Advisory opinion on the permissibility under the antitrust laws of a system of professional society peer review of physicians' fees

AMERICAN MEDICAL ASSOCIATION 	1091
I 091 	Advisory Opinion
Re: 	A program proposed by the American Medical Associa
tion and the Chicago Medical Society involving peer
review of physician fees is not likely to violate federal
antitrust laws. [American Medical Association, P923506]
February 14, 1994
Dear Messrs. Johnson and Peterson:
This letter responds to the request of the American Medical Asso
ciation ("AMA") and the Chicago Medical Society ("CMS") for an
advisory opinion on the permissibility under the antitrust laws of a
system of professional society peer review of physicians' fees. The
proposed program has two facets: 	a system for rendering advisory
opinions on patients' complaints about fees and other matters, and a
disciplinary process aimed at "egregious" practices by physicians.
The Commission is of the opinion that the proposed program would
not be likely to violate any law enforced by the Commission if the
disciplinary process is limited to certain abusive physician practices
as described in this letter. However, to the extent that the proposed
program contemplates authorizing a group of physicians to discipline
a competing physician on the basis of fee levels alone, without regard
to abusive conduct, there is a substantial danger that the implementa
tion of the program may injure consumers and violate the antitrust
laws. Antitrust law does not preclude AMA and CMS from address
ing in other ways information disparities in the market that may result
in what AMA considers to be excessive medical fees. As is discussed
below, AMA and CMS could adopt a fee disclosure requirement to
address this issue.
The Commission has often observed that the antitrust laws do not
impede legitimate professional self-regulation that benefits consum
ers. 	For example, in the American Medical Association case, in
which the Commission found that medical associations had violated
the antitrust laws by suppressing the dissemination of truthful infor
mation about physicians' services and fees, the Commission nonethe
less emphasized that the AMA had "a valuable and unique role" to
play with respect to policing deceptive advertising and oppressive
forms of solicitation by physicians. American Medical Association,
94 FTC 701, 1029 (1979), aff'd as modified, 638 F.2d 443 (2d Cir.
1980), aff'd by an equally divided Court, 455 U.S. 676 (1982).

1092 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
The Commission has never challenged a medical society's fee
peer review program. Peer review was not an issue in the AMA case,
and the order entered in that case, and orders in subsequent cases,
made it clear that peer review of individual physicians' fees was not
categorically prohibited. On the contrary, as AMA notes in its peti
tion, the Commission has recognized the procompetitive benefits of
properly managed peer review systems. More than a decade ago, the
Commission formally approved a professional association's proposal
for a fee peer review program that has many features in common with
the system now proposed by AMA and CMS. Iowa Dental Associa
tion, 99 FTC 648 ( 1982).
Iowa Dental established a safe harbor for a certain kind of peer
review system. 	In addition, members of the staff have publicly
invited professional groups desiring to use other models to submit
them for the Commission's consideration. 	And at least as early as
1985, the Commission's Bureau of Competition informally invited
AMA to provide information on fee review so that the staff could
evaluate AMA's concerns about the adequacy of the Iowa Dental ap
proach. Although AMA never accepted that invitation, it did provide
such information in connection with the present petition.
AMA and CMS ask the Commission's opinion on three changes
from the type of program approved in Iowa Dental: ( 1) members of
the medical society would be required to participate in the peer re
view process; (2) physicians charging unusually high fees would be
subject to discipline in certain circumstances; and (3) the fact of a
disciplinary action against a physician would be made public.
On the basis of information provided by AMA and CMS, the
Commission is of the opinion that a program along the lines of that
presented by the petition can benefit consumers and operate without
violating any law enforced by the Commission. Requiring medical
societies' members to provide information needed by advisory fee re
view committees in the course of their deliberations can promote the
important information-generating value of such peer review. AMA's
proposal to discipline doctors raises issues requiring careful analysis,
but the Commission is of the opinion that the antitrust laws do not
stand in the way of discipline for abusive practices as discussed in
this letter or discipline for violations of certain information disclosure
requirements. If the disciplinary action itself is legitimate, disclosing
to the public the names of doctors who have been disciplined is not
likely to injure competition, and may promote competition and bene-

AMERICAN MEDICAL ASSOCIATION 	1093
1091 	Advisory Opinion
fit consumers. Finally, as is discussed below, efforts to provide pa
tients with more information about price also are likely to promote
competition.
I. Background of the Request
AMA points out in its petition that patients often lack good infor
mation about the prices of medical services, as well as about the
quality and necessity of the services they receive. Often patients re
ceive medical care without any prior discussion with the physician of
the price to be charged. This behavior is due to a number of factors,
including patients' relative lack of information, the prevalence of
third-party payment, and patients' reliance on their doctors to act in
the patients' best interests. In addition, in some cases, such as those
involving emergency treatment, prior agreement on price is impossi
ble. 	As a result, patients often may not know what price will be
charged until after the services are rendered. 1 Once informed of the
price charged, a patient may believe that the charge is unreasonable
or that he or she cannot evaluate the reasonableness of the charge.
AMA and CMS are concerned that in some situations, the fee
charged may arise from fraud, misrepresentation, undue influence, or
other abusive behavior by the physician.
Advisory peer review can give patients, and payers, information
about the basis for a fee and an informed opinion about its reason
ableness, and help them decide whether to pay a disputed bill or to
continue to patronize a particular doctor. To the extent that AMA's
proposal will provide information useful to consumers or their insur
ers, it is likely to serve consumers and promote competition. In cases
where the fee charged arose from abusive behavior, professional dis
cipline may also improve the functioning of the market by deterring
such behavior.
The program approved in the Commission's 1982 advisory opin
ion to the Iowa Dental Association included a number of features
designed to protect against possible anticompetitive effects. In par
ticular, 	the 	program 	was 	strictly 	advisory. 	Participation 	was
voluntary for all parties; decisions of the committees were advisory
and were based solely on the facts and circumstances of each case;
fee determinations were not published to the membership of the soci-
1 After-the-fact disputes over price are less likely to arise where third party payers negotiate prices
directly with providers of health care services in advance, as is the case in many managed care plans.

l 094 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	ll7F.T.C.
ety at large; and the society did not collect fee information or con
duct fee surveys for use in the peer review process.
The Commission approval of the fee review system in Iowa
Dental was based on the understanding that the program was de
signed to resolve specific disputes between patients and their dentists,
not to coerce third-party payers or to confer professional sanction on
particular fee levels or reimbursement systems. 	In order to assure
that the program remained faithful to its stated purpose, the Commis
sion advised IDA to view the process as a means of mediating dis
putes, not sanctioning particular price levels; not to allow panel
decisions to become widely known; to base decisions on the individ
ual judgment of panel members, not on fee schedules or other infor
mation sanctioned by the society; not to use the process to discipline
providers who engaged in disfavored competitive activities or to
discourage innovation, and not to discipline members who refuse to
use the peer review process or to accept its guidance; and to avoid
pressure on insurance companies to use the peer review process or to
abide by its decision, or to use a particular definition of reasonable or
customary in making reimbursement decisions.
The proposal of AMA and CMS contains many of the features
included in the Iowa Dental program. This advisory opinion focuses
on the few significant ways in which AMA' s proposal departs from
the Iowa Dental model.
II. The Proposed Fee Review Program
AMA states that it wants to encourage its state and local constitu
ent and component medical societies to operate fee review programs
in accordance with general guidelines developed by AMA. 2 CMS
desires to operate such a program. The proposed peer review struc
ture involves two separate tracks. 	Patient Grievance Committees
("PGCs") would hear complaints from patients, insurers, or others
regarding physician behavior, including complaints relating to fees,
and would render advisory opinions on the reasonableness of fees
charged. 	Professional Disciplinary Committees ("PDCs") would
2 AMA states that its guidelines are merely a model that will be made available to state and local
societies, and that local variations on this model may be adopted in some cases. This advisory opinion,
of course, is limited to the facts set out in this letter, and the conclusions stated here may not apply to
peer review systems that depart from those facts.

AMERICAN MEDICAL ASSOCIATION 	1095
1091 	Advisory Opinion
have the power to discipline members who engaged in certain kinds
of misconduct.
In fee complaint cases, the PGC would gather information from
the complainant and from the physician, and would render its opinion
about the reasonableness of the fee and the appropriateness of any
other behavior at issue. The opinion would be based on the specific
facts of the complaint, taking into account such factors as the fees
ordinarily charged by other doctors in the community, the nature and
difficulty of the services performed, and any unusual complexities or
other circumstances in the case. The committee members would rely
primarily on their own expertise and experience, but could refer to
other sources of information on fees, including third-party or govern
ment data bases or the opinions of other doctors sought out by the
committee. The committee would not maintain fee data to use as a
benchmark for evaluating fees. 	Proceedings of the PGC would be
confidential, and its opinions on the reasonableness of fees would not
be publicized.
Neither the complaining party nor the physician would be re
quired to accept the opinion of the committee. The rendering of the
advisory opinion is intended to facilitate an agreement between the
parties on an appropriate fee, but the committees would not follow up
their advisory opinions to determine whether the doctor had accepted
the fee recommended by the committee.
Complaints involving charges of serious misconduct might be
considered by the PGC, but they would also be referred to the Physi
cian Disciplinary Committee or to appropriate government authorities
for consideration. 	The PDC would conduct formal hearings, and
could impose sanctions including reprimand, censure, payment of a
fine, suspension, and expulsion from membership in the medical
society.
III. Issues Raised by the Petition
A. Mandatory Participation in Advisory Peer Review
One significant difference between the advisory fee review pro
posed by AMA and CMS and the program approved in Iowa Dental
is that members of the medical society would be required to partici
pate in the Grievance Committee process; that is, society members
would be subject to discipline for refusing to cooperate with the

1096 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
committees or to provide relevant information. Generally, the doctor
would be expected to make the patient's medical records available
and to explain the basis for the fee that was charged, including any
unusual factors in the case that might justify a higher than usual fee.
Doctors would not be required to accept the decision of the commit
tee as to the reasonableness of the fee, or to adjust the fee in confor
mance with the opinion. 	Thus, the advisory nature of the process
would be preserved.
AMA and CMS assert that mandatory participation in peer review
proceedings will make the process more available to consumers and
more effective. 	In most cases, the committee needs access to the
patient's medical records and other information in the doctor's pos
session in order to evaluate a complaint.
The Commission is of the opinion that requiring medical society
members to participate in advisory fee review in the circumstances
described above is not likely to endanger competition and is reason
ably related to making available to consumers the information that
the process is designed to produce. The emphasis in Iowa Dental on
the voluntary nature of the peer review was designed to protect
against the possibility that the process could lead to coercion of den
tists or insurance companies, or to standardization of fees. 	These
dangers do not appear to require that participation be voluntary, how
ever, at least in the context of the system contemplated by AMA and
CMS.
First, the patient and the insurer are free to decide whether to
participate in the fee review proceeding, and the opinion of the com
mittee is advisory. 	Therefore, the process is not likely to result in
coercion of third-party payers to accept reimbursement policies
favored by the profession. Second, fee review committees' opinions
about fees charged are not binding on the physicians, and the socie
ties will impose no form of penalty on physicians for failure to adhere
to the committees' advice as to the fee. 3 Third, the committees will
not develop a benchmark schedule of fees, and there will be no public
disclosure of the committees' decisions concerning specific fees. For
these reasons, it does not appear likely that the process will be used
to coerce participants or to establish or enforce an agreement on fees
recommended by the committee. Thus, mandatory participation in
3 Antitrust issues would not be raised if a doctor agrees with a patient or insurer, outside the peer
review process, to abide by the committee's determination, so long as such agreement is not required
by the medical society.

