Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

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Executive Summary

Physicians generally dislike thinking about antitrust laws: They’re rife with areas of gray, rarely a doctor’s favorite color. But for the physician thinking about joining or forming a network or for the medical group considering a merger or alliance, antitrust issues can be critical. While physicians must be wary of running afoul of the rules, it is equally important that they understand what activities the antitrust rules permit. Physicians often need to grow and affiliate safely and have a clear understanding of appropriate and inappropriate actions. Antitrust law is complex and often counterintuitive. Generalizations are difficult, and, depending on the facts to which they may be applied, inherently dangerous. Caution is the byword when antitrust law is implicated.

Mistake 1        Misunderstanding the Scope of Antitrust Laws

Doctors probably know of antitrust laws in connection with physician/hospital organizations and other alliance activities. But the laws also apply to nonalliance functions performed routinely (e.g., medical staffing, joint purchasing, information exchange, and managed care contract negotiation) and to sizable mergers and acquisitions. For all of these tasks, ignorance of antitrust law can present real risks to physicians. In addition, the government is not the only party that may initiate antitrust scrutiny; private persons also may bring antitrust actions against allegedly offending physicians. It is thus important for physicians to watch alliances, acquisitions, and mergers with an eye toward aggrieved competitors that may seek to challenge the relationship.

Action Step     Physicians should identify which practice activities may implicate antitrust laws, and apply caution when pursuing those activities.

Mistake 2        Forgetting That Most Antitrust Costs Result from Scrutiny, Not a Guilty Verdict

The risk of scrutiny often is as important as is the outcome of an antitrust case. Regardless of the outcome, scrutiny can harm reputations and require enormous amounts of time and money to withstand. Antitrust cases are very fact specific, with complicated rules about market share and the like. Consequently, it takes a lot of time and money to defend against an antitrust allegation.

Action Step     Physicians should seek to avoid an investigation or challenge in the first place, by learning some of the red flags that can set off antitrust alarms.

Mistake 3        Not Learning the Rules Affecting Fee and Pricing Discussions

Perhaps the biggest antitrust danger physicians face is “price fixing,” because no one has to show market power, or even prove damages. Price-fixing is defined as any agreement (oral or written) that has the purpose or effect of raising, depressing, or fixing prices. If physicians agree to it, they are breaking the law. Period. For example, if a physician asks colleagues (not part of the physician’s group practice) what they are paid by a managed care plan and then the physician holds out for the same pricing, the physician may be vulnerable to charges of price fixing. When discussing whether to form an alliance or how to deal with the perceived threat of competition, physicians must not discuss individual information about their fees or other financial details. If a physician winds up in the presence of this type of information exchange, the physician must insist that the talk stops and leave the meeting if it does not.

So, when may physicians have pricing discussions? There are at least two “safe” opportunities. First, when physicians form a contracting alliance that contains substantial financial and clinical integration (credentialing, risk-sharing, benchmarking, etc.), they may have effectively created a new competitor in the market. When this happens, the antitrust laws permit that financially and clinically integrated competitor to set its own fees. The physician owners then have the right to determine the fee to be charged by the new integrated alliance because they are no longer engaged in price-fixing activities. Rather they are owners deciding what their new company should charge. The degree of financial or clinical integration in a network will thus affect the price-fixing challenge. The degree of clinical integration is also important, as is the ability to bring something new to the market (e.g., specialization diversity). Each integration analysis is very fact specific, and it is a mistake to assume financial or clinical integration without the advice of experienced antitrust counsel. (Mistakes 5 and 6 contain additional discussion on contracting networks.)

Second, physicians are generally permitted to share fee-related information with purchasers (e.g., patients, employers, and managed care organizations). They are also permitted to share certain fiscal information among themselves if specific conditions are fulfilled. The U.S. Department of Justice (DOJ) and the U.S. Federal Trade Commission (FTC) jointly announced a “safety zone” in 1994 concerning the circumstances under which fee information may be shared by a physician with purchasers or with other physicians. This safety zone has several requirements:

  • Collection of fee-related data must be managed by a third party, not by one of the physicians. A purchaser, health care consultant, or trade association, for example, are viewed as appropriate information collectors.
  • The pricing information must be at least three months old. (But there is certainly nothing wrong if the old information is still valid, as long as that fact is not shared.) More current fee-related information may not be shared among the physicians, although it may be made available to purchasers.
  • Any information shared must reflect a data compilation from at least five providers for each reported summary conclusion or statistic. If the database has fewer than five contributors, the information may be provided only to purchasers to prevent inappropriate discussion among physicians concerning individual pricing.
  • No individual physician’s data may comprise more than 25% of that particular statistic.
  • Such information must be aggregated so that recipients cannot utilize the information to identify prices charged by any individual provider.

