N TX Spclt Physn v. Fed Trade Commission ( 2008 )

REVISED July 17, 2008
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 06-60023 May 14, 2008
Charles R. Fulbruge III
North Texas Speciality Physicians, Clerk
Petitioner,
v.
Federal Trade Commission,
Respondent.
___________________________________
American Medical Association; Texas Medical Association,
Amicus Curiae.
Petition for Review of a Final Order
of the United States Federal Trade Commission
Before KING, WIENER, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
North Texas Specialty Physicians (NTSP) petitions for review of an
opinion and order of the Federal Trade Commission (FTC or Commission) that
found certain activities of NTSP constituted horizontal price-fixing unrelated to
No. 06-60023
any procompetitive efficiencies,1 in violation of section 5 of the Federal Trade
Commission Act.2 We conclude that the FTC’s examination, although somewhat
abbreviated, of the factual underpinnings of the conduct at issue, its
anticompetitive effect, and the procompetitive effects that NTSP claims have
occurred or will occur, was adequate, and the FTC’s determinations are
supported by substantial evidence. However, the remedial order entered by the
FTC is overly broad in one respect, and we accordingly grant the petition for
review and remand to the Commission so that it may modify its order.
I
NTSP is an organization of independent physicians and physician groups
principally located in Tarrant County, which includes the city of Fort Worth,
although physicians from seven other Texas counties are affiliated with NTSP.
NTSP’s size has varied. It had approximately 575 members in 2003 and 480
members in April 2004. As of 2003, NTSP was comprised of practitioners in 26
medical specialties but also included some primary care physicians. The ALJ
found, and NTSP does not dispute, that in Tarrant County NTSP specialists
were a large percentage of the practitioners within a specialty, for example 80
percent in pulmonary disease, 59 percent in cardiovascular disease, and 69
percent in urology. Many NTSP physicians compete with one another. All
physicians pay a fee upon joining NTSP and elect representatives from their
ranks to serve on its eight-member Board of Directors.
1
See N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032 (F.T.C. 2005),
available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf.
2
15 U.S.C. § 45.
2
No. 06-60023
When it formed in 1995, NTSP’s original business model was to assemble
physician groups and negotiate contracts between these groups and “payors,”
such as insurance companies, health maintenance organizations (HMOs),
preferred provider organizations (PPOs), and partially or fully self-insured
employers. These contracts were on a flat fee-per-patient basis and were termed
“risk” contracts (also known as “capitation” contracts) because the physician
groups bore the risk of profit and loss, based on how efficiently they could
provide medical care for the fixed fee per patient during the term of a contract.
However, payors’ interest in risk contracts declined, and by 2001, NTSP’s board
began to focus on assisting physicians in negotiating “non-risk” contracts. A
non-risk contract is a fee-for-service arrangement between the payor and the
physician. The non-risk model was more successful, and at the time of the
proceedings before the FTC, NTSP had approximately twenty non-risk contracts
and only one risk contract. The FTC found that about one-half of NTSP’s
physicians participate in the risk contract. Only NTSP’s activities with regard
to non-risk contracts are at issue. The FTC has not challenged any of NTSP’s
conduct with regard to risk contracts.
In facilitating non-risk contracts, NTSP and each of its physicians
executed Physician Participation Agreements. Those provide that if NTSP
enters into an agreement with a payor to disseminate non-risk offers, NTSP will
send or “messenger” all of those offers to physicians, who are free to accept or
reject them. If more than 50% of the NTSP physicians agree to accept a non-risk
offer, NTSP will proceed to negotiate a contract for the physicians. The
Physician Participation Agreements contemplate that physicians will not
individually pursue a payor offer unless and until they are notified by NTSP that
it has permanently discontinued negotiations with that payor. However, the
3
No. 06-60023
physicians’ relationship with NTSP is not exclusive. If NTSP is not negotiating
with a payor or if NTSP has an agreement with a payor that does not cover
particular services that a physician seeks to provide, a physician may deal
directly with that payor or indirectly through participation in other independent
physician associations.
NTSP polls its physicians on an annual basis, asking the minimum rate
each would accept in a non-risk contract. NTSP uses the poll responses to
calculate the mean, median, and mode of the minimum acceptable fees identified
by its physicians. Based on these calculations, NTSP determines a minimum
contract fee that it utilizes when negotiating managed care contracts on behalf
of its participants.3 NTSP contends that the poll assists it in determining
whether a non-risk offer is likely to attract a majority of its participating
physicians, and accordingly, it only messengers non-risk contracts that offer at
least the minimum fee calculated from the polls.
NTSP reports the mean, median, and mode from the polls to its
participating physicians and explains to participating physicians that “NTSP
polls its affiliates and membership to establish Contracted Minimums.” In
conducting the poll each year, NTSP reminds physicians of the results of the
previous year’s poll.
The FTC issued an administrative complaint alleging that NTSP
restrained competition among its physicians through horizontal price-fixing in
violation of the FTC Act.4 NTSP responded that there were “spillover” effects
3
See 2005-2 Trade Cas. (CCH) at 103,460, slip op. at 4.
4
15 U.S.C. § 45(a) (declaring illegal, and giving the FTC the power to prevent, “unfair
methods of competition”).
4
No. 06-60023
from its and its physicians’ experience with risk contracts into its non-risk
contracts that resulted in net procompetitive effects. It argued that it trains
physicians to work together as more efficient teams and to be more efficient as
individual practitioners and that these improvements will “spillover” to non-risk
treatment if the same teams of key physicians can continue working together.
NTSP cites as an example situations in which a primary-care physician and a
specialist have coordinated in treating a certain illness, so that other patients
with the same condition benefit and receive higher-quality care. It also asserts
that its physicians can, through experience, eliminate unnecessary tests and
procedures, lowering the cost of health care.
The matter was tried before an Administrative Law Judge (ALJ), who
found that NTSP’s conduct constituted horizontal price-fixing unrelated to any
procompetitive justifications and issued a cease and desist order. NTSP
appealed to the FTC for a de novo review, and the Commission affirmed.
The Commission concluded that NTSP’s conduct constituted concerted
action among physicians because it is controlled by physicians, rejecting the
argument that NTSP was a sole actor. The FTC concluded that the participating
physicians have taken collective action in an attempt to obtain higher fees.5
Although the FTC concluded that NTSP’s “conduct could be characterized as per
se unlawful under the antitrust laws, and thus subject to summary
condemnation,”6 the Commission used an “inherently suspect” analysis, citing
5
2005-2 Trade Cas. (CCH) at 103,466, slip op. at 16.
6
Id. at 103,460, slip op. at 3.
5
No. 06-60023
its prior decision in Polygram Holding, Inc.,7 and the District of Columbia
Circuit’s decision affirming the FTC in that case.8 The FTC rejected NTSP’s
proffered pro-competitive justifications and entered a cease and desist order
against NTSP that, among other provisions, required termination of existing
non-risk contracts at the payor’s request or at the earliest termination or
renewal date. NTSP now petitions this court for review of the FTC’s opinion and
order.
II
NTSP has raised five broad issues on appeal: whether (1) there was
concerted action; (2) the FTC could utilize an “inherently suspect” analysis
rather than a full-blown rule-of-reason examination and if so, did the
Commission ignore undisputed evidence of NTSP’s procompetitive justifications;
(3) NTSP’s right to due process was violated by the denial of discovery regarding
procompetitive effects of its conduct; (4) the FTC had jurisdiction; and (5) the
FTC’s remedial order is overly broad. The FTC’s findings “as to the facts, if
supported by evidence, shall be conclusive,”9 even if “suggested alternative
conclusions may be equally or even more reasonable and persuasive.”10 We
review the FTC’s legal analysis and conclusions de novo, “although even in
considering such issues the courts are to give some deference to the [FTC]’s
7
5 Trade Reg. Rep. (CCH) ¶ 15,453 (F.T.C. 2003), available at
http://ftc.gov/os/2003/07/polygramopinion.pdf.