AMERICAN MEDICAL ASSOCIATION 	1097
1091 	Advisory Opinion
advisory peer review offees does not appear to violate the laws en
forced by the Commission.
Because guidance given by a professional association can some
times be coercive, medical societies should exercise care to ensure
that the advisory nature of the process is clearly communicated to all
participants and strictly maintained in practice. 	Antitrust concerns
would be raised if, for example, the peer review process became a
vehicle for coercing doctors into adopting a pricing policy sanctioned
by the society. The advisory nature of the program should be careful
ly observed in order to avoid coercion or other unlawful agreements.
B. 	Physician Discipline
The second, and most fundamental, departure from the fee peer
review program approved in the Iowa Dental opinion is the proposal
to discipline physicians in certain instances involving fee complaints.
The petition states that conduct warranting discipline includes such
things as fraud, intentional provision of unnecessary services, and ex
ercising undue influence over a vulnerable patient (p. 5), and that the
proposed disciplinary program would for the most part involve this
type of abusive conduct (p. 20).
The antitrust laws do not prevent the imposition of professional
discipline when such abusive conduct occurs. Thus, the predominant
thrust of the proposed disciplinary program appears entirely consis
tent with the antitrust laws. However, the program creates a substan
tial danger that it will injure consumers and violate the antitrust laws
insofar as it also proposes disciplinary action against physicians sole
ly on the basis of fee levels, where there has been no fraudulent, de
ceptive, or similar abusive conduct. 	As is discussed below, this
danger is not eliminated by making agreement to the fee by a "fully
informed and competent patient," as that phrase is used in the peti
tion, a defense to a charge of "fee gouging." 	A straightforward
requirement that physicians disclose certain fee information, how
ever, would not raise antitrust concerns.
1. Abusive Conduct
Nothing in the antitrust laws prohibits competitors from engaging
in self-regulation to protect consumers from fraud, deception, undue
influence, and other abusive practices. 	Such regulation is likely to

1098 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
promote, rather than impede, competition, by enabling consumer
purchase decisions to be made free from deceptive practices. Such
practices distort the operation of a market economy, and their elimi
nation enhances competition and consumer welfare. See American
Medical Association, 94 FTC 701, 1009 (rules banning false or
deceptive advertising and unfair solicitation may enhance competi
tion).
Thus, AMA's proposal to discipline physicians for such abusive
conduct in the context of fee peer review does not present a signifi
cant issue under the antitrust laws. For example, AMA's proposal
that physicians be disciplined for intentionally providing unnecessary
services is unlikely to restrict competition. Indeed, in a 1983 adviso
ry opinion approving a code of ethics for the American Academy of
Ophthalmology, the Commission stated that a rule barring "the order
ing of unnecessary procedures for pecuniary gain" raised no antitrust
concerns. 101 FTC 1018, 1019 (1983).
Similarly, establishing as a basis for discipline the obtaining of a
fee through fraud, deception, undue influence, or other types of ex
ploitation constitutes legitimate self-regulation that does not raise
antitrust concern. As noted above, these practices distort consumer
purchase decisions, and thereby harm consumers. While the Com
mission cannot define in advance all the circumstances of exploita
tive behavior that may occur in the context of fee agreements for
physician services, some general principles can be identified.
First, affirmative misrepresentations of material facts about the
fee to be charged, the services to be performed, the basis for the fee,
or other fee-related matters are proper subjects for disciplinary action.
Moreover, a representation may be deceptive because of the failure
to disclose qualifying information necessary to prevent an affirmative
statement from creating a misleading impression.
Second, as a general matter, an evaluation of whether a patient
has been deceived in the purchase of medical services requires an
evaluation of relevant surrounding circumstances, in order to assess
the overall impression conveyed. For example, some patients may be
particularly susceptible to deception due to the stress of a serious
medical condition. See, e.g., Travel King, 86 FTC 715 (1975) (ter
minally ill consumers susceptible to exaggerated cure claims). It is
appropriate, therefore, for AMA to assess deception from the per
spective of such individuals.

AMERICAN MEDICAL ASSOCIATION 	1099
1091 	Advisory Opinion
Third, patients sometimes may be subject to undue influence that
causes them to agree to treatment and to incur unexpectedly high
fees. The Commission has previously recognized that in certain cir
cumstances consumers of medical services may be vulnerable to
undue influence in their in-person dealings with physicians, and has
approved action by medical societies to prevent such abuses. 	See
American Medical Ass 'n, 94 FTC at 1030 (permitting AMA to pro
scribe uninvited, in-person solicitation of persons who, because of
their particular circumstances, are vulnerable to undue influence).
Action by medical societies to address cases where undue influence
has occurred is consistent with this approach, and presents no anti
trust concern.
Special circumstances are presented in cases in which the patient
is unable to make a meaningful choice about a fee, for example in
cases involving emergency medical treatment. In such situations, the
patient may be unusually vulnerable to exploitation. 	Such factors
may properly be taken into account in deciding whether a physician
has engaged in abusive conduct.
Thus, insofar as AMA and CMS are proposing in the context of
fee review to discipline physicians for fraudulent, deceptive, or simi
lar abusive practices, the program is consistent with the antitrust
laws. 	This advisory opinion, of course, does not provide advance
approval for banning all behavior a medical society might choose to
define as abusive, or authorize an otherwise unjustified action based
on the assumption that all patients are always vulnerable. 	But
medical society programs to address fraud, deception, and similar
abuse of consumers present no inherent antitrust problems.
2. Discipline Based Solely on Fee Levels
While AMA and CMS expect that disciplinary cases will for the
most part involve abusive conduct of the sort described above, the
petition also contemplates disciplinary sanctions for "fee gouging"
where there has been no such misconduct. 	The informational peer
review system and the discipline for abusive practices that the Com
mission has approved in this letter are of direct assistance to consum
ers who have concerns about the fees charged by their doctors. Dis
cipline in the absence of such abusive practices, however, threatens
to injure consumers rather than assist them. As is discussed below,
a requirement that physicians disclose certain fee-related information

1100 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117F.T.C.
to consumers would address the information disparities discussed in
the petition, without posing a similar risk of consumer injury.
a. The Concept of "Fee Gouging"
As AMA and CMS recognize, serious antitrust issues are raised
by a system of collective competitor regulation of prices. See, e.g.,
Arizana 	v. 	Maricopa 	Medical 	Society, 	457 	U.S. 	332 	(1982);
Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980); U.S. v.
Socony-Vacuum Oil Co., 310 U.S. 150 (1940). The petition explicitly
disclaims any intention of establishing a "fee control" system. (p. 22.)
In proposing discipline for "fee gouging," however, the program in
part contemplates medical society discipline of physicians solely on
the basis of their fee levels, without regard to abusive conduct of the
type discussed above. While not identical in nature to the maximum
fee schedule condemned by the Supreme Court in Maricopa, the pro
posed program would in effect create an agreement among competi
tors that none of them will charge any price that the group deems
"excessive." Thus, the program would allow competitors to set the
maximum fees of their rivals.4 Moreover, because the term "fee
gouging" has no clearly defined limits, medical societies would have
wide latitude in regulating their members' fees, increasing the risk
that the program in practice would amount to competitor control over
physician pricing.
The petition bans "fee gouging" but does not make it clear what
is encompassed in that term beyond the kinds of abuses discussed
above, with respect to which the Commission has approved the impo
sition of discipline. While the "fee gouging" label evidently is de
signed to convey an impression of improper conduct, it is not clear
how the term would be applied to particular fees, and the petition has
neither provided a useable definition nor described the standards that
would be used to determine when a physician has engaged in "fee
gouging".
The Commission's staff has engaged in an intensive effort to
learn from AMA and CMS about the operation of the proposed disci
plinary system and the problems it seeks to address. 	At the staff's
Although the program would involve a retrospective review of a fee already charged rather than
an agreement on future pricing, the prospect of discipline for "fee gouging" would likely have an effect
on price setting by society members beyond those actually disciplined. Indeed, AMA and CMS expect
and intend that the threat of medical society discipline for "fee gouging" will have a direct impact on
doctors' pricing practices.
4

AMERICAN MEDICAL ASSOCIATION 	1101
1091 	Advisory Opinion
request, AMA submitted documents relating to currently-functioning
county medical society fee review committees and written responses
to questions. 	AMA and CMS representatives also held a lengthy
telephone conference with FfC staff members to explore the ramifi
cations of the proposal. These discussions have further demonstrated
the failure of AMA and/or CMS to specify a standard for determining
what conduct would be subject to discipline as "fee gouging."
While it seems clear that the petition implicitly defines "fee
gouging" to include charging a fee that is very high relative to pre
vailing charges for comparable services, AMA and CMS have not
been able to delineate a consistent or practical standard to guide peer
review committees' actions on "fee gouging" complaints. 	At one
point, the petition's discussion of "fee gouging" gives as an example
charging a fee 2 to 3 times the "market level" for a major procedure
(p. 12). At another point, the petition points to Opinion 6.05 of the
Code of Medical Ethics as the "current reference point for what con
stitutes fee gouging." 	(p. 12, n.15) 	That provision defines as
"excessive" any fee that a reviewer would have "a definite and firm
conviction ... is in excess of a reasonable fee," in light of all the
relevant circumstances. 	In a separate letter to the staff, AMA ap
peared to distinguish between fees that are merely "excessive" under
Opinion 6.05, which would be subject only to advisory fee review,
and fees "so high as to border upon fraud," which would be subject
to the disciplinary process. 5 This letter defined the latter category as
fees "at least 50 percent above the range of usual and customary."
These alternative definitions demonstrate the absence of a clear
standard for discipline. AMA and CMS seek to have medical socie
ties exercise significant disciplinary power while providing little
guidance as to how that power ought to be exercised. 	Moreover,
medical society opinions about "market level" price, a "reasonable"
fee, and "usual and customary" fees, even if guided by some data,
will ultimately represent subjective judgments by physicians serving
on disciplinary committees. While a medical society's opinion about
the reasonableness of a fee provided through the sort of advisory fee
review that the Commission has approved can provide useful infor
mation to consumers and third party payers, basing a disciplinary sys-
Letter from Michael L. Ile, AMA, to Judith A. Moreland, FTC, February 18, 1993.
5

1102 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	Il7F.T.C.
tern on such subjective judgments would place great power in the
hands of medical society review committees. 6
In addition, correspondence and other statements of AMA and
CMS representatives suggest that conduct other than charging a very
high fee would also be considered "fee gouging." In particular, disci
pline could be based on a pattern of fees that exceeded the prevailing
level by a relatively small amount.7 The possibility of such an ap
proach is further indication that the proposed discipline for "fee
gouging" could evolve into a system involving substantial competitor
control of fee setting. 	Furthermore, a disciplinary program that
threatened sanctions for doctors who fail to adjust pricing behavior
in accordance with a PGC' s advisory determination that a fee was
"excessive" would fundamentally undermine the advisory nature of
PGC fee review. As is discussed above, the assurance that fee review
is voluntary is the foundation of the Commission's approval of that
part of the program.
In sum, while AMA and CMS have stated that their intent is not
to establish a fee control program, the disciplinary system as current
ly described in the petition would give medical societies significant
power to regulate the fees charged by their members, and little guid
ance as to how that power ought to be exercised.
b. The Disclosure of Fee Information
The Commission has considered whether the concerns raised by
the breadth of the "fee gouging" concept would be reduced by the
provision in the petition that conduct will not be deemed "fee
gouging" where there has been prior agreement to the fee by an in
formed patient:
Fees much higher than normal would not constitute fee gouging if agreed to by
a fully informed and competent patient that was not subject to undue influence.
(pp. 12-13.) This provision, which in effect makes nondisclosure an
element of "fee gouging," does not in its present form reduce the
antitrust risks inherent in the proposal.
6 As is discussed below, such an aggregation of power in the hands of competing providers of
medical services carries significant risk of consumer injury.
7 Letter from Michael L. Ile, AMA, to Judith A. Moreland, FTC, February 18, 1993.

