Antitrust Enforcement in the Medical Services Industry: What Does It All Mean?
2005; Wiley; Volume: 83; Issue: 4 Linguagem: Inglês
10.1111/j.1468-0009.2005.00430.x
ISSN1468-0009
Autores Tópico(s)Medical Malpractice and Liability Issues
ResumoThis paper describes and attempts to explain the recent movement to enforce the antitrust laws in the health care sector of the economy. Few would doubt that this movement has important implications, particularly for the medical profession, but not many could be very precise in stating what those implications are. Attempts by physicians, and by the publications they read, to discuss the antitrust effort have been lacking in perception though not in dire predictions (Avellone and Moore, 1978; Paxton, 1979; Relman, 1978). Many nonphysician observers, even though not particularly sympathetic to physicians' views on the various questions that have been raised by antitrust initiatives, have nevertheless been puzzled by the choice of issues and by some of the arguments advanced. They have been particularly struck by certain inconsistencies between the apparent objectives of the antitrust authorities and the premises of the current or emerging health policies administered by the Department of Health, Education, and Welfare. On the whole, outside observers have not yet been impressed by what they have seen in the antitrust effort in the health services industry. My thesis in this article is that antitrust enforcement in this industry makes a great deal more sense than is generally appreciated. The public's awareness of enforcement policy necessarily lags behind its development. Investigations are commenced and theories and policies are devised long before they culminate in the issuance of complaints or in other prosecutorial action, and final decisions and remedies are usually delayed further still. It is thus quite probable that the enforcement agencies are far more knowledgeable about the health care industry and its problems than appears from the public record. In addition to arguing that some sophistication has in fact been achieved, I shall show why the agency activities of which the public has been most aware are not indicative of the true directions of current enforcement policy. First, however, it may be helpful to comment briefly on some conflicts that both complicate the application of antitrust principles to the medical care industry and impair public understanding of the enforcement effort. The effort to enforce antitrust principles in health care began in earnest only after the Supreme Court decided in 1975, in the Goldfarb case,11 Goldfarb v. Virginia State Bar, 421 U.S. 733 (1975). that the “learned professions” enjoy no antitrust exemption. That decision, together with the prevalent concern about inflation in general and about health care costs in particular, led the Federal Trade Commission (FTC) to announce a commitment of resources to the industry. This commitment has now been reinforced by three successive chairmen, and seems permanent. The Justice Department's Antitrust Division, though involved less as the result of a conscious policy choice, has nevertheless been an important factor on some issues. Several state attorneys general have also begun significant antitrust activity in the health care field.22 E.g., Arizona v. Maricopa County Medical Soc'y, No. CIV-78–800-PHX-WPC (D. Ariz., June 5, 1979); Ohio v. Ohio Medical Indem., Inc., Civ. No. C-2-75-473 (S.D. Ohio, filed July 9, 1975). See alsoWeller (1978). The pre-Goldfarb neglect of the health sector by federal antitrust authorities resulted not only from recognition of a possible implied exemption for the medical profession, but also from doubts concerning their jurisdiction,33 The one great antitrust victory in the health sector before 1975, American Medical Ass'n v. United States, 317 U.S. 519 (1943), came in a case originating in the District of Columbia, and the interstate commerce issue loomed as a barrier to other initiatives. E.g., Elizabeth Hosp., Inc. v. Richardson, 269 F.2d 167 (8th Cir.), cert. denied, 381 U.S. 884 (1959). But see Hospital Building Co. v. Trustees of Rex Hosp., 425 U.S. 738 (1976). Other jurisdictional problems were presented by the McCarran-Ferguson Act, 15 U.S.C. §§1011–1015 (1976). E.g., Travelers Ins. Co. v. Blue Cross, 481 F.2d 80 (3d Cir. 1973). But see Royal Drug Co. v. Group Life & Health Ins. Co., 99 S. Ct. 1067 (1979). On the reach of the FTC Act, see note 14 and accompanying text. a significant judicial setback in the Supreme Court in 1952,44 United States v. Oregon State Medical Soc'y, 343 U.S. 326 (1952). For a discussion of the case, see Goldberg and Greenberg (1977). and a lack of expertise about the industry and its competitive shortcomings. The resulting failure to enforce the basic rules of competitive conduct allowed the entrenchment of many anticompetitive practices and institutions, which seemed, without close antitrust scrutiny, to be not only natural but also beneficial because consistently justified in terms of quality assurance, professionalism, and traditional doctor-patient relations. These established practices and institutions are now suddenly threatened by antitrust lawyers who are skeptical of the conventional explanations and justifications offered for the absence of competition in health services. The new antitrust effort has been met by the medical profession with the kind of displeasure usually reserved for federal regulators (and malpractice lawyers). The profession has not yet seen fit to acknowledge any distinction between antitrust enforcement and government regulation of the direct command-and-control variety, even though the former is based on a preference for free competition over government