8
Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005).
9
15 U.S.C. § 45(c).
10
Colonial Stores, Inc. v. FTC, 450 F.2d 733, 739 (5th Cir. 1971).
6
No. 06-60023
informed judgment that a particular commercial practice is to be condemned as
‘unfair.’”11 Constitutional challenges are reviewed de novo.12
III
We first consider the jurisdictional issue. NTSP contends that its alleged
anticompetitive conduct was not “in or affecting commerce,”13 because effects on
interstate commerce must be “more than de minimis when considered in
proportion to the parties’ business as a whole,” and its conduct “was never shown
to have even a de minimis effect on the business of any payor as a whole.”
The FTC assumed in the present case that “the definition of ‘unfair
methods of competition’ under the FTC Act, 15 U.S.C. § 45, is the same as the
definition of a ‘contract combination . . . or conspiracy, in restraint of trade . . . .’
under Section 1 of the Sherman Act, 15 U.S.C. § 1,”14 and at least one circuit
court agrees that “the analysis under § 5 of the FTC Act is the same . . . as it
would be under § 1 of the Sherman Act.”15 NTSP does not take issue with this
interpretation.
The United States Supreme Court has explained with regard to
jurisdiction under the Sherman Act that “because the essence of any violation
11
FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 454 (1986).
12
See Soadjede v. Ashcroft, 324 F.3d 830, 831 (5th Cir. 2003).
13
15 U.S.C. § 45 (declaring unlawful “unfair methods of competition in or affecting
commerce” and providing “[t]he Commission is hereby empowered and directed to prevent
persons . . . or corporations . . . from using unfair methods of competition in or affecting
commerce”); see also id. § 44 (defining “commerce” to include “commerce among the several
States”).
14
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,463 n.10, slip
op. at 9 n.10 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf.
15
Polygram Holding, Inc. v. FTC, 416 F.3d 29, 32 (D.C. Cir. 2005).
7
No. 06-60023
of § 1 is the illegal agreement itself—rather than the overt acts performed in
furtherance of it, proper analysis focuses, not upon actual consequences, but
rather upon the potential harm that would ensue if the conspiracy were
successful.”16 The Supreme Court elaborated:
“If establishing jurisdiction required a showing that the unlawful
conduct itself had an effect on interstate commerce, jurisdiction
would be defeated by a demonstration that the alleged restraint
failed to have its intended anticompetitive effect. This is not the
rule of our cases. A violation may still be found in such
circumstances because in a civil action under the Sherman Act,
liability may be established by proof of either an unlawful purpose
or an anticompetitive effect.
Thus, respondent need not allege, or prove, an actual effect on
interstate commerce to support federal jurisdiction.”17
The Supreme Court has also explained: “Nor is jurisdiction defeated in a case
relying on anticompetitive effects by plaintiff’s failure to quantify the adverse
impact of defendant’s conduct.”18 Similarly, the Court has said: “Nor was it
necessary for petitioners to prove that the fee schedule raised fees. Petitioners
clearly proved that the fee schedule fixed fees and thus ‘deprive[d] purchasers
or consumers of the advantages which they derive from . . . competition.’”19
The FTC reasoned that “NTSP’s actions to maintain physician fee levels,
if successful, could be expected to affect the flow of interstate payments from out-
16
Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 330 (1991) (internal citations omitted).
17
Id. at 331 (quoting McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 242-
43 (1980) (internal citations omitted)).
18
McLain, 444 U.S. at 243.
19
Goldfarb v. Va. State Bar, 421 U.S. 773, 785 (1975) (quoting Apex Hosiery Co. v.
Leader, 310 U.S. 469, 501 (1940)).
8
No. 06-60023
of-state payors to NTSP physicians.”20 Payors also testified that they provide
health-care coverage to national companies with employees in Texas, and that
an increase in costs for health-care services in Fort Worth would affect the
overall insurance costs of these national companies. If NTSP’s efforts to
maintain physicians’ fees were successful, “as a matter of practical economics,”21
the advantages of competition have been adversely affected for out-of-state
employers and payors. The FTC had jurisdiction.
IV
The FTC found that “NTSP is controlled by competing physicians, and
therefore is not a sole actor for purposes of the antitrust laws.”22 The
Commission “agree[d] with the ALJ’s conclusion that NTSP’s participating
physicians have taken collective action to obtain higher fees from payors.”23
NTSP maintains that there was no collusion among affiliated physicians
and that there was no concerted action. It advances a number of arguments in
this regard. In analyzing them, we first note that NTSP has compartmentalized
the FTC’s findings and holdings. For example, NTSP argues that the FTC held
that “a vote taken by a single entity’s board of directors not to participate in a
payor’s offer to physicians satisfies the Sherman Act’s conspiracy element.” But
the FTC’s conclusion that there was horizontal price-fixing did not depend on the
isolated fact that NTSP’s board refused to messenger all offers from a payor to
20
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,462, slip op.
at 8 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf.
21
Summit Health, Ltd., 500 U.S. at 331.
22
2005-2 Trade Cas. (CCH) at 103,466, slip op. at 16.
23
Id.9
No. 06-60023
affiliated physicians. The FTC concluded, as we will discuss more fully below,
that certain aspects of NTSP’s non-risk contract business, when considered on
the whole, combined to result in horizontal price-fixing. These practices
included the disclosure to all affiliated physicians of the median, mean, and
mode results of polls to determine the minimum rates physicians would accept,
the “reminder” to physicians of those results when subsequent polls were taken
for the purpose of establishing a minimum price, and NTSP’s use of that
minimum price when it negotiated with payors on behalf of physicians.
NTSP maintains that it is a single entity and that it has a right to refuse
to deal with payors without violating the antitrust laws, citing the Supreme
Court’s decision in United States v. Colgate & Co.24 NTSP contends that it is a
“memberless, non-profit corporation” and that its actions are not the actions of
individual physicians.
The FTC correctly discerned that antitrust liability does not depend upon
a particular form or business structure. As the FTC pointed out, antitrust law
would be easily evaded if illegal joint activity could be transformed into legal
unilateral activity through the formation of a single trust or other corporate
entity.25 NTSP’s status as a “memberless” organization under state law or as an
incorporated legal entity does not foreclose a finding of concerted action by the
physicians who constitute, use, and control NTSP. In St. Bernard General
Hospital, Inc., we held that a plaintiff stated a claim under § 1 of the Sherman
Act by alleging that an insurance provider was an association composed of nine
hospitals that effectively controlled the board by choosing a majority of the
24
250 U.S. 300 (1919).
25
See 2005-2 Trade Cas. (CCH) at 103,466, slip op. at 15.
10
No. 06-60023
directors and selecting the “outside” directors.26 Here, the affiliated physicians
control NTSP in a similar manner through their election of board members and
additionally, through their responses to the polls regarding fees. When an
organization is controlled by a group of competitors, it is considered to be a
conspiracy of its members.27
NTSP counters that the physicians on its board are from different medical
specialties and do not compete with one another. As the Ninth Circuit observed
in Hahn, the correct analysis is not whether the board members compete directly
with one another but whether the organization is controlled by members with
substantially similar economic interests.28 Each member of NTSP’s board
competes with rank-and-file members of the same specialty, and within the
rank-and-file, NTSP specialists compete with other practitioners in their
specialty, and primary care providers compete with other primary care
providers.
