Avoiding Antitrust Problems in Practice

Avoiding Antitrust Problems in Practice Ann Tran-Lien, JD, Staff Attorney September/October 2012 The idea of antitrust violations usually connotes images of large corporations attempting to monopolize the world; however, in actuality, well-meaning individual practitioners can violate antitrust laws if they are not careful. Antitrust laws are complex and often confusing, but it is important for therapists to understand how these laws may affect their practices, especially when it comes to issues such as setting client fees and communicating with one another regarding fees paid to insurance plans and policies. This article will discuss fundamental elements of the federal and state antitrust laws you should know to protect against potential antitrust violations. A Look at the Antitrust Laws Generally, federal and state antitrust laws have similar objectives: to protect competitive marketplaces for the benefit of consumers by ensuring fair prices for goods and services and to provide a level playing field for businesses to compete and operate efficiently. There are several federal antitrust laws, but the most relevant statute applicable to therapists is the Sherman Act (15 U.S.C. 1-7). In California, the main antitrust law is the Cartwright Act (California Business & Professions Code 16700-16770). The Sherman Act The Sherman Act is a federal antitrust law passed by Congress in 1890 that prohibits every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce (Section 1) and monopolization or attempts to monopolize (Section 2). 1 This article will focus on Section 1 of the Sherman Act, as it is the more relevant section applicable to therapists. The Cartwright Act California s main antitrust law is the Cartwright Act (passed in 1907), which generally prohibits combinations of capital, skill or acts by two or more persons for the following purposes: To restrict trade; To limit or reduce production, or increase the price of merchandise or any commodity; To prevent competition; To fix price; To enter into contracts or agreements that bind the parties not to sell merchandise or commodity, agree to fix prices, establish the prices of commodities so as to preclude unrestricted competition; and To agree to combine interests that may have connected with the sale of any such commodity, where the price of the commodity may have been affected. 2 Courts have ruled that services provided by licensed professionals, such as therapists and physicians, The Therapist - September/October 2011 Page 1

in exchange for money, are considered commerce and accordingly, within the reach of the antitrust laws. 3 The Fundamental Elements Essentially, the Sherman Act and the Cartwright Act are violated when 1) two or more otherwise independent actors engage in concerted activity 2) to restrain trade or competition. Concerted Activity The first element requires there to be concerted activity between independently practicing therapists or therapy business entities. The antitrust laws do not apply to actions taken individually by a therapist after exercising independent judgment. Moreover, such concerted activity does not occur when joint conduct is taken by therapists who are owners or employees of a truly integrated therapy business entity, such as a professional corporation or a partnership. Therapists in such business entities are not independently practicing and do not have independent competing business activities, hence, their practices are integrated into the business entity. In other words, if you co-own a therapy professional corporation with another therapist, you and your partner can discuss and agree on the corporation s fees, as well as refuse to contract, as a corporation, with a particular managed plan. This joint action would not be a violation of the antitrust laws since it is not concerted activity between independently practicing competitors. Further, the concerted activity must be a result of an agreement or understanding between two or more therapists and/or therapy entities. The agreement does not have to be formal or put forth in writing. An understanding between two or more therapists or therapy entities that leads to parallel conduct can be sufficient to raise antitrust concerns. For example, informal conversations between therapists about terminating with a managed care plan that results in the therapists terminating their contracts with the plan at approximately the same time may be alleged as an agreement in violation of the antitrust laws. In addition, an understanding or informal agreement can be inferred by circumstantial evidence. Circumstantial evidence may take the form of suspicious practice patterns and activities, or business reports and calendars. Restraint of Trade or Competition The second element requires the concerted activity between two or more therapists and/or therapy entities to restrain trade or competition. Not all restraints of trade or competition are illegal. Both the Sherman Act and the Cartwright Act bar only restraints of trade or competition that are deemed unreasonable. 4 Unreasonable restraints of trade or competition are broken down into two categories: those that are considered per se unreasonable and those that are deemed unreasonable under what is known as the Rule of Reason. Per Se Unreasonable Certain agreements between competitors are considered so blatantly anti-competitive that they are per se unreasonable. Such agreements do not require further analysis of their intent, justifications, or actual effects on competition, and are held to be in strict violation of the antitrust laws. Types of agreements that have been held per se unreasonable include agreements among competitors to fix prices, engage in group boycotts, or share or divide markets by allocating territories and customers. The Therapist - September/October 2011 Page 2