as a social control mechanism. Thus, although antitrust enforcers, as supporters of free enterprise, would seem to share doctors' preference for viewing medical care as an essentially private business, a considerable gap in understanding has yet to be bridged. It remains to be seen whether physicians will in time come to view antitrust enforcers, if not as allies in the war against regulation, then at least as the lesser of two evils—like the enemy in a two-front war to whom one would prefer to surrender because of the nature of the regime one could expect to live under in the future (Havighurst, 1979; Havighurst and Hackbarth, 1979). A major reason given by professionals and some others for their concern about the antitrust enforcement effort in this industry is the fear that antitrust doctrine and enforcement, being geared to commerce in ordinary goods and services, will prove insensitive to the special features of the medical care enterprise, particularly the quality-of-care problem and the medical profession's self-regulatory responsibilities. Although the Supreme Court has periodically held out the possibility that professional services would be treated differently from other industries, each successive statement of this possibility has been framed more narrowly than the preceding one.55 See United States v. Oregon State Medical Soc'y, 343 U.S. 326, 336 (1952); Goldfarb v. Virginia State Bar, 421 U.S. 733, 788 n. 17 (1975); Bates v. State Bar of Arizona, 433 U.S. 350, 368–370 (1977); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 696 (1978). Moreover, the Court has yet to decide a case limiting the reach of antitrust principles into a profession's self-regulatory domain. It remains to be seen, therefore, precisely where substantive law will finally place the professions and whether medical care will be found to be entitled in any way to special treatment. With legal doctrine an increasingly uncertain protection for professional activities, special attention focuses on the enforcement agencies and their prosecutorial discretion. Although bound in a general sense to enforce the law, the antitrust authorities would be quite free, as a practical matter, to acquiesce in the conventional view that market forces are unreliable in the health services marketplace. Accordingly, they might allocate only limited resources to promoting competition in the field and, without scrutinizing traditional patterns too closely, might bring complaints only against practices so egregiously antisocial that most professionals would themselves find them objectionable—for example, explicit boycotts aimed at suppressing health maintenance organizations (HMOs). Alternatively, the antitrust enforcers could adopt the view that since neither traditional self-regulation nor government's regulatory intervention appears to have prevented severe misallocations of resources, those mechanisms cannot be assumed to protect the public interest. With this perception, an agency might launch extensive inquiries culminating in a major campaign aimed at total reform of the industry along competitive lines. Such a campaign could include not only attacks on cherished professional and other institutions, but also lobbying for legislative and regulatory changes to improve the market's ability to function. Realistically, the antitrust agencies have probably not had the option of leaving the health care industry entirely to its own devices or of limiting their interventions to the obvious cases. Public dissatisfaction with the industry's economic performance created a political opportunity that the FTC could not have been expected to resist. Once it was involved in a major way, moreover, the FTC and its staff could not easily ignore the numerous actionable restraints that they discovered. Similarly, the Justice Department, though probably inclined to leave health matters largely to the Department of Health, Education, and Welfare, found it difficult to look the other way when it was directly asked for advice on specific antitrust questions arising in the health care sector (Antitrust and Trade Regulation Reporter, 1978; Holcomb, 1978). Moreover, as the industry's favored alternative to increased government regulation increasingly appeared to be expanded voluntary efforts by industry-wide groups, the antitrust agencies were faced with having to accept, not just existing anticompetitive arrangements, but the strengthening of monopolistic institutions, in the name of reform. The clash of policies was simply too great to ignore. Not only did the public significance and visibility of antitrust issues in health care practically compel the agencies' attention, but also the policy debate began to demand their participation. Strengthened competition in the delivery of health services has seemed to many to offer an attractive middle ground for bringing some stability to health policy and for resolving some of the tension between advocates of existing institutions, on the one hand, and enthusiasts for regulation, on the other. Thus, the trend to regulation in the health sector has itself helped to bring the antitrust agencies, as leading advocates of deregulation in the economy as a whole, into the health care sector by another route. Because antitrust law and its underlying policy of competition contemplate neither the perpetuation of the status quo nor an increase in governmental power, they have current political appeal as vehicles of major reform. This political drama seems likely to cast the antitrust agencies in larger roles than they have sought or, perhaps, can comfortably fill. In addition to being drawn into health care issues at the “macro” level, the antitrust agencies may find it difficult to be