Action Step     Physicians should avoid discussing individual pricing information, but should learn the rules about sharing generalized pricing information with purchasers or other physicians when specific safeguards are imposed.

Mistake 4        Not Realizing That Non-pricing-related Information May Usually Be Shared without Raising Antitrust Concerns

The DOJ and FTC created another safety zone that applies to sharing nonreimbursement or fee-related information. This safety zone protects physicians from challenge when they supply data that relate to the mode, quality, or efficiency of treatment. For example, a physician alliance may provide information about procedures that its physicians advocate without raising antitrust concerns. A network may suggest practice protocols without antitrust implications. The government seems to believe that such standards for clinical decisions generally provide pro-competitive benefits, by highlighting increased quality and enhancing efficiency. On the other hand, the safety zone expressly excludes the collective provision of information by physicians if there is any coercive element to it. So a network may not suggest, for example, that it will deal only with managed care plans that embrace its clinical protocols. The scope of what constitutes “nonprice” terms, however, is often not as broad as “any term except the fee schedule,” and again, this definition requires the advice of experienced antitrust counsel.

Action Step     Physicians should assess whether they may benefit by sharing non-pricing-related information.

Mistake 5        Ignoring the Dangers of “Boycotting”

Boycotting is another common antitrust concern for affiliating physicians. Boycotting occurs when, for example, physicians on a hospital’s medical staff agree not to refer patients to a new physician (say, a “square peg who isn’t one of us”). Another example is if competitor physicians collectively agree not to bargain with a managed care organization outside of agreed parameters.

Boycott charges are a particular risk in forming alliances. If a venture involves a high proportion of an area’s physicians, there is antitrust risk if the participants coordinate a refusal to participate in managed care outside of the alliance. Again, the degree of financial and clinical integration among the physicians is relevant because by definition a boycott requires more than one party. The more the alliance can show integrated clinical activity or financial risk-sharing by its members, the more safely the members of a physician alliance may decide to act in concert. (Mistake 6 contains additional discussion of alliances.)

Boycott questions also arise when physicians are excluded from an alliance opportunity. To demonstrate that the exclusion reflected an inappropriate group boycott, the physician must make two points: that the other doctors denied the physician access for anticompetitive reasons, and that this denial kept the excluded doctor from earning an adequate living in the market.

It is quite difficult to meet this two-part burden. Cases that have prevailed on these arguments have shown, for example, that a decision ostensibly made by the plan was actually a smokescreen for actions of competitor physician/members because they were involved in the exclusionary decision or unduly influenced the allegedly “independent” plan’s decision making. Even when an excluded physician is able to prove this sort of anticompetitive behavior, it is quite difficult to show as well that the physician was unable to earn a living in the market. In other words, if the excluded physician has other effective employment or revenue opportunities, antitrust relief will be unlikely. This is the gist of the concept of “market power” under antitrust law, which essentially means the power to influence competition and price significantly. Quite simply, in most instances, in the absence of precise language in a state “any willing provider” statute, a network or alliance is not required to admit every physician who wishes to join.

As a general rule, a physician should not ask a colleague if he or she should join a managed care plan. If the physicians then decide not to join, this could be construed as a conspiracy to boycott. It is better for physicians to ask their colleagues about their experience with a particular MCO, and then gather enough information to make their own decisions. Best of all, physicians should avoid the word “let’s” when discussing managed care plans or other venture opportunities.

Action Step     Physicians should avoid joint decisions to blacklist a MCO, a colleague, or another provider.

Mistake 6        Not Understanding the Rules about Physician Network Joint Ventures

There are two basic ways physicians may form network joint ventures for effective contracting and shared services. First, physicians may join together in an entity that imposes significant shared financial risks on the physicians (e.g., capitated payments, risk pools, and withholds) or provides substantial clinical integration (e.g., coordinated recordkeeping, utilization review, and credentialing). Second, physicians may form a looser network without integration, which is primarily limited to facilitating the efficient and coordinated flow of information for contracting purposes between the physicians and other payers or providers (the so-called messenger model).