Courts have presumed such agreements and concerted actions to be unlawful, without analyzing their purpose and overall effects on competition. The following types of concerted activity are generally considered per se violations of the antitrust laws: (Keep in mind that analyzing whether or not a concerted activity may be a violation of antitrust laws largely depends on the facts of the specific situation. Thus, the examples in this article are provided to give a general idea of how the antitrust laws may apply to therapists.) Price Fixing Price fixing involves an agreement or understanding among competitors to set fees at a certain level, including increasing and decreasing fees; standardizing fees; and putting in place pricing procedures. The following are examples of an agreement or understanding between therapists that would generally constitute price fixing: A group of independently practicing therapists have an understanding with one another to charge the same fees for psychotherapy sessions. A written agreement does not exist, but the therapists have informal discussions concerning fees every six months, and all therapists charge the same fees. An agreement is put in place between two separate therapy professional corporations to have matching sliding scale fees for their psychotherapy services. Four independently practicing therapists have lunch and agree with one another to raise their fees by ten percent. Ten independently practicing therapists cosign a letter to a managed care plan stating that if the fee schedules are not raised, the therapists will terminate their contracts with the plan. (This concerted activity may also be categorized as group boycotting; see next section.) The key is to exercise independent judgment when making pricing decisions. It is essential that therapists avoid even the appearance of collusion with another therapist, as what may appear as harmless discussions regarding fees can lead to allegations of unlawful price fixing among competitors. In deciding your own fee structure, you may scan the advertisements of other therapy practices, as well as surveys regarding other therapists fees, which are generally public information, but the decision must be made individually and not in concert with other therapists. Moreover, a therapist acting autonomously may personally appeal to a managed care plan requesting reimbursement rates to be raised, but the action must be an individual decision and not a collective one. Group Boycotting A group boycott is an agreement between competitors to refuse to conduct business with another competitor, individual, company, or consumer to restrain competition. Many therapists are contracted providers for managed care plans and a substantial percentage of clients for many therapists are managed care referrals. When frustrated with a managed care plan s reimbursement rates, therapists naturally desire to join with one another to exert more of a collective power to deal with the plan. This concerted action, nevertheless, can result in allegations of group boycotting, a per se violation of the antitrust law. The following are examples of concerted activities or conduct that would generally constitute group boycotting: The Therapist - September/October 2011 Page 3

An understanding between two or more independently practicing therapists to refuse to contract with a managed care plan. Two independently practicing therapists agree with each other to terminate their provider contracts with a managed care plan after informal discussions regarding problems the therapists are having with the plan. Twenty independently practicing therapists discuss on a social networking site their frustrations and concerns about low reimbursement rates and how to force the plans to increase payments. (While this seems like an innocent conversation between therapists, the presumption is that it could lead to concerted activities that amount to group boycotting.) Five independently practicing therapists meet over coffee to complain about the low reimbursement rates of managed care and discuss how to get the company to pay attention to the therapists need for a raise. (Although this may appear as a harmless discussion between therapists, if all or any of the therapists ultimately decide to terminate their contracts with the company, the presumption is that there was a mutual understanding or implied agreement between these therapists to boycott the plan.) An agreement between two separate therapy professional corporations to not refer clients to a psychiatrist who is a contracted provider for a particular managed care plan. Ten independently practicing therapists agree not to do business with an accounting company. It is critical to avoid concerted activity that may be construed as group boycotting. Keep in mind, even informal discussions among therapists concerning positions on boycotting a plan that lead to corresponding actions by the therapists, may trigger antitrust scrutiny. While a therapist may choose to terminate with a managed care plan for any particular reason, it must be an independent decision, rather than a concerted one. Additionally, you may unilaterally choose your business associates and refuse to do business with a vendor, however, an agreement between independently practicing therapists to blacklist a business would likely be construed as group boycotting. Market Allocation Market Allocation occurs when competitors agree to divide consumers, markets or territories amongst themselves with the understanding that competitors do not compete with one another. The following are examples of agreements that would generally constitute market allocation: Two separate therapy professional corporations agree to divide up the county they provide therapy services in, so that one corporation will only provide services to clients in the northern part of the county, while the other corporation will only provide services to clients in the southern part of the county. Two independently practicing therapists agree to not specialize in the same practice areas to avoid invading one another s potential clientele. The agreement specifies that one therapist will not treat adolescents and the other therapist will not treat couples. Although agreements between therapists to allocate markets and territories are not typical, you should exercise care when discussing with other therapists your practice areas, locations of practice, and clientele populations. As discussed earlier, a written agreement does not need to exist; an informal mutual understanding between therapists to not compete can be a sufficient agreement in violation of The Therapist - September/October 2011 Page 4

