North Texas Speciality Physicians v. F.T.C.

• Decision Date: 14 May 2008
• Docket Number: No. 06-60023.,06-60023.
• Parties: NORTH TEXAS SPECIALITY PHYSICIANS, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. American Medical Association; Texas Medical Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Fifth Circuit

528 F.3d 346

NORTH TEXAS SPECIALITY PHYSICIANS, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

American Medical Association; Texas Medical Association, Amicus Curiae.

No. 06-60023.

United States Court of Appeals, Fifth Circuit.

May 14, 2008.

Gregory S.C. Huffman (argued), William Mayer Katz, Nicole Leigh Rittenhouse, Thompson & Knight, Dallas, TX, for Petitioner.

Michele Arington (argued), John F. Daly, William E. Kovacic, Donald S. Clark, FTC, Washington, DC, for Respondent.

Harry M. Reasoner, Bruce Allen Blefeld, Vinson & Elkins, Houston, TX, Dionne C. Lomax, Vinson & Elkins, Washington, DC, for Amici Curiae, Am. Med. Ass'n and Texas Med. Ass'n.

Petition for Review of a Final Order of the United States Federal Trade Commission.

Before KING, WIENER, and OWEN, Circuit Judges.

OWEN, Circuit Judge:

North Texas Specialty Physicians (NTSP) petitions for review of an opinion and order of the Federal Trade Commission (FTC or Commission) that found certain activities of NTSP constituted horizontal price-fixing unrelated to any procompetitive efficiencies,¹ in violation of section 5 of the Federal Trade Commission Act.² We conclude that the FTC's examination, although somewhat abbreviated, of the factual underpinnings of the conduct at issue, its anticompetitive effect, and the procompetitive effects that NTSP claims have occurred or will occur, was adequate, and the FTC's determinations are supported by substantial evidence. However, the remedial order entered by the FTC is overly broad in one respect, and we accordingly grant the petition for review and remand to the Commission so that it may modify its order.

I

NTSP is an organization of independent physicians and physician groups principally located in Tarrant County, which includes the city of Fort Worth, although physicians from seven other Texas counties are affiliated with NTSP. NTSP's size has varied. It had approximately 575 members in 2003 and 480 members in April 2004. As of 2003, NTSP was comprised of practitioners in 26 medical specialties but also included some primary care physicians. The ALJ found, and NTSP does not dispute, that in Tarrant County NTSP specialists were a large percentage of the practitioners within a specialty, for example 80 percent in pulmonary disease, 59 percent in cardiovascular disease, and 69 percent in urology. Many NTSP physicians compete with one another. All physicians pay a fee upon joining NTSP and elect representatives from their ranks to serve on its eight-member Board of Directors.

When it formed in 1995, NTSP's original business model was to assemble physician groups and negotiate contracts between these groups and "payors," such as insurance companies, health maintenance organizations (HMOs), preferred provider organizations (PPOs), and partially or fully self-insured employers. These contracts were on a flat fee-per-patient basis and were termed "risk" contracts (also known as "capitation" contracts) because the physician groups bore the risk of profit and loss, based on how efficiently they could provide medical care for the fixed fee per patient during the term of a contract. However, payors' interest in risk contracts declined, and by 2001, NTSP's board began to focus on assisting physicians in negotiating "non-risk" contracts. A non-risk contract is a fee-for-service arrangement between the payor and the physician. The non-risk model was more successful, and at the time of the proceedings before the FTC, NTSP had approximately twenty non-risk contracts and only one risk contract. The FTC found that about one-half of NTSP's physicians participate in the risk contract. Only NTSP's activities with regard to non-risk contracts are at issue. The FTC has not challenged any of NTSP's conduct with regard to risk contracts.

In facilitating non-risk contracts, NTSP and each of its physicians executed Physician Participation Agreements. Those provide that if NTSP enters into an agreement with a payor to disseminate non-risk offers, NTSP will send or "messenger" all of those offers to physicians, who are free to accept or reject them. If more than 50% of the NTSP physicians agree to accept a non-risk offer, NTSP will proceed to negotiate a contract for the physicians. The Physician Participation Agreements contemplate that physicians will not individually pursue a payor offer unless and until they are notified by NTSP that it has permanently discontinued negotiations with that payor. However, the physicians' relationship with NTSP is not exclusive. If NTSP is not negotiating with a payor or if NTSP has an agreement with a payor that does not cover particular services that a physician seeks to provide, a physician may deal directly with that payor or indirectly through participation in other independent physician associations.