Networks with sufficient financial risk-sharing or clinical integration survive antitrust scrutiny because they effectively create a new competitor in the marketplace, a physician entity that offers something new to other payers or providers. Unfortunately, many alliances forget that the legality of their formation was conditioned on these risk- or clinical- based activities. For every group that is truly sharing financial risk or managing outcomes, monitoring credentialing, improving performance, etc., there are probably 10 alliances that have said they will do so, but have not yet begun or started operations in antitrust compliance, but over time, have lost their way. Courts have had little tolerance for protracted promises about future intent, and the same is true for the FTC and the DOJ, which enforce the antitrust laws.

The FTC and DOJ have created several safety zones for joint activities, including safety zones focused on physician network joint ventures. These agencies will not challenge (unless extraordinary circumstances exist) a nonexclusive physician network joint venture whose participants share substantial financial risk or have substantial clinical integration if the physicians comprise 30% or less of the physicians in each specialty with active hospital staff privileges who practice in the relevant geographic market. Further, the agencies will not challenge an exclusive physician network joint venture (where the physicians may not seek contract opportunities that the network is also pursuing) if the participants constitute 20% or less of the physicians in each physician specialty with active hospital staff privileges who practice in the relevant geographic market. If the level of participation exceeds these safety zones, the relationship will not necessarily violate the antitrust law. Rather it will be subject to analysis under the “rule of reason,” which examines all of the venture’s pro-competitive and anticompetitive factors.

On the other hand, affiliations that comply with the antitrust rules under the messenger model technically are not even joint pricing agreements. The messenger model uses a third party (e.g., noncompetitor physicians or an IPA administrator in a multiprovider network) to tell the payer what price(s) the network participants are willing to accept. There is still antitrust risk, however, if the messenger influences individual provider or medical group responses, tells other members about a physician’s views, or acts as an agent for binding negotiation of the pricing agreement. There are some important limits to the messenger model, because it is primarily a vehicle for facilitating communication. It is not intended to present a unified voice for the physicians. Nonetheless the model can be an effective structure for improved contracting opportunities.

In the mid-1990s, the government negotiated a consent decree with a network that violated the messenger model. This consent decree gave important insight as to appropriate messenger model operations. According to the consent decree, a messenger model network:

  • May convey to the physicians objective information about contract terms, including other payers’ terms.
  • May solicit clarifications from a payer.
  • May engage in discussions regarding contract terms other than prices and other than competitive terms and conditions; however, the messenger model network must tell the purchaser that it may refuse to respond to the network or may terminate discussions at any time.
  • May not communicate to the physicians any information about the purchaser’s refusal to clarify or entertain further discussions.
  • May convey to the physicians the purchaser’s responses, and may, at the request of a purchaser, communicate the individual views of each physician.
  • May convey to the purchaser the acceptance or rejection by a physician of any contract offer.
  • May refuse to communicate information only under limited circumstances, where the information is insufficient, lacks material terms, or is irrelevant to the physicians’ needs.

Action Step     Physicians should determine whether their network joint venture will be integrated (financially or clinically) or will operate under the messenger model, and should work with competent counsel to follow the rules for the chosen structure. 

Mistake 7        Inappropriately Worrying about Monopolies and Restraint of Trade

Restraint of trade and monopoly charges are very difficult to prove. Although federal law states that every contract, combination, or conspiracy to restrain trade or commerce among parties is subject to the antitrust laws, any such allegation must prove a number of facts, including that there was agreement among the alleged conspirators to attempt to restrain trade, and that the agreement had (or would likely have) a negative impact on competition in the relevant market. This is quite difficult to prove.

Monopolistic activity is also difficult to prove. It must be shown in such a case that the defendant has substantial monopoly power, and that it was obtained willfully and inappropriately. (For example, antitrust law welcomes growth if it is due to a superior product and great customer loyalty.)

Monopoly power is often defined in terms of market share, but there is more to it than that. Technological superiority, relative size of competitors, barriers to entry, and pricing trends in the absence of diversity are also relevant to whether monopoly power exists. Further, monopoly power is not an antitrust violation in itself. It must be obtained by exclusionary, anticompetitive, or predatory conduct. There must also be a specific intent to monopolize, as well as to control prices and exclude competition. As a general rule, market shares of 30% or less are safe from scrutiny.

