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Mr. David Wales
September 6, 2006
PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION
The FTC has long been actively involved in health care markets, and health care continues to be a high priority for the Commission.2 The agency's fundamental goal has not
At the same time, the FTC is not solely a vigilant "cop on the beat" out to protect consumers from anti-competitive conduct. The agency works to promote competition through a
Indeed, education - explaining antitrust policy to the industry and the public - is a key part of our mission. There is plenty of misapprehension and misinformation about the application of the antitrust laws to the health care marketplace, and the FTC activities and policies in this area. The agency works hard to keep the lines of communication open and our guidance up-to-date as markets evolve, and to provide additional guidance as new market
As part of its law enforcement role, for the past 25 years, the Commission has challenged naked price fixing agreements and coercive boycotts by physicians in their dealing with health plans.4 These arrangements largely consist of otherwise competing physicians jointly setting
Not all joint conduct by physicians, however, is improper. Physician network joint ventures can yield impressive efficiencies. Thus, the FTC (together with DOJ) committed long ago to using a balancing test (in our legal parlance, the "rule of reason") to evaluate those physician network joint ventures that involve significant potential for creating efficiencies through integration. Physician joint ventures involving price agreements can avoid summary
It is important to consider what can happen when health plans are forced to accept the collective demands of health care providers for higher fees that are not reasonably necessary to achieving significant efficiencies. The effect is not simply on the health plans that must pay more. Experience with antitrust enforcement over the years shows that the effects can extend to
? Consumers and employers face higher prices for health insurance coverage, potentially forcing some employers to reduce or drop health benefits for their employees.
For example, just two weeks ago, the Commission accepted for public comment a consent agreement involving two IPAs (independent practice associations) representing
This matter may be of particular interest to those who are concerned about the Medicare program because, according to the Complaint, the threatened boycott by the physicians of one health plan that opposed their contract demands would have prevented that plan from offering its Medicare HMO program in two counties. The federal government has authorized the establishment of Medicare HMO programs that may provide more extensive benefits than traditional Medicare coverage, as an alternative for elderly consumers. In one of the counties, the plan was the only Medicare HMO available to elderly consumers. Thus, the physicians' actions would have eliminated any opportunity for consumers there to choose a Medicare HMO option.
The FTC's experience teaches that this type of physician price-fixing and coercive collective activity in dealing with health plans - without any accompanying pro-competitive benefits - raises consumer health care costs considerably, without benefitting consumers.
It is important to emphasize that collective setting of prices and negotiation with health plans by physicians does not assure quality health care, and there is no inherent inconsistency between vigorous competition and the delivery of high quality health care services. Theory and practice confirm that just the opposite is true - when vigorous competition occurs, consumer welfare is increased in health care, as in other sectors of the economy.7 Interference with competition is far more likely to decrease consumer welfare. As the Supreme Court observed in
As noted above, however, it also is important to remember that much joint conduct by physicians can be pro-competitive, and that neither the antitrust laws, nor the enforcement agencies treat it as an antitrust violation.9 As pressure to control health care costs and assure
The FTC supports initiatives to enhance quality of care, reduce or control ever-escalating health care costs, and ensure the free flow of information in health care markets, because such initiatives benefit consumers. The Commission has no pre-existing preference for any particular model for the financing and delivery of health care. Such matters are best left to the marketplace,
To help allay physicians' and other health care providers' concerns about potential antitrust issues regarding collaborative activity, and to encourage the development of potentially pro-competitive and lawful arrangements, the Commission has undertaken a broad and proactive
The Commission staff also has provided considerable detailed guidance about potentially pro-competitive forms of physician integration. For example, over the years it has issued numerous advisory opinions concerning physician networks. In one notable instance, the staff issued a favorable advisory opinion to MedSouth in Denver,12 a multi-specialty physician initiative involving "clinical integration" among the participants. This year, the staff issued another lengthy advisory opinion with detailed guidance about how such arrangements are analyzed,13 and currently is considering other requests for guidance regarding multi-provider arrangements involving clinical integration or other forms of collaboration.
The dynamics of evolving health care markets continue to pose challenges for market participants. The FTC is committed to working with physicians and other providers to give them guidance to avoid antitrust pitfalls as they respond to market challenges. At the same time, collective action by health care providers to obstruct new models for providing or paying for care, or to interfere with cost-conscious purchasing, remains a significant threat to consumers, and the Commission will continue to act to protect consumers from such conduct.
2 Actions to promote a competitive health care marketplace have enjoyed bipartisan support within the Commission. See, e.g., Deborah Platt Majoras, Chairman, Federal Trade
3 For example, the Commission currently is undertaking an industry-wide study of the competitive effects of the use of authorized generic drugs in the prescription drug marketplace. See 71 Fed. Reg. 16779 (April 4, 2006).
4 See Overview of FTC Antitrust Actions in Health Care Services and Products, available at http://www.ftc.gov/bc/0608hcupdate.pdf.
5 See generally U.S. DEP'T OF JUSTICE & FEDERAL TRADE COMMISSION, IMPROVING HEALTHCARE: A DOSE OF COMPETITION (2004) (hereinafter "IMPROVING HEALTHCARE").
6 In the Matter of New Century Health Quality Alliance, Inc., Prime Care of Northeast Kansas, L.L.C., et al. FTC File No. 051-0137, available at http://www.ftc.gov/os/caselist/0510137/0510137.htm.
7 See generally, Paul J. Feldstein, HEALTH CARE ECONOMICS (6th ed. 2004).
8 Indiana Fed'n of Dentists v. FTC, 476 U.S. 447, 459(1986).
9 See, e.g., Letter from Jeffrey W. Brennan, Assistant Director, Bureau of Competition, Federal Trade Commission to Gregory G. Binford (February 6, 2003) (staff advisory opinion stating that staff would not recommend that the Commission pursue law enforcement action with regard to a proposed program by physicians to publicize their concerns
10 Department of Justice & Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (1996), available at http://www.ftc.gov/reports/hlth3s.htm.
11 For example, through formation of efficiency-enhancing, integrated joint arrangements involving physicians and other health care providers who: share financial risk
12 Letter from Jeffrey W. Brennan, Assistant Director, Bureau of Competition, to John J. Miles, Ober , Kaler, Grimes & Shriver (Feb. 19, 2002) (staff advisory opinion re: MedSouth, Inc.), available at 13 Letter from David R. Pender, Acting Assistant Director, Bureau of Competition, to Clifton E. Johnson and William H. Thompson, Hall Render, Killian, Heath & Lyman (March
13 Letter from David R. Pender, Acting Assistant Director, Bureau of Competition, to Clifton E. Johnson and William H. Thompson, Hall Render, Killian, Heath & Lyman (March