NTSP stresses that the ALJ found that no physician agreed with another
to reject a non-risk contract offer, there was no consultation among physicians
in responding to polls, and no physician knew how another physician would
respond to a non-risk offer. NTSP also emphasizes that no physician agreed in
advance to accept contract offers that it negotiated, each physician decided
whether to accept a payor’s offer, and physicians rejected offers messengered
through NTSP more than two-thirds of the time. The ALJ and the FTC
26
St. Bernard Gen. Hosp. v. Hosp. Serv. Ass’n of New Orleans, Inc., 712 F.2d 978, 981,
985 (5th Cir. 1983).
27
See United States v. Sealy, Inc., 388 U.S. 350, 352-54 (1967).
28
Hahn v. Or. Physicians’ Serv., 868 F.2d 1022, 1029 (9th Cir. 1988).
11
No. 06-60023
concluded that in spite of these facts, the physicians had taken collective action
in an attempt to obtain higher fees from payors.29 The FTC reasoned that
NTSP’s arguments “conflate[] what really are two separate issues,” those being
“whether parties can enter into an agreement absent direct communication with
each other,”30 and “whether it is possible to find that there was an agreement on
price even though individual physicians were not bound to adhere to contract
terms negotiated by NTSP.”31
With regard to the first issue, the FTC reasoned that “it is enough that
participating physicians individually authorized NTSP to take certain actions
on their behalf, knowing that others were doing the same thing,”32 noting in
particular that “NTSP would inform physicians who had not yet granted it
contract negotiation authority but were considering it, the number of other
member physicians who had already given NTSP that authority.”33 The record
supports this conclusion. Additionally, as discussed above, the physicians
granted NTSP the right to negotiate with payors and agreed not to deal with a
payor until NTSP advised that negotiations had ended. The physicians knew
that other physicians were doing likewise and that negotiations by NTSP were
for the physicians’ collective benefit on price and other material terms.
29
2005-2 Trade Cas. (CCH) at 103,466, slip op. at 16.
30
Id.31
Id. at 103,467, slip op. at 17.
32
Id.33
Id. at 103,467 n.27, slip op. at 17 n.27.
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No. 06-60023
We agree with the Commission that the fact that physicians could reject
offers negotiated by NTSP does not establish that there was no agreement on
price. We will consider the price-fixing issue in more detail below.
NTSP asserts that a trade or professional organization cannot be
presumed to violate Section 1 of the Sherman Act, citing this court’s decision in
Viazis v. American Association of Orthodontists.34 It contends that the FTC
deemed NTSP a “walking conspiracy.” However, the FTC’s opinion explicitly
recognized that a trade association is not necessarily “a ‘walking conspiracy,’”
citing Viazis, and that collective action by competitors must result in an
unreasonable restraint of trade before there is an antitrust violation.35
NTSP cites this court’s decision in Consolidated Metal Products, Inc. v.
American Petroleum Institute,36 arguing that because its physicians remained
free to reject an offer messengered by NTSP, NTSP’s board is acting unilaterally
when it contracts with a payor. In Consolidated Metal Products, a trade
association that set standards for oil field equipment delayed in certifying that
the plaintiff’s sucker rods met its standards. Sucker rods could be and were sold
without the trade association’s seal of certification. This court held that “a trade
association that evaluates products and issues opinions, without constraining
others to follow its recommendations, does not per se violate section 1 when, for
34
314 F.3d 758, 764 (5th Cir. 2002) (“Despite the fact that ‘a trade association by its
nature involves collective action by competitors, it is not by its nature a walking conspiracy,
its every denial of some benefit amounting to an unreasonable restraint of trade.’”) (quoting
Consol. Metal Prods., Inc. v. Am. Petroleum Inst., 846 F.2d 284, 293-94 (5th Cir. 1988)).
35
2005-2 Trade Cas. (CCH) at 103,466, slip op. at 16.
36
846 F.2d 284 (5th Cir. 1988).
13
No. 06-60023
whatever reason, it fails to evaluate a product favorably to the manufacturer.”37
In conducting a rule-of-reason analysis of the association’s actions, this court
emphasized that the plaintiff “no longer contends that there was an
anticompetitive conspiracy between its competitors and [the trade
association],”38 “[i]t is axiomatic that trade standards must exclude some things
as substandard and it is unsurprising that standard-setting bodies sometimes
err,” and the plaintiff “offers no evidence that [the trade association’s] product
approval program is merely a ploy to obscure a conspiracy against competing
producers.” The record of NTSP’s and its affiliated physicians’ activities in this
case does not resemble the conduct at issue in Consolidated Metal Products.
At numerous points in its briefing, NTSP invokes the Supreme Court’s
decision in United States v. Colgate & Co.,39 contending that as a single entity,
it is entitled to refuse to deal with any payor that it chooses and that it could
select a minimum price as the starting point in all negotiations with payors. We
have recognized that “[n]othing in the antitrust laws prohibits an individual
trader, absent an anticompetitive intent, from announcing in advance the terms
on which he will deal,” citing Colgate.40 But the Colgate doctrine has no
applicability to “[a] joint effort to fix prices.”41 NTSP’s right to refuse to deal
37
Id. at 292.
38
Id. at 293.
39
250 U.S. 300 (1919).
40
St. Bernard Gen. Hosp., Inc. v. Hospital Serv. Ass’n of New Orleans, Inc., 712 F.2d
978, 986-87 (5th Cir. 1983).
41
Id. at 987.
14
No. 06-60023
turns on whether there has been such a joint effort, a subject we consider below
in Part VI.
V
NTSP assails the legal framework used by the FTC to determine whether
NTSP’s structure and activities amounted to an unlawful restraint of trade,
notwithstanding the proffered procompetitive justifications. The FTC employed
what it termed an “inherently suspect” analysis, citing its prior decision in
Polygram Holding, Inc.42 and the District of Columbia Circuit’s opinion affirming
the FTC.43
NTSP contends that the FTC was required to conduct a more in-depth
rule-of-reason analysis, which NTSP asserts should entail defining a relevant
market and finding anticompetitive effects before its conduct could be
condemned. NTSP further asserts that the FTC “ignored” the procompetitive
justifications it advanced and that the Commission did not permit NTSP to
prove the procompetitive effects of its non-risk contracting practices.
As noted earlier, the FTC concluded that NTSP’s “conduct could be
characterized as per se unlawful under the antitrust laws, and thus subject to
summary condemnation.”44 The FTC chose, however, to apply its “inherently
42
5 Trade Reg. Rep. (CCH) ¶ 15,453 (F.T.C. 2003).
43
Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005).
44
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,460, slip op.
at 3 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf; see also id. at
103,463, slip op. at 10 (“There is precedent for outright per se condemnation of conduct that
parallels the conduct in issue here. . . . Although NTSP’s activities could be characterized as
per se illegal because they are closely analogous to conduct condemned per se in this and other
industries, we will not apply that label here and now in this particular case.”).
15
No. 06-60023
suspect” analysis, which it described as a “close neighbor[]” to a per se analysis.45
It gave two reasons for pursuing that course. The first was that “the Supreme
Court has urged caution in the application of the per se label to conduct in a
professional setting,” and “the Commission wants to encourage providers to
engage in efficiency-enhancing collaborative activity.”46
The Commission said that the beginning of its inquiry should be
determining whether NTSP had engaged in “‘behavior that past judicial
experience and current economic learning have shown to warrant summary
condemnation.’”47 The Commission reasoned that “[a]t this [initial] stage, the
focus of the inquiry is on the nature [of] the restraint rather than on the market
effects in a particular case.”48 It concluded that “[a] defendant can avoid
summary condemnation, however, if it can advance a legitimate justification for
the practice.”49 The Commission further reasoned that “[t]he defendant need
only articulate a legitimate justification, and is not obliged to prove the
competitive benefits,” explaining in a parenthetical: “[r]emember that the issue
at this initial stage is simply whether the practice should be condemned
summarily.”50 The FTC concluded that in its “inherently suspect” paradigm,
45
Id at 103,460, slip op. at 3.
