December 2001 Bulletin

U.S. settles boycott suit

Use of third-party messenger in Delaware anticompetitive

The Justice Department reached a settlement with the Federation of Physicians and Dentists in October, resolving the government’s 1998 lawsuit, alleging the doctors’ union and its orthopaedic members in Delaware engaged in an illegal boycott to force health plans to pay increased physician fees.

The suit centered on the use of the third-party messenger model strategy by the federation and orthopaedists to force Blue Cross and Blue Shield of Delaware to rescind proposed fee reductions. A third-party messenger, who in this case was a federation executive, can communicate with the physicians individually on contract terms he or she is willing to accept. Each physician can individually authorize the messenger to accept offers from insurers at the level the physician is willing to accept.

The strategy has attracted a lot of attention in recent years. The presumption is that a union like the federation, which is an affiliate of the AFL-CIO, can be more successful at the bargaining table than physicians. The federation has been active in Tucson, Ariz.; Albuquerque, N.M.; Seattle; Philadelphia; and Ft. Lauderdale, Fla.

However, the third-party messenger strategy has limitations. In the proposed Final Judgment, which is subject to approval by the U.S. District Court of Delaware, the Justice Department said "a legitimate messenger model may not collectively negotiate for providers, enhance their bargaining power, organize a refusal to deal or facilitate the sharing of price and other competitive sensitive information among them."

The Justice Department alleged that the federation recruited nearly all of the private practice orthopaedic surgeons in Delaware as members, who then agreed to designate Jack Seddon, the federation’s executive director, as their agent to negotiate the fee levels they would accept from Blue Cross. The objective, the Justice Department said, was to "set fees for Delaware orthopaedic surgeons at levels closer to those paid to orthopaedic surgeons in nearby areas, such as metropolitan Philadelphia."

The federation and the orthopaedic members agreed that the orthopaedists would negotiate fees with Blue Cross solely through Seddon. The Justice Department said Seddon "recommended that federation members should reject Blue Cross’s fee reduction and he informed federation members that other federation members were simultaneously receiving the same recommendation." Federation members submitted contract termination notices when Blue Cross refused to negotiate with them through Seddon.

The Justice Department said the settlement allows the federation to serve as a third-party messenger in negotiations between independent physicians and health insurance plans, provided that the federation abides by restrictions on such activities. The proposed consent decree "prohibits the federation from participating in, encouraging, or facilitating any agreement or understanding between competing physicians or from negotiating, collectively or individually, on behalf of competing physicians about any payer contract or contract term."

The federation also is prohibited from making recommendations to competing physicians about any payer contract or contract term, communicating competitively sensitive information to competing physicians; discouraging physicians from making an independent business judgment whether to deal directly with payers; or encouraging or facilitating any agreement between competing physicians to deal with any payer exclusively through a third-party messenger.

During the first five years after the court approves the settlement, the federation is enjoined from acting as a third-party messenger for any competing physicians unless the federation informs the payer and physicians in writing that the payer may decline to communicate through the federation and that the payer and physicians may communicate with each other without the federation’s involvement.

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