Messenger Model IPAs Face Antitrust Enforcement


An "Independent Provider Association" ("IPA") network formed by a group of general and vascular surgeons in Tampa, Florida, has reached a settlement with the Department of Justice ("DOJ"), Antitrust Division, which had accused the IPA and participating physicians of illegal joint negotiations and boycotts. The DOJ Complaint and Settlement Agreement were filed with the U.S. District Court in Tampa on January 26, 1999. A group of orthopedic surgeons in Delaware, accused of similar activity, reached a similar settlement, filed last August. The DOJ Complaints and the Settlement Agreements in these two cases provide clear guidance for other messenger-model IPA's.

The Tampa Matter

The Tampa matter involved the Federation of Certified Surgeons and Specialists, Inc. ("the Federation"), a corporation formed and controlled by 29 competing general and vascular surgeons, and a Tennessee-based consulting and accounting firm. The member physicians made up the majority of general and vascular surgeons with operating privileges at five Tampa hospitals, performing 87% of the general and vascular surgeries at those hospitals.

The DOJ Complaint alleged that the Federation was formed by its member physicians to obtain higher fees for their services from managed care plans. The agent allegedly approached health plans, on behalf of the Federation, to negotiate higher fees, and the agent informed the plans that the physicians would terminate their contracts and refuse to participate in the plan's network unless the Federation's terms were accepted. The Complaint alleges that, in at least one instance, the agent was successful in obtaining higher fees for the Federation physicians, after 28 of them had terminated their contracts with the plan. The DOJ asserts that the physicians gained an average of $14,097 each in projected annual revenues as a result of their illegal activities.

The DOJ argued that the Federation physicians and agents attempted to cloak their illegal activities as those of a legitimate "third-party messenger," but that the activities were, in actuality, illegal joint negotiations, using illegal boycotts, or threats of boycotts, as a tool. Joel Klein, Assistant Attorney General for the DOJ's Antitrust Division stated, "Today's action demonstrates our resolve to stop illegal joint negotiating and boycotts by physicians. We will take action to stop illegal boycotts that ultimately increase the prices consumers pay for health care." Under the Settlement Agreement, the Federation and its participants agreed to cease the allegedly illegal activities, but they were not required to pay any fees or fines.

The Delaware Matter

The Delaware matter involved the Federation of Physicians and Dentists ("FPD"), whose executive director, as agent, attempted to negotiate fees with Blue Cross and Blue Shield of Delaware ("Blue Cross"). When Blue Cross declined to deal with the agent, FPD increased its efforts to persuade doctors to deal with Blue Cross only through FPD, and it ultimately organized all member orthopedists to terminate their contracts with Blue Cross. The DOJ Complaint alleged that the FPD misused a "messenger" arrangement to facilitate illegal collusion by doctors to maintain high fee levels.

In both of these two cases, the DOJ admitted that a "messenger-model" arrangement, when implemented with adequate safeguards, may aid in the transmission of information between health insurance plans and doctors and may speed the negotiation process. The streamlining of transmission of information between plans and providers may ultimately benefit consumers, the DOJ states. However, a "messenger-model" may not be misused to strengthen the bargaining power of those it serves, and its activities may not rise to the level of illegal joint activity or boycotts. These two cases provide a warning to other IPA's to ensure that their "messenger-model" activities are operated within the law.

The DOJ, together with the Federal Trade Commission ("FTC"), issued Antitrust Guidelines in 1996, addressing physician networks and multi-provider networks, and giving examples of appropriate and legal activities for "messengers." The following mechanisms are contained in the Guidelines as appropriate functions for a "messenger" in a multi-provider network setting:

  1. Messenger of the network, not affiliated with any participant, obtains from each participant a fee schedule or conversion factor that represents the minimum payment that participant will accept from a payor. The Messenger is authorized to contract on the participants' behalf with payors offering prices at this level or better. The Messenger does not negotiate pricing terms with the payor and does not share pricing information among competing participants. Price offers that do not meet the authorized fee are conveyed to the individual participant.
  2. The same as (1), above, with the added feature that the Messenger is authorized, for a specified time, to bind the participant to any contract offers with prices equal to or better than those in a contract that the participant has already approved.
  3. The same as (1), above, except that, in order to assist payors in developing contract offers, the Messenger takes the fee authorizations of the various participants and develops a schedule that can be presented to a payor showing the percentages of participants in the network who have authorized contracts at various price levels.

Other provisions of the Guidelines warn against the sharing of fee-related information among the participants. The key issue in any "messenger-model" arrangement is whether the arrangement creates or facilitates an agreement among competitors on prices or price-related terms.

The Guidelines also present the following example of a "messenger-model" function that the DOJ and FTC view as a "per se unlawful price agreement:"

The agent is hired to negotiate with payors on behalf of the participants. The agent does not disclose to the payor the prices the participants are willing to accept, but attempts to obtain the best possible prices for all of the participants. The resulting contract offer is then relayed to each participant for acceptance or rejection.

The DOJ, in the Tampa and Delaware cases, found that the IPA agents were operating in this manner, constituting unlawful joint negotiating and price agreements. In addition, the DOJ alleges illegal boycotts in those cases.

Conclusions

The limitations on the activities of messengers have led many IPA's and networks to conclude that the "messenger-model" may not be an effective mechanism in the long-term. The "messenger-model" approach is often used as a transition model, as IPA's move toward capitation and other risk-sharing arrangements. An IPA whose participants share financial risk has a great deal more flexibility, under the DOJ and FTC Guidelines, for sharing of information and negotiating, as a group, with payors.

Given the DOJ's and FTC's active scrutiny of "messenger-model" type arrangements, it is crucial that IPAs and other entities that use these networks review their activities to ensure that they are in compliance with the Guidelines. If there is any question, or if the network in question controls a significant share of any market, the IPA may wish to seek legal review and counsel. It is clear that the DOJ will actively enforce antitrust laws when "messenger-model" activities are used, or are perceived to be used, as a shield for unlawful collusive behavior.