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I
The Maine Health Alliance (MHA) is a nonprofit corporation
composed of approximately 325 physicians and eleven hospitals
doing business in northeastern Maine. William R. Diggins is
MHA’s executive director and, according to the FTC, served as
the Alliance’s principal negotiator with third-party payors in the
healthcare market.
The FTC’s complaint details MHA’s efforts to collectively
negotiate on behalf of its physician and hospital members with
third-party payors during a period extending from about 1996 to
2002. The complaint alleges numerous contracts negotiated
between MHA and payors violated section 5 of the Federal Trade
Commission Act, 15 U.S.C. § 45, because MHA’s actions coerced
the payors into paying Alliance members higher fees than other
physicians and hospitals in Maine. The complaint also alleges
MHA’s members failed to “engage in any significant form of
financial risk sharing or clinical integration,” that would justify
collective negotiating activities. Consequently, the proposed
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68 Fed. Reg. 43,515-43,517 (July 23, 2003).
IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
II
A
The FTC’s legal argument for seeking relief in this case turns
on the definition of “coercion”. The Commission defines coercion
here to prohibit the voluntary association of MHA members for
their mutual benefit when such association affects the economic
interests of “consumers,” here meaning third-party payors who
administer Health Maintenance Organizations (HMOs) in the
State of Maine. Because HMOs were not guaranteed certain price
levels for physician services, the FTC infers illegal conduct by the
physicians under 15 U.S.C. § 45, which broadly prohibits “unfair”
methods of competition. The FTC considers physician collective
negotiating coercive, thus “unfair” and illegal. This definition,
however, ignores the plain meaning of coercion for the sake of
improperly expanding the Commission’s ability to regulate the
healthcare market, both in Maine and throughout the nation.
In paragraph 38 of the complaint, the FTC expressly defines its
application of coercion to this case:
To exert pressure on and coerce these payors to agree to the
Alliance terms, Alliance physician and hospital members
informed such payors that they would not negotiate
individually, and told the payors to contract for the Alliance
members’ services only through the Alliance. As a result of the
collective conduct, the Alliance has successfully obtained
contracts on behalf of its physicians and hospitals with these
payors on terms demanded by the Alliance.
By this reasoning, the FTC considers it coercive for individuals to
exercise their economic rights through a voluntary cooperative
agreement. This implies individual rightsûsuch as the right to
contractûare lost under the antitrust laws when individuals seek
to exercise their rights jointly. This implication is borne out in
the complaint, which clearly states doctors and hospitals may
individually contract with HMOs without legal penalty.
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
2
Ayn Rand, “America’s Persecuted Minority: Big Business”, in Capitalism: The
Unknown Ideal at 46 (Sugnet, 1967).
3
Complaint at para. 29.
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
B
Further undermining the FTC’s coercion argument is the
behavior of the “victimized” HMOs and payors. Given the years
of abuse suffered by the HMOs, one would expect to find some
evidence of legal action prior to the FTC’s involvement. But the
record contains no such evidence. Instead, the FTC’s complaint
and other filings indicate the HMOs signed, executed, and in
some cases renewed contracts now ruled invalid as a matter of
antitrust policy by the FTC. This begs the question: Did the
HMOs know they were victims of illegal activity, and if so, when
did they know it?
Take the 1996 contract between MHA and NYLCare Health
Plans of Maine. The FTC claims this contract was the product of
illegal coercion because MHA negotiated compensation levels that
were “substantially higher” than what the Commission claims is
the appropriate market rate. The FTC presents no evidence of
NYLCare taking legal action to protect itself from MHA’s
coercion at the time the contract was signed. In fact, NYLCare
not only completed its duties under the contract, but when
NYLCare was acquired by Aetna in 1998, the contract continued
in force, and it remains in effect to this day while Aetna and
MHA negotiate a new arrangement. At no point, as far as we can
tell, has Aetna taken private action to void its MHA contract on
the grounds of coercion.
If the FTC’s reading of the law is correct, there should be no
question the 1996 contract is void as a matter of common law,
since a coerced party cannot give voluntary consent to enter into
a contract. Thus, the FTC believes NYLCare, and its successor
Aetna, were under coercion for nearly seven years until the
Commission came along and put a stop to MHA’s illegal
negotiating activities. The implication is that Aetna was
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
III
A
The FTC places great emphasisûindeed the weight of its
entire caseûon the fact MHA’s members obtained higher
compensation through collective negotiation than other Maine
healthcare providers did negotiating individually. In the FTC’s
mind, MHA harmed competition simply by acting to raise price
levels. For example, the FTC alleges Aetna paid MHA physicians
10%-20% more for HMO subscribers than to non-Alliance
4
Leonard Peikoff, Objectivism: The Philosophy of Ayn Rand at 319 (Meridian, 1993).
