The Alliance was formed in 1995 by the vast majority of physicians and hospitals in five counties in northeastern Maine to negotiate payor contracts that contained "higher compensation" and more "advantageous" contract terms than the physicians and hospitals could obtain by dealing individually with payors. More than 85% of the physicians on staff at Alliance member hospitals are Alliance members, as are eleven of the sixteen hospitals in the five-county area. The physician and hospital members designated the Alliance as their negotiating agent to contract with payors, and authorized the Alliance to enter into, on their behalf, payor contracts.It's amazing that despite the existence of the FTC's supposedly clear policies on what conduct physicians may not engage in, thousands of doctors have managed to violate the rules across the country, doing so not in backroom conspiracies, but out in the open via contract negotiations. It's even more amazing that these violations of the "law"--which in some cases the FTC claims went on for several years--were never discovered and prosecuted until the current FTC leadership took over in 2001. Indeed, despite the Democrats' affinity for regulation, the Clinton-era FTC was not nearly as obsessed with destroying the financial viability of physicians as Bush-appointed FTC boss Tim Muris is.
Although the Alliance is a nonprofit corporation, and its member hospitals are tax-exempt organizations, a substantial majority of its physician members are for-profit entities. These for-profit physicians play a significant role in the governance of the Alliance and receive pecuniary benefits as a result of their participation. Participating physicians select 11 of the 22 members of the Alliance's Board of Directors and thus exercise substantial authority over the policies and actions of the Alliance. The participating physicians are therefore "members" of the Alliance within the meaning of Section 4 of the FTC Act, which grants the Commission jurisdiction over nonprofit organizations that carry on business for the profit of their members. Because the Alliance engages in substantial activities that confer pecuniary benefits on these for-profit members, its activities engaged in on behalf of the physician and hospital members fall within the Commission's jurisdiction.
Alliance physician and hospital members have refused to contract with payors on an individual basis. Instead, the Alliance's Board of Directors authorized Mr. Diggins to act as a principal negotiating agent with payors on behalf of the collective membership of the Alliance. Mr. Diggins was instrumental in forming the Alliance, coordinating the membership's collective bargaining activity, and negotiating payor contracts on behalf of the collective membership.
As guidance for Mr. Diggins, the Board, in conjunction with its Contracts Committee, compiled written "Contracting Guidelines and Parameters," setting forth price-related and other competitively significant terms that the Alliance required in order to contract with payors. Mr. Diggins reported the details of negotiations with payors to the Board and the Contracts Committee. Based on the recommendations of Mr. Diggins, and the Contracts Committee, the Board decided whether to accept or reject contracts with payors on behalf of the Alliance's physician and hospital members.
The Alliance and Mr. Diggins negotiated higher reimbursement for Alliance physician and hospital members, and more advantageous contract language, than the physicians and hospitals could have achieved through individual contracts with payors. Despite a written Alliance policy allowing members to contract independently of the Alliance, in fact the Alliance and Mr. Diggins encouraged the physician and hospital members to contract only through the Alliance, in order to maintain the Alliance's leverage over payors. Mr. Diggins provided Alliance physician and hospital members with a model letter for them to use to notify payors that they refused to negotiate individually, and that the Alliance would negotiate on their behalf. In response to payors' requests to contract directly with Alliance physician and hospital members, the members directed payors to the Alliance for contracting.
The Alliance's and Mr. Diggins' joint negotiation of fees and other competitively significant terms has not been reasonably related to any efficiency-enhancing integration. Although the Alliance has developed some clinical programs limited primarily to hospital members, none of the Alliance's clinical activities create any significant degree of interdependence among the physician or hospital participants, nor do the activities create sufficiently substantial potential efficiencies.
By orchestrating agreements among Alliance physician members, and hospital members, to deal only on collectively-determined terms, together with refusals to deal with payors that would not meet those terms, respondents have violated Section 5 of the FTC Act.
Another interesting note: William Diggins was represented by John J. Miles, a partner at Ober Kaler here in Washington. Miles practices exclusively in the field of health care antitrust litigation. Miles was also the defense attorney responsible for Mountain Health Care's self-imposed destruction. In criminal law, an attorney who manages to hand his clients over to the government time-after-time would not have a very good reputation, yet in antitrust precisely the opposite is true. It seems Miles is a respected antitrust lawyer because he can negotiate quick settlements where the government gets everything it wants and the client...well the client saves on the inevitable legal bills defending one's innocence (and rights) would produce.
And it's not like Miles and his brethren have a great incentive to take on the system. After all, if the FTC's unconstitutional actions against physicians ever came to an end, lawyers like Miles wouldn't be able to collect the handsome fees that come with negotiating surrenders.