antitrust laws. A more common agreement between therapists to not compete is one in which a therapist agrees with a therapy professional corporation or therapy clinic not to practice in the same area after terminating employment or a contractual relationship with the corporation. California courts have generally viewed these types of non-compete agreements to be against public policy. Since noncompete agreements could potentially restrict a competitor from practicing to a certain degree, which may in turn reduce competition, such agreements may increase antitrust risks. Rule of Reason Analysis Agreements not challenged as per se unreasonable are analyzed under the Rule of Reason to determine their effects on competition. Under this analysis, the court will balance the pro-competitive purposes and effects against the anti-competitive purposes and effects of the concerted activity or agreement in question. The court will also examine all the relevant facts and inquire into the intent of the agreement and its overall effects on competition. Federal Enforcement Federal antitrust laws are enforced by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) Antitrust Division. The FTC may seek civil penalties or consumer remedies by bringing civil proceedings to enforce the antitrust laws, and may also refer cases to the DOJ for criminal proceedings. If the FTC or DOJ finds an individual or business has violated the antitrust laws, more often than not, a consent order is issued, which would require the individual or business to agree to cease and desist from the activity in question. For instance, in 2000, a complaint was brought against two chiropractors in Wisconsin, who allegedly agreed to fix prices for chiropractic services and to boycott an insurance company. It was further alleged that the chiropractors organized two meetings with other chiropractors where discussions of their displeasure with the payer s reimbursement rates took place. The chiropractors voted and determined that the majority of them were willing to terminate their agreements with the third-party payer if their demands were not met. The FTC entered into a final consent agreement with the chiropractors, which required the chiropractors to cease and desist from fixing prices for chiropractic services, engaging in collective negotiations with an insurance company, and orchestrating concerted refusals to deal. 5 In addition, the FTC may also issue an administrative complaint and seek injunctive relief in federal courts. These decisions may be appealed to a U.S. Court of Appeals, and to the U.S. Supreme Court. The DOJ may prosecute certain violations of the antitrust laws by filing criminal suits, which can lead to hefty fines, of up to one million dollars per violation for individuals, up to one hundred million dollars for corporations, and prison sentences of up to ten years. For example, in 1993, after a jury trial and two court appeals, the DOJ reached a settlement with a dental corporation in Arizona alleged to have conspired with other dentists and dental corporations to fix and raise the co-payment fees paid by participants in four dental plans. The dental corporation pled nolo contendere and was fined $5,000, put on probation for 547 days, and required to perform 250 hours of community service. The dentist who owned the corporation was directed to perform the community service on behalf of his dental corporation. 6 The DOJ may also institute a civil action seeking a court order prohibiting future violations of the antitrust laws. For instance, in 2010, the DOJ, joined by the State of Idaho, filed a civil complaint against a group of independently practicing orthopedists in Idaho alleging that they agreed, through The Therapist - September/October 2011 Page 5