5
According to the FTC, the Maine Bureau of Insurance requires any HMO operating in
the state to include enough physicians and hospitals to provide patients with timely
access from their residences. See Complaint at para. 18. While this requirement
undoubtedly contributed to the frustration of HMOs in dealing with MHA, the Alliance
cannot, as a matter of law and common sense, be held responsible for a “restraint of
trade” imposed by the state.
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
6
Vern S. Cherewatenko, “The SimpleCare Story,” Capitalism Magazine (accessed
online at http://capmag.com/article.asp?ID=1509) (March 26, 2002).
7
“Withholds” is the other form of FTC-approved risk sharing. Under this system, the
payor withholds a predetermined amount of the provider’s fees unless certain cost-
containment objectives are met. Since this produces the same problems as capitation,
we need not discuss withholds at great length here, except to note that many state
governments have banned the practice, despite the FTC’s endorsement.
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
B
Physicians and hospitals are not the only parties injured by the
FTC’s policies. Customers, the group the FTC claims it protects,
are injured just as much, if not more so, by cases like the one
against MHA. In this context, we define “customers” not as the
third-party payorsûthe only group the FTC is actually
protectingûbut the ultimate purchasers of healthcare services,
namely the patients. Customers do not benefit from the
government’s arbitrary restraint of physician rights, and indeed
customers do not benefit from the entire third-party payor
system in healthcare.
There is no other free market where a third-party assumes the
primary responsibility for providing a basic consumer good or
service. Unlike insurance, which allows customers to pool risk to
protect against an extraordinary event, healthcare is a routine
service rationed by a party that is neither the customer nor the
producer. Adding to this strange arrangement is the
government’s role in supporting the third-party rationer, or
payor, through policies designed to discourage traditional market
relationships between the customers and producers.
In a normal market, the producer earns profits by providing a
valuable service at a reasonable price. In contrast, third-party
payors in healthcare, especially HMOs, profit by withholding
service from consumers while paying providers less than they
could earn in a free market. An HMO has a major incentive,
backed by government policy, to ration care for individual
patients in the name of preserving a minimal level of care for all
patients enrolled in the plan. Such policies encourage “lowest
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
8
Joseph Kellard, “Health Care’s Deterioration,” The American Individualist (accessed
online at http://theai.net/health.html) (December 21, 1997).
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
IV
Beyond the broader fight over the future of the healthcare
market, the FTC’s proposed order in this case suffers a far more
ordinary, and sadly commonplace, defect. Section III(B) of the
proposed order requires MHA and William Diggins to “cease and
desist” from “[e]xchanging or facilitating in any manner the
exchange or transfer of information among hospitals concerning
any hospital’s willingness to deal with a payor, or the terms or
conditions, including price terms, on which the hospital is willing
to deal with a payor.” This requirement plainly violates the First
Amendment, because the government cannot impose prior
restraints on ordinary acts of speech.
The FTC may believe it necessary to restrain MHA and
Diggins from taking any action that might lead to a recurrence of
the allegedly illegal conduct described in the complaint. But the
exchange of information, an act of speech, cannot itself be
classified the underlying illegal activity. The act of collectively
negotiating with HMOs is what the FTC aims to prevent. Merely
talking about such actions, however, is protected expression, and
the FTC exceeds its constitutional authority in imposing such a
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
V
While MHA and Diggins conceded the FTC’s jurisdiction in
this matter as part of the proposed order, we note our concern
over the Commission’s decision to exercise concurrent
jurisdiction with the Maine Attorney General. Just weeks before
the FTC announced its proposed order in this matter, the
Attorney General concluded a nearly identical order under the
auspices of Maine law, which closely mirrors the federal antitrust
language the FTC relies on.9 Given the Attorney General’s
actions, it’s difficult to understand the FTC’s need to impose
additional relief under color of federal law. While MHA’s actions
may have impacted interstate commerce, the affects of their
alleged infractions were felt solely in Maine. The FTC should not,
as a simple matter of resource allocation, duplicate state antitrust
prosecutions where the local authorities have already
accomplished the Commission’s objective.
VI
Finally, the term of the proposed orderû20 years from the
order’s final adoptionûis unreasonable and unnecessary. The
FTC cannot predict the state of northeastern Maine’s healthcare
market in August 2023. Nor would it be reasonable for the FTC
to make static assumptions about the market and how MHA’s
9
http://www.maine.gov/ag/press_release_pop_up.php?press_id=160 (July 3, 2003).
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IN THE MATTER OF MAINE HEALTH ALLIANCE AND WILLIAM R. DIGGINS
VII
For the numerous independent grounds stated above, CVT
requests the FTC reject entry of the proposed consent order as
inconsistent with the public interest.
Respectfully Submitted,
S.M. OLIVA
President
CITIZENS FOR VOLUNTARY TRADE
P.O. Box 66
Arlington, Virginia 22210
(571) 242-1766
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