46
Id. at 103,464, slip op. at 11 (emphasis in original).
47
Id. at 103,464, slip op. at 12 (quoting Polygram Holding, Inc., 5 Trade Reg. Rep.
(CCH) ¶ 15,453 (F.T.C. 2003)).
48
Id.49
Id.50
Id. at 103,464, slip op. at 12-13.
16
No. 06-60023
“[t]he proffered justifications . . . must be both cognizable under the antitrust
laws and at least facially plausible.”51 And,
“[a] justification is plausible if it cannot be rejected without
extensive factual inquiry. . . . Although the defendant need not
produce detailed evidence at this stage, it must articulate the
specific link between the challenged restraint and the purported
justification to merit a more searching inquiry into whether the
restraint may advance procompetitive goals, even though it facially
appears of the type likely to suppress competition.”52
In reviewing the FTC’s decision, our task is to apply the principles
articulated by the Supreme Court. It has “analyzed most restraints under the
so-called ‘rule of reason,’” which “requires the factfinder to decide whether under
all the circumstances of the case the restrictive practice imposes an
unreasonable restraint on competition.”53 The Court has recognized the costs
and the shortcomings when an “elaborate inquiry into the reasonableness of a
challenged business practice” is conducted.54 However, the “costs of judging
business practices under the rule of reason . . . have been reduced by the
recognition of per se rules.”55 “Once experience with a particular kind of
restraint enables the Court to predict with confidence that the rule of reason will
condemn it, it has applied a conclusive presumption that the restraint is
51
Id. at 103,464, slip op. at 13.
52
Id. at 103,465, slip op. at 13 (quoting Polygram Holding, Inc. v. FTC, 416 F.3d 29,
31-32 (D.C. Cir. 2005)).
53
Arizona v. Maricopa County Med. Soc., 457 U.S. 332, 343 (1982).
54
Id.55
Id. at 343-44.
17
No. 06-60023
unreasonable.”56 Practices that are per se unlawful include “price fixing, division
of markets, group boycotts, and tying arrangements.”57 The per se rules can
result in erroneous conclusions in some cases, but “[f]or the sake of business
certainty and litigation efficiency, we have tolerated the invalidation of some
agreements that a fullblown inquiry might have proved to be reasonable.”58
Procompetitive justifications will not be considered if a practice, such as price-
fixing, is a per se violation. “The anticompetitive potential inherent in all price-
fixing agreements justifies their facial invalidation even if procompetitive
justifications are offered for some.”59
The Supreme Court has recognized, however, that even when practices are
not condemned by a per se rule, a fullblown rule-of-reason analysis is not always
required.60 An “abbreviated or ‘quick-look’ analysis under the rule of reason” is
appropriate when an “observer with even a rudimentary understanding of
economics could conclude that the arrangements in question would have an
anticompetitive effect on customers and markets.”61 Stated another way, “quick-
look analysis carries the day when the great likelihood of anticompetitive effects
56
Id. at 344.
57
Id. at 344 n.15 (citing N. Pac. R. Co. v. United States, 356 U.S. 1, 5 (1958)).
58
Id. at 344.
59
Id. at 351.
60
See, e.g., Texaco, Inc. v. Dagher, 547 U.S. 1, 7 n.3 (2006) (“To be sure, we have applied
the quick look doctrine to business activities that are so plainly anticompetitive that courts
need undertake only a cursory examination before imposing antitrust liability.”).
61
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 770 (1999).
18
No. 06-60023
can easily be ascertained.”62 The “inherently suspect” paradigm that the FTC
employed in the present case is a “quick-look” rule-of-reason analysis.
But a “quick-look” examination is not a rigid template. It must be tailored
to fit the circumstances presented in each case. The Supreme Court explained
in California Dental Association that “[t]he truth is that our categories of
analysis of anticompetitive effect are less fixed than terms like ‘per se,’ “quick
look,’ and ‘rule of reason’ tend to make them appear.”63 The Court continued:
We have recognized, for example, that “there is often no bright line
separating per se from Rule of Reason analysis,” since “considerable
inquiry into market conditions” may be required before the
application of any so-called “per se” condemnation is justified.
“[W]hether the ultimate finding is the product of a presumption or
actual market analysis, the essential inquiry remains the same—
whether or not the challenged restraint enhances competition.”64
The California Dental Association decision directs us to conduct “an
enquiry meet for the case, looking to the circumstances, details, and logic of a
restraint”:
[T]here is generally no categorical line to be drawn between
restraints that give rise to an intuitively obvious inference of
anticompetitive effect and those that call for more detailed
treatment. What is required, rather, is an enquiry meet for the case,
looking to the circumstances, details, and logic of a restraint. The
62
Id. (citing Law v. National Collegiate Athletic Ass’n, 134 F.3d 1010, 1020 (10th Cir.
1998), for the proposition that “quick-look analysis applies ‘where a practice has obvious
anticompetitive effects,’” and Chicago Prof’l Sports Ltd. P’ship v. National Basketball Ass’n, 961
F.2d 667, 674-76 (7th Cir. 1992), for “finding quick-look analysis adequate after assessing and
rejecting logic of proffered procompetitive justifications”).
63
Id. at 779.
64
Id. at 779-80 (internal citations omitted) (quoting Nat’l Collegiate Athletic Ass’n v. Bd.
of Regents of the Univ. of Okla., 468 U.S. 85, 104 & n.26 (1984)).
19
No. 06-60023
object is to see whether the experience of the market has been so
clear, or necessarily will be, that a confident conclusion about the
principal tendency of a restriction will follow from a quick (or at
least quicker) look, in place of a more sedulous one. And of course
what we see may vary over time, if rule-of-reason analyses in case
after case reach identical conclusions. For now, at least, a less quick
look was required for the initial assessment of the tendency of these
professional advertising restrictions. Because the Court of Appeals
did not scrutinize the assumption of relative anticompetitive
tendencies, we vacate the judgment and remand the case for a fuller
consideration of the issue.65
The FTC formulated its “inherently suspect” analysis after the issuance
of California Dental Association, and the Commission’s articulation of the
shifting burdens employed in its analysis appears, at least facially, to comport
with the framework provided by the Supreme Court’s precedent.66 Reviewing
courts must be attentive, however, to the actual application of the burden-
shifting.
In California Dental Association, the Supreme Court faulted the court of
appeals for describing the anticompetitive effects of the conduct under scrutiny
in a cursory and conclusory manner,67 and for failing to “identif[y] the theoretical
basis for the anticompetitive effects and [to] consider[] whether the effects
actually are anticompetitive.”68 The need to determine, as an initial point of
departure, whether the practice at issue theoretically has anticompetitive effects
65
Id. at 780-81.
66
See also Polygram Holding, Inc. v. FTC, 416 F.3d 29, 35-36 (D.C. Cir. 2005).
67
Cal. Dental Ass’n, 526 U.S. at 774 (“But these observations brush over the
professional context and describe no anticompetitive effects.”).
68
Id. at 775 n.12.
