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Avoiding Antitrust Problems in Practice

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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
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