moderate in confronting “micro” issues in specific cases. A factor weighing against their acceptance of broad powers for organized professional interests is the justified skepticism that antitrust enforcers have developed over the years toward the claim that whatever industry they are attacking is a special case. Just as the putative “learned-professions” exemption is now viewed as an elitist anachronism, the claim that profession-sponsored or industry-sponsored groups can be trusted to face economic trade-offs—between quality and cost, for example66 For a discussion of the importance of quality/cost trade-offs in medical care, see Havighurst and Blumstein (1975:9–38). —on the consumer's behalf is not likely to be well received. Because antitrust enforcers are convinced of the democratic and economic merits of the competitive model, they will not readily accept as a general proposition the claim that market forces cannot function usefully in this industry. Moreover, the antitrust agencies have by now had the occasion to probe into some of the seamier activities of several professions, and are probably in a better position to judge the validity of at least some of the professions' claims of worthy purposes than are those who advance them. Although antitrust prosecutors cannot be expected to defer readily to professional opinion, or to revise their abiding faith in market forces, there does exist in the enforcement agencies at the moment some uncertainty about how hard or how far to push the analogy to other industries. As yet, there have been few forays into areas where the quality of care is apt to be directly affected, and, as later discussion suggests, this hesitation is likely to continue at least until self-confidence increases and other items on the enforcement agenda have been disposed of. Moreover, antitrust enforcers will undoubtedly recognize that significant problems exist in phasing competition into a market where it has been absent. In the exercise of their prosecutorial discretion, they might well conclude that weakening certain profession-sponsored controls would be undesirable until competitive institutions are in place and can assume responsibilities on a more decentralized basis. In making such judgments, however, they will also be concerned about the possibility that the existence of such controls may have the effect, directly or indirectly, of foreclosing the desired competitive developments. Perhaps the main source of the antitrust agencies' lack of enthusiasm for the organized profession's own efforts to police itself is the law itself, which leaves the prosecutors only limited discretion in evaluating collaborative activities among competitors. Now that the “learned-professions” exemption has been laid to rest, most of the legal questions presented by profession-sponsored reforms are relatively straightforward matters under section 1 of the Sherman Act77 15 U.S.C. §1 (1976). and its prohibition of concerted trade-restraining action by competitors. Antitrust doctrine, evolved over nearly three generations, requires competition, for better or for worse, and leaves very little room for asking whether competition is desirable in particular circumstances or is outweighed by some asserted worthy motive. That antitrust doctrine is intolerant of claimed justifications for profession-wide restraints on competition was sharply underscored in the Professional Engineers case decided by the Supreme Court in 1978.88 National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679 (1978). The Court held that a prohibition of competitive bidding, imposed by the ethical canons of a national professional society, could not be defended by alleging, truthfully or not, that the public safety would be jeopardized if engineering contracts for bridges and other major construction were awarded on the basis of cheapness. The antitrust laws thus embody a virtually conclusive presumption that, unless Congress or a state legislature has otherwise decreed, competition is the only acceptable organizing force in private commercial activity. Although the agencies' discretion allows them to choose their targets on the basis of probable gains to the public welfare, arguments to the effect that competition is undesirable as a social control mechanism in particular circumstances must, as a general rule, be addressed to Congress, which can supply such regulatory substitutes for competition as it deems necessary. The only substantive issue in an antitrust case involving activities of a dominant professional association is whether those activities have significantly impaired the vigor of competition as a force to discipline the profession with respect to price or output or have appreciably restrained market entry or competitive innovation. By the same token, any attempted justification of self-regulatory activities must be on the basis that the competitive process is strengthened—as it would be, for example, by certification and accreditation programs giving consumers reliable information. Thus, in Professional Engineers, the Supreme Court stated that professional self-regulation and “[e]thical norms may serve to regulate and promote … competition.”99 435 U.S. at 696. Professor Philip C. Kissam, borrowing concepts from sociologist Eliot Freidson, has suggested that the courts may distinguish anticompetitive from procompetitive self-regulation on the basis of whether it affects primarily the economic organization of the profession or the technical aspects of the services provided (Kissam, 1979). Although such a line may be difficult to draw in many specific cases, it may prove helpful in identifying serious restraints and in allocating enforcement resources. The medical profession has