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Taking the Antitrust Enforcers to Task
[November 18, 2003]

By S. M. Oliva

On November 7, I formally appealed the final judgment in United States v. Mountain Health Care, P.A., an antitrust case that was settled without trial. While it is highly unusual for an outside party, much less a public policy analyst with no financial interest in the case such as me, to intervene in an antitrust case, the convergence of various events led me to take this extraordinary action.

In December 2002, the Department of Justice filed a complaint against Mountain Health Care, a group of about 1,200 physicians based in Asheville, North Carolina, alleging violations of the Sherman Antitrust Act. Specifically, the DOJ claims that Mountain’s members conspired to fix prices for physicians’ services in western North Carolina, denying customers the “benefits of competition.” The DOJ says Mountain’s actions raised prices above market levels, injuring the “rights” of consumers.

The DOJ spent nearly two years investigating Mountain and other “preferred provider organizations” (PPOs) throughout North Carolina, looking for antitrust violations. PPOs are non-exclusive physicians’ networks that allow patients to avail themselves of any provider within the network. Unlike traditional health-maintenance organizations (HMOs), physicians can exercise greater control over PPOs. HMOs ration services through central administrators, and individual patients must obtain referrals to specialists through designated primary care doctors. PPOs generally offer broader consumer choice. Both HMOs and PPOs rely on third-partiesto reimburse physicians for their services. The ultimate consumer, the patient, generally pays a deductible that covers only a small fraction of the costs.

Since 1993, the DOJ and the Federal Trade Commission have made it official antitrust policy to prosecute any group of physicians that attempts to exercise economic power over HMOs and other third-party payers. By “economic power,” I mean physicians acting in concert to their economic benefit. This includes simple acts like two doctors having a conversation about a particular HMOs reimbursement levelsand physicians jointly negotiating a contract with an HMO. This behavior is presumed to be illegal by the DOJ and FTC.

In most professions, joint negotiation is not illegal. Indeed, it is encouraged and given special legal protection under federal labor statutes. For example, a group of steelworkers may vote to form a union, and that union in turn is given protected monopoly status; the employer must negotiate with the union, and the union may compel new employees to abide by the terms of its labor agreement. This compulsory unionism violates individual rights (of both employers and workers) and generally serves as a detriment to consumers, who end up paying inflated prices due to the government’s monopoly protections.

That is not what physicians want. In fact, physicians who are employees of HMOs or hospitals can readily avail themselves of monopoly union laws. The DOJ and FTC are concerned with independent physicians that maintain their own practices, but who from time to time band together to combat the influence of managed care companies. Like unions, HMOs enjoy special legal protections that exempt them from normal free-market forces. Tax policy discriminates against employers who don’t offer health insurance to their workers; HMOs receive direct subsidies for their operations; and, most importantly, HMOs function under the economic model used by the government-run Medicare system. This system reimburses physicians on a fixed-fee basis for each service performed, without regard to the service’s cost. In other words, when a patient is treated for condition x, the HMO reimburses the physician y dollars, even if the actual cost to the physician was y+z. The financial loss is suffered by the physician.

For the past decade, Medicare and HMOs have cut reimbursement levels across the board. In response, physicians have tried to form groups designed to negotiate with HMOs (Medicare rates are set by a government panel.) Enter the DOJ and the FTC. When one of these groups enjoys success at the bargaining table, the HMO complains, and the antitrust regulators cry foul. The government prosecutes the physicians for “price fixing”—i.e. joint negotiation—and nullifies the contracts signed by the HMOs on grounds that they were coerced. The government never stops to consider the absurdity of the notion that as few as fivephysicians could possibly “coerce” multi-billion dollar HMOs into signing contracts.

Mountain Health Care is the latest victim of this anti-physician policy. The DOJ’s investigation quickly broke Mountain’s resolve: Mountain agreed to a “settlement” where, without trial, the group was immediately to dissolve and end all contracts to provide care. The doctors were left to fend for themselves. The agreement prohibited Mountain’s doctors from speaking to one another about HMO contracts (in antitrust, the First Amendment is effectively nullified on grounds that speech can of itself injure consumers.)

The DOJ claims they’ve done nothing more than restore “competition” lost by Mountain’s price-fixing. The only problem is, there is no evidence that price fixing took place. The DOJ’s complaint fails to provide credible evidence, but is long on arbitrary allegations and unproved speculation. For example, the DOJ alleges that Mountain raised prices above market levels, but there is no information discussing what “market” prices were, and how Mountain’s alleged actions affected them. If the government had an iota of evidence to offer, it intentionally chose to withhold such from the public. As a result, it is impossible to prove or refute the DOJ’s claim that Mountain’s forced dissolution will result in lower prices and “better service” to consumers.