20
No. 06-60023
is important, indeed paramount, because “quick-look analysis in effect requires”
“shifting to a defendant the burden to show empirical evidence of procompetitive
effects.”69 The Court made clear that “before a theoretical claim of
anticompetitive effects can justify shifting to a defendant the burden to show
empirical evidence of procompetitive effects, . . . there must be some indication
that the court making the decision has properly identified the theoretical basis
for the anticompetitive effects and considered whether the effects actually are
anticompetitive.”70 The Supreme Court admonished that if “the circumstances
of the restriction are somewhat complex, assumption alone will not do.”71 The
Court emphasized in California Dental Association that “the [Court of Appeals’]
adversion to empirical evidence at the moment of this implicit burden shifting
underscores the leniency of its enquiry into evidence of the restrictions’
anticompetitive effects.”72
In the case before us, the FTC did not rely on empirical evidence in
determining whether there was an “obvious anticompetitive effect that triggers
abbreviated analysis.”73 It relied on the theoretical basis for the anticompetitive
and procompetitive effects of NTSP’s challenged practices and the similarity of
those practices to conduct that would be a per se violation of the FTC Act. To
some extent, the Commission also relied on evidence of the impact of NTSP’s
69
Id.70
Id.71
Id.72
Id. at 776.
73
Id. at 778.
21
No. 06-60023
conduct on some payors. The FTC concluded that “the determination of illegality
here does not require an elaborate inquiry into effects in the market.”74
We, like the FTC, do not decide whether NTSP’s challenged practices
constituted a per se violation, although we agree that some of NTSP’s practices
bear a very close resemblance to horizontal price-fixing, generally deemed a per
se violation. Quick-look analysis rather than a more searching rule-of-reason
inquiry is appropriate only when “the likelihood of anticompetitive effects is . . .
obvious,” meaning “when the great likelihood of anticompetitive effects can
easily be ascertained,” and “after assessing and rejecting [the] logic of proffered
procompetitive justifications.”75 To justify a quick-look analysis, the burden
remains on the challenger to demonstrate that the proffered procompetitive
effect does not plausibly result in “a net procompetitive effect, or possibly no
effect at all on competition.”76 If, after examining the competing claims of anti-
and procompetitive effects, it remains plausible that the net effect is
procompetitive or that there is no effect on competition,77 then “[t]he obvious
anticompetitive effect that triggers abbreviated analysis has not been shown.”78
As will be considered in detail below, we conclude that the net
anticompetitive effects of certain of NTSP’s practices were obvious. The
74
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,460, slip op.
at 3 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf.
75
Cal. Dental Ass’n, 526 U.S. at 770-71 (citing Law v. Nat’l Collegiate Athletic Ass’n, 134
F.3d 1010, 1020 (10th Cir. 1998); Chicago Prof’l Sports Ltd. P’ship v. Nat’l Basketball Ass’n,
961 F.2d 667, 674-76 (7th Cir. 1992)).
76
Id. at 771.
77
Id. at 771.
78
Id. at 778.
22
No. 06-60023
procompetitive justifications do not plausibly result in a net procompetitive
effect or in no effect at all on competition. Accordingly, a quick-look analysis was
appropriate in this case.
VI
The FTC’s ultimate conclusion was that the “activities [of NTSP], taken
as a whole, amount to horizontal price fixing which is unrelated to any
procompetitive efficiencies.”79 In deciding “whether NTSP’s conduct amounts to
a restraint of trade,” the Commission said that it would first “look at the factual
evidence to determine whether the conduct amounts to price fixing, and is thus
illegal absent a cognizable and plausible justification.”80 In Part A below we
consider “the theoretical basis for the anticompetitive effects” of NTSP’s conduct
and whether “the effects actually are anticompetitive.”81 We consider in Part B
whether NTSP’s proffered justifications might plausibly be thought to have net
procompetitive effects.
A
The first challenged restraint the FTC examined was polls of participating
physicians that NTSP conducted.82 NTSP asked each physician what minimum
rate or fee he or she would be willing to accept during the coming year. The FTC
found as factual matters that NTSP then reported the mean, median, and mode
of the responses to all affiliated physicians, and those physicians were aware
that NTSP would determine a minimum fee for its negotiations with payors from
79
2005-2 Trade Cas. (CCH) at 103,460, slip op. at 3.
80
Id. at 103,467, slip op. at 17.
81
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 775 n.12 (1999).
82
2005-2 Trade Cas. (CCH) at 103,467, slip op. at 18.
23
No. 06-60023
the poll responses.83 NTSP also reminded its physicians of the prior poll’s results
in soliciting each physician to state the minimum fee he or she would accept
during the upcoming year. The FTC reasonably concluded that the “physicians
anticipated that any individual response would help to raise or lower the
average fee for the group—an average that NTSP would then use in negotiating
with payors.”84
The written Physician Participation Agreement NTSP had with each
physician obligated the physician to refrain from pursuing an offer from a payor
if NTSP was in negotiations with that payor.85 This either foreclosed or delayed
negotiations between those payors and physicians who were willing to accept a
fee lower than the minimum fee determined by NTSP and used in its
negotiations with payors. If NTSP was successful in obtaining a contract with
a payor, it is logical to conclude that the fees to which NTSP agreed would be
higher than the minimum fees that many of its participating physicians were
willing to accept and had indicated in their polling responses they were willing
to accept. The FTC relied on an expert’s conclusions that “the NTSP minimum
reimbursement rates were higher than what some physicians were actually
willing to accept, and that negotiation of a minimum price offer has the effect of
raising the prices that ‘low end’ physicians would otherwise earn, without
reducing the price that ‘high end’ physicians would receive” because the “high
end” physicians could “opt out.”86 These conclusions are logical and are
83
Id.84
Id.85
See id. at 103,468, slip op. at 20.
86
Id. at 103,468, slip op. at 19.
24
No. 06-60023
supported by the record. If NTSP did not consummate a contract with a payor
in its negotiations, then that payor’s ability to bargain directly with physicians
was delayed. Payors’ patients in need of medical services did not have access to
NTSP physicians while negotiations were ongoing, and accordingly, the number
of competing physicians was reduced.
NTSP disputes the FTC’s construction of the Participating Physician
Agreements with physicians, contending that those contracts do not require
physicians to await notice from NTSP that negotiations with a payor have
ceased before a physician may negotiate directly with that payor. The contracts
do not support this argument. Section 2 of the physician agreement deals with
payor offers. It provides in subsection 2.1 that “NTSP shall have the right to
receive all Payor Offers made to NTSP or Physician,” and the physician is
obligated to “promptly forward such Payor Offer to NTSP for further handling.”
There is an exception for offers that are to extend or renew an existing contract
between the physician and the payor.87 Otherwise, it is only if NTSP rejects a
payor offer that a physician has “the right to pursue such Payor Offer on its own
behalf.”88 The agreements have a “non-exclusivity” clause, but it reiterates that
87
Subsection 2.1 provides in its entirety:
Receipt of Payor Offers. NTSP shall have the right to receive all Payor
Offers made to NTSP or Physician, except for any Payor Offer made to
Physician which is solely in replacement or renewal of a contract which exists
between such Payor and Physician as of the date of March 1, 1998. If Physician
receives a Payor Offer (other than a Payor Offer made to Physician which is
solely in replacement or renewal of a contract which exists between such Payor
and physician as of the date of March 1, 1998), Physician will promptly forward
such Payor Offer to NTSP for further handling in accordance with the provisions
of this Agreement.
88
Subsection 2.6 provides:
25
No. 06-60023
physicians may not negotiate directly with payors concerning services covered
by a payor offer or an existing NTSP agreement.89 The non-exclusivity clause
recognizes that physicians may contract with other physician groups, but only
“[s]ubject to Section 2” of the NTSP agreement.90
NTSP asserts that even if we agree with the FTC’s construction of the
physician agreements, there is no evidence that any physician actually refused
to negotiate with a payor while NTSP negotiations with that payor were ongoing.
The FTC found to the contrary, and there is evidence from payors that
physicians declined to negotiate because they had designated NTSP as their
bargaining agent.