AMERICAN MEDICAL ASSOCIATION 	1103
1091 	Advisory Opinion
The breadth of the ban on "fee gouging" -- and the resulting risk
of consumer harm -- could be reduced by including nondisclosure as
an element of the concept of fee gouging, by specifying that physi
cians would not be subject to disciplinary review if they had dis
closed relevant fee information.8 The proposed program's disclosure
provision does not have this effect, however, because the information
that would have to be disclosed to ensure that a patient is "fully
informed" is so extensive that it is unlikely that a physician could
ever make disclosures sufficient to avoid discipline. 	Thus, even if
patients knowingly selected an expensive specialist on the recom
mendation of their primary care physician, and if the specialist fully
discussed his or her services and fees and other material information
in his or her possession in a meeting with the patient, the specialist's
fee apparently could later be attacked as fee gouging. 	This occurs
because under the current proposal, in order for the patient to be
"fully informed," the specialist would have to disclose the fees of
other physicians and perhaps other information to which the special
ist may not have access.9
In short, the concept of a "fully informed consumer" set forth in
the petition does not significantly reduce the antitrust concerns noted
above because it appears unlikely that a physician would possess all
the necessary information or that physicians could be confident that
their disclosures would be deemed adequate. 10 Thus, physicians
would be subject to discipline based on broad and essentially stan
dardless review of their fee levels by their competitors.
While the proposed program's "fully informed consumer" provi
sion does not eliminate the competitive concerns already discussed,
AMA and CMS can take steps to address the information disparities
8 In most cases, the physician should be able to disclose in advance the fee that will be charged
for the service or procedure, and the possibility of additional charges should complications arise. There
may also be other information helpful to patients that doctors could disclose. For example, in many
cases physicians may have information that would permit them to estimate the extent of the patient's
insurance coverage, and therefore the extent of the patient's liability after insurance payment. Alter
natively, the doctor might inform the patient that insurance may not cover the whole fee, and that the
patient might want to contact the insurance company to find out what its maximum payment for the
service would be, or to inquire about what other doctors are likely to charge.
9 According to the petition (p. 13, n.16), for a patient to be fully informed the physician must not
only disclose his or her own fee, but make sure that the patient knows what other physicians in the area
charge for the service. Elsewhere, the petition (p.21) suggests that a patient has received adequate
disclosure only if given "full information about comparable fees and the quality and need of the service
being offered .... "
lO Moreover, the petition suggests that in some circumstances a fee could be considered "fee
gouging" even if it had been agreed to in advance by a fully informed patient. (p. 21)

1104 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
discussed in the petition. For example, there is no reason under the
antitrust laws why AMA and CMS could not adopt an across-the
board requirement that physicians disclose relevant fee information
in advance of treatment whenever it is possible to do so, 11 just as they
currently require physicians to disclose in advance the possible risks
of treatment in order to obtain informed consent to the treatment. 12
In some contexts, disclosure requirements can result in less infor
mation rather than more being available to consumers. For example,
the Commission has recognized that requiring excessive disclosures
in advertising can discourage advertising by increasing its costs. 13
However, each required disclosure must be evaluated in its own
context, and in the context of discussions between physicians and
patients about appropriate medical care, requiring some information
about price to be provided would not appear to raise inherent prob
lems under the antitrust laws. As long as the disclosure requirements
were not unduly burdensome and were a legitimate response to the
information disparities noted in the petition, they would not be likely
to restrain competition unreasonably .14
3. Consumer Harm Resulting from Discipline Based Solely
on Fee Levels, Without Regard to Abusive Conduct
A program that based discipline solely on the level of the fee
charged, without regard to the presence of fraud, deception, or other
exploitation, would pose a substantial danger of consumer harm in
various ways. 	As noted above, such a program would amount to
competitor regulation of fee levels. 	As the law recognizes, the as-
II 	. 	.
AMA has proposed, as part of its health care reform proposal, that health care providers be
required to release price information to patients before treatment. It recognizes that the availability of
price information can increase the role of competitive forces in health care markets and encourage cost
conscious patient decision-making. American Medical Association, Health Access America (2d.
edition) at 5, 6. To date, however, AMA has not required its members to disclose to patients the cost
of treatment in advance. In 1992, the AMA House of Delegates adopted a resolution "encouraging"
doctors to post the prices of their most commonly performed procedures.
12 See Council on Ethical and Judicial Affairs, AMA, Code of Medical Ethics and Current
Opinions, Opin. 8.08 (Informed Consent) at p. 38 ( 1992).
13 See, e.g., Advertising of Ophthalmic Goods and Services, Statement of Basis and Purpose and
Final Trade Regulation Rule, 43 Fed. Reg. 23992, 24002 ( 1978).
14 Since no proposed disclosure requirement is before the Commission, it cannot render an
opinion of the permissibility under the antitrust laws of any particular requirement. AMA and CMS, if
they choose to adopt a disclosure requirement, should evaluate in the first instance what kinds of
disclosures mil!ht be useful to patients without being undulv burdensome to the doctors.

AMERICAN MEDICAL ASSOCIATION 	1105
1091 	Advisory Opinion
sumption by competitors of the power to control market prices poses
inherent dangers to consumers. 	See, e.g., United States v. Trenton
Potteries, 273 U.S. 392, 397-98 (1927). The Commission does not
question that the disciplinary system is not intended to lead to uni
form fees or to establish a price floor. But however well-intentioned,
an agreement among competitors that allows them to regulate prices
creates a dangerous probability that such an aggregation of power
will ultimately result in increased prices for consumers. Id.; see also
Arizona v. Maricopa Medical Society, 457 U.S. 332 (1982).
Moreover, an agreement among competitors not to charge in ex
cess of what the group deems to be "reasonable" could have a variety
of adverse effects on consumers aside from an ultimate increase or
standardization of prices. It could, by instituting competitor control
over price levels, operate to discourage entry into the market and
deter innovation. 	For example, a program of fee level discipline
could be used to discourage the introduction of superior but more
expensive medical treatments or procedures. Competitors unable or
unwilling to offer a particular procedure themselves could declare
that those who did so were "price gougers" if the procedure were
significantly more expensive than the procedure for which it was a
substitute. 	Such a program of fee level control could infringe on
consumers' ability to decide that unusual qualities of a physician's
services justified a higher than usual price, substituting instead the
collective judgment of competitors as to what a consumer should
want to purchase.
Finally, any system of discipline lacking clear standards is sus
ceptible to arbitrary enforcement and abuse. Discipline based on a
vague concept of "fee gouging" could be used to obstruct doctors
who, for whatever reasons, are not in favor with their colleagues,
including those who are aggressive competitors, more in demand, or
simply better qualified.
C. Disclosure of Disciplinary Actions
AMA proposes to publicize the fact that a physician has been dis
ciplined, but not the amount of the fee in question, when the infrac
tion giving rise to the discipline involved a fee matter. Assuming that
the underlying disciplinary action did not itself violate the antitrust
laws, as is discussed above, the Commission is of the opinion that
making disciplinary decisions public without disclosure of the fee in

1106 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117F.T.C.
question does not endanger competition, and would not be likely to
violate the antitrust laws.
IV. Conclusion
Accordingly, the Commission concludes that the proposed fee
review program, insofar as discipline would be imposed in cases in
volving abuses such as fraud, deception and undue influence, would
not violate Section 5 of the Federal Trade Commission Act or any
other statute enforced by the Commission. 	Because the potential
breadth of the petition's concept of "fee gouging" raises sufficient
possibility that other aspects of the proposed disciplinary system
could injure consumers, the Commission cannot give advance ap
proval to those aspects of the proposal as currently framed in the
petition. As is indicated above, however, AMA and CMS can, con
sistent with the antitrust laws, require physicians to disclose certain
price-related information to their patients in advance of services, in
order to redress information disparities that exist in the market.
This advisory opinion, like all those issued by the Commission,
is limited to the proposed conduct described in the petition being
considered. 	It does not, of course, constitute approval for specific
instances of implementation of the program that may become the
subject of litigation before the Commission or any court, since
application of the program in particular situations may prove to cause
significant injury to competition and consumers, and thereby violate
the Federal Trade Commission Act. 	The Commission retains the
right to reconsider the questions involved, and with notice to the re
questing parties in accordance with Section l .3(b) of the Commis
sion's Rules of Practice, to rescind or revoke its opinion in the event
that implementation of the proposed program results in significant
anticompetitive effects, should the purposes of the program be found
not to be legitimate, or should the public interest so require.

AMERICAN MEDICAL ASSOCIATION 	1107
1091 	Advisory Opinion
Letter of Request
April 30, 1992
Dear Mr. Clark:
Pursuant to 16 CFR 1.1, the American Medical Association
(AMA) and the Chicago Medical Society (CMS) hereby request an
advisory opinion that would permit the AMA, its constituent medical
societies, and its component medical societies to engage in profes
sional peer review of physician fees pursuant to procedures devel
oped by the AMA. 1
Under the AMA's contemplated program, state or county socie
ties would perform most of the professional peer review of fees. 2
State societies would also act as appellate bodies for opinions or
decisions of the county medical societies, and under some circum
stances would act as the initial forum for peer review of fees. 	The
AMA would participate as the appellate body for opinions and deci
sions of the state societies, and under rare circumstances would
initiate its own peer review proceedings.
The Federal Trade Commission (FfC) has issued advisory opin
ions about the operation of professional peer review of fees. 3 The
FTC has recognized that, properly managed, professional fee peer
review can yield important procompetitive benefits.4 In particular,
fee peer review can increase the flow of information about physician
1 Pursuant to the AMA's Constitution, constituent medical societies are "medical associations
of states, commonwealths, territories or insular possessions which are, or which may hereafter be
federated to form the American Medical Association." Component societies "are those county or district
medical societies contained within the territory of and chartered by the respective state associations."
2 	. 	. 	. . 	. 	.
The AMA believes that many of these medical soc1e1Jes will adopt the proposed fee peer review
procedures if they are found to be compatible with the antitrust laws by the Federal Trade Commission.
See the letters of support from state and county societies submitted with this request. Indeed, CMS,
which is the largest county medical society in the nation, has chosen to join the AMA in this request
because it desires to conduct the review of complaints about physician fees in the manner requested for
the procompetitive reasons that are discussed infra.
3 See, e.g., Medical Society of Passaic County (January 3, 1986); American Podiatry Association
(March 13, 1984); Iowa Dental Association, 99 FTC 648 (1982).
Ibid., and see "Peer Review and the Antitrust Laws," Remarks of Mark J. Horoschak, Assistant
Director for Health Care, Bureau of Competition, Federal Trade Commission, before the AMA National
Leadership Conference, February 25, 1990; and for the perspective of the Antitrust Division of the U.S.
Department of Justice see: "Business Self Regulation. An Enforcement Policy of Cautious Tolerance.
Remarks of Charles F. Rule, Assistant Attorney General, Antitrust Division, U.S. Department of
Justice, Before the Chicago Bar Association, January 27, 1989.
4

1108 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
fees to patients, enabling them to compare fees when selecting a
physician.
However, the FTC has also expressed concern that improperly
managed fee peer review could result in price-fixing agreements and
the5 advisory opinions and guidelines issued by the FTC have been
so restrictive that few medical societies engage in fee review today.
We believe they are unnecessarily restrictive and are thereby depriv
ing patients of an important public service.6 In particular, we object
to the FTC guidelines which advise that:
1. 	Opinions of the peer reviewers must be advisory only and not
coercive--that physicians must not be required either to participate in
the review process or to comply with the opinion of the reviewers;
and
2. 	That physicians must not be subject to discipline for charging
any particular fee or for refusing to adhere to the opinion of re
viewers.
A complete summary of the AMA' s proposed procedures for
professional fee peer review is included in subsequent portions of this
letter. 	In brief, the procedures would generally adhere to the FTC
guidelines, but we make the two important changes described above.
The process would involve mediation of complaints about fees, but
physician participation would be mandatory under the AMA proce
dures and physicians can be disciplined for fee gouging.7 While the
emphasis of the AMA' s proposed program is on mediation, the AMA
and the CMS believe that medical societies should be able to disci
pline members who engage in egregious conduct.
The AMA and CMS believe that these differences would enhance
the procompetitive benefits of professional fee peer review by medi
cal societies. 	Almost all fee peer review carried on by component
societies is in response to patient complaints. Mandatory participa
tion would increase the flow of information to patients about fees,
and it would increase patient confidence in the market for physician
5 See ftn. 3. supra.
6 Horoschak, ftn. 4, supra.
7 Fee gouging has been long been considered unethical by the profession. See Opinion 6.05,
"Fees for Medical Services" in the Code of Medical Ethics and Current Opinions of the Council on
Ethical and Judicial Affairs of the American Medical Association ( 1992).

