DOJ Declares War on Doctors

May 28, 2010 by S.M. Oliva
Mises Economics Blog
May. 29, 2010

As I’ve long suspected, “health care reform” has emboldened the Justice Department to take a more active role in enforcing government price controls against physicians. Today the Antitrust Division, joined by Idaho Attorney General Lawrence Wasden, forced a a group of Boise orthopedists to accept price controls for worker’s compensation and HMO contracts as part of a settlement accusing the doctors of “price fixing”:

According to the complaint, the conspiring orthopedists engaged in two antitrust conspiracies, which took place from 2006 to 2008. In the first conspiracy, through a series of meetings and other communications, the orthopedists agreed not to treat most patients covered by workers’ compensation insurance. They entered into a group boycott in order to force the Idaho Industrial Commission to increase the rates at which orthopedists were paid for treating injured workers. The Idaho Industrial Commission sets the fee schedule that determines the amount that orthopedists and other healthcare providers usually receive for treating patients covered by workers’ compensation insurance. The boycott resulted in a shortage of orthopedists willing to treat workers’ compensation patients, causing higher rates for orthopedic services.

In the second conspiracy, all of the defendants, except [one], and other conspiring orthopedists agreed to threaten to terminate their contracts with Blue Cross of Idaho. They jointly threatened to terminate their contracts to force Blue Cross of Idaho to offer better contract terms to orthopedists.

The proposed settlement prevents the Idaho Orthopaedic Society and the named orthopedists from agreeing with their competitors on fees and contract terms. The settlement also prohibits them from collectively denying medical care to patients, refusing to deal with any payer or threatening to terminate contracts with any payer.

This case is a watershed for two reasons: First, until now the Federal Trade Commission, not the Justice Department, has taken the lead in prosecuting physicians. Since 2000, the FTC has brought about three dozen cases against physicians (all but one of which settled without any trial). But the FTC only has civil and administrative jurisdiction; the Antitrust Division has civil and criminal jurisdiction. The Sherman Act makes no distinction between civil and criminal “price fixing,” so in a case like this, it’s entirely a matter of prosecutorial discretion whether to charge the doctors with a civil or criminal offense. Based on the descriptions in the Antitrust Division’s press release, there’s certainly no reason they couldn’t have prosecuted the doctors criminally and insisted upon prison sentences -- and there’s little doubt such threats were made or implied to obtain the physicians’ agreement to the proposed “settlement.”

The second reason this is a landmark case is that the Justice Department has unambiguously stated that refusal to accept government price controls is a form of illegal “price fixing.” The FTC has hinted at this when it’s said physicians must accept Medicare-based reimbursement schedules from insurance companies. But the DOJ has gone the final step and said, “Government prices are market prices,” in the form of the Idaho Industrial Commission’s fee schedule. The IIC administers the state’s worker compensation system and is composed of three commissioners appointed by the governor. This isn’t a quasi-private or semi-private entity. It’s a purely government operation.

What’s more, the Antitrust Division has linked a refusal to accept government price controls with a refusal to accept a “private” insurance company’s contract offer. This lives little doubt that antitrust regulators consider insurance party contracts the equivalent of government price controls -- and physicians and patients have no choice but to accept them.

Despite this, Antitrust Division chief Christine Varney, an Obama political appointee, insists she’s trying to protect “competition”:

The orthopedists who participated in these group boycotts denied medical care to Idaho workers and caused higher prices for orthopedic services. Today’s action seeks to prevent the recurrence of these illegal acts and protects Idaho consumers by promoting competition in the healthcare industry.”

The Idaho attorney general compounds the lie:

The free marketplace works best when there is fair competition. Anticompetitive activity harms the marketplace, businesses and consumers. Enforcement of the antitrust laws restores competition to the marketplace to the benefit of businesses and consumers and the marketplace as a whole.

But what “competition” do they refer to? The IIC fee schedule is set by government fiat. There’s no “competition” among orthopedists -- or any other physicians for that matter. Everyone gets paid exactly the same “acceptable charges” based on the schedule. Even in the case of the Blue Cross contract, the physicians weren’t “competing” on price; they were simply told to accept the reimbursement levels proposed by the insurer.

And as much as the government would tout the “conspiracy” among physicians, as I said yesterday, we’re basically talking about people having conversations with one another. The truth is the antitrust regulators don’t need much to establish a Sherman Act “conspiracy.” Even if there’s no evidence of direct communication between physicians, if a large number of physicians in a given market individually reject a government price control scheme or insurance company contract, the Antitrust Division can simply “infer” the existence of a conspiracy.

This is another reason why the DOJ’s presence in a physician case is more disturbing than the normal FTC case. The DOJ has a number of “tools” the FTC does not, including the self-granted power to award amnesties from criminal prosecutions to the first “conspirator” to step forward and provide evidence against one’s competitors. A doctor that feared prosecution could seek amnesty -- and provide the Justice Department a blank check to rummage through his files and private communications. And if that doesn’t work, the DOJ can always seek wiretaps of physicians’ phones and computers, a power awarded the DOJ during a 2006 renewal of the PATRIOT Act. The potential exposure of your physician’s confidential records -- including your medical records -- is limitless.

And while I usually caution against reading partisan political motives into an antitrust case -- and I’d note the Idaho attorney general is a Republican -- it’s hard to segregate today’s action from the larger political context of “Obamacare.” Christine Varney is an Obama political appointee, and if the Idaho case is an indication her Division plans to take a more hands-on approach to dealing with local physician groups, this policy will quickly degenerate into political demagoguery. It’s just too easy to label physicians “price fixers” and scapegoat them for the failure of government planning of the healthcare industry.

UPDATE: The DOJ has released the proposed order and other documents. It’s a naked censorship order that restrains the physicians from

(A) encouraging, facilitating, entering into, participating in, or attempting to engage in any actual or potential agreement or understanding with, between, or among competing physicians about:

any fee, or other payer contract term or condition, with any payer or group of payers, including the acceptability or negotiation of any fee or other payer contract term with any payer or group of payers;
the manner in which the defendant or any competing physician will negotiate with, contract with, or otherwise deal with any payer or group of payers, including participating in or terminating any payer contract; or
any refusal to deal or threatened refusal to deal with any payer;
or
(B) communicating with any competing physician or facilitating the exchange of information between or among competing physicians about:

the actual or possible view, intention, or position of any defendant or his or her medical practice group, or any competing physician concerning the negotiation or acceptability of any proposed or existing payer contract or contract term, including the negotiating or contracting status of the defendant, his or her medical group, or any competing physician with any payer or group of payers, or
any proposed or existing term of any payer contract that affects:
the amount of fees or payment, however determined, that the defendant, his or her medical practice group, or any competing physician charges, contracts for, or accepts from or considers charging, contracting for, or accepting from any payer or group of payers for providing physician services;
the duration, amendment, or termination of any payer contract; or
the manner of resolving disputes between any parties to any payer contract.

The order also illegally legislates through the courts by requiring the physicians to adhere to the 1996 Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care, which is not law but merely the subjective opinions of unelected government antitrust lawyers. The order also requires the physicians to make “all books, ledgers, accounts, records, data, and documents,” available for government inspection at any time in the next ten years.

Since this is an DOJ case, it is subject to final approval by a federal judge in Idaho. There’s a mandatory 60-day public comment period, after which the judge will almost certainly rubber stamp the order as being “in the public interest.” Still, there’s at least an opportunity to express some serious dissent to what’s transpired here.