NTSP polls its physicians on an annual basis, asking the minimum rate each would accept in a non-risk contract. NTSP uses the poll responses to calculate the mean, median, and mode of the minimum acceptable fees identified by its physicians. Based on these calculations, NTSP determines a minimum contract fee that it utilizes when negotiating managed care contracts on behalf of its participants.³ NTSP contends that the poll assists it in determining whether a non-risk offer is likely to attract a majority of its participating physicians, and accordingly, it only messengers non-risk contracts that offer at least the minimum fee calculated from the polls.

NTSP reports the mean, median, and mode from the polls to its participating physicians and explains to participating physicians that "NTSP polls its affiliates and membership to establish Contracted Minimums." In conducting the poll each year, NTSP reminds physicians of the results of the previous year's poll.

The FTC issued an administrative complaint alleging that NTSP restrained competition among its physicians through horizontal price-fixing in violation of the FTC Act.⁴ NTSP responded that there were "spillover" effects from its and its physicians' experience with risk contracts into its non-risk contracts that resulted in net procompetitive effects. It argued that it trains physicians to work together as more efficient teams and to be more efficient as individual practitioners and that these improvements will "spillover" to non-risk treatment if the same teams of key physicians can continue working together. NTSP cites as an example situations in which a primary-care physician and a specialist have coordinated in treating a certain illness, so that other patients with the same condition benefit and receive higher-quality care. It also asserts that its physicians can, through experience, eliminate unnecessary tests and procedures, lowering the cost of health care.

The matter was tried before an Administrative Law Judge (ALJ), who found that NTSP's conduct constituted horizontal price-fixing unrelated to any procompetitive justifications and issued a cease and desist order. NTSP appealed to the FTC for a de novo review, and the Commission affirmed.

The Commission concluded that NTSP's conduct constituted concerted action among physicians because it is controlled by physicians, rejecting the argument that NTSP was a sole actor. The FTC concluded that the participating physicians have taken collective action in an attempt to obtain higher fees.⁵ Although the FTC concluded that NTSP's "conduct could be characterized as per se unlawful under the antitrust laws, and thus subject to summary condemnation,"⁶ the Commission used an "inherently suspect" analysis, citing its prior decision in Polygram Holding, Inc.,⁷ and the District of Columbia Circuit's decision affirming the FTC in that case.⁸ The FTC rejected NTSP's proffered pro-competitive justifications and entered a cease and desist order against NTSP that, among other provisions, required termination of existing non-risk contracts at the payor's request or at the earliest termination or renewal date. NTSP now petitions this court for review of the FTC's opinion and order.

II

NTSP has raised five broad issues on appeal: whether (1) there was concerted action; (2) the FTC could utilize an "inherently suspect" analysis rather than a full-blown rule-of-reason examination and if so, did the Commission ignore undisputed evidence of NTSP's procompetitive justifications; (3) NTSP's right to due process was violated by the denial of discovery regarding procompetitive effects of its conduct; (4) the FTC had jurisdiction; and (5) the FTC's remedial order is overly broad. The FTC's findings "as to the facts, if supported by evidence, shall be conclusive,"⁹ even if "suggested alternative conclusions may be equally or even more reasonable and persuasive."¹⁰ We review the FTC's legal analysis and conclusions de novo, "although even in considering such issues the courts are to give some deference to the [FTC]'s informed judgment that a particular commercial practice is to be condemned as `unfair.'"¹¹ Constitutional challenges are reviewed de novo.¹²

III

We first consider the jurisdictional issue. NTSP contends that its alleged anticompetitive conduct was not "in or affecting commerce,"¹³ because effects on interstate commerce must be "more than de minimis when considered in proportion to the parties' business as a whole," and its conduct "was never shown to have even a de minimis effect on the business of any payor as a whole."

The FTC assumed in the present case that "the definition of `unfair methods of competition' under the FTC Act, 15 U.S.C. § 45, is the same as the definition of a `contract combination ... or conspiracy, in restraint of trade ....' under Section 1 of the Sherman Act, 15 U.S.C. § 1,"¹⁴ and at least one circuit court agrees that "the analysis under § 5 of the FTC Act is the same ... as it would be under § 1 of the Sherman Act."¹⁵ NTSP does not take issue with this interpretation.

The United States Supreme Court has explained with regard to jurisdiction under the ...