understandably been frustrated by the antitrust agencies' application of the foregoing principles to its well-intentioned efforts to respond to the pressures and demands increasingly being placed on it by government and consumers. For example, the Antitrust Division refused to issue a business review letter blessing the “voluntary effort,” by which the medical profession and the hospital industry proposed to bring increases in hospital costs under control without governmental interference (Antitrust and Trade Regulation Reporter, 1978). Similarly, the FTC staff has challenged the legality of certain profession-sponsored “individual practice associations” (IPAs), which purport to impose peer oversight on the economic performance of individual doctors (Federal Trade Commission, 1979:273–307). Notwithstanding the profession's sense that its most sincere reform efforts are being threatened with frustration, the implications of antitrust doctrine seem clear. The dominant premise of profession-sponsored reforms in the financing and delivery of medical care—that is, in the economic organization of care—has been that the public should look to the profession rather than to individual competitive behavior for solutions to any problems that exist. Traditional antitrust doctrine, however, rejects the premise that industry-wide groups can serve as unbiased arbiters of price, quantity, quality, and other economic matters, and demands instead that decisions on such matters be made on a decentralized competitive basis, by producers whose ability to further their own interests is checked by the need to satisfy consumers. Moreover, this principle applies even when it is unclear that market forces can be immediately or totally effective. To conclude otherwise, perhaps in pursuit of some short-term expedient goal, would perpetuate the displacement of the very market forces that antitrust law presumes will yield outcomes preferable to those changes that industry interests might volunteer. As subsequent discussion shows, many of the factors that make competition an uncertain performer are also under the medical profession's control. To allow it to engage in concerted action to solve problems that are traceable in large measure to other concerted actions it has taken would be to compound the problem rather than to solve it. There thus seems to be no escaping the conclusion, implicit in Goldfarb's opening the activities of the organized professions to antitrust scrutiny, that profession-dominated reforms adversely affecting the competitive performance of markets for professional services are unlawful, despite their arguably benign purpose and beneficial impact. It is apparent that antitrust enforcement represents a major threat to professional prerogatives as they have developed in medical care. The ultimate result of the enforcement effort—though not its goal, which is not yet so well formulated—could well be a major, but privately initiated, overhaul of the entire medical and health services industry, including its hospital and financing components (Havighurst and Hackbarth, 1979). Achievement of this ultimate result requires not only antitrust enforcement, but also redirection of some other public policies.1010 See Committee on Ways and Means, et al. (1979) on the need to alter tax treatment of employer-paid health benefits in order to increase competition in the insurance industry. SeeCommittee on Labor and Human Resources (1979:3, 53) and Committee on Interstate and Foreign Commerce (1979:51–56, 106) on the need to encourage competition through the health planning process. The antitrust agencies, particularly the FTC, are developing a modest advocacy capability that may contribute to a loosening of regulatory and other restraints, and to evolution in various public programs that will make increased room for cost-conscious consumer choice and for responsive competitive developments. Whatever the outcome, it will certainly be interesting to watch a small band of antitrust enforcers—there are probably no more than fifty full-time-equivalent lawyers in the country working on this side—take on a huge and fragmented industry in which anticompetitive traditions run deep. It will be equally interesting to see whether, how, and where competitive impulses begin to manifest themselves and whether professionalism's many positive features are adversely affected. Antitrust prosecutors and economists, looking at the health services industry carefully for the first time after Goldfarb, quickly identified certain practices that seemed worthy of their attention. Several of these were made the subject of enforcement or other actions and are the measures with which the enforcement effort is primarily identified today. My thesis is that, in each of these early instances, the actions taken were in important respects “knee-jerk” moves by the prosecutors and not steps implementing a carefully calculated strategy, based on a full understanding of their target or their mission. This is not to say that any important mistakes were made. Indeed, all of the targets chosen appear to have been reasonable ones. Frequently, however, the theories employed in choosing or attacking a particular target were lacking in penetration. In other words, as law professors are wont to say of judges with whom they do not differ, the enforcement agencies were right for the wrong reasons. An early initiative was the FTC's complaint against the American Medical Association (AMA) and two Connecticut medical societies, charging unlawful restrictions on competitive advertising. This case, which also involved certain other provisions of the profession's code of ethics, was recently decided in the staff's favor by the administrative