FTC gives Minnesota hospital group a verbal spanking re: Price fixing

The Minnesota Rural Health Cooperative (MRHC), a group of 25 hospitals and 70 physicians in southwestern Minnesota, has reached a settlement with the Federal Trade Commission (FTC) regarding allegations that the group used anticompetitive tactics to boost reimbursement rates from health insurers, reports the FTC. But how much the settlement really means in practical terms remains a big question given that, during the FTC's investigation, Minnesota passed legislation allowing state officials to review and approve contracts negotiated by healthcare provider cooperatives. "If approved, jointly negotiated contracts may be beyond the reach of the antitrust laws," said the FTC.

The proposed settlement order prohibits the MRHC from using coercion in negotiations with health insurers. The following excerpt from the FTC complaint provides some interesting insights into the MRHC's negotiating tactics:

"Since at least 1996, the MRHC, acting through its contracting committee and executive director, has negotiated prices and other competitively significant terms, on behalf of MRHC physician and/or hospital members, with the major payers in Minnesota, including BlueCross BlueShield of Minnesota, HealthPartners, Medica Health Plans, MultiPlan, Inc., Preferred One, and America's PPO. Upon completion of contract negotiations with each of these payers, the MRHC Board of Directors approved each contract and the MRHC entered into and administered each contract.

"When negotiating new rates, the MRHC threatened to terminate contracts with payers to pressure them to increase prices for physician and hospital services. For example, during its 2003 contract renewal negotiations with HealthPartners, the MRHC notified HealthPartners that it would terminate the contract unless HealthPartners agreed to higher reimbursement rates. HealthPartners acceded to the MRHC's demands, eventually agreeing to pay MRHC physician members 27 percent more than comparable non-MRHC physicians and MRHC hospital members ten percent more than comparable non-MRHC hospitals.

"To further its bargaining leverage in contact negotiations, MRHC informed payers that the MRHC 'expect[s] our group to be accepted or rejected as a group' and, as recently as March 2009, that payers would be unable to negotiate individually with MRHC members. When five payers attempted to negotiate separately with particular members, the members rebuffed these efforts.

"Through its collective negotiations and coercive tactics, the MRHC succeeded in extracting increased payments to MRHC members in at least three forms: higher reimbursement rates than comparable providers, more favorable payment methods, and increased reimbursements for new MRHC members.

"First, the MRHC obtained higher prices from payers. Indeed, the MRHC told its members at the 2005 annual member meeting that improvements in its contract with Preferred One would be 'worth $100,000s annually for MRHC members.' Five payers--HealthPartners, Medica, MultiPlan, Preferred One, and America's PPO--have paid MRHC members more than comparable rural hospitals and/or physicians elsewhere in Minnesota.

"Second, the MRHC's agreements with two payers--Medica and Preferred One--require them to pay MRHC hospital and physician members based on a percentage of billed charges, rather than a fixed fee for each service. Payers generally prefer a fixed fee schedule because it prevents providers from increasing their billed charges at will. By obtaining reimbursement rates based on a percent of billed charges, MRHC providers can unilaterally increase their reimbursement, by increasing their billed charges up to the maximum specified in the contract.

"Third, the MRHC has forced payers to reimburse new MRHC members at the higher MRHC rates, even though the members had existing contracts with the payer that paid lower rates. For example, MultiPlan had to increase one hospital's reimbursement rate from 78 percent of billed charges to a significantly higher percent of billed charges merely because it joined the MRHC. Moreover, Medica told the MRHC that 'because of the Co-op relationship all of the clinics and hospitals, except Rice, are being paid higher reimbursement then they were prior to our Medica agreement with the Co-op.'"

To learn more:
- read the FTC press release
- read the agreement, the decision and order, the complaint and the FTC's analysis here