AMERICAN MEDICAL ASSOCIATION 	1109
1091 	Advisory Opinion
services. The ability to discipline fee gougers would also increase
patient confidence in the market.
When a medical society cannot require a member to participate
in fee peer review in response to a complaint, the patient is always
unhappy, sometimes harmed and the profession is denied the ability
to enforce its code of ethics in a critical respect.
The AMA has had intermittent discussions with prior Chairmen
of the FfC for the relief sought here for over seven years. We have
sensed greater flexibility and a broader perspective from this Com
mission on certain matters and we submitted a draft of this request for
an advisory opinion to the staff of the Bureau of Competition for an
informal reaction. 	Staff has responded by requesting a substantial
amount of information in addition to the material set forth in this
request. Some of the questions asked by staff are clarifications that
have been addressed by modifying this letter. 	Other information
requested can only be obtained by calling upon the experiences of the
constituent and component societies. The AMA and the CMS are in
the process of gathering that information and will submit it shortly,
but we do not believe it is necessary given the nature of the modifica
tions we are seeking. 	For the reasons stated here and in the cover
letter to Chairman Steiger, it is past time to grant the relief we seek.
The Procedures Proposed By The AMA
For Professional Peer Review of Physician Fees
a. Intent of the AMA 's Proposed Procedures
This request for an advisory opinion is being submitted as part of
a broad, procompetitive effort to enhance professional self regulation
by physicians. The goal is to respond to widespread disenchantment
with the health care system by addressing the complaints of patients,
payers, and others about individual physicians in light of the ethical
code of the profession. It is essential that physicians address this lack
of confidence if the market for physician services is to function effec
tively. The object of enhanced self regulation is to restore confidence
by providing a means to resolve patient and payer complaints about
individual physicians and by promoting adherence to high standards
of conduct by physicians.
This effort to enhance professional self regulation is procompeti
tive because it should result in greater protection of patient interests

1110 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
and provide a greater flow of information about physicians to pa
tients, payers, and others. Patients will have greater confidence that
their interests will be observed and that they will not be exploited
when being cared for by a physician. In addition, there will be more
information available for patients to compare the characteristics of
physicians when choosing a provider. Further, individual physicians
will obtain more information about the patient perspective and are
likely to respond by changing their practice procedures to improve
the experience of the patient.
The AMA hopes to achieve enhanced self regulation by reviving
a professional peer review structure that was once active, but which
has become increasingly inactive in certain matters in recent years.
The AMA and its constituent and component societies have in place
the organizational structure necessary to handle complaints about fees
and other matters from patients, payers, and others. In fact, most of
these medical societies have bylaws that provide for standing com
mittees designed to mediate and resolve patient grievances and to
discipline members that engage in unethical conduct. Some of these
societies hear patient complaints about fees. However, these commit
tees have become inactive or under used in many, if not most, geo
graphic areas. There are some county and state societies with active
grievance committees, but most do not review complaints about fees.
The disciplinary function has virtually stopped in most areas.
The AMA has proposed the fee peer review procedures at issue
in this request for two reasons. First, the AMA and the constituent
and component medical societies view fee peer review as an impor
tant activity. Second, because of its importance, an FfC approved set
of procedures that enhances the ability of these committees to medi
ate complaints about fees and to discipline fee gougers would provide
an excellent means to promote the use of the peer review system. As
is discussed in the next section of this letter, one of the reasons why
the peer review structure has become increasingly inactive is fear of
litigation, especially antitrust litigation. 	An advisory opinion from
the FfC which found that the proposed guidelines for fee peer review
are compatible with the antitrust laws would provide assurances to
medical societies that peer review can take place without excessive
liability risks.
Medical societies consider professional fee peer review to be
important because most medical societies regularly receive com
plaints from patients and institutions or regulators, has done the best

AMERICAN MEDICAL ASSOCIATION 	1111
1091 	Advisory Opinion
job at taking the actions necessary to build public confidence in the
market for physician services. 8
b. The Existing Committee Structure
1. Patient Grievance Committee and Physician
Disciplinary Committees
As of 1987, almost all of the county medical societies had
"patient grievance committees" (PGCs) and physician disciplinary
committees (PDCs).9 The purpose of a PGC is to take complaints
from patients about physicians and to resolve them, primarily through
mediation. If a complaint involves a serious charge of misconduct,
the PGC may refer it to a PDC or to a state or federal regulatory
agency. PDCs hear serious charges of ethical violations by a physi
cian that might result in an action that affects the physician's mem
bership.
State medical societies also operate PGCs and PDCS. However,
county medical societies are intended to handle initial complaints,
with state medical societies acting as an appellate body for parties
dissatisfied with the opinions or decisions of the county societies.
State PGCs and PDCs will handle initial complaints for counties in
rural areas that do not have sufficient members or staff to operate
committees. In addition, state PGCs and PDCs usually have discre-
8 Throughout its history, the profession has responded to the need to solve health care problems
and to regulate itself in the public interest. During the mid and late 19th century, the profession
organized medical societies and developed a code of ethics to distinguish physicians from the many
competing health care practitioners that did not adhere to safe and scientific methods. Subsequently the
profession initiated and helped operate the system of state licensure of allopathic physicians. At the tum
of the century, the profession reformed the medical education industry and succeeded in eliminating the
practice of granting diplomas for a fee and in closing substandard medical schools. A system of
accrediting medical schools was developed that continues today, and which is operated by organized
medicine. During the early part of the twentieth century, systems for accrediting graduate medical
education programs and hospitals were developed by the profession, and the board certification of the
American Board of Medical Specialties was organized. The net result has been the training of hundreds
of physicians of high levels of competency and integrity, and their efforts to deliver high quality
medicine has been an extraordinary success story. The impetus and basic organizational structure for
the system has come from the profession itself, in particular, the American Medical Association. See
generally, Morris Fishbein, M.D., A History of the American Medical Association, 1847-1947, W.D.
Saunders Company, Philadelphia, Pa. (1947); Frank D. Campion, The AMA and U.S. Health Policy
Since 1940, American Medical Association, Chicago, Illinois (1984); and Paul Starr, The Social
Transfonnation of American Medicine, Basic Books, New York (1982).
9 Directory of Activities, Volume II, 1987, State and County Medical Associations. American
Medical Association. Chicago, Illinois ( 1987).

1112 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
tion to handle initial complaints from any area in appropriate situations.
The AMA does not have a PGC or a PDC. However, the Council
on Ethical and Judicial Affairs of the AMA (CEJA) acts as an appel
late body for parties dissatisfied with opinions or decisions of state
PGCs and PDCs. CEJA also is authorized to conduct its own investi
gation and hearings into charges of unethical conduct in appropriate
situations.
The most active PGCs are operated by county societies that cover
large metropolitan areas. These counties have a substantial member
ship, sometimes larger than rural states, and have the resources to
operate active PGCs. The AMA believes that many counties do not
have active PGCs, and states are not very active in this area either.
Counties and states have not been active in operating PDCs. The
AMA does not have precise information about the operations of
PDCs, but it appears that PDC activity has almost halted except in a
few large states or counties.
There are several likely reasons for the low level of activity in
PDCs. One is fear of litigation. As of 1987, ten state societies and
13 county societies reported that they had been investigated by the
FTC, the United States Department of Justice (DOJ), or another
government agency during the previous five years. Ten state socie
ties and 20 county societies were sued by a member or a nonmember
physician during the same period. 10 Many of the investigations and
lawsuits concerned antitrust issues associated with membership.
Defense of a lawsuit is a major expense to a state or county society.
Many have decided to minimize their exposure to lawsuits by reduc
ing PGC activity and PDC activity.
In addition to fear of litigation, other factors that may cause a low
level of activity are a shortage of resources, and a natural disinclina
tion to engage in disciplinary functions that might adversely affect a
peer. These factors, combined with fear of becoming embroiled in
expensive litigation, have been powerful disincentives.
Currently, the AMA is encouraging county and state medical
societies to activate their PGCs and PDCs. As part of this effort, the
AMA is preparing to handle more appeals from state PDCs and
PGCs, and it is also providing guidance to state and county societies
about how to operate the committees.
IO Directory o	. 	f Act1v1t1es,	. . . 	Ftn. 10 , supra.

AMERICAN MEDICAL ASSOCIATION 	1113
1091 	Advisory Opinion
2. Chicago Medical Society's Existing Committees
Pursuant to its bylaws, the CMS has standing Ethical Relations
and Physicians Review Committees and Subcommittees on Fee
Mediation and on Medical Practice. Under the CMS bylaws, failure
to cooperate with these committees and subcommittees is grounds for
discipline. However, as a matter of custom and practice, CMS has
excepted fee peer review from mandatory participation. 	Members
have not been required to cooperate with fee peer review and have
not been disciplined if they refuse to participate.
The CMS Ethical Relations Committee is comparable to a PDC
and is responsible for disciplinary actions against members, which
could include censure, probation, suspension or expulsion.
The CMS Physicians Review Committee is comparable to a PGC.
Its Subcommittee on Medical Practice is responsible for complaints
concerning the quality and utilization of medical care and has as its
goal to open up communications, through mediation, to reach a mutu
ally satisfactory resolution. The Subcommittee's opinion is advisory
and nonbinding. 	An opinion adverse to the physician may be
appealed to the Physicians Review Committee and, in turn, to the
Illinois State Medical Society.
The Subcommittee on Fee Mediation is responsible for com
plaints concerning physician fees and has as its goal to open up
communications, through mediation, to encourage a mutuaIIy satis
factory resolution. 	The Subcommittee's opinion is advisory and
nonbinding. If it is the opinion of the Subcommittee that the fee is
above the range of usual and customary fees charged in the geograph
ical area for similar medical services, the physician may appeal to the
Physicians Review Committee. Decisions rendered by the Physicians
Review Committee in a fee mediation case cannot be appealed.
The efforts of CMS' Subcommittee on Fee Mediation have been
frustrated by the Subcommittee's inability to discipline physicians
engaged in egregious conduct, such as repeated instances of fee
gouging.
c. Guidelines for the Operation of PGCs & PDCs
As stated earlier, the AMA has developed guidelines for the oper
ation of PDCs and PGCs. These guidelines include procedures for
ensuring basic fairness to the parties involved, such as minimizing

1114 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
conflicts of interest among reviewing physicians and other "due
process" style safeguards. 	In addition. the guidelines have other
features designed to provide for the appropriate disposition of various
types of complaints. 	Many of the guidelines are drawn from the
historical practices of the PGCs and PDCs, and some of the guide
lines are new. 	As a whole, the guidelines are a blend of existing
practices and new recommendations.
These guidelines apply to all types of complaints handled by
PDCs and PGCs, including the handling of complaints about fees.
The guidelines also include a section about the handling of fee com
plaints in particular. The general guidelines are summarized below,
and a summary of the guidelines for fee complaints follows immedi
ate! y after.
1. General Guidelines
The AMA recommends that PGCs and PDCs screen complaints
immediately after receipt to determine whether they should be han
dled by the committee, or referred to another committee or entity, or
both. For example, state PGCs should generally refer complaints to
the county PGC where the physician involved resides. PDCs should
refer complaints that do not involve serious charges of misconduct to
PGCs, and PGCs should refer complaints to a PDC when there is
reason to believe that serious misconduct is involved.
If there is reason to believe that a threat to the health of the physi
cian's patients exists, then the state's licensing board and the physi
cian's hospital should be notified immediately. When there is reason
to believe that a violation of law has occurred, then the appropriate
government law enforcement agencies should be notified. A PGC or
PDC might hold parallel proceedings when a state licensing board or
licensing agency is notified, or it might wait for the outcome of any
government actions, depending on the circumstances.
After screening of a complaint by a PGC, it should be investigat
ed by one or more members of the PGC. 	An investigation should
include interviews of the complaining party and the physician com
plained of, 11 interviews of other physicians in the physician's field of
practice, review of relevant documents, and other materials. Upon
completion of the review, the reviewer should make a report to the
11 At the present time, physician cooperation with investigations of fee complaints is voluntary.