law judge,1111 American Medical Ass'n, No. 9064 (FTC, Nov. 13, 1978) (initial decision). and is now on appeal to the commission. It is likely to end up in the courts, following the FTC's final decision. An agreement among competitors not to advertise is a clear violation of antitrust principles and was an obvious first target. Nevertheless, although the record in the AMA proceeding reveals many clear abuses, the value of the case as a contribution to major reform of the industry may at least be questioned. The issue is not whether the case was useful at all, but whether it was the best use of enforcement resources. It is not likely, for example, that, given the numerous peer pressures to which they are subject, physicians will begin advertising soon, or that, given widespread third-party payment, such advertising will contribute much to the important goal of cost containment. On the other hand, the case should have positive benefits for many alternative delivery systems, such as HMOs and the abortion clinic victimized by practices that have been challenged in a recent Florida case,1212 Feminist Women's Health Center, Inc. v. Mohammad, 586 F.2d 530 (5th Cir. 1978). and for new physicians entering certain types of practice. Perhaps equally significant is the symbolic importance of the AMA case as an attack on the general problem of physicians' withholding of information valuable to consumers, the same problem that has given rise to the legal requirement of “informed consent.”1313 For discussions of informed consent, see Canterbury v. Spence, 464 F.2d 772 (D.C.Cir. 1972) and Yale Law Journal (1970). An important further question about the case's wisdom was the possible reaction of the public both to the governmental challenge to a respected profession and to the idea of physician advertising itself. Though cartoonists fantasized some distasteful possibilities, editorial comments on the initial decision have been predominantly favorable (e.g., New York Times, 1978). Thus, though one could not have been sure of this result, the case may have earned the Federal Trade Commission some political capital, rather than squandering it on a matter of small economic significance. Note that much of the effort that went into trying the AMA case involved, not the ethical code itself, but the FTC's jurisdiction over professional societies, a matter that would have had to be litigated in any case that the FTC brought against organized medicine. The specific problem is that the FTC Act gives the agency jurisdiction over nonprofit organizations only if they are organized for the “profit of their members.”1414 15 U.S.C. §44 (1976). The proof needed to establish this fact naturally antagonized the AMA and greatly complicated the case. In any event, the attack on advertising restrictions has appeared to many observers to be the centerpiece of the antitrust enforcement effort in health care. It is in fact quite peripheral, more a warm-up exercise than the main event. Antitrust enforcers, new to the health services industry, naturally began immediately to look for price-fixing activities similar to the lawyers' minimum-fee schedules that were the subject of the Goldfarb case. Although they found nothing directly comparable, they did identify two price-related practices that have resulted in major enforcement actions. The first of these was professional sponsorship of “relative value studies” (RVSs).1515 For background on relative value studies, see Committee on Governmental Affairs (1979) and Havighurst and Kissam (1979:50–54). RVSs are tables of medical procedures with numerical weights attached to indicate the proportional relation of each procedure to all other items on the list. An RVS is not a fee schedule, but can readily be turned into one simply by multiplying each item by a dollar conversion factor. Antitrust enforcers, schooled in the use of freight books, basing points, and average cost data by industrial trade associations,1616 See, e.g., United States v. Container Corp. of America, 393 U.S. 333 (1969); Federal Trade Commission v. Cement Institute, 333 U.S. 683 (1948); Triangle Conduit and Cable Co. v. Federal Trade Commission, 168 F.2d 175 (7th Cir. 1948), aff'd by an equally divided Court sub nom. Clayton Mark and Co. v. Federal Trade Commission, 336 U.S. 956 (1949). were quick to shout “Pricing formula!” A number of RVSs have been enjoined or subjected to FTC orders on the basis of this perception.1717 E.g., American College of Obstetricians and Gynecologists and American Academy of Orthopaedic Surgeons, 3 Trade Reg. Rep. (CCH) ¶21,171 (consent decree and order entered Dec. 14, 1976); American College of Radiology, 3 Trade Reg. Rep. (CCH) ¶21,236 (consent decree and order entered Mar. 1, 1977). Investigations have revealed several instances in which the agencies' antitrust instincts have been vindicated and their fears borne out. The ease of agreeing on a multiplier has apparently facilitated overt price fixing where otherwise it would probably have been impossible because of the large number of professional services and the illegality of explicit fee schedules. Moreover, tacit collusion and the following of price leaders are facilitated by RVSs, as is the identification and chastisement of price cutters. The RVS system, having been adopted by third-party payers, has proved manipulable in several ways that increase physicians' incomes. While the case against profession-sponsored RVSs is certainly strong, it is not totally satisfying. RVSs have been useful in administering third-party payment schemes and have some arguable value in cost-containment efforts. More seriously, some economic studies suggest that physicians' fees
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