Analysis of FCT Act research paper


Analysis of FCT Act
Analysis of FCT Act

Analysis of FCT Act

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Case Assignment

A physician-hospital organization (PHO) consists of 15 hospitals – with 2,247 staffed beds – and approximately 500 physicians. The PHO operates in a very large section of south Georgia, including the cities of Valdosta, Tifton, Thomasville, Moultrie, and Waycross. The PHOs’ physician members represent approximately 90 percent of all physicians practicing in the region.

The PHO served as a vehicle through which competing hospitals and physicians could bargain collectively with health plans to obtain higher fees for themselves. The owner PHOs, member hospitals, and member physicians canceled contracts with payors and informed them that the PHO would be the sole entity through which they would enter into payor contracts. To contract with the PHO, payors allegedly have had to accept the fixed physician fee schedule and fixed discount of no more than 10 percent off hospital list prices.
1.Explain why this arrangement would be found “per se” illegal under the FTCs’ analysis.
2.What kind of actions could be taken to restructure this arrangement to avoid a determination that it is per se illegal?
3.Discuss the alternate FTC analysis that is applied to such cases if they are suspect but not found to be per se illegal.

Module Overview

Basically, managed care and managed care organizations (MCOs) was championed as a powerful force for containing healthcare costs. We will see that this is not necessarily the case. We will also see that managed care brings up a range of structural issues related to price fixing and market power.

In the United States after World War II, healthcare was based on an indemnity model or fee for service. In this case health insurers simply paid the bills for services ordered by physicians. These traditional plans provided few incentives for cost containment medical decisions.

Responding to the lack of cost containment measures in the indemnity model, private insurers began to “manage care” by exerting influence on the decisions made by physicians. Managed care is the process of structuring or restructuring the healthcare system in terms of financing, purchasing, delivering, measuring, and documenting a broad range of healthcare services and products.

Sometimes this process of restructuring took the form of bureaucratic rules, e.g. requiring physicians to seek administrative approval before proceeding with certain procedures. In other cases, financial incentives were used to shape physician behavior. By the mid 1990’s, “managed care” had become the dominant form of private sector health insurance.1

Today managed care organization (MCO) is a general term used to describe any number of health insurance arrangements that are intended to reduce unnecessary healthcare costs through a variety of mechanisms, including: economic incentives for physicians and patients to select less costly forms of care; programs for reviewing the medical necessity of specific services; increased beneficiary cost sharing; controls on inpatient admissions and lengths of stay; and the intensive management of high-cost healthcare cases.

Managed care organizations are structured with an imperative to consider both the impact on costs and also the impact on doctors’ decisions whether to join their networks.

These considerations by MCOs to both contain costs and attract physicians are influenced by the values and practices that physicians bring to healthcare. Physicians want to earn a living but not at the risk of endangering the lives they are meant to serve. These healthcare values held by physicians pose a strategic dilemma for managed care organizations needing to contain costs and attract physicians to assemble provider networks.

Low cost MCOs with contract restrictions on spending are seen as highly restrictive. On the other hand, MCOs with large physician networks write cost containment rules into contracts that are not overly burdensome.

It is interesting to think about how MCOs balance competing interests and ethical issues in cost containment, physician ideals, and quality of care.

There are a wide variety of managed care models that integrate financing and management with the delivery of healthcare services to an enrolled population.

Health Maintenance Organizations: HMOs are organized healthcare systems that are responsible for both the financing and the delivery of a broad range of comprehensive health services to an enrolled population. HMOs act both as insurer and provider of healthcare services. They charge employers a fixed premium for each subscriber. An independent practice association (IPA)-model HMO provides medical care to its subscribers through contracts it establishes with independent physicians. In a staff-model HMO, the physicians would normally be full-time employees of the HMO. Individuals who subscribe to an HMO are often limited to the panel of physicians who have contracted with the HMO to provide services to its subscribers.

Preferred provider organizations (PPOs) are entities through which employer health benefit plans and health insurance carriers contract to purchase healthcare services for covered beneficiaries from a selected group of participating providers. Most states have specific PPO laws that directly regulate such entities.

