Maine Medical Association

--
Bureau of Competition
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Frederick C. 	Holler, M , D ,
President
Maine Bedical 	Association
Lowell Court Professional Building
Lewiston, Maine 	04240
Dear 	Dr. 	Holler:
This 	letter 	responds 	to your 	request 	for 	guidance concerning
t h e legality 	under 	the antitrust 	laws of 	a medical 	society 	such
a s 	the Xaine Nedical 	Association 	urging 	its members 	to 	freeze
their 	fees or 	to lower 	their 	fees by 	a particular 	percentage.
YOU 	have 	indicated 	that 	your 	question 	was 	prompted 	by 	reports 	in
8 the press of proposals 	for 	a 	freeze o n physicians' 	fees. 	I have
treated 	your 	inquiry 	as 	a 	request 	for 	informal 	advice. 	More
specific 	facts regarding 	the proposed 	conduct would 	be 	required
for 	a 	formal advisory 	opinion.
I applaud 	your 	sensitivity 	to potential 	antitrust concerns.
Collective decision-making 	by 	competitors o n matters 	related 	to
fees can 	raise significant 	antitrust 	issues, and 	an association
such as yours 	should proceed 	with 	care 	in 	these matters.
As 	you may 	know, one of 	the 	fundamental 	rules of 	antitrust
law 	is 	the ban 	o n price-fixing. 	The 	law prohibits 	naked 	agree-
ments 	among 	competitors 	to 	fix or 	stabilize 	the price 	at 	which
they 	sell 	their 	goods or 	services. 	S o basic 	is 	this 	rule 	to 	the
framework 	of 	our 	economic 	system 	that 	conduct 	found 	to constitute
price-fixing 	is deemed 	per 	se, or 	automatically, 	illegal. 	When
per 	s e 	illegal price 	fixing 	is 	involved, courts 	will 	not 	inquire
into 	the 	reasonableness of 	the prices 	set or 	the validity 	of 	any
proffered 	justifications 	for 	the 	restraint on competition,
The 	rule against 	price-fixing 	is not 	limited 	to agreements
i n w h i c h 	competitors 	agree 	to charge 	the 	same price. 	Catalano,
Inc. 	v. 	Target Sales, Inc., 	446 U.S. 	643 	(1980). 	As 	the Supreme
Court 	recently 	reaffirx-?d in Arizona 	v. 	Yaricopa 	C ~ u n t vY2dical
Society, 457 U.S. 	332 	(1352), a&-pTo'nibi tion 	a ; 3 p l i e ~ w i " , n ~ q i l a ~
force 	to agreements 	to set maximum 	prices. 	~ u r t h e r m o r 6 ,agree-
8 ments 	designed 	to 	stabilize 	prices 	are 	illegal, 	even 	though
actual price 	levels have 	not 	Seen set. 	United 	States 	v. 	Socony-
Vacuum 	Oil Co., 310 U.S. 	150 	(1940).
4

The Supreme Court 	explained 	the policy 	underlying 	the 	rule
m a n y 	years 	ago:
The 	aim 	and 	result of 	every 	price-fixing
agreement, 	if 	effective, 	is 	the 	elimination
of 	one 	form of 	competition. 	The 	power 	to 	fix
prices, whether 	reasonably 	exercised 	or 	not,
involves power 	to control 	the market 	and 	to
fix 	arbitrary 	and 	unreasonable 	prices. 	The
reasonable price 	fixed 	today 	may 	through 	eco-
nomic and 	business 	changes 	become 	the un-
reasonable 	price 	of 	tomorrow, 	Once 	estab-
lished, 	it may 	be maintained 	unchanged
because 	of 	the 	absence of 	competition secured
by 	the 	agreement 	for a 	price 	reasonable when
fixed.
United 	States v. 	Trenton Potteries, 	273 U.S, 	392, 	397-98 	(19271,
This does 	not mean 	that competitors may 	never 	address
matters 	involving 	price. 	The Supreme Court 	has made 	it clear,
for 	example, 	that when 	competitors 	join 	together 	in an arrange-
ment 	offering 	significant productive 	efficiencies, 	conduct
8 reasonably 	necessary 	to 	the venture 	that 	involves 	the setting of
prices 	will 	not 	be 	held 	per 	s e 	illegal, 	Broadcast Yusic, 	Inc, v,
~ o l u m b i aBroadcasting 	System, 	Inc., 	441 U.S. 	1 	(1979). 	And, 	as
-you 	may 	be 	aware, 	the Federal Trade Commission 	and 	its staff have
issued 	several advisory 	opinions 	explaining 	that 	properly 	con-
ducted 	peer 	review of 	fees by 	professional 	societies 	is not 	pro-
hibited 	by 	the 	antitrust 	laws. 	See 	Iowa Dental Association, 	9 9	-
F.T.C. 	648 	(1982); 	Rhode 	Island Professional 	Standards Review
Orqanization 	(May 9 , 1983); 	American 	Podiatry Association 	(staff
advisory 	opinion, August 	18, 1983). 	Similarly, a medical 	society
may 	gather 	fee 	information 	from 	its members 	and 	provide 	it 	to
third 	party 	payers 	and 	governmental 	entities, 	along 	with 	the
society's 	views, 	provided 	such 	activities 	are not 	part 	of 	a 	boy-
cott or 	other 	collective 	effort 	to coerce 	third 	parties 	to adopt
policies 	favored 	by 	the 	society 	and 	do not 	effectuate an 	aqree-
ment 	to set prices, 	-	See ~ i c h i g a nState Medical 	Society, FTC
Docket No, 	9129, slip opinion 	at 	39 	(February 17, 	1983).
