’s
complaint states that the physician respondents directly
profited from PHA’s price-fixed contracts.
The FTC’s complaint further states that the respondents’ conduct
has restricted trade and hindered competition in the Unifour
area, in violation of the FTC Act, by unreasonably restraining
prices for physician services and maintaining them at artificially
high levels. The FTC alleges that consumers and payors in
the Unifour area have been harmed by PHA’s anticompetitive
actions, and that PHA’s collective negotiation on behalf
of its physician members has not been, and is not, reasonably
necessary to achieving any efficiency-enhancing integration.
Complaint and Consent Order with Frye and Tenet
The FTC alleges that Frye was instrumental
in PHA’s
formation, expansion, and operation. The FTC’s complaint
states that in 1993, Frye’s Chief Executive Officer
(CEO) formulated a plan to create a PHO that would include
Frye and physicians who practiced at Frye. Frye’s Board
of Directors allegedly authorized Frye’s CEO to use
Frye funds to develop the PHO. In 1994, PHA was incorporated,
and Frye’s Chief Operating Officer (COO) initially
directed PHA’s operations. The FTC’s complaint
states that Frye subsequently coordinated the inclusion of
two other hospitals – Caldwell Memorial Hospital and
Grace Hospital – and their respective medical staffs
in the PHO, and has invested substantial funds in the project.
According to the FTC, Frye’s Chief Financial Officer
and COO served as PHA’s principal contract negotiators
from 1994 to 1996. Frye’s representative on the PHA
Board also participated in the Board’s actions regarding
payor contracts and physician fees.
This settlement with Frye and Tenet
represents the first case in which the FTC has named a
hospital as a participant
in an alleged physician price-fixing conspiracy. As noted
above, the complaint’s allegations emphasize the central
role played by Frye in acting to implement and facilitate
the fixing of prices that PHA physicians charge payors for
services rendered.
The proposed consent agreement prohibits
Frye and Tenet from entering into or facilitating any agreement
between
or among any physicians practicing in the Unifour area: (1)
to negotiate with payors on any physician’s behalf;
(2) to deal, not to deal, or threaten not to deal with payors;
(3) on what terms to deal with any payor; or (4) not to deal
individually with any payor, or to deal with any payor only
through an arrangement involving PHA. The proposed agreement
also requires Frye and Tenet to cease receiving payments
under the allegedly unlawful fee schedules in PHA’s
payor contracts for their employed physicians who are PHA
members. However, the proposed agreement permits Frye to
participate in various potentially procompetitive joint ventures
with physicians in the Unifour area.
The Commission vote to accept the proposed consent agreement
as to Tenet Healthcare Corporation and Frye Regional Medical
Center, Inc. and authorize the filing of an administrative
Part III complaint as to all other respondents was 5-0. An
announcement regarding the proposed consent agreement will
be published in the Federal Register shortly. The agreement
will be subject to public comment for 30 days, until January
22, 2004, after which the Commission will decide whether
to make it final. Comments should be addressed to the FTC,
Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington,
DC 20580.
NOTE: The Commission
issues 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 respondents have actually violated the law. The
administrative complaint marks the beginning of a proceeding
in which the allegations will be ruled upon after a formal
hearing by an administrative law judge.
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 $11,000.
Copies of
the PHA complaint, and the Tenet complaint and proposed
consent agreement, are available from the FTC’s
Web site at http://www.ftc.gov and
also from the FTC’s
Consumer Response Center, Room 130, 600 Pennsylvania Avenue,
N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition
seeks to prevent business practices that restrain competition.
The Bureau carries out its mission by investigating alleged
law violations and, when appropriate, recommending that the
Commission take formal enforcement action. To notify the
Bureau concerning particular business practices, call or
write the Office of Policy and Evaluation, Room 394, Bureau
of Competition, Federal Trade Commission, 600 Pennsylvania
Ave., N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov;
Telephone (202) 326-3300. For more information on the laws
that the Bureau enforces, the Commission has published Promoting
Competition, Protecting Consumers: A Plain English Guide
to Antitrust Laws, which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
MEDIA CONTACT:
Jen Schwartzman
Office of Public Affairs
202-326-2674 or jschwartzman@ftc.gov
STAFF CONTACT:
David M. Narrow
Division of Health Care
Services and Products
Bureau of Competition
202-326-2549
(http://www.ftc.gov/opa/2003/12/piedmont.htm)
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Related Documents:
Piedmont
Health Alliance, Inc.; and Peter H. Bradshaw, M.D.;
S. Andrews Deekens, M.D.; Daniel C. Dillon, M.D.;
Sanford D. Guttler, M.D.; David L. Harvey, M.D.;
John W. Kessel, M.D.; A. Gregory Rosenfeld, M.D.;
James R. Thompson, M.D.; Robert A. Yapundich, M.D.;
and William Lee Young III, M.D.,
File No. 021 0119, Docket No. 9314
Tenet
Healthcare Corporation and Frye Regional Medical Center,
Inc., File No. 021 0119
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