Intracorp

UNITED STATES OF AMERICA
FEDERAL T M D E COMMISSION
WASHINGTON, B.C. a980
March 	25, 	1 9 8 8
Sharan B. 	Dsnzis, Esq.
Barger 6 Wolen
530 West 	SLxth Street, Ninth Floor
ZIos I\rplgebes,C a l . 	98014
Dear Ms. 	Dowzisr
This Better responds to your reqsaest 	for an a d v i s o q
opinion1 concerning the legality under t h e antitrust laws of a
proposal by your client, 	Xntsacorp, to use a relative value
schedule (RVS) developed by a physician group, along with
conversion factors developed by 	Tntracoq, in providing a medical
provider bill review service for third-party payers and eeli-
insured employers. 	As 	i s explained below, it does not a p p a x
t h a t 	Intracasp" 	suse of 	an RVS in the manner d i s ussed in your
letters is likely to violate the a n t i t m s t 	laws,'i
Iwtaacsrp engages in the bueihess of providing medical cost
contaiment sesviees to third-party 	ahinistrators and self-
insured employers throughout the United States. 	Among other
semices, Intracorp provides a medical provider bill review
service that gives advice to payors as to whether charges by
medical providers are usual, customary, and reasonable ("UCRm),
Tkis is crr new sesviee, and at the present tim'is available in
only six states,
1 	Under the Comission" 	Rules of Practice, a Comission
a d v i s o q opinion may be warranted when the matter imolves 	a
substantial or novel question of fact or l a w that has no clear
Comission or court 	precedent; a proposed merger or acqisition
i s 	involved; or the matter is of significant public 	interest.
16 C.F,R, 	Sl*l(a), 	Because, as is discussed below, 	the
C o m i s s i s n has addressed the major issues raised by your recquest
in other advisoq opinions, we have prepared a staff opinion
letter pursuant to Section P,L(B) of the Conunission" 	Rules o f
Practice. 	16 C.F,R. 	Sl.l(b).
This advisory opinion is based on t h e 	f a c t s 	set out i n
your letters of August 	1 7 	and September 10, 	1983, 	and Februaq 9,
1988, 	Tkis opinion is limited to the proposed progrm described
in your letters and does not 	constitute approval 	for actions that
are.different from those described, or for those not specified,

Sharon B. 	Donzis, E s q .
Page two
Currently, Xntracoq 	collect8 a smmple sf medical provider
bills and uses them to set the UCR mount for each procedure by
region w i t h i n 	a state, 	Inteacoq devisee a single ~ L a w d a r dof
reasonableness for each procedure in each geographic area.
However, a. customer may 	instmet 	Intracorp to use a,~pcl%ie
percentile level sf t h e charges in Intracoq" 	data base as the
m o u n t 	it will pay 	for ssmises, 	In that case, Intracorp w i l l
advise the customer of the mount for each procedure 	t h a t wsuld
eosrespnd 	to t h e 	indicated level sf p a p e n t .
I n place of its present method 0%detemining VCR price
screens, 	I n t r a c s q would prefer to use physician-developed RVSs,
RVSs are IZeLings of 	relalive values of various medical
procedures, 	Each semiee on psoeedure 	Is given a wll~llericalvalue
that purports to identify iLs worth 	in relatianshfp to that sf
e v e q sther sewice in t h e 	s m e section of the RVS* 	PiDa W S is
not 	in Itself 	a priee 	schedule, 	However, it can v e q easily h
converted to a pries schedule by multiplying the unit value of
each eesviee by a "canversion bacton," 	which is a dollar f i p m ,
Intracoq plans Lo calculate conversion factors using data
obtained from various insurers relating to workersQmpensation,
auto, health, and accident coverage. 	The data obtained would
indicate for each service the geographic area 	(by zip code) of
LfPe provider, the date of 	service, and the actual charge made.
The conabfnatisn of 	t h e RVS and the conversion factors would
ereare a fee schedule, which Zntracoq would use Lo set the price
sereens used in advising third-party 	payors 	as to the
reasonableness of elaims 	for reiaLbursemenL Prom all tmes sf
physicians. 	The csnversion factors would be used 	E I s I ~ I ~	by
Intracoq and wsuld not be disseminated to third-party payors,
health care providers, or any other entities in the rnarkatpla~e.~
The Comisslon has challenged the preparation, publication,
and circulation of RVSs by 	several medical associations as having
the effect of establishing, maintaining, or otkemise 	influencing
physicfan" 	fees in violation oE Section 5 of 	t h e Federal Trade
Comieeion Act, 	The Corniselon obtained eonsent 	orders
t e m i n a t i n g RVS activity by 	several medical 	organizations.(
Hntracorp 	is not controlled by or affiliated with
any medical provider groups or individuals,
California Medical A s s % @ 	93 F.T,C. 	519 	( 1 9 7 9 ) 	(consent
order); Minnesota State Medical A s s % n , 	90 F , T , C , 	337 ( 1 9 7 7 )
(consent order); merican College af Radiolog, 	89 F s T I C I144
(1977) (consent order); meriean Academy of Orthopaedic Surgeons,
88 F.T.C. 	968 (1976) (consent order); American College of
Obstetricians t Gynecologists, 	88 F.T.C, 	955 ( 1 9 7 6 ) 	(consent