AMERICAN MEDICAL ASSOCIATION 	1115
1091 	Advisory Opinion
full PGC, which should then make one of the following findings: (a)
the physician did not act improperly, (b) the matter should be referred
to the PDC and/or another entity for further proceedings, (c) the
physician acted inappropriately but not enough to wacrant discipli
nary proceedings or proceedings by an outside agency, or (d) efforts
should be made to resolve the matter through mediation. In situations
where a physician has acted inappropriately, but not enough to war
rant further proceedings, the PGC may require the physician to
receive some education and agree to desist from the inappropriate
conduct.
During mediation, the PGC should encourage the physician and
the complainant to fully discuss their relative positions, with a view
towards arriving at a settlement. Mediation should include education
of both the complainant and the physician regarding the appropriate
expectations and conduct of each. While settlements are voluntary,
the medical society may also require the physician to pursue certain
educational activities as a condition of the settlement. The education
al activities are designed to prevent repetition of the conduct which
led to the complaint.
PGC decisions may be appealed. Some societies allow internal
appeals from the PGC decision, others do not. Once proceedings are
final at the society which heard the complaint, the decision may be
appealed to the next level of society. Counties appeal to states, and
the state PGC decisions or appellate decisions can be appealed to the
AMA. During appeals, complaints are not reinvestigated. The PGCs
findings of fact are accepted if reasonable in view of the record.
PDCs should be independent of PGCs -- there should not be
overlapping membership between the two committees in a society.
The procedures followed by PDCs are also more formal. 	They are
designed to qualify for the safe harbors provided by the Health Care
Quality Improvement Act of 1986, 42 U.S.C. 11111 et seq., which
immunizes the participants in good faith peer review from civil lia
bility if procedures designed to ensure fairness to the physician under
review are followed. The procedures are also tailored in any given
state to meet additional requirements imposed by state law for the
conduct of peer review. Specific steps are spelled out for providing
notice of the grounds for potential disciplinary action, notice of the
disciplinary proceedings, the conduct of the hearings, providing no
tice of the decisions, and appeals.

1116 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	II7F.T.C.
A physician found by a PDC to have engaged in unethical con
duct may be subject to a range of sanctions. 12 They include:
(a) Requiring the physician to undertake a specific program of
remedial education.
(b) Requiring the physician to participate in a program of public
service.
(c) Reprimand, censure, suspension of membership or expulsion
from membership.
(d) Monitoring of the physician's practice for a specified period
of time to ensure that corrective action has been taken.
(e) A fine to be paid to the medical society, or, if appropriate,
restitution to the patient.
(f) Report to the state medical board with a recommendation that
action or investigation be initiated.
(g) A combination of the sanctions listed in (a)-(e).
Factors in determining a sanction include not only the severity of
the misconduct, but whether it was a first offense or part of a pattern
of misconduct. 	More serious sanctions can also follow if, for ex
ample, a physician fails to participate in a program of remedial edu
cation or public service.
As is the case with PDCs, appeals may or may not be available
within the society. Once the decision is final, it may be appealed to
the next level, normally a state society, and then to the AMA.
Adverse actions taken by a PDC may be subject to federal and
state reporting requirements. Under the federal Health Care Quality
Improvement Act, any "professional review action" which adversely
affects the membership of a physician must be reported to the state
licensing board, which in tum reports to the National Practitioner
Data Bank. Under the Act, "professional review actions" are those
based on the competence or professional conduct of a physician,
where the professional conduct affects or would adversely affect the
health or welfare of a patient. 13 An action adversely affects member-
12 	. 	. 	I 	~ 	.	
At the present time, sanctions do not app y to 1ee gouging.
13 It is uncertain whether fee gouging would fall within the definition of a professional review
action. Economic injuries such as being overcharged do not seem likely to affect the "health" of
patients, but they might be considered to affect the "welfare" of patients.

AMERICAN MEDICAL ASSOCIATION 	1117
1091 	Advisory Opinion
ship by reducing, restricting, suspending, revoking, denying, or fail
ing to renew membership. 14
Many states require by law that determinations of unprofessional
conduct related directly to patient care be reported to the licensing
board. In addition, a PDC may make other disclosures. If there is a
finding that substandard care has been provided, the peer review
committee of the physician's hospital should be notified. Normally,
reports of adverse actions by PDCs should be disclosed to the
society's membership and the public through vehicles such as state
medical society journals. However, in some cases it may make sense
to impose a sanction privately, as where the offense is not egregious
and the physician is a first time offender, or where there is a referral
to an impaired physician program.
Ordinarily, PGCs and PDCs will have jurisdiction over medical
society members only. Participation and cooperation with PGC and
PDC activities is mandatory, and failure to cooperate is grounds for
discipline. 	However, the AMA recommends that county and state
societies encourage nonmembers to participate in PGC or PDC pro
ceedings when complaints are received about them. In practice, some
societies will accept a complaint about a nonmember only if the
physician agrees to abide by the PGC or PDC procedures and
decision. In the absence of an agreement, these societies will refer
the complaint to the state licensing board or to another appropriate
institution. Other societies will process a complaint against a non
member without the nonmember's consent. The AMA believes that
serious complaints about non-members who refuse to participate in
a professional society's fee review process should be referred to the
state licensing board.
Complaints may be filed by any person. Most commonly com
plaints are filed by patients, but they may also be filed by family or
friends of patients, colleagues of the physician, or by third party
payers.
d. How Fee Complaints Would Be Handled By PGCs and PDCs
Complaints about fees would be handled according to a specific
set of procedures newly developed by the AMA. All fee complaints
14 A physician who is being considered for disciplinary action may seek to avoid the procedure
by resigning. Under the Health Care Quality Improvement Act, resignations which take place during
the pendency of a hospital peer review procedure must be reported. However, it is not clear whether
resignations during the pendency of a medical society peer review process must be reported.

1118 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
would first be referred to a county PGC covering the area where the
physician resides, or the applicable state PGC if there is no county
PGC. 	All complaints would be screened by the PGC to determine
whether they should be referred to a state licensing board or a gov
ernment enforcement agency. No complaints would be referred to a
PDC without first being investigated by a PGC.
After investigation, a PGC would determine whether a fee com
plaint was a "level I" complaint or a "level II" complaint. A level I
complaint would be a complaint that did not involve egregious con
duct by the physician involved, and a level II complaint would be one
which involves an allegation of egregious conduct that has a credible
foundation. 	Egregious conduct would include situations where the
fee charged arose from fraud, the exercise of undue influence over a
vulnerable patient, taking advantage of the lack of knowledge of a
patient, failing to inform a patient that an unusually high fee would
be charged, intentionally providing unnecessary services, or other
misconduct. It would also include charging a fee so high, for exam
ple two or three times the market level for a major procedure, as to
constitute fee gouging. 15 Fees much higher than normal would not
constitute fee gouging if agreed to by a fully informed and competent
patient or payer that was not subjected to undue influence. 	Com
plaints about fee gouging made by colleagues of the treating physi
cian or by persons other than the patient would be reviewed to deter
mine if the fees involved had been agreed to by a fully informed and
15 FTC staff has asked for clarification about what constitutes fee gouging, and, in particular,
what standards would be used to evaluate whether gouging occurred. The current reference point for
what constitutes gouging is provided by Opinion 6.05 of the Code of Medical Ethics and Current
Opinions of the Council on Ethical and Judicial Affairs of the American Medical Association ( J 992),
which is entitled "Fees for Medical Services". The Opinion states as follows:
A physician should not charge or collect an illegal or excessive fee. For example, an illegal fee occurs
when a physician accepts an assignment as full payment for services rendered to a Medicare patient and
then bills the patient for an additional amount. A fee is excessive when after review of the facts a person
knowledgeable as to current charges made by physicians would be left with a definite and firm
conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining
the reasonableness of a fee include the following:
A. The difficulty and/or uniqueness of the services performed and the time, skill and experience
required;
B. The fee customarily charged in the locality for similar physician services;
C. The amount of the charges involved;
D. The quality of performance;
E. The nature and length of the professional relationship with the patient; and
F. The experience, reputation and ability of the physician in performing the kind of services involved.

AMERICAN MEDICAL ASSOCIATION 	1119
1091 	Advisory Opinion
competent patient. 	If there was such an agreement, the complaint
would not be acted upon. 16
All level I complaints would be referred for mediation by the
PGC. 	Level II complaints are those involving egregious conduct.
The underlying patient or payer grievances in level II complaints
would go through mediation for the purpose of resolving the com
plaint. However, level II complaints would also be referred to a PDC
to evaluate whether the physician involved should be disciplined.
During mediation of complaints, each party would express views
about the fee involved and any other conduct which gave rise to the
complaint. The panel would express opinions about the reasonable
ness of the fee charged and the appropriateness of any other behavior
at issue. Panel opinions would be based on their own expertise and
experience in view of the circumstances of the complaint. The panel
would consider the nature of the services performed, the difficulty of
providing the services to the patient involved, any unusual problems
or complexities that had to be managed, and other factors.
The opinions of the panel about the fee could be supplemented
with other information about fees obtained from payer data bases,
government fee schedules, academic studies, and the opinions of
similarly situated physicians sought out by the panel. However, the
medical society involved would not collect and maintain its own in
formation about fees charged by physicians in its jurisdiction for use
as a benchmark. 	Likewise, opinions of the panel about any other
behavior of the physician involved could be supplemented by ethical
codes and ethical opinions, articles about physician ethics, academic
studies about the effects of certain conduct, and other materials. The
object of the process would be to allow each side to gain an apprecia
tion for the perspective of the other, and to be educated about the
legitimate expectations of each party in the physician-patient rela
tionship.
The goal of mediation would be to arrive at a settlement between
the physician and the complaining party. No person, including the
physician, would be required to agree to a settlement. However, par-
16 FTC staff has asked what the effect of a prior agreement between the physician and patient
would be if the patient subsequently alleged a fee to involve fee gouging. If the patient was fully aware
of what other physicians were charging for the services when the agreement was entered, and if the
patient was not misled about some other factor which might lead a reasonable person to pay more than
the market rate for a service, then the patient would be viewed as not having a valid complaint and the
fee would involve gouging. However, if the patient was not aware of the market rate, or was misled into
believing that the presence of another factor warranted paying substantially more than the market rate,
then the patient would be viewed as having a valid complaint.

1120 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
ticipation in mediation by member physicians would be mandatory,
and failure to cooperate with mediation would be grounds for disci
pline. Refusal to enter a settlement by a physician would not consti
tute lack of cooperation. 	Participation by the complaining party
would be voluntary.
Settlements would not be limited to fee adjustments. The PGC
could suggest, and the physician might agree to, other undertakings
by the physician. These would be nonprice undertakings designed to
educate physicians about how to prevent the type of incidents that
give rise to patient complaints. 	These include how to manage the
physician's office in ways that are considerate of the needs and inter
ests of patients, how to communicate with patients, how to manage
billing procedures so as to prevent errors, and other issues. 	For
example, if repeated complaints about a physician are found to result
from coding errors on claims forms, then education about coding may
be appropriate.
If warranted, the PGC could require a physician to engage in a
nonprice undertaking designed to prevent future complaints or mis
conduct. While these undertakings might arise out of mediation of
the fee disputes they would be directed towards nonprice issues that
came to light during review of the complaint.
Proceedings during mediation would be kept confidential. 	No
part of the proceedings would be open to the membership or the
public. The report of the initial investigation would be kept confiden
tial, and any record created or documents collected would also not be
disclosed. Likewise, any settlement reached, including settlements
that are conditioned on nonprice undertakings, would not be dis
closed to the membership or to the public.
PDCs would review level II complaints to determine whether the
physician should be disciplined. 	The procedures specified by
HCQIA would be followed to ensure fairness to the physician
charged with unethical conduct. Participation in the PDC proceeding
would be mandatory for the physician involved.
PDCA would keep their proceedings confidential. 	However,
PDC decisions would be publicly disclosed. No information about
the fee levels involved in a discipline for fee gouging would be dis
closed, but the occurrence of the discipline would be made public.
The purpose of disclosure would be to inform the public about the
discipline.