meetings and other communications, not to treat most patients covered by the state s workers compensation insurance. The orthopedists allegedly entered into the group boycott to force higher reimbursement rates. The orthopedists also allegedly agreed to threaten to terminate their contracts with a managed care plan if it did not offer better contract terms to orthopedists. A final judgment was issued by the District Judge that enjoined the orthopedists from entering into an agreement or understanding with competing orthopedists about any fee, or other contract term, manner of negotiations, or refusal to deal with any third-party payer and from communicating with competing orthopedists about their views concerning negotiating proposed or existing payer contract terms. 7 Private parties who were injured by an individual or business alleged to have violated antitrust laws may also bring civil suits to seek treble damages (triple the amount of the actual damages) and attorney fees. Additionally, private parties may seek court orders to stop the individual or business from engaging in the disputed activity. According to the FTC, most antitrust suits are brought by individuals and businesses seeking damages for antitrust violations. Local Enforcement The California Attorney General s Antitrust Law Section enforces California s antitrust laws both civilly and criminally. In addition, the Attorney General may bring federal antitrust suits on behalf of individuals or businesses residing within California. The District Attorney of California may also bring action against any individual or business in that particular county that has allegedly violated California s antitrust laws. Additionally, private parties may bring civil action against an individual or business for antitrust violations in California, and if successful, may be awarded treble damages and attorney fees. Therefore, due to the considerable time and cost of antitrust investigations and actions, it is critical that therapists are aware of the potential risks when communicating and dealing with other therapists regarding fees, managed care plans, vendors, or competition, in general. As evidenced by the examples presented in this article, what may appear as innocent interactions and discussions with colleagues could potentially raise antitrust concerns. Certainly, therapists may consult with one another on the clinical and ethical aspects of their practices. Likewise, therapists may engage in discussions of best practices and issues of standard of care. Similarly, therapists may meet to confer about new techniques, methods, and tools in the therapy world. Before taking any action that may raise antitrust concerns, it is recommended that you consult with legal counsel. To summarize, the following is a list of DOs and DON Ts to assist you in minimizing antitrust risks in your every-day practices: DON Ts Do not enter into an agreement or understanding with another therapist or therapy entity regarding fees. Do not discuss with other therapists or therapy entities the fees that you charge, your discounts, your fee policies, pricing methods, or any other issues concerning fees. Do not agree with other therapists or therapy entities to boycott a managed care plan, terminate a managed care plan contract, or appeal collectively to a managed care plan. Do not agree with other therapists or therapy entities to retain or refuse to deal with another provider, business, or vendor. The Therapist - September/October 2011 Page 6

DOs Do not enter into an agreement or understanding with other therapists or therapy entities to divide up markets, territories, customers, or practice areas. Do not exchange with other therapists or therapy entities your future plans in the areas of fees or managed care plan contracts. Do not engage in any of these discussions in person, over the phone, via e-mail, or on the Internet (i.e., CAMFT Community 8, local chapter listserves, networking websites, etc.). Do make decisions relating to fees and payment terms independently. Do decide whether or not to enter into a contract with a managed care plan independently; terminate with a managed care plan after exercising independent judgment; and appeal to a managed care plan individually. Do send CAMFT a copy of your appeals with managed care plans so that CAMFT can educate the plans on the problems and issues you face with these plans. Do choose to do business or not to do business with vendors on your own. Do discuss with other therapists state and federal governmental actions that affect your therapy practice, especially CAMFT s lobbying efforts. Do consult with legal counsel before taking actions that may have potential antitrust risks. CAMFT and Antitrust Laws While CAMFT is very empathetic to the concerns and frustrations that members have with the low pay of managed care, or desire to have marketplace information on client fees, antitrust violations are not something to take lightly or ignore. As discussed above, penalties for violating the antitrust laws can be severe. For more information on marketplace information, we encourage members to research the vast resources accessible online, as well as review the CAMFT demographic survey, which will be available in Winter 2013. For further reading on how to advocate for your practice with managed health care plans, please review the CAMFT article, Managed Health Care: California Law and Your Rights, which can be accessed under Resource Center on the CAMFT website. Additional resources for further reading on antitrust laws: The Federal Trade Commission s Guide to the Antitrust Laws: http://www.ftc.gov/bc/antitrust/ The U.S. Department of Justice Antitrust Division Website: http://www.justice.gov/atr/about/antitrust-laws.html The California Department of Justice, Office of the Attorney General: http://oag.ca.gov/antitrust Ann Tran-Lien, JD, is a staff attorney for CAMFT. Ann is available to answer member calls regarding legal, ethical, and licensure issues. The Therapist - September/October 2011 Page 7

Endnotes 1. 15 U.S.C. 1, 2. 2. Cal. Bus. & Prof. Code 16720. 3. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975); Cianci v. Superior Court, 40 Cal.3d 903 (1985). 4. National Society of Professional Engineers v. U.S., 435 U.S. 679 (1978); Cal. Bus. & Prof. Code 16725. 5. In the Matter of Michael T. Berkley, D.C., and Mark A. Cassellius, D.C. 6. United States v. Aaron L. ( Lanoy ) Alston, et al. 7. United States and State of Idaho v. Idaho Orthopedic Society, Timothy Doerr, Jeffrey Hessing, Idaho Sports Medicine Institute, John Kloss, David Lamey, and Troy Watkins. 8. CAMFT, and other professional associations, can be subject to antitrust scrutiny due to the associations membership structure consisting of combinations of competitors. CAMFT has a strict policy of compliance with all federal and state antitrust laws. The Therapist - September/October 2011 Page 8