Often, the test of whether an affiliation is legal under antitrust laws is whether the restraint of competition that results from the activity is inherent in that activity. For example, physician networks may not deny qualified candidates the opportunity to join if the core purpose for the denial is to restrict access to the network’s market (i.e., to protect turf). On the other hand, physicians who are deselected or locked out because they failed to meet credentialing requirements would not be able to mount an antitrust case, nor would deselected physicians who retain the ability to compete effectively in the market, albeit outside of the network.

Action Step     Physicians should avoid joint decisions designed to restrict access to competitors, but such decisions are not antitrust violations unless the physicians control enough of the market so as to make it difficult for other physicians to earn a living in the market.

Mistake 8        Not Realizing That Mergers Are Usually Safe, but Size Matters

One important element under restraint of trade and monopoly analysis is whether an affiliation—a merger or alliance—substantially lessens competition. This analysis is complicated, but there are guidelines. If the merger is between noncompetitors, such as a cardiology group and a gastroenterology group, there is not likely to be an antitrust issue because competitors are not removed from the market. If large groups merge, however, they must identify their product market (e.g., diagnostic cardiology services) and the geographic market involved, and calculate the market share of the merging practices and of their competition. This analysis requires physicians to look at the market from which they draw patients, then look at alternative resources those patients have (including physicians in nearby markets), then assess their market share from that expanded geography. This is a complicated analysis. A rule of thumb for mergers is that if merging practices have more than 35% of the market before a merger, or if the four largest competitors have 50% of the market before the merger, antitrust issues may arise.

If the merged groups would capture a high portion of the market share, there are other variables that can affect a case. These include the reasons for the merger (community need is a valuable fact), the efficiencies generated by the merger, whether any of the parties would fail financially if the merger did not occur, and how difficult it is for new participants to come into the market. The harder it is for someone to enter a market, the more likely it is that a merger will be challenged. If there are few radiologists in town, for example, a merger of these practitioners will be more vulnerable to scrutiny.

Action Step     Physicians should address antitrust law concerns for mergers or alliances only when the consolidation would capture a significant portion of the relevant geographical and product markets, making it difficult for others to compete.

Mistake 9        Ignoring State Laws When Forming Networks or Merging Practices

It is important to consider state laws as well as the federal antitrust law when considering mergers or alliance formation. State laws vary greatly and provide various safe harbors from federal antitrust scrutiny. (In Maine, for example, a list of advantages for joint ventures is considered before state approval of a venture is granted.) For the most part, these state laws have not yet withstood federal challenge and thus may not eliminate federal antitrust risk. Also, other state laws (fair trade laws, tortious interference and consumer protection laws, etc.) may come into play as well.

Action Step     Physicians should review state law when forming mergers or alliances.

Mistake 10      Waiting Too Long to Consult Competent Counsel When Establishing Physician Alliances, Acquisitions, or Mergers

Because the antitrust laws can be so onerous, it is imperative that physicians utilize competent counsel to help assess risks and structure compliant solutions whenever seeking to form an alliance or pursue an acquisition or merger. It is wise to bring counsel into the discussions early on, so that structural alternatives may be assessed before structural and operational decisions are finalized. Early utilization of counsel can also minimize the costs and hassles when an alliance, acquisition, or merger is challenged under antitrust principles.

Action Step     Physicians should consult competent counsel early when seeking to form an alliance or pursue an acquisition or merger.


Penalties for violating federal or state antitrust rules, and the danger of scrutiny when alliances, acquisitions, or mergers are operated casually or carelessly, make it imperative that physicians protect themselves by knowing enough about antitrust law to avoid risky behavior. Conversely, the demonizing of antitrust law should be avoided, as many opportunities for alliances, information sharing, and so on are permitted.

Disclaimer: Materials in this presentation have been prepared by the Health Law Center for general informational purposes only. This information does not constitute legal advice. You should not act, or refrain from acting, based on any information in this presentation. Neither our presentation of such information nor your receipt of it creates nor will create an attorney-client relationship.

Written by:

Neil B. Caesar, Esq., and Kelly R. Pickens, Esq.

Peer reviewed by: Thomas Baker, Esq.

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