Sharon B. 	Donzis, 	E s q .
Page t-ee
The principal concern expressed by the Comfseion about
relative value schedules has h e n 	that WVSs developed and
p&lished 	by 	a physician group could be used to faellitate an
agreement mong the group" 	seders LQ adjllere to the RVS in
charging f o r their senices or to use the RVS 	La collective
negotiations with third-party payers h u t the m o u n t s 	Lo h paid
to 	he physicians, 	This concern is not present when a third-
party payer or its agent uses an RVS, 	e w n one developd by a
physician group, 	to detemine unilaterally the mounts it will
pay 	far cove ed senices rendered to baeficfamies of 	the payer8s
health plan*f
order), 	The Department sf - s t i c e 	also challenged promulgat%on
sf RVSs by medical societies as illegal price fixing In violation
of the Sheman Act in three proceedings, 	A consent decree was
obtained i n two of the cases, 	United States v. Illinois P a d i a t q
SocVy, Zne., 	1977-2 	Trade Cae, 	(CCW) 961,967 	( N , D . 	%In, 	1 9 7 7 )
(consent decree); United States v. 	Almeda 	County Veterlnraq
Medical Ass%# 	1977-2 Trade Cas. 	(CCH) 	361,738 	(N.De Ca%, 	1977)
(consent decree), 	In a third ease, a federal district court held
$hat an RVS did not 	violate the a n t i t n s t 	l a w e , 	United States v.
merican Soc" 	of Araesth~fiiologist~~ 	PF. Supp.	Xnc., 4"3 	147
(S.D.N.Y. 	1979).
O f 	esuase, a thlPd pasty" 	s v a l u n t a q use of an WVS does
not remove the antitrust issues that arise from a pkgaician
group" 	development s f 	an RVS, 	either independently or at the
rewest of 	a third party.
Homver, 	physician developed RVSB may have some
drawbacks 	even f o r a third-party payor who decides 	independently
to use them. 	For exmple, physicians 	who know that a particular
RVS is being used and have a copy of i& may 	find it easy to
detemine the conversion Baetar 	being used by the third party and
t h u s 	to delemine the maxianlrm allowable charges for all
procedures 	covered by the RVS, 	creating an incentive foe them to
raise all their charges to the maximm p a p e n t 	level, 	Zn
addition, relative values are usually based Lo some extent on
physlcians9aubjective 	feelings &u% 	the value sf various
procedures. 	Therefore, the third party may pay prices that are
based not on market 	conditions but on pkysieiansVvLews about
what 	prices should be, at least in relation to the prices af
other semiees, 	Also, an RVS may establish new billing
categoriee leading to papent for more procedures than would
othemise be the case, 	Far exmple, 	a study sf the California
Medical Association RVS concluded that the'more detailed and
fractionalized RVS descriptive codes resulted in overall

Sharon B. 	Donzis, E s q .
a 	Page f o u r
A third-party payer may deternine unilaterally t h e m o u n t s
it will pay 	f o r covered medical 	senices, 	Antitsuet 	issues are
raised only 	if it enters into prohibited price-related agreements
w i t h physician groups om w i t h other third-party payers, 	The
orders entered by the commission in the RVS cases do not in any
way restrict third parties-use 	of relatBve value schedules.
Moreover, the Comissisn made clear in an advisoq opinion letter
ts the Aasleriean Society sf Internal Bedicine that an agreement in
restraint of trade does not r e s u l t 	from a third-party payer8s
unilateral decision tg adopt an RVS as the basis for its
ursement system, 	Therefore, 	a decision by Xntracsq,
a c t i n g as agent for a third-party payer, 	to a d s t i t u t e a fee
screen based on an RVS 	f o r a UCR screen based solely on
historical charges 	for particular procedures does not, etanding
alone, 	apwar to raise a n t i t m s t 	issues*
A 	separate issued to h considered is whether Intracoqes
providing identical advice to several third-party pagers p e e s
a q danger to competition msng t h e third-party payers, 	The
Csmission has stated that agreements b t w e e n 	individual medical
care providers and an independent intemediaq acting as agent
for third-party-payersabout the prices to be charged by the
providers to the third-parties did not violate the antitrust
laws, where there were w s agreement8 mong 	the third garti s
concerning %As prices to b paid for health care services.8
However, antitrust issues could be raised If I n t r a c o q f a
customers agreed antong themeel es to accept f n l r a c o q " 	UCR
levels as their p a p e n t 	rates,8
There does not a p p a r to be a substantial danger that
I n t r a c o q " 	activities w i l l 	facilitate unlawful collusion mong
Letter Lo Tmin S. 	Smith, M.D., 	101 F.T,C. 	1014 (1983).
* "n"wos t a g f 	opinion fetters hare cansidered the
application of the antitrust laws ta joint action mong
purchasers sf health care serarices. 	Letter from b t 	Lerner to
Hiehael L, Benger (Sept, 24, 1 9 8 5 ) ; 	Letter from M. 	Elizabeth Gee
lo Jonathan E. 	Gaines (March 26, 1986). 	1 m enclosing copies of
those letters Lor your infomarion.

Sharon B. 	Dsnzls, Esq,
Page 	five
c o m p t i n g third-party payers, 	These 	is no indication t h a t
1ntraeo;lPg" 	customers have agreed m s n g themselves to adopt
L n t r a e s q " 	fee levels. 	I n addition, Tntracorp" 	suetomems do
not necessarily use the s m e price 	screens, 	s i n c e they are under
no obligation to adopt Intracorg" 	seeomended 	fee levels and 	a
customer may 	ask Tntracorp to use a separate fee sereen s e t by
it,
The &ve 	Legal advice is that of the staff sf the Bureau 	sf
C o m p t i t i o n only, 	Under Section 1,3(c) o h 	t h e C s m i s s i s n " 	Rules
of P r a c L i c e , 	the Comission is not bound by t h i s 	advice and
resemes the right to rescind it at a later t h e ,
We are p l a c f ~ gcopies of 	your 	recguest and this r e s p n ~ eon
the public record 	pursuant to Section 1 - 4 of t h e C o m i a s i o n * ~
Rules of Practice, Yours t m % y I
M, ~ ~ l a a g e t h	m e
Assistant 	Director
Enclosures