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Citizens for Voluntar Trade

September 18, 2002Mr. Donald S. Clark, Esq.Office of the SecretaryFederal Trade Commission600 Pennsylvania Ave., N.W., Room 159-HWashington, DC 20580Re: Proposed consent agreement In the Matter of System Health Providers, Inc., and GenesisPhysicians Group, Inc., FTC File No. 011 0196.Dear Mr. Secretary:

If I knew nothing about today’s world but the nature of our politicians and thephilosophy represented by the medical profession, I would predict an inevitable,catastrophic clash between the two: between the government and the doctors. Onpurely theoretical grounds, I would predict the destruction of the doctors by thegovernment, which in every field now protects and rewards the exact opposite ofthought, effort, and achievement

—Dr. Leonard Peikoff, April 14, 1985For 37 years, the United States government has waged a war against physicians. Thedeclaration of war came in the form of Medicare and Medicaid. These programs offered a newvision for healthcare—consumers could demand and receive medical services without havingto pay for them. By severing the capitalist link between supply and demand, the governmentproduced a nation of healthcare gluttons. In 1952, U.S. healthcare expenditures were less than5% of Gross Domestic Product; today that figure is well over 20% and rising exponentially. Thisrise in costs is directly attributable to the government’s interference in the healthcaremarketplace.In 1973, the government added fuel to the fire by passing legislation to create healthmaintenance organizations, or HMOs. These quasi-private entities were supposed to containthe excessive costs generated by previous failed government interventions. Instead, they madethe problem far worse. Dr. Richard Parker, a Dallas physician and senior writer for the AynRand Institute, succinctly describes the true nature of HMOs:

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HMOs are government-created and taxpayer-subsidized entities that payphysicians and hospitals predetermined, per-capita fees, regardless of what medicalservices are actually provided. Under HMO capitation, physicians and hospitalsno longer have a financial incentive to do all that is necessary to treat a patient'sillness. Rather, their incentive is to minimize the care provided. In HMOs, aphysician's pay is tied not to the services he renders, but to the services he does notrender.The essence of the HMO system is rationing. Normally, the more services abusiness can provide to its market, the more successful it is. That used to be true ofmedicine too, when doctors were paid fees for the services they provided. It is nottrue today. Now, the government's "solution" to the problem its interventionshave caused is to create a perverse system under which the providers of medicalcare look for ways to withhold their services.There are numerous ways in which government encourages the proliferation ofHMOs. Grants and loans are given to them; Medicare and Medicaid increasinglymake contracts with them; certain employers must offer HMOs plans to theiremployees; and unlike HMOs, independent physicians are prevented, by antitrustlaw, from joining together to bargain with employers for health-care contracts

It is this last method—the use of antitrust law against physicians—that is at issue in thepresent case now before the FTC. But it is impossible to consider the principles and effects ofthe proposed consent agreement without examining the entire context. The FTC is unwilling todo this. Indeed, this case was brought under a “per se” theory that, in the FTC’s mind, absolvesthem of

any

obligation to examine context or actual facts. Since the “public interest” requires arigorous analysis of the FTC’s principles and methodology, the following comments are offeredin response to the proposed settlement.

The facts of this care are fairly simple. Genesis Physicians Group consists of“approximately” 1,250 physicians practicing medicine in the “eastern part of the Dallas-FortWorth metropolitan area.”

In 1995, GPG formed System Health Providers, a medicalmanagement company. Since 1998, GPG has been the sole owner of SHP stock.

From 1996 to 1999, GPG engaged in collective bargaining with insurance companies onbehalf of its members. These actions were taken under “risk-sharing arrangements” where,presumably, some clinical and financial integration of the member physicians’ practices took

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place. These arrangements were consistent with Federal Trade Commission policy, whichpermits collective bargaining only under “risk-sharing” arrangements.

GPG’s risk-sharing activities failed miserably. They resulted in “significant losses” to thephysicians, and the risk-sharing entity formed by GPG was forced to file for bankruptcyprotection in 1999. Thereafter, GPG and SHP began to engage in collective bargaining via non-risk-sharing arrangements.

In other words, the physicians maintained their individualpractices while using a common agent to negotiate with HMOs and other insurance companies.This practice is prohibited by the FTC, because it is considered

per se

illegal price fixing.Consequently, the FTC began its investigation of GPG and SHP, resulting in the consentagreement now before the public record.

The FTC considers physician collective bargaining to be an illegal restraint ofcompetition. In this particular case, the Commission’s objections fall into three broad areas.First, the FTC claims physicians are improperly denying HMOs their ability to offercomprehensive insurance plans to consumers; second, the physician’s actions allegedlyincreased consumer costs; and third, the physicians generally conspired to prevent competitionfrom taking place. I will deal with these objections in order.In paragraph 11 of its complaint, the FTC states, “In order to be competitively marketablein the Dallas area, a payor’s health insurance plan must include a large number of primary carephysicians and specialists who practice in the Dallas area.” Since GPG’s membershipconstituted a large number of such physicians, the implication is that GPG is

obligated

toprovide services to any HMO that wants to compete in the Dallas market. There is, however, noreciprocal obligation on the HMOs to deal equitably with the physicians. An HMO need onlystate its requirements, and the physicians must comply; if they don’t, the FTC considers thephysicians in violation of the antitrust laws.SHP, as the negotiating arm of GPG, is painted as the villain here. The FTC accuses SHPof “discouraging” GPG physicians from accepting contract offers.

This is the extent of SHP’salleged illegal conduct—discouragement. SHP is not accused of using coercive means toprevent GPG doctors from accepting any contract offer. It is difficult to fathom a context inwhich an attempt to

voluntarily

persuade individuals to take (or not take) an action can bedeclared illegal

on its face

, as the FTC has done here.