Exclusive provider organizations (EPOs) limit their beneficiaries to participating providers for any healthcare services. EPOs use a gatekeeper approach to authorize non–primary care services. The primary difference between an HMO and an EPO is that the former is regulated under HMO laws and regulations, whereas the latter is regulated under insurance laws and regulations.

These integrated health delivery organizations raise a variety of issues with the Department of Justice and the Federal Trade Commission. The issues include price fixing and antitrust problems based on market power.

Depending on how the groups are organized- horizontal versus vertical- and who is integrated- competing physician groups or a multi provider network a MCO may violate several antitrust laws.

Whenever an MCO possesses significant market power or deals with a group that has significant market power, antitrust implications should be considered. To determine market power, it is necessary first to identify the market in which the entity exercises power. For antitrust purposes, the relevant market has two components: (1) a product component and (2) a geographic component.

Price fixing is considered a per se violation of the antitrust laws. Per Se Violations conclusively violate antitrust laws and means there is no further investigation of its effects on the competitiveness of the market because its intentions are so obvious. A Per Se Violation would almost always limit competition and decrease productivity. Activities that fall under per se violations are acts such as horizontal price fixing and horizontal market division.

Price fixing occurs when two or more competitors come together to decide on a price that will be charged for services or goods. The per se rule applies to restraints in trade that are so inimical to competition and so unjustified that they are presumed to be unreasonable and, therefore, are illegal.

1Aaron, Henry J. and Reischauer, Robert D., (1995) “The Medicare Reform Debate: What is the Next Step?” Health Affiars. 14:4. p.8-30

Required Reading

D.A. Mains, A. Coustasse, K. Lykens: Physician Incentives: Managed Care and Ethics. The Internet Journal of Law, Healthcare and Ethics. 2004 Volume 2 Number 1. DOI: 10.5580/24ae – See more at:

Managed Care and Physician Incentives: The Effects of Competition on the Cost and Quality of Care. David J. Cooper and James B. Rebitzer. March 2004.

Government Agencies Soften Stance on What Constitutes Price Fixing. David A. Ettinger and Mark L. Lasser (March, 2008)

Diagnosing Physician-Hospital Organizations. Susan A. Creighton. Federal Trade Commission Remarks Before American Health Lawyers Association, Program on Legal Issues Affecting Academic Medical Centers and Other Teaching Institutions. January 22, 2004. Washington, DC. Retrieved from:

Statement of department of justice and federal trade commission enforcement policy on multiprovider networks; Federal Trade Commission; Competition in The Healthcare Market place; Statements of Health Care Antitrust Enforcement Policy; Statement 9. (July 8, 2009). Retrieved from:

The above policy has been updated (Statement 9 on Multi-provider Network), Read the updates below:

Revised Statements on Multi-provider networks:

Optional Reading

Competition in the healthcare marketplace.

Improving Health Care: A Dose of Competition: A Report by the Federal Trade Commission and the Department of Justice (July 2004).

QuickCounsel Antitrust: U.S. Laws and Regulations. Elizabeth Killingsworth, Esq.


Question 1:  Analysis of FCT Act

The health care industry is rapidly changing as it seeks innovative alternatives to control costs and efficiency of the quality studies. There are various types of relationships as well as affiliations that ensure strong competitiveness among other competing healthcare providers. Most of the organizations provide significant competitive benefits to the service users. These multi-provider networks are platforms used by the providers to jointly market the healthcare services to the service users. In most cases, these ventures often contract to reach at predetermined prices in order to contain costs and to assure quality. The contractual relationships among the providers operate and vary greatly. In this statement, the Federal Trade commission (FTC) protects the American consumers through antitrust law (David and Rebitzer, 2004).