AMERICAN MEDICAL ASSOCIATION 	1121
1091 	Advisory Opinion
The FfC Guidelines For
Professional Peer Review of Fees
FTC staff have noted that, properly managed, professional peer
review of physician fees results in three procompetitive benefits. 17
First, it is a means of providing information to patients about physi
cian fees and other issues. That is procompetitive because the infor
mation allows the patient to decide whether a fee is excessive in rela
tion to those charged by other physicians. It is an important benefit
because there are often wide disparities in fee information between
patients and health care providers.
Second, fee peer review can be an efficient and low cost method
for resolving disputes about fees between physicians, patients, and
payers. 	That is procompetitive because it facilitates the expedient
and fair resolution of disputed transactions. At present, there is no
effective forum available to resolve disputes. Courts are expensive
and difficult to use, and they are often very slow. 	State licensing
boards are not designed to resolve individual disputes. Instead, they
investigate physicians in response to complaints. 	At present, most
licensing boards have sufficient resources to investigate only the
most serious complaints. 18
Third and finally, fee peer review builds confidence in the market
for physician services. 	Patients develop confidence because they
believe that they will be treated fairly, and that they will receive
objective information in the event of a dispute.
However, an improperly managed fee peer review program can
be anticompetitive and violate the antitrust laws. 	FTC advisory
opinions note that antitrust violations may occur if fee peer review
becomes a device to coerce physicians to adhere to certain fee levels
or to coerce payers into accepting fee levels, if it is used to discipline
physicians who engage in legitimate competitive activities or innova
tive practices that are frowned upon by other practitioners, or if it
becomes a vehicle for physicians to agree among themselves about
fee levels. 19
The advisory opinions note that antitrust violations can be avoid
ed if all concerned parties view fee peer review solely as a means of
17 See Horoschak and see Rule at ftn. 4, supra.
18 "State Medical Boards and Medical Discipline," Inspector General, Department of Health and
Human Services (August 1990).
19 See Advisorv Opinions cited at ftn. 3. supra.

1122 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
mediating specific fee disputes, rather than a process for the collec
tive sanctioning of fee levels or particular practices. Mediation in
volves the expression of opinion by peer review panel members about
a fee charged for a particular service provided to a patient. That ex
pression of opinion allows the patient or payer involved to decide
whether to pay the fee in question.
Certain guidelines designed to prevent anticompetitive abuse of
fee peer review can be drawn from the FfC advisory opinions. These
guidelines can be summarized as follows:
( 1) Participation in professional peer review of fees is voluntary
for the physicians and any complaining or affected party, such as the
patient. The FTC is concerned that proffered guidance in fee peer
review could become coercive if the process is not voluntary.
(2) Determinations made by the peer reviewers about the physi
cian's fees are advisory, and have no coercive aspects. The FTC is
concerned that coercive determinations could threaten independent
pricing.
(3) Peer review decisions about fees are based solely on the facts
and circumstances of the particular case. The FTC is concerned that
independent pricing could be threatened if determinations about
particular past prices become generalized in future fee peer review
opinions.
(4) Peer review decisions about the appropriateness of fees are
kept confidential and are not disclosed except to the physician and
complaining patient or payer. The FTC believes that dissemination
of peer review opinions about fees could threaten independent pric
ing_ 20
(5) The association of physicians sponsoring professional peer
review of fees does not collect information on fees charged by its
members and does not use the information to establish a pricing
benchmark. The FTC believes that the difficulty and complexity of
a procedures should be evaluated based on the individual judgment
and expertise of the peer reviewers. To the extent that any reference
is made to external factors or benchmarks, consideration should be
20 The AMA understands that confidentiality is limited in information about the fee level itself
as opposed to the fact of a peer review action. The AMA believes that medical societies may publicize
information about the number and nature of peer review actions taken, and could publicize the names
of individuals disciplined for fee gouging, provided that the fee amounts involved were not disclosed.

AMERICAN MEDICAL ASSOCIATION 	1123
1091 	Advisory Opinion
limited to fee information not sponsored or sanctioned by the medical
society.
For the most part, the procedures proposed by the AMA would
adhere to these guidelines, but there would be some significant
departures. In particular, the proposed process would not be volun
tary in all respects. The emphasis of the program would be media
tion, but participation would be mandatory for members. Participa
tion would be required because the public would not be well served
by a peer review process that members could ignore when patients
file complaints about them.
For the same reasons, the program would be coercive in some
situations. Medical societies would discipline members who engaged
in egregious fee gouging. The purpose would be to give the public
confidence that physicians who engage in egregious fee gouging will
be held accountable.
The AMA's Proposed Procedures For
Peer Review of Fees Are Procompetitive
The judicial decisions relevant to peer review of fees are general
ly consistent with the current policy of the Commission in that they
would permit self-regulation activities that do not constitute or en
force a price-fixing agreement. The AMA's proposed procedures for
peer review of fees would clearly fall within the range of conduct
deemed reasonable by the courts, and any departures from existing
FTC guidelines would be procompetitive and lawful.
The Supreme Court has held that an agreement affecting price
should only be condemned after a "quick look" to detennine whether
it has clear anticompetitive consequences and lacks any redeeming
virtue. Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.,
441 U.S. 1, 19-20 (1979). As noted above, the Commission recog
nizes the procompetitive benefits that result from peer review of fees.
The AMA's proposed fee peer review is thus not inherently suspect;
it presents antitrust concerns only if the fee peer review serves to
establish or enforce a price-fixing agreement.
The AMA's proposed process contains several elements designed
to assure that the peer review conducted will not establish or enforce
a price-fixing agreement. First, the PDCs will act on a complaint of
alleged fee gouging only ( 1) when the complaint originates with a
patient, or (2) when the complaint originates with another physician

1124 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117F.T.C.
and the patient states that he or she either did not agree to pay the
high fee, or would not have agreed to pay a fee that was extraordinar
ily high in comparison to those charged by comparable physicians.
Only in extreme circumstances, such as where there is evidence of
fraud or a mentally impaired patient, would a PDC pursue fee peer
review when the patient is satisfied with the fee charged. This policy
limits the possibility that a fee peer review action will be undertaken
for the purpose of enforcing a price-fixing agreement among physi
cians. It would also focus fee peer review activity on those cases in
which an imperfect information exchange between physicians and
patients has created a distortion in the market which the physician has
used to his or her financial advantage.
Second, PDCs will not develop any formal or informal bench
mark schedule of reasonable fees with which to resolve fee disputed.
Each allegation of fee gouging will be addressed under the unique
circumstances in which it arose, and the PDC will simply determine
whether the fee charged in that case was excessive. Third, there will
be no public disclosure of any fee amounts determined to be exces
sive, or of the PDC' s view of the reasonable fee in each case. These
latter two elements limit the possibility that fee peer review will
facilitate the development of a price-fixing agreement by physicians.
The Commission has expressed its concern that fee peer review
may be used improperly to discipline physicians who compete by
offering a new product or service. The substantial due process proce
dures contained in the AMA's proposal are intended to lessen the
possibility of exclusionary conduct in the guise of peer review. The
courts recognize that industry self-regulation is usually found lawful
when such procedural safeguards are employed. 	Allied Tube &
Conduit Corp. v. Indian Head Inc., 486 U.S.,492 (1988); Silver v.
New York Stock Exchange, 373 U.S. 341, 36-67 (1963).
Finally, the Supreme Court's decision in Arizona v. Maricopa
County Medical Society, 457 U.S. 332 (1982), is not inconsistent with
the AMA's proposed process. 	In Maricopa, the physicians clearly
agreed to limit their charges to patients who contracted with a par
ticular insurer. The AMA's proposal involves no such agreement
affecting price, and fee peer review is not likely to result in price
fixing. 	The courts have noted that if an ethical rule is not itself il
legal, neither is enforcement of the rule. See e.g., Vogel v. American
Society of Appraisers, 744 F.2d 598 (7th Cir. 1984).

AMERICAN MEDICAL ASSOCIATION 	1125
1091 	Advisory Opinion
The AMA's proposed procedures for peer review of fees general
ly adhere to the guidelines developed by the FTC for a procompeti
tive fee peer review program. 	The limited ways in which the pro
posed procedures depart from the FTC guidelines are designed to
make enforcement of the ethical rule against fee gouging more effec
tive in a procompetitive manner. These departures actually reinforce
the core concepts underlying the FTC guidelines and will not have
any anticompetitive effects.
The departures from FTC guidelines in the AMA proposed pro
cedures are as follows:
Participation in fee peer review by members is mandatory.
Members who engage in egregious conduct, including fee goug
ing may be disciplined.
Discipline for egregious conduct will not be kept confidential.
Each one of these departures will be discussed below.
a. Mandatory Participation of Members in Fee
Peer Review and Mediation
A primary procompetitive benefit of fee peer review is to provide
information to the patient about physician fees and charges. 	The
process helps reduce the disparity of information between physicians
and patients. The information helps the patient decide whether to pay
all or a portion of the fee in question, and whether to patronize other
physicians. 21
Mandatory participation in fee peer review by medical society
members improves the information made available to the patient dur
ing mediation. A physician who cooperates with the PGC will pro
vide patient records and other documents, will discuss the physician's
perspective about the patient's treatment, and will explain the reasons
for the fee. 	There will be a much better basis upon which to judge
whether the fee was reasonable, whether the physician made any mis
takes in billing, whether there was a foundation for nonprice com
plaints by the patient, and other matters.
In addition, the physician receives information from the patient
that may help the physician operate a more competitive practice. The
physician may find out about office ma11agement problems that need
21 Horoschak, supra, footnote 4.

1126 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
to be corrected, about office staff that are not interacting well with
patients, or about problems that the physician has in communicating
with patients. 	In addition, the PGC can help inform the physician
about educational programs that can help correct the problems re
vealed during mediation.
Finally, mandatory participation increases the likelihood that set
tlements acceptable to the patient and the physician can be arrived at.
Satisfactory settlements build confidence in the market for physician
services. Patients develop confidence that they will be treated fairly,
and that they can have complaints resolved.
Mandatory participation in PGC proceedings is not anticompeti
tive because the focus is on mediation. The only requirement is that
the physician participate, not that the physician adhere to any fee or
fees recommended by a PGC or the medical society. 	Further, the
physician is not subject to discipline by the PGC for fees charged.
(Mandatory participation in disciplinary proceedings conducted by
the PDC is discussed below). 	Participation in remedial education
may be required, but only for nonfee aspects of the physician's prac
tice.
b. Disciplines for Fee Gouging
The possibility of PDC discipline for egregious conduct is pro
competitive. 	It provides the patient with information about physi
cians who have engaged in unconscionable fee gouging or other
misconduct. That allows the patient involved and other patients to
decide whether or not to continue dealing with the physician. 	In
addition, it builds confidence in the market because patients know
that physicians who engage in egregious conduct can be held ac
countable.
Discipline for fee gouging is not anticompetitive. In most situa
tions, the complaint about an egregious fee will arise out of non price
conduct such as fraud, the provision of inappropriate services, the
provision of substandard services, or other misconduct. Disciplinary
actions that are primarily based on such misconduct do not reflect a
maximum price fixing agreement.
Even if the discipline concerns fee gouging only, it will not likely
reflect maximum price-fixing. 	Patients who complain about being
gouged normally have not agreed, with full information about com
parable fees and the quality and need of the service being offered, to

AMERICAN MEDICAL ASSOCIATION 	1127
1091 	Advisory Opinion
pay a fee that is extraordinarily high. Such a patient normally will
not have been informed about the extraordinary nature of the fee be
fore receiving the service and, if so informed, would not have agreed
to it in advance. 	Therefore, these are transactions that would not
have occurred but for disparities in information between the physi
cian and the patient.
It is unlikely that a patient who, for whatever reason, agreed to an
extraordinarily high fee while being fully aware of the fees charged
by comparable physicians will file a complaint. Such incidents are
likely to be few, and the PDC will address them only in extreme cir
cumstances.
The colleagues of a physician who charges extraordinarily high
fees may complain to the applicable medical society. 	Disciplinary
actions that result from a physician complaint about another physi
cian's high fees might reflect enforcement of a maximum price-fixing
agreement. 	However, as discussed above, that possibility can be
remedied by restricting discipline to situations where there are patient
complaints. If a physician complains about a colleague who charges
extraordinarily high fees, a PGC would investigate to determine
whether the physician's patients were fully informed and agreed to
pay the fee without being subject to undue influence. If the patients
were generally satisfied, there would be no grounds for discipline.
c. Disclosure of Discipline
Finally, publicly disclosing disciplinary actions for fee gouging
is procompetitive. It provides information to consumers about physi
cians who have been charging extraordinarily high fees in situations
that have been unfair to patients. That helps patients decide which
physicians to patronize, and it builds confidence in the market for
physician services.
Moreover, public disclosure of disciplinary actions provides a
deterrent effect among the physician community and increases the
effectiveness of enforcement of the profession's ethical code.
No information would be disclosed about the fees charged by the
physician disciplined or the fees considered reasonable by the PDC.
Therefore, disclosure would not constitute a signal about the fee
levels that could facilitate a physician fee agreement on fees.