Payor Offers Rejected by NTSP. If NTSP rejects any Payor Offer and
advises the Participating Physicians in writing that it is permanently
discontinuing negotiations or if the Participating Physicians who approved and
who are deemed to have approved a Non Risk Payor Offer constitute less than
50% of all Participating Physicians, then NTSP shall have no further
responsibilities with respect thereto and any Participating Physician shall have
the right to pursue such Payor Offer on its own behalf.
A “Payor Offer” is defined as “an offer made by a Payor to NTSP or Participating Physician
that requires NTSP or one or more Participating Physicians to provide covered services
pursuant to a commercial or medicare health benefit plan.”
89
Subsection 8.1 provides:
Non-Exclusivity. Subject to the provisions of Section 2 above, Physician shall
be free to (i) negotiate separate contracts directly with payors for services not
covered by any Payor Offer or Payor Agreement and to provide on an individual
basis any medical services not subject to a Payor Agreement to any Beneficiary
and (ii) provide medical services of any type to any patient who is not covered
under any Payor Agreement. Subject to Section 2 above, Physician may
contract with other independent practice associations, physician hospital
organizations, preferred provider organizations and other managed care
provider networks.
90
See id.
26
No. 06-60023
NTSP points out that only 34 percent of its physicians responded to its
polls. The FTC concluded, however, that the fact that poll results were disclosed
to all NTSP physicians, regardless of whether they responded to the poll,
encouraged physicians “to reject price offers below the minimum fees
indicated.”91 It is not obvious that this is the case as to all physicians affiliated
with NTSP. Physicians who had expressed an unwillingness to contract at fees
below NTSP’s minimum might not have been influenced by learning of NTSP’s
minimum negotiating fee. Those physicians may have rejected price offers below
NTSP’s minimum in any event. But it is obvious that the practice of reporting
poll results encouraged other physicians to reject offers that equaled the fee they
reported in the poll as the minimum they would have accepted if the offered fee
was less than the minimum fee calculated by NTSP. Armed with knowledge
from NTSP’s polling, those physicians would also be encouraged to hold out for
a fee equal to or even less than NTSP’s minimum fee but greater than the fee
they were willing to accept at the time they responded to the poll.
The FTC further found that “NTSP actively encouraged [physicians] to
reject the offers” below the minimum fees indicated in the polls.92 That finding
is supported by the record and is evidence of concerted action to fix prices.
The record evidence supports the FTC’s factual finding that NTSP
“regularly informed payors that its physicians had established minimum fees for
NTSP-payor agreements, identified the fee minimums, and stated that NTSP
would not enter into or forward to any of its physicians payor offers that were
91
2005-2 Trade Cas. (CCH) at 103,468, slip op. at 20.
92
Id.
27
No. 06-60023
below the minimums.”93 There was evidence that after receiving this
information, payors attempted to deal directly with individual physicians but
were told by those physicians that they must negotiate with NTSP. The logical
tendency of this practice, coupled with the physicians’ agreement to refrain from
negotiating with payors, was at a minimum to delay direct negotiations between
payors and physicians, including physicians willing to accept fees lower than the
minimum used by NTSP. This added significant transaction costs to offers below
NTSP’s minimum. A payor wishing to achieve a contract below that minimum
would have to submit its offer to NTSP, negotiate with NTSP, and wait until
NTSP communicated to physicians that negotiations were unsuccessful, before
being able to negotiate with physicians directly. Accordingly, even though NTSP
could not bind physicians to particular contracts, its practices interfered with
payors seeking lower fees. NTSP’s practices also narrowed patients’ choices of
physicians.
The FTC additionally found, based on the record evidence, that although
the Participating Physician Agreements require NTSP to deliver certain payor
offers to physicians,94 NTSP in fact “rejects and does not deliver any contract
that falls below its minimum reimbursement schedule.”95 This prevented or at
least delayed offers less than NTSP’s minimum fee from reaching physicians.
The agreements NTSP had with physicians further “contain[] provisions
whereby 50 percent of NTSP’s membership must approve the reimbursement
93
Id.
94
Section 2.2 of the Participating Physician Agreements covers “Offers to be Accepted
or Rejected by Physicians,” a category of payor offers defined separately from other payor
offers.
95
2005-2 Trade Cas. (CCH) at 103,469, slip op. at 21.
28
No. 06-60023
proposal of a payor before an offer is ‘messengered’ by NTSP to the physicians
for actual opt-in/out [on an individual basis] of the proposed contracts.”96 This
provision allows NTSP to counter payor rate proposals on direction from at least
50 percent of its physicians. The FTC concluded that
NTSP is able to exert collective bargaining power and hence fix
prices because NTSP does not messenger contracts below its
minimum reimbursement schedule. Instead it rejects the contracts
outright on behalf of its physicians and NTSP’s collective bargaining
leverage is thus exerted before its physicians even have a chance to
opt in or out of a contract.97
Here again, it is obvious that when NTSP is successful in negotiating with a
payor, the fees in those contracts would tend to be higher than fees many
participating physicians otherwise would have been willing to accept, since a
significant number of physicians had previously indicated in polling they would
be willing to accept less than the mean, median, or mode on which NTSP’s
minimum negotiating fee was determined.
Another challenged practice is NTSP’s use of powers of attorney from its
physicians. The FTC found that in negotiations with Aetna, NTSP sent Aetna
a list of 180 physicians who had executed powers of attorney appointing NTSP
as the bargaining agent for any direct contracting with Aetna.98 Aetna officials
testified that they understood this as a message that the physicians would not
96
Id.
97
Id.
98
Id. at 103,469, slip op. at 22.
29
No. 06-60023
negotiate directly, and Aetna concluded there was no practical alternative other
than to deal with NTSP.99
NTSP contends that the powers of attorney only authorized NTSP to act
“in any lawful way.” However, in obtaining the powers of attorney, NTSP
advised physicians that it would pursue a contract “that meets or exceeds the fee
schedule minimums set by the NTSP membership.” NTSP did in fact negotiate
with payors on behalf of physicians regarding the fees that would be paid.
The FTC further concluded that NTSP had engaged in concerted
withdrawals and refusals to deal except on collective terms. The FTC pointed
to NTSP’s termination of contracts United Healthcare Services, Inc. had with
101 physicians when NTSP was dissatisfied with negotiations.100 The ALJ’s
findings in this regard and the facts in the record reflect that United then
attempted to negotiate directly with NTSP physicians, they refused, and United
ultimately offered NTSP higher reimbursement rates.101
In another instance cited by the FTC,102 the ALJ’s findings and facts in the
record reflect that NTSP had a contract with Cigna that applied to physicians
who were specialists.103 NTSP demanded that its primary care physicians be
99
Id.
100
Id. at 103,469-70, slip op. at 22.
101
N. Tex. Specialty Physicians, 2004 WL 3142857, slip op. at 22-25, 27-29 (F.T.C. Nov.
15, 2004) (ALJ’s Initial Decision), available at
http://ftc.gov/os/adjpro/d9312/041116initialdecision.pdf; Transcript of trial before ALJ at 345-
48, 443-44, 454-55, 459-60, N. Tex. Specialty Physicians, 2004 WL 3142857 (F.T.C. Nov. 15,
2004) (Docket No. 9312) [hereinafter Tr.].
102
2005-2 Trade Cas. (CCH) at 103,470, slip op. at 23.