The FTC analysis states that it is not illegal “per se” to have a naked arrangement among the providers that predetermine or fix prices so as to allocate markets. Under the FTC’s analysis, the providers are allowed to get into a joint venture if the venture is necessary to achieve precompetitive benefits; and that the outcome of the network is to benefit the consumers. In this case study, the arrangement can be said as illegal “per se” it is evident that the PHO arrangements are unfair, deceptive and seems injurious to consumers because the prices demanded by the PHO is substantially higher than what the physicians and hospitals could have generated if they negotiated unilaterally (Creighton, 2004).

Although setting of the price is necessary and that it is integral to make such arrangements, the PHO have set fixed physician fee and the fixed discount which can be perceived as illegal based on the competitive effects because it negatively influence the vertical (between competing hospitals) and horizontal (between parties and physician) competition. This is because the PHO refused to deal with the individual health plans and instead collectively fixed the prices for the services. Therefore, the PHO was forcing payors to pay higher prices to member healthcare facilities and physicians, which would lead to increased cost of care. Therefore, the HPO arrangements can be viewed as illegal “per se” because: – a) they arranged for collective arrangements of fees and terms of the healthcare plans, b) performed collective negotiations and c) rejected or rather refused  to deal with payors who insisted on their desired terms. These acts are harmful, anticompetitive and desecrated the FCT Act (Ettinger and Lasser, 2008).

Question 2: Actions to restructure this arrangement

It is important to reach a proposed settlement to reach the remedy of this illegal conduct. To start with, the first action is to file a complaint against the HPO, highlighting the FTC Acts that have been violated.  If the complaint is investigated and found to be illegal, the Antitrust Division (DOJ) and Department of Justice will consult and enforce the antitrust laws so as to bring the civil actions. Secondly, it is important for FTC to revise its guidelines and ensure that all the healthcare providers understand the rules. This includes prohibiting respondents from facilitating any agreement between physicians a) to deal or refuse to deal with the payors, b) negotiate with payors on the behalf of physicians, c) determine the terms of deal and d) not deal with any payor individually or collectively.  Another action that can be applied is the use of consent agreement. The consent agreement is meant for settlement purposes. The arrangement is meant to clarify issues of concern and to provide solutions. It does not become part of public records until it becomes accepted by the commission (Ettinger and Lasser, 2008).

Question 3: Alternative FTC analysis

According to the rule of reason and “per se” rule, the existence of monopoly is not an indicator of antitrust laws. There are interpreted statutes that apply to the Supreme Court that permit monopoly. For instance, the rule of reason permits monopoly unless it is achieved or maintained through use of prohibited conduct. Therefore, some acts can be determined as unreasonable per se, while other acts can be subjected to reasoned analysis. Therefore, it is important to examine the anticompetitive behaviors through a reasoned analysis so as to examine its motive, intent and outcome to determine if the action actually support or suppresses market competition (Improving Health Care, 2004).

In addition, in the revised policy statements in Health Care Antitrust Enforcement have introduced flexibility in the antitrust laws for analysis of activities physicians and other integrated networks. The revised policy recognize  the aspect of  “non-financial integration”  in their new guidelines, elaborating on the types of  “risk sharing arrangements” that qualify for financial integration and those that corresponds and fits into the existing antitrust enforcement (Federal Trade Commission, 2008).


Creighton, S.A. (2004). Diagnosing Physician-Hospital Organizations. Federal Trade Commission Remarks Before American Health Lawyers Association, Program on Legal Issues Affecting Academic Medical Centers and Other Teaching Institutions.  Washington, DC. Retrieved from:

David, J., C. and Rebitzer, J.B. (2004). Managed Care and Physician Incentives: The Effects of Competition on the Cost and Quality of Care. Retrieved from

Ettinger, D. A.,  and Lasser, M. L. (2008). Government Agencies Soften Stance on What Constitutes Price Fixing. Retrieved from

Federal Trade Commission. (2008). Statement of department of justice and federal trade commission enforcement policy on multiprovider networks;; Competition in The Healthcare Market place; Statements of Health Care Antitrust Enforcement Policy; Statement 9. Retrieved from:

Improving Health Care (2004). A Dose of Competition: A Report by the Federal Trade Commission and the Department of Justice. Retrieved from

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