This is where I entered the picture. Last February, I filed the first in a series of briefs with the district court that oversees the Mountain settlement, asking for disclosure of information that would verify the government’s allegations. After close to six months, the government replied, declaring that they were under no legal obligation to release any evidence, and that doing so would in fact compromise their settlement. In the DOJ’s view, any effort to question their case is an attack on the settlement process itself, and such attacks are treated with unbridled hostility. After all, this is John Ashcroft’s Justice Department that we’re dealing with.

In 1974, Congress amended the antitrust laws to expand judicial oversight of antitrust settlements. The idea was to provide for “meaningful” public comment, ostensibly to aid the court in deciding whether a settlement was in the “public interest.” One requirement of the law was that the DOJ must disclose any “determinative” documents or information related to a settlement. On paper, it sounds like a salutary reform: Let the people see what the DOJ is thinking. At the very least, let the people see why the DOJ thinks that a particular settlement will “restore competition” to the marketplace.

In practice, however, the DOJ has ignored the law and has made every effort to thwart public and judicial oversight of its settlements. In virtually every antitrust settlement (keep in mind, more than 80% of all government antitrust cases result in settlement) the DOJ says that there are no “determinative” documents within the law’s meaning. Most judges accept this assertion blindly. And why shouldn’t they? Rarely does an outside party stand up and object. Groups that stand ready to pounce on the DOJ for perceived abuses of the Patriot Act won’t lift a finger where antitrust is concerned; property rights, after all, lack the popular cache of “civil liberties” or “social justice.”

In the handful of antitrust cases where a third party does challenge the government’s disclosures, that party is a competitor of the defendant looking to score some points for their own pending antitrust lawsuits. The courts have been reluctant to treat the disclosure requirement as an excuse to aid private civil discovery, perhaps with good reason. But once again, the law was designed to serve the public’s right to understand why their government took antitrust action in the first place.

The DOJ’s abuse of power in the Mountain case is particularly contemptible. The government destroyed a lawful private business for the sole purpose of eliminating a competitor of HMOs and other insurers favored by regulators. When you consider this act in the context of the Bush administration’s push for a government-run prescription drug benefit and opening Medicare up to “competition” from HMOs (which is a sham for subsidizing HMOs and their disastrous business practices), one realizes the Mountain case is not law enforcement, but regulation through the judicial system. Keep in mind, the DOJ’s anti-physician policy is an administrative rule, not a congressional mandate; Congress has never approved the view that physicians are not permitted to jointly negotiate with HMOs.

The Mountain settlement was approved in September, months after Mountain actually closed its doors (yet another weakness in the antitrust process; settlements are usually carried out before the court even approves it.) I then asked the court for permission to join the case for the sole purpose of appealing the government’s claim that they were not required to disclose certain evidence and documents. In my view, the government should prove an antitrust violation occurred before they can punish the alleged perpetrator. It would also be nice if the DOJ could show its remedy will actually improve the market. Here, neither of these things occurred.

My appeal to the U.S. Court of Appeals for the Fourth Circuit presents a simple question: Does the government have any legal obligation to support its arguments with facts? If so, then what facts should the public have access to; if not, then is there any effective check on the executive’s power to unilaterally destroy private businesses through selective enforcement of the antitrust laws? Whatever the answer, the question must be asked, if for no other reason than nobody has asked it before.

This appeal will not bring the nation’s antitrust regime crashing down. The legal question I’m presenting to the Fourth Circuit is narrowly drawn by design, to maximize my chances of prevailing against the DOJ. But what I am doing is taking the first step towards destabilizing antitrust’s illegitimate foundation. Antitrust enforcers maintain their power by preventing any challenge to their authority; accused businessmen are stripped of their due process rights, while the public is kept in the dark about the facts of most cases. Antitrust is not about cases like Microsoft; that was an aberration. Most antitrust cases are about businesses like Mountain Health Care, small and medium-sized firms who had the misfortune of coming up against a government-favored business interest. In order to expose the DOJ’s true agenda, we must first gain access to the facts used by the government in coercing its settlements. Hopefully, I can convince the Fourth Circuit to take the first step towards obtaining that access.

 

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