1128 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
d. Effect on Health Care Expenditures
FTC staff has asked whether the proposed procedures for profes
sional fee peer review will reduce health care expenditures. 	The
AMA cannot promise that precisely discernible savings will result
that will be directly attributable to the procedures, but the AMA and
the CMS expect that the procedures will help control health care
costs. 	As stated earlier, the program is designed and intended to
comply with the antitrust laws and therefore will emphasize the medi
ation of fee disputes. 	The program will not, and cannot under the
law, be a fee control program which could result in precisely discern
ible and quantifiable savings. 	It is expected that the program will
reduce the incidence of fee gouging, and therefore result in some
directly attributable savings, but fee gouging is not common and its
elimination is not expected to result in substantial savings overall. It
is expected that the program will help detect and reduce the incidence
of fraud, which should also result in cost reductions.
In addition, the information provided to patients through the peer
review process will enable them to compare physician fees more
effectively, and it will give them a better understanding of medical
practice and medical decision making that should make them more
effective consumers. The process should also help patients develop
a better understanding of what benefits are realistic to expect from
physicians, and the extent of the resources that are necessary to
provide effective health care. 	Also, physicians will become more
sensitive to the complaints of patients and will change their practice
patterns to respond to them. The result of more informed consumers
and more sensitive physicians should be an improved market.
Conclusion
For the reasons stated above, the AMA and CMS believe that the
AMA's proposed fee peer review procedures will be procompetitive
and facilitate the operation of the market for physician services.
Equally important, the procedures will enhance the protection of
patients where the market does not operate efficiently and thereby
increase the trust of patients in their physicians, which is the heart of
the physician/patient relationship. 	The AMA and CMS request an

AMERICAN MEDICAL ASSOCIATION 	1129
1091 	Advisory Opinion
opinion that the proposed procedures are not anticompetitive and
would not be subject to FTC enforcement actions.
Sincerely,
Kirk B. Johnson, General Counsel 	John M. Peterson
Edward Hinshfeld 	Howe & Hutton, Ltd.
American Medical Association 	Counsel for Chicago
Medical Society
February 18, 1993
Dear Judy:
This will provide a response to your January 14 letter in advance of
our teleconference scheduled for Monday, February 22. 	As we
discussed by telephone today, the American Medical Association and
Chicago Medical Society petition essentially seeks a modification of
the Iowa Dental Association opinion, 99 FTC 648 (1982), such that
medical societies would be able to (1) compel members to participate
in fee peer review and (2) discipline egregious fee gougers. We do
not seek specific Commission approval for the detailed procedures
that would be followed by medical societies. I understand that you
require a better understanding of that process in order to respond
appropriately to our request. 	In that light, following are brief re
sponses to the four issues raised in your recent letter. I expect that
our teleconference on Monday will flesh out these points.
1. Standards for Review of Fees.
An excessive fee will be one that, in the professional judgment of
committee members, is unreasonable in light of the criteria set forth
in Opinion 6.05. A range of usual and customary fees will be used
as a benchmark by which to judge the fee in question, but will not
provide a complete answer to whether the fee is reasonable. The fee
review committee will compare the fee in question to the range of
usual and customary fees charged for the service by comparable prac
titioners. 	The range will be determined using the knowledge and
experience of the committee members, as well as the opinion of con
sultants when necessary. However, the purpose of fee peer review is

1130 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117F.T.C.
not to enforce compliance with an acceptable range of fees. Rather,
it is to identify instances when, under all relevant circumstances, a
fee in unreasonable.
A fee found to be unreasonable will usually result in efforts to
mediate the patient's complaint. However, a second level, or stan
dard, is triggered when a fee is so high as to border upon fraud. A fee
of this kind, 50 percent or more above the range of usual and custom
ary, would provide grounds for disciplinary action. 	A pattern of
excessive fees could also subject a physician to the threat of disci
pline.
2. Operation of Patient Grievance Committees.
The committee response would be in writing to the complainant.
No specific fee figures would be presented or recommended. 	The
substance of the committee response would be that the fee was in a
reasonable range, above the range or below it.
There would be no routine collection of fee data, such as in the
form of an average fee schedule. Fee data may be collected in excep
tional cases when necessary to provide a benchmark range of usual
and customary. In this instance, the opinion of consultants would be
sought on an ad hoc basis. The data received would be used for the
individual complaint at issue only, maintained as confidential, and
not publicly disclosed.
No face to face meeting of patient and physician, under the aus
pices of the medical society, would generally occur. 	Patient
physician discussion and attempted resolution of disputed fees are
usually recommended before the filing of a grievance. 	Physicians
against whom a complaint is filed will be invited to meet with the
committee, when necessary, to provide information or discuss a
proposed resolution of the matter.
Where "fee gouging" occurs and disciplinary action is taken by
the society, the results will be a matter of public record and treated
precisely as any other disciplinary action.
Opinions on whether insurance company reimbursement is within
the range of usual and customary will only be rendered where an in
surance company files a complaint.

AMERICAN MEDICAL ASSOCIATION 	1131
1091 	Advisory Opinion
3. Patient Information Issues.
The American Medical Association and Chicago Medical Society
seek to address the inability of the profession to discipline physicians
who egregiously overcharge. In such cases, the patient has usually
not provided informed consent to a fee that is significantly in excess
of the range of usual and customary fees. (If they have, no medical
society action will be taken). In general, patients lack adequate infor
mation about physicians' fees. The AMA has sought to address the
problem of consumer information about physicians' fees. At its 1992
Annual Meeting, the House of Delegates adopted a resolution which
encouraged physicians to post the price of their services.
Discipline of fee gougers will add to the public's information
about physicians. 	Patients often call local medical societies for
physician referrals. Information on disciplinary actions taken against
a physician will be given upon inquiry. 	Moreover, disciplinary
actions will often be reported by local media, and provide a source of
information to the public.
4. Physician Discipline.
The vast majority of physicians are ethical. When the few who
are not learn that disciplinary action may be taken if they egregiously
overcharge, we believe that the practice of overcharging will dimin
ish significantly.
It is critical that medical societies have the ability to enforce their
ethical codes. They have no other way of assuring that their members
meet the standards of the profession. Without the threat of discipline,
medical societies are powerless to protect the public by distinguish
ing ethical physicians from those who are not.
Sincerely,
Michael L. Ile

1132 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
August 24, 1992
Dear Mr. Horoschak:
This will respond to your request for additional information regarding
the petition filed by the American Medical Association (AMA) and
the Chicago Medical Society (CMS) for a Federal Trade Commission
advisory opinion concerning professional peer review of physicians'
fees. 	As we stated in our petition, we believe that a more than
adequate basis has long existed to grant the AMA-CMS petition in
full given the procedural safeguards contained in our proposal.
Nonetheless, this letter will address each of the nine issues raised in
your letter. In addition, enclosed are documents reflecting examples
of fee peer review conducted by CMS, the Los Angeles County Med
ical Association (LACMA) and the Orange County (Cal.) Medical
Association (OCMA). 	These societies were selected because they
have active fee peer review committees that employ a variety of pro
cedures, and a review of their documents should answer the questions
contained in your letter. They confirm both the broad interest in, and
the unnecessary obstacles to, effective peer review of fees. The doc
uments are described briefly below.
We ask the Commission to act favorably on the petition to give
the profession the authority it needs to self-regulate in this important
area. It has been nearly seven years since the AMA first approached
the Commission on this issue. At that time the Commission's staff
was not receptive to any self-regulatory endeavor involving fees, and
little progress was made. 	We appreciate the apparent seriousness
with which the Commission is reviewing the current petition. We are
prepared to meet at your earliest convenience, hopefully within a
month, to discuss the issues raised by our request.
Sample Fee Peer Review Documents
1. CMS. The enclosed CMS documents contain:
(1) Twenty-four fee mediation complaints and related records
from the latter part of 1991 and the first part of 1992. 	Physician and
patient identifiers have been removed.

AMERICAN MEDICAL ASSOCIATION 	1133
1091 	Advisory Opinion
(2) A summary of these particular files entitled "Summary of the
24 Most Recent Cases To Be Closed in the Fee Mediation Committee."
(3) Six forms or form letters used by the CMS in its fee mediation
process.
(4) A summary of the number of CMS fee mediation cases during
the last five years.
(5) A summary of 16 complaints relating to one particular doctor
covering the past nine years.
A general description of the CMS peer review structure is con
tained in the April 30, 1992, AMA-CMS petition at page 8. A review
of the twenty-four fee mediation complaints and related records
provides a more complete picture of the CMS fee peer review
process. The CMS Fee Mediation Committee receives complaints or
inquiries from patients, insurance companies, and physicians. The
CMS receives a fee from insurance companies to cover administra
tive costs. 	Complaints from patients are handled free of charge.
Based on information submitted by the patient (or insurance com
pany) and the physician, as well as their own knowledge and experi
ence, the members of the Fee Mediation Committee provide an
advisory opinion whether the fee in question is within, above, or
significantly above the range of usual and customary. 	The CMS
makes no effort to compel a physician to set fees within any range;
it merely provides an opinion as to the fee the physician has decided
to charge. Nevertheless, if the Fee Mediation Committee determines
that the fee is above or significantly above the range of usual and
customary, it first notifies the physician to provide an opportunity for
an appeal to the CMS Physician Review Committee before notice of
the decision is sent to the patient.
Until January of this year, physicians were not compelled to par
ticipate in the fee mediation process, even if they were CHS mem
bers. The CMS decided that the credibility and effectiveness of its
peer review process would be improved through its ability to compel
members to participate. It is too early to determine the effect of this
change in policy.
The effectiveness of the CMS fee peer review system continues
to be adversely affected by the inability to discipline physicians for
fee gouging. The decisions of the Fee Mediation Committee are ad
visory only; the CMS does not discipline physicians in any manner
for charging excessive fees, even in the most egregious circum-

1134 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
stances. Included in the enclosed CMS documents is a summary of
sixteen complaints filed against one physician over a period of nine
years. 	Of the fourteen complaints of which records still exist, the
CMS found the physician's fee to be above the range of usual and
customary in five cases, and significantly above the range of usual
and customary in another five cases. The CMS committee specifical
ly directed this physician to discuss the level of her fees with patients
in advance, yet the complaints continued. It is therefore likely that
this physician did not receive informed consent for the excessive
fees. 	This case history provides an example of physician behavior
that would merit disciplinary action. 	The physician was found to
have repeatedly and regularly charged fees above (and significantly
above) the range of usual and customary fees. 	It is evident that a
pattern of egregious conduct of this kind cannot be stopped simply by
a series of mediations.
2. 	LACMA. 	The enclosed LACMA documents contain a
representative sample of twelve completed case files of the LACMA
Committee on Insurance Review (CIR). Unlike CMS, LACMA does
not mediate complaints from patients regarding physician fees.
Instead, LACMA provides advisory opinions on the degree of liabili
ty of the insurance company to the patient for the physician services
rendered in each case. The review is conducted following the sub
mission of a claim by the insurance company to LACMA, including
a small fee to offset administrative costs. LACMA refers the claim
to one or more physician reviewers, who make a recommendation to
the CIR on such questions as whether the physician's fee was above
the prevailing fee for the area (Case 2), whether a procedure was
"cosmetic" (Case 1), or whether diagnostic tests (Case 3) or an assis
tant surgeon (Case 6) were medically necessary. The CIR usually,
but not always (Case 5), concurs with the recommendation of the
physician reviewers. 	The opinion of the CIR is advisory only, but
can be appealed to LACMA for re-review or to the California
Medical Association. 	The CIR advisory opinion is specifically
limited to the question of the amount of the physician's fee for which
the insurance company bears liability; LACMA does not express an
opinion as to the amount the physician should bill the patient. 	In
other words, LACMA does not mediate disputes between physicians
and patients. It focuses solely on the amount of the physician's bill
to be paid by the insurance company. LACMA's reluctance to take