It would 	be 	illegal 	for 	independent 	competing 	physicians 	to
a < ~ e e among 	themselves 	to 	freeze 	their 	fees or 	to 	lower 	their
fees by 	a particular 	percentage, 	because 	such conduct would 	con-
stitute an 	illegal price-fixing 	agreement. 	See, 	e.g., 	United	-States	- -- 	-v.- - --- 	Radiator 	&	American 	Standard 	Sanitary C o r ~ 	433 F.2d	--L'	-	--------
174, 1 3 5 	( 3 2 Clr. 	1 9 7 J ) 	(agres,rent on Fercc.itlse of 	d i s c o u n 3 0
be 	granted 	held 	to 	be 	illegal 	price-fixing). 	See 	alsoICatalano,
Inc. 	v. 	Target 	Sales, 	Inc., 	446 U.S. 	643, 648 	(agreement to
terminate 	the 	practice 	of 	giving 	credit 	is squarely within 	the
traditional 	per 	se 	rule 	against 	price 	fixing.) 	Nothing 	in 	the
antitrust 	laws, however, prevents 	individual physicians 	from
unilaterally deciding 	to 	freeze or 	lower 	their 	fees.

A 	medical 	s o c i e t y 	r e s o l u t i o n 	t h a t 	merely 	encouraged 	members
v o l u n t a r i l y 	t o 	t a k e a 	p a r t i c u l a r 	a c t i o n 	regarding 	f e e s would
r a i s e 	a n t i t r u s t 	i s s u e s , 	but 	would 	not 	on 	i t s 	f a c e 	c o n s t i t u t e 	a
p r i c e - f i x i n g 	agreement. 	The p r i n c i p a l 	concern would 	be 	t h e 	r i s k
t h a t 	t h e 	r e s o l u t i o n might 	s e r v e 	a s 	p a r t 	o f , 	o r 	evolve 	i n t o , 	an
agreement 	among members, 	whether 	e x p r e s s 	o r 	implied 	I/, 	t o 	engage
i n 	t h e 	advocated 	a c t i o n . 	In 	a d d i t i o n , 	guidance 	g i v e n by 	a medi-
c a l 	s o c i e t y 	t o 	i t s members 	could 	become c o e r c i v e 	i f 	t h e members
d i d 	not 	c l e a r l y 	view 	t h e 	recommendations 	a s 	purely 	advisory 	and
v o l u n t a r y .
The 	r e s o l u t i o n s 	about 	which 	you 	have 	i n q u i r e d 	-- 	a 	proposal
t o 	f r e e z e 	f e e s 	and 	a proposal 	t o 	lower 	f e e s 	by 	a p a r t i c u l a r 	per-
c e n t a g e 	-- 	r e q u e s t 	p h y s i c i a n s 	t o 	take 	s p e c i f i c 	a c t i o n 	w i t h 	regard
t o 	t h e i r 	f e e s , 	and 	consequently 	r a i s e 	s e r i o u s a n t i t r u s t 	concerns
b e c a u s e of 	t h e i r 	p o t e n t i a l 	f o r 	being 	used 	a s 	v e h i c l e s 	f o r 	an
i l l e g a l 	agreement. 	Whether 	a 	r e s o l u t i o n 	would 	be 	found 	t o con-
s t i t u t e 	an 	i l l e g a l 	agreement 	would 	depend on 	a l l 	of 	t h e circum-
s t a n c e s . 	I n 	conducting 	t h i s 	a n a l y s i s , 	t h e 	s p e c i f i c i t y of 	t h e
a c t i o n s 	advocated 	i n 	t h e 	r e s o l u t i o n s 	you 	propose 	would 	be 	a
f a c t o r 	t h a t 	would 	i n c r e a s e 	t h e 	l i k e l i h o o d 	t h a t 	competing 	physi-
c i a n s 	could 	be 	found 	t o 	be 	a g r e e i n g 	among 	themselves 	t o 	take 	par-
t i c u l a r 	a c t i o n .regarding 	t h e i r 	f e e s , 	r a t h e r 	than 	simply endorsing
8 a 	g e n e r a l 	g r i n c i p l e of 	f e e r e s t r a i n t . 	I f 	t h e A s s o c i a t i o n 	moni-
t o r e d 	adherence 	t o 	t h e 	terms 	of 	t h e 	r e s o l u t i o n , 	t h a t 	would 	be
a n o t h e r 	f a c t o r 	t h a t 	would 	i n c r e a s e 	t h e 	l i k e l i h o o d 	of 	f i n d i n g 	an
agreement 	i n 	r e s t r a i n t 	of 	t r a d e .