103
2004 WL 3142857, slip op. at 32-33.
30
No. 06-60023
permitted to “participate” in this contract.104 Cigna already had contracts with
most of these primary care physicians at lower rates.105 NTSP threatened
contract termination if its demands were not met,106 and to avoid losing the
participation of NTSP’s specialists, Cigna agreed to NTSP’s demands.107
At several points in its briefing, NTSP stresses that the FTC and the ALJ
found that NTSP did not receive higher rates than those that other physicians
and physician groups were already receiving. The FTC addressed this fact,
saying “[w]e agree that higher physician rates, by themselves, are of no antitrust
significance,” but the Commission concluded that “this case is about a concerted
effort by NTSP’s participating physicians to increase their bargaining power.”108
We agree that proof of higher fees for NTSP physicians is not necessary in this
case. As the Supreme Court explained in FTC v. Indiana Federation of Dentists,
if a practice “is likely enough to disrupt the proper functioning of the price-
setting mechanism of the market . . . it may be condemned even absent proof
that it resulted in higher prices.”109 In that case dentists had agreed not to send
dental x-rays to their patients’ insurance companies for use in benefits
determinations. The Supreme Court held this was an unfair method of
104
Id. at 35.
105
Id. at 35; Tr. at 718-19, 733-34.
106
2004 WL 3142857, slip op. at 36.
107
Id.; Tr. 749-51.
108
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,477, slip op.
at 36-37 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf.
109
476 U.S. 447, 461-62 (1986).
31
No. 06-60023
competition in violation of section 5 of the Federal Trade Commission Act.110
NTSP’s challenged practices erect barriers between payors and physicians who
would otherwise be willing to negotiate directly with those payors. It also erects
obstacles to price communications between payors and physicians. The
Commission concluded, and we agree, that NTSP engaged in concerted action to
increase its bargaining power. The fact that there is no evidence in the record
that NTSP obtained higher prices for its physicians than other physicians
received does not foreclose a determination that NTSP’s practices had
anticompetitive effects.
The other side of the equation, however, is the procompetitive effects, if
any, that NTSP’s challenged business practices generated. We turn to those.
B
After concluding that NTSP’s challenged conduct had anticompetitive
effects, the FTC proceeded to examine NTSP’s justifications. Although the
general thrust of NTSP’s arguments regarding “spillover” benefits has some
facial plausibility, closer examination of the underpinnings of the justification
reveals significant gaps in logic.
110
Id. at 448-49, 461-62 (explaining more fully that “[a] concerted and effective effort
to withhold (or make more costly) information desired by consumers for the purpose of
determining whether a particular purchase is cost justified is likely enough to disrupt the
proper functioning of the price-setting mechanism of the market that it may be condemned
even absent proof that it resulted in higher prices or, as here, the purchase of higher priced
services, than would occur in its absence. [E]ven if . . . the costs of evaluating the information
were far greater than the cost savings resulting from its use [] the Federation would still not
be justified in deciding on behalf of its members’ customers that they did not need the
information: presumably, if that were the case, the discipline of the market would itself soon
result in the insurers’ abandoning their requests for x rays. The Federation is not entitled to
pre-empt the working of the market by deciding for itself that its customers do not need that
which they demand.”).
32
No. 06-60023
The FTC first considered the polling of physicians. The Commission
reasoned, and we agree, that NTSP’s argument that its polls permitted it to
determine when spillover efficiencies from risk contracts to non-risk contracts
were likely to occur did not withstand scrutiny. Of the 34 percent of NTSP
physicians responding to the poll, only 55 percent were physicians who
participated in NTSP’s risk contract. Accordingly, the mean, median, and mode
that NTSP determined and used to negotiate with payors was based on
minimum acceptable fees from non-risk as well as risk panel physicians. These
polling results would not be a particularly effective tool to determine the fee that
would attract a majority of NTSP’s risk panel physicians, particularly since
NTSP did not know which poll responses came from risk as distinguished from
non-risk panel physicians. This undercuts a logical nexus to claimed efficiencies
and thus the plausibility of the proffered procompetitive effects.
The Commission also recognized that it was not evident how physicians
who enter only non-risk contracts could achieve spillover efficiencies from
NTSP’s risk contract, and NTSP did not offer an explanation. As the FTC
correctly noted, “[t]his is a non-trivial point, because non-risk physicians make
up half of NTSP’s members.”111 This means that half of NTSP physicians had
no experience in teamwork with NTSP physicians on the risk panel.
Additionally, NTSP had only one risk contract, and it was a small part of
NTSP’s business. The FTC made further observations supported by the
evidence:
NTSP does not even explain why its risk panel physicians will have
the incentive to apply the quality and cost control techniques they
utilize on risk patients to any non-risk patients they may have.
111
2005-2 Trade Cas. (CCH) at 103,473, slip op. at 30.
33
No. 06-60023
NTSP has not provided any financial incentive for them to do so,
and it does nothing to promote compliance with whatever
techniques have been learned under risk contracts. NTSP does not
employ the processes it uses to monitor and control the quality and
utilization of services provided under its risk contracts to patient
care provided under non-risk contracts.112
NTSP argues that it did offer some empirical evidence but that the
Commission “ignored” it. There is some evidence in the record of spillover effects
from the risk contract to non-risk panels, and there is evidence that NTSP
physicians perform as well or better than non-NTSP groups. For example, an
NTSP expert opined that there is some reason to believe that “what NTSP learns
in its risk contracting accrues to the benefit of payors even in the nonrisk
setting” and that there are “palpable and real,” “beneficial” effects from NTSP’s
business model. NTSP’s expert pointed out that patient data created in a risk
setting is available to physicians treating similar patients under a non-risk
contract, “disease management and patient education programs” have benefits
that spill over to treatment of patients under non-risk contracts, and NTSP’s
website allows patients and potential payors to see performance and quality data
for NTSP and other Dallas or Fort Worth area physicians.
We assume that all of the foregoing is factually correct. But, as the FTC
importantly noted, NTSP “does not address how [its] nebulous ‘teamwork’
efficiencies are dependent on its price-fixing activities.”113 NTSP has no theory
as to how its proffered procompetitive effects, which we will assume are higher
quality healthcare provided by teamwork and shared experiences over time,
112
Id. (record citations omitted).
113
Id. at 103,474 n.45, slip op. at 30 n.45.
34
No. 06-60023
result from or are in any way connected to (1) communicating the polling results
regarding fees to all NTSP physicians, (2) encouraging NTSP physicians to reject
payor offers below the minimum fees NTSP calculated from the polls, or (3)
using collective bargaining power to demand higher fees for physicians who are
already under contract with a payor.
We recognize that the Supreme Court has said that the “‘public service
aspect, and other features of the professions, may require that a particular
practice, which could properly be viewed as a violation of the Sherman Act in
another context, be treated differently.’”114 But NTSP has not cogently
articulated how “the quality of the professional service that [its] members
provide is enhanced by the price restraint.”115
NTSP offered three other “justifications” for its challenged conduct. The
first is that it had “no legal obligation to participate in, messenger, or facilitate
a payor’s contract offer,” and as “a collection of individuals” the group had the
right to vote among themselves “not to involve” the group in a contract. NTSP
argues that it did not have a significant market share and “that even a
monopolist has a right to refuse to deal.” This is re-argument of issues relating
to an agreement and concerted action, which we have addressed earlier.
The second justification NTSP offers is that it “need[ed] to avoid expending
scarce resources in analyzing, messengering, and participating in contracts of
interest to relatively few of the physicians.” We do not disagree that this is a
114
Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 687 (1978) (quoting
Goldfarb v. Va. State Bar, 421 U.S. 773, 788-89 n.17 (1975)).
115
Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332, 349 (1982).
35
No. 06-60023
permissible goal, but this does not justify the challenged methods NTSP used to
achieve that goal.
The third justification was “the avoidance of legally or medically risky
situations” and that NTSP was “surely justified in refusing to sign payor
contracts that present these problems.” These are certainly permissible goals.