AMERICAN MEDICAL ASSOCIATION 	1135
1091 	Advisory Opinion
direct action with regard to the level of physicians' fees reflects a fear
of litigation exposure.
3. 	OCMA. 	The OCMA Public Services Committee (PSC)
receives requests for fee review from insurance companies, physi
cians and patients. Requests from insurance companies are subject
to a small administrative fee. OCMA member physicians may submit
one request per year. 	Requests from patients constitute the largest
volume of claims, and are handled free of charge as a public service.
Requests for review, together with additional necessary docu
mentation, are sent to a physician member of the PSC who practices
the same specialty as the physician who provided the services under
review. 	The physician reviewer then presents the case to the full
PSC, which must decide whether the services provided were medi
cally necessary and/or whether the fee was reasonable. Questions of
medical necessity may be referred to the OCMA Medical Review and
Ethics Committee. The reasonableness of the fee is determined by
comparison to the results of an ad hoc survey of at ~east five members
of the same specialty in the county or, if necessary, larger geographic
area. The results of the survey, as well as all of the review file, re
main confidential.
If the PSC finds that the care provided was not medically neces
sary or that the fee was unreasonable, then the physician is given two
weeks to request an appeal before the insurance company or patient
is notified. Insurance companies and patients may also appeal find
ings in the physician's favor.
Clarification Requested by Commission Staff
Following is a discussion of the specific issues raised in your let
ter. A review of the CMS, LACMA and OCMA documents shows
the variety of procedures currently employed in fee peer review.
Some degree of variety is likely to survive the Commission's adviso
ry opinion in this matter, whatever form it takes. Nevertheless, we
will attempt to respond to your inquiry as directly and completely as
possible.
1. 	While the number of cases varies from year to year, large
county medical societies that still engage in fee peer review (many
have stopped) process a substantial volume of complaints regarding
physician fees. 	For example, the CMS Fee Mediation Committee

1136 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
handled 73 cases in 1987, 92 in 1988, 71 in 1989, 98 in 1990, and
133 in 1991. The Public Service Committee of OCMA receives ap
proximately 300 fee complaints each year. 	These numbers might
even be higher if medical societies felt free to publicize fee peer
review services.
These data indicate that a significant number of fee disputes arise
between physicians and patients. 	The ability of the profession to
resolve these disputes in a satisfactory manner contributes to patient's
confidence in the fairness of the health care system. Of course, not
all complaints result in a finding that the physician has charged an
excessive fee. To the extent that fee peer review identifies excessive
fees and causes physicians to accept a lower fee, there are obvious
cost savings for patients and payers. 	Clearly, these cost savings
would be greater if fee peer review were more widely and aggressive
ly practiced. Today, relatively few medical societies engage in fee
peer review, and even fewer feel comfortable in compelling members
to participate. The very existence of a more vigorous fee peer review
system may deter physicians from charging excessive fees. But the
cost savings attributable to fee peer review are extremely difficult, if
not impossible, to quantify. We are aware of no empirical data which
reflect the contribution of fee gouging to the overall level of health
care costs.
Cost savings, though beneficial to the public, are not the primary
reason that the profession performs fee peer review. The principal
focus of fee peer review is mediation. It is not designed to regulate
physician fees, but to identify particular instances in which the physi
cian has charged an excessive fee under the circumstances. Charging
an excessive fee represents a serious breach of the trust patients have
in their physicians. Patients must be able to rely on the fact that the
profession will not permit physicians to exploit, for personal financial
gain, a relationship in which patients trust their health and lives to
physicians.
2. 	Issue 2 contains several questions, many of which use the
word "usually". A review of the enclosed documents indicates that
fee peer review arises in a variety of contexts and for a variety of
purposes. It may not be possible to describe a "usual" scenario. Fee
review committees often are asked to determine whether a particular
fee charged for a particular service was reasonable, or in the range of
usual and customary (or prevailing), by patients, insurance compa
nies, or even the physician involved. 	A patient may wish to know

AMERICAN MEDICAL ASSOCIATION 	1137
1091 	Advisory Opinion
whether the amount she was balance billed was appropriate; an insur
ance company may wish to know whether the amount it has paid for
a service meets its obligation to its insured (the patient); and a physi
cian may seek assistance in resolving a fee dispute with a patient. In
many cases the medical necessity of the service performed, as well
as its cost, will be at issue.
Our best information suggests that physicians and patients often
do not agree on fees in advance, at least for non-elective procedures.
This may occur for several reasons. In many cases, it is difficult to
predict in advance the precise nature or complexity of services re
quired. For example, physician reimbursement for Medicare patients
under the RBRVS system often cannot be known a priori; for many
procedures, the appropriate CPT code to be used (and therefore the
appropriate level of reimbursement) depends on variables that can
only be known after the service has been provided. A possible range
of fees could be given to the patient in advance, but a broad range
would still leave room for dispute as to the appropriate fee.
The very nature of the physician-patient relationship may explain
why a prior agreement on fees does not occur with more frequency.
Patients may be reluctant to select physicians in the same manner as
a television or automobile: 	that is, as an essentially fungible com
modity in which price is the critical decision making element.
Finally, patients with insurance coverage may be concerned less
with the physician's fee than with the amount of the physician's fee
not covered by the insurance company. 	Indeed, many of the com
plaints received by fee peer review committees are from patients
facing a large physician bill after the insurance company has paid its
share, requesting advice whether the physician's fee was excessive
or whether the insurance company failed to meet its obligations (or
both). The patient often cares little what the answer is, as long as the
final bill is reduced.
3. 	The experience of current fee peer review committees sug
gests that physicians who agree to participate in the mediation proc
ess generally accept the decision, or advisory opinion, of their peers,
and reduce fees found to be excessive. Often, the fee dispute is re
solved without formal action by the committee. Simply by filing a
complaint, the patient may initiate a dialogue with the physician that
will resolve the dispute. This process fails completely if physicians
refuse to participate. Medical societies should have the authority to
require their members to participate in the mediation process. Absent

1138 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	117 F.T.C.
unusual circumstances (discussed in issue 5 below), the physician
will not be disciplined for refusing to reduce an excessive fee.
Nevertheless, medical societies must be able to require, as a condition
of membership, that physicians make a good faith effort to participate
in the peer review process. If they cannot, the process lacks credibil
ity and effectiveness.
The determination of whether a fee was reasonable under the
circumstances requires the exercise of professional judgment by
members of the peer review committee. 	The committee members
may rely on their own know ledge and experience, or they may seek
input from other physicians, perhaps in the form of an ad hoc survey.
The AMA Council on Ethical and Judicial Affairs lists the following
factors as relevant in determining the reasonableness of a fee: 	"A.
the difficulty and/or uniqueness of the services performed and the
time, skill and experience required; B. the fee customarily charged in
the locality for similar physician services; C. the amount of the
charges involved; D. the quality of performance; E. the nature and
length of the professional relationship with the patient; and F. the ex
perience, reputation and ability of the physician in performing the
kind of services involved." As the enclosed peer review files demon
strate, committees often review substantial documentation in making
their determinations.
Notice of the committee's decision is usually given first to the
physician in cases in which the physician is found to have charged an
excessive fee. This provides the physician an opportunity to request
an appeal of the decision, either from a second committee of the local
medical society or from the state medical society. 	Notice is then
provided to the complainant. Sample correspondence of this type is
contained in the CMS, LACMA and OCMA documents.
4. 	Mediation or grievance committees usually provide at least
one level of appeal for parties dissatisfied with the decision of the
committee. 	Because the decisions of these committees are not en
forced, a further appeal would have little value. In contrast, discipli
nary actions taken by local medical societies may be appealed to the
state medical society and then to the AMA' s Council on Ethical and
Judicial Affairs (CEJA), which is the ultimate appellate body for
organized medicine.
5. 	Fee gouging can be defined as conduct by a physician which
demonstrates flagrant disregard for the physician's fiduciary duty to
the patient. Following are examples of conduct that would meet this

AMERICAN MEDICAL ASSOCIATION 	1139
1091 	Advisory Opinion
definition. Using the CEJA factors listed in the response to issue 3
above, grievance or disciplinary committees should be able to identi
fy (probably rare) cases in which the physician's fee exceeds the
range of usual and customary. or reasonable, fees by a substantial
amount. 	For example, it would be difficult to justify a fee two or
three times the usual and customary fee for the procedure. 	(Of
course, even a fee this high would not constitute actionable fee goug
ing if a fully informed and competent patient agreed to the fee in
advance.) 	Other examples of fee gouging would include outright
fraud, the exercise of undue influence over a patient, performing
unnecessary services, and deliberately "unbundling" services for
billing purposes to inflate the fee. 	The circumstances under which
this conduct arose would be extremely relevant, as would evidence
of repeated similar behavior by the physician under review.
The analysis of new procedures or treatments will be handled in
the manner described in the preceding paragraph and in the response
to Issue 3. 	The committee will gather information relevant to the
CEJA factors and determine whether the fee charged was reasonable
under the circumstances. 	It is increasingly rare to find only one
physician in a relevant geographic area performing any particular
procedure, even a new one. Nevertheless, committees can, and do,
survey physicians from other geographic areas to acquire information
about emerging technologies when there are insufficient local sources
of information to permit the committee to make an appropriate deci
sion about a complaint. 	Committees will limit their inquiry to the
reasonableness of the fee charged for the procedure performed, and
will not attempt to ascertain whether a different, less expensive, pro
cedure may have been appropriate. Note, however, that the inquiry
over the fee charged may involve a discussion of the medical neces
sity of the procedure itself.
6. 	All documents generated in the peer review process will
remain confidential. 	There will be no public disclosure of fees
considered to be excessive, nor will the medical society publish infor
mation concerning reasonable fee levels. The review committees will
simply decide the complaints submitted to them, and notify the par
ties involved of the result of the process. 	Members of the medical
society who are not members of the committee will have no access to
fee review information. Medical societies may publish a statement
that a Physician has been disciplined for fee gouging in appropriate

1140 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	ll7F.T.C.
cases, just as it would when disciplining a member for any ethical
violation.
7. 	Medical societies would have the option of pursuing a fee
mediation process even if there were a prior agreement between the
patient and physician as to the fee to be charged. 	Such a process
would enable the society to determine whether the patient knowingly
consented to the fee, including whether the patient knew the fee to be
substantially above the range of usual and customary. However, no
disciplinary action would be taken against a physician for fee goug
ing if the patient were competent and gave informed consent to the
fee.
CEJA Current Opinion 8.08 (Informed Consent) provides that
"the patient's right of self-decision can be effectively exercised only
if the patient possesses enough information to enable an intelligent
choice." In the context of fees, informed consent would require, at
a minimum, disclosure that the fee to be charged is above the range
of usual and customary, and the factors which justify the fee (such as
unusual complexity of the procedure). A patient who is incompetent
or misled about any material information cannot provide informed
consent to the fee.
8. 	A minority of members of local medical societies refuse to
participate in fee mediation processes. The ability to discipline mem
bers in this situation would increase the effectiveness of mediation,
and would add to the public's confidence that the profession is
committed to acting in the public interest. Patients have no reason
able alternative when told by a medical society that it cannot process
a complaint because the physician refuses to participate. Not only is
this result frustrating, but it also erodes the patient's trust of physi
cians.
The inability of medical societies to discipline physicians for
egregious conduct prevents the profession from taking corrective
action against its most unethical members. After all, a physician who
is willing to defraud, mislead, or fleece patients, often repeatedly, is
unlikely to agree to participate in mediation and voluntarily disgorge
the proceeds. 	Fortunately, behavior of this type rarely occurs, but
when it does the profession must be able to respond decisively. For
example, the patients of the CMS physician referred to at pages 2-3
of whom sixteen complaints were filed in nine years would certainly
have benefitted had CMS been able to take stronger measures. Cases
of this kind take on a high profile, and thus a greater importance than

AMERICAN MEDICAL ASSOCIATION 	1141
1091 	Advisory Opinion
their numbers would suggest. 	Medicine must be able to publicly
announce to patients and physicians alike that fee gougers will not be
welcome.
9. 	Enclosed is a copy of the AMA's Model Guidebook for
Medical Society Grievance and Disciplinary Committees.
I hope that this letter and the enclosed documents add to your
understanding of our request for an advisory opinion, as well as the
reasons which underlie it. 	Please call me if you would like any
further information. Thank you for your careful consideration of this
matter.
Sincerely,
Michael L. Ile