On 	t h e 	o t h e r 	hand, 	a medical 	s o c i e t y 	r e s o l u t i o n 	urging
p h y s i c i a n s 	t o 	c o n s i d e r 	t h e 	f i n a n c i a l 	circumstances 	of 	p a t i e n t s 	i n
b i l l i n g 	and 	t o 	reduce 	f e e s 	and 	r e s t r a i n 	p r i c e 	i n c r e a s e s when
p o s s i b l e 	should 	n o t , 	i n 	i t s e l f , 	t r i g g e r 	a n t i t r u s t 	l i a b i l i t y .
Indeed, 	such 	a 	r e s o l u t i o n 	would 	probably 	not 	c r e a t e 	s e r i o u s 	a n t i -
t r u s t 	problems 	even 	i f 	i t 	l e d 	t o 	an 	agreement 	among competing
p h y s i c i a n s 	t o 	a b i d e 	by 	t h e 	terms 	of 	t h e 	r e s o l u t i o n . 	The 	a n t i -
t r u s t 	r i s k 	i n 	such 	a 	r e s o l u t i o n 	is 	reduced 	because 	t h e 	a c t i o n
advocated 	i n 	t h e 	r e s o l u t i o n 	is 	s u f f i c i e n t l y broad 	and 	f l e x i b l e 	s o
a s 	t o 	l e a v e p h y s i c i a n s 	who a g r e e 	t o 	a b i d e 	by 	i t 	wholly 	f r e e 	t o
r a i s e 	o r 	lower 	t h e i r 	f e e s 	i n 	p a r t i c u l a r 	i n s t a n c e s 	a s 	they 	deem
a p p r o p r i a t e . 	O f 	c o u r s e , 	even 	t h i s 	type of 	r e s o l u t i o n 	would 	r a i s e
-
t
&/ 	, A 	v i o l a t i o n 	of 	t h e 	a n t i t r u s t 	laws 	may 	be 	found 	even 	where
t h e r e 	i s 	no 	formal 	or 	e x p r e s s 	agreement 	t o 	f i x 	p r i c e s . 	A n 	a g r e e -
ment 	may 	be 	i n f e r r e d 	from 	conduct 	showing 	a n u t u a l 	commitment 	t o
a 	coxmon c o u r s e o f 	a c t i o n . 	See United 	S t a t e s 	v . 	Paramount	-P i c t u r e s , 	334 	U.S. 	131, 	1 4 2 	(1948) 	( " I t 	is 	not 	necessar=y t o 	f i n d
8 an e x p r e s s 	agreement 	i n 	o r d e r 	t o 	f i n d 	a 	c o n s p i r a c y . " ) , 	,and 	I n t e r -
s t a t e C i r c u i t 	I n c . 	v. 	United 	S t a t e s , 	306 	U . S . 	208, 	227 	(1939)
("Acceptance by 	c o m p e t i t o r s 	. . 	. o f 	an 	i n v i t a t i o n 	t o p a r t i c i p a t e
i n 	a p l a n , 	t h e 	necessary 	consequence 	of 	which 	is 	r e s t r a i n t 	of
i n t e r s t a t e commerce, 	is 	s u f f i c i e n t 	t o 	e s t a b l i s h 	an 	unlawful 	con-
s p i r a c y 	under 	t h e 	Sherman Act. " ) ,
I

s e r i o u s antitrust 	concerns 	if 	it appeared 	that 	it was 	being 	used
as 	a 	vehicle 	for 	an agreement among 	individual physicians 	to 	fix
or 	maintain 	their 	fees at 	a 	level prevailing 	at 	any 	particular
t i m e or within 	a 	particular 	range, or 	for 	an agreement 	to grant
discounts 	solely 	to 	the elderly 	and 	the 	indigent 	and 	not 	to offer
o t h e r 	types of 	discounts, 	such as discounts 	to health 	maintenance
organizations or 	preferred 	provider 	organizations.
In sum, a 	general 	resolution 	urging 	physicians 	to 	try 	to
minimize 	fee 	increases 	should 	not, 	in 	itself, present 	significant
antitrust 	risks, 	A 	resolution 	urging 	a 	fee 	freeze or 	a 	specific
percentage 	fee 	reduction 	is more 	problematical, 	because 	i t 	could
be 	found 	to part 	of, or 	lead 	to, a 	price-fixing 	agreement. 	If
t h e Association 	were 	to adopt 	such 	a 	resolution, p3rticular 	care
should 	be 	taken 	to ensure 	that 	the purpose 	and 	effect of 	the
resolution 	is 	independent, 	individual decision-making, 	and 	not
concerted 	action,
I hope 	this 	information 	is helpful 	to you. 	Naturally, 	as
with 	all opinions 	rendered 	by 	the Commission's 	staff, 	the Com-
mission 	is not 	bound 	by 	this 	advice, 	as provided 	in Rule 	1.3 	of
t h e Federal Trade Commission Rules of Practice.
Sincerely 	yours,
l I , d - A - 3 -
Arthur 	N, 	Lerner
Assistant 	Director