But again, none of these concerns had any bearing on the methods NTSP used
in an attempt to obtain higher fees than its physicians might otherwise have
been offered.
One of NTSP’s chief complaints is that it was not permitted to develop a
fuller record, based on additional empirical evidence. However, it does not
assert that the additional empirical evidence it desired to develop would have
shown a nexus between better or market-priced medical care and the need for
NTSP to engage in the specific activities that we conclude are anticompetitive,
which include (1) the communication of the mean, median, and mode results
from the polling regarding fees, in combination with (2) foreclosing or delaying
direct negotiations between payors and physicians; (3) urging physicians to
reject fee offers from payors; and (4) using collective bargaining power to demand
higher fees for physicians who were already under contract at a lower fee.
In sum, based on the record in this case, we conclude that “the experience
of the market has been so clear, or necessarily will be, that a confident
conclusion about the principal tendency”116 of NTSP’s challenged practices
follows from the “look” the FTC conducted in this case, even though that “look”
was less than a fullblown market analysis. “[T]he inquiry mandated by the Rule
of Reason is whether the challenged agreement is one that promotes competition
116
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 781 (1999).
36
No. 06-60023
or one that suppresses competition.”117 NTSP’s proffered procompetitive effects
do not meet the “might plausibly be thought to have a net procompetitive effect,
or possibly no effect at all on competition” threshold.118 The Commission’s
determination that NTSP’s conduct, taken as a whole, amounted to horizontal
price-fixing that is unrelated to procompetitive efficiencies is supported by the
law and substantial evidence.
VII
NTSP maintains that its right to due process was violated because it was
denied discovery that would have proven the procompetitive effects of its
conduct. NTSP subpoenaed the “flat file data” from six insurance company
payors, each of which objected to providing the information. NTSP explains that
“flat file data” would reflect “medical expenses paid for each patient and can be
analyzed to compare different physicians’ expense ‘per unique patient seen’ by
procedure, by diagnostic code, and numerous other factors.” NTSP contends that
from this data, it could prove how its performance on non-risk contracts
“compares to that of other physicians.” After conducting a hearing, the ALJ
quashed the subpoenas.
In reviewing the ALJ’s decision, FTC reasoned:
In the absence of a specific link between the challenged restraints
and the purported justification, it would not have mattered if
[NTSP] had been able to obtain further discovery and demonstrate
that its physicians performed well. There is no antitrust exemption
for more efficient, higher quality market participants, absent a
demonstration that the challenged practices made an essential
117
Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 691.
118
See Cal. Dental Ass’n, 526 U.S. at 771.
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No. 06-60023
contribution to these efficiencies. Evidence on the performance of
NTSP physicians, standing alone, would not prove that nexus.119
NTSP contends that our review of this determination is de novo since
NTSP is claiming a due process violation. Even assuming that is the correct
standard of review, there was no due process violation. There is no logical nexus
between better performance by NTSP physicians and NTSP’s dissemination of
polling results or its other challenged practices that we have discussed above.120
VIII
Finally, NTSP challenges the breadth of the Commission’s remedial order.
Once the FTC has established a violation of the FTC Act, it “has wide discretion
in determining the type of order that is necessary to cope with the unfair
practices found.”121 The FTC’s order should not be disturbed “unless the remedy
selected has no reasonable relation to the unlawful practices found to exist.”122
We are persuaded, however, that the remedy is overly broad in one respect.
The remedial order provides in Part II.A:
119
N. Tex. Specialty Physicians, 2005-2 Trade Cas. (CCH) ¶ 75,032, at 103,475, slip op.
at 32-33 (F.T.C. 2005), available at http://ftc.gov/os/adjpro/d9312/051201opinion.pdf (citations
omitted).
120
See Nat’l Soc’y of Prof’l Eng’rs, 435 U.S. at 693-94 (“The Society nonetheless invokes
the Rule of Reason, arguing that its restraint on price competition ultimately inures to the
public benefit by preventing the production of inferior work and by insuring ethical behavior.
As the preceding discussion of the Rule of Reason reveals, this Court has never accepted such
an argument.”).
121
FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392 (1965).
122
Alterman Foods, Inc. v. FTC, 497 F.2d 993, 997 (5th Cir. 1974) (quotation marks
omitted).
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No. 06-60023
IT IS FURTHER ORDERED that Respondent, directly or
indirectly, or through any corporate or other device, in connection
with the provision of physician services . . . cease and desist from:
A. Entering into, adhering to, participating in, maintaining,
organizing, implementing, enforcing, or otherwise facilitating
any combination, conspiracy, agreement, or understanding
between or among any physicians with respect to their
provision of physician services:
1. to negotiate on behalf of any physician with any payor;
2. to deal, refuse to deal, or threaten to refuse to deal with
any payor;
3. regarding any term, condition, or requirement upon
which any physician deals, or is willing to deal, with
any payor, including, but not limited to, price terms; or
4. not to deal individually with any payor, or not to deal
with any payor through any arrangement other than
Respondent . . . .
While we do not accept many of NTSP’s arguments regarding this section
of the order, NTSP’s contention that subsection (A)(2) is overly broad and
internally inconsistent has merit. The ALJ refused to include such a provision,
recognizing that it “could have the effect of compelling Respondent to messenger
contracts or become a party to contracts sent to it by payors, regardless of
potential risks to Respondent, its member physicians, and its patients.”123 This
observation is valid. It is also difficult to see how NTSP can both deal and refuse
to deal with any payor.
NTSP also challenges Paragraph IV of the order, which requires
cancellation of all existing non-risk contracts with payors. These cancellations
123
N. Tex. Specialty Physicians, 2004 WL 3142857, slip op. at 89 (F.T.C. Nov. 15, 2004)
(ALJ’s Initial Decision), available at http://ftc.gov/os/adjpro/d9312/041116initialdecision.pdf.
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No. 06-60023
are to take place at the earlier of receipt of a written request from a payor to
terminate or the earliest termination or renewal date, even though payors may
elect to continue the contracts for up to one year. This latter provision
eliminates NTSP’s concern that health care delivery will be interrupted.
NTSP asserts that payors should be permitted to decide if they want to
terminate their contracts. However, the FTC reasonably concluded that if the
contract termination provisions were voluntary, payors might be unwilling to
terminate, fearing reprisal.
NTSP also argues that its freedom of speech is being violated because it
is limited in the information it can provide to payors and employers. In the
commercial context, speech concerning unlawful activity is not protected.124 In
this case, NTSP’s speech is limited only to the extent that it may not further
illegal horizontal price-fixing conspiracies. The FTC’s order does not
unreasonably limit any protected speech by NTSP.
Finally, NTSP claims that the order is impermissibly vague. NTSP asserts
that it cannot determine whether all individual components of its activity, such
as polling and the Physician Participation Agreement, are prohibited
permanently, or might properly be used in the future. We view such claims with
skepticism.125 As the Supreme Court stated, the FTC “must be allowed
effectively to close all roads to the prohibited goal” of combinations that
unreasonably restrain trade.126 The FTC need not describe every combination
124
See Greater New Orleans Broad. Ass’n, Inc. v. United States, 527 U.S. 173, 183
(1999).
125
See Alterman Foods, 497 F.2d at 1001-02.
126
See FTC v. Ruberoid Co., 343 U.S. 470, 473 (1952).
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No. 06-60023
of circumstances and behaviors that may or may not create a violation. The
FTC’s order is not unreasonably vague or overly broad.
* * *
For the reasons stated above, we GRANT petitioner’s request for review
and REMAND this proceeding to the FTC for modification of subsection II.A.2
of the remedial order in a manner consistent with this opinion.
41