American Society of Internal Medicine

(American Society of Internal Medicine, P84 3532)

April 19, 1985 Dear Mr. Kopit:

This letter responds to your request for an advisory opinion concerning the legality of the American Society of Internal Medicine ("ASIM") proposal to develop and disseminate relative value guides RVGs ). The Commission has determined, on the basis of the information provided by ASIM and additional information gathered by Commission staff, that there is substantial danger the proposed conduct would lead to a combination or conspiracy that unreasonably restrains competition among physicians in violation of Section 5 of the Federal Trade Commission Act. The Commission, therefore, cannot give advance approval to ASIM's RVG proposal. This advisory opinion begins with a brief summary of ASIM' proposal. It then discusses two central questions-first, whether there is substantial danger of an agreement in restraint of trade resulting from the proposed conduct, and second, whether, were such an agreement to result, it would restrain trade unreasonably. The letter then indicates alternative actions, unlikely to raise antitrust probJems that ASIM can pursue to redress the aJleged reimbursement disparities about which it is concerned. ASIM' s Proposal ASIM, a national professionaJ society consisting of approximateJy 000 doctors of internal medicine, prOposes to develop an RVG and distribute it to its member physicians and to private and governmentaJ third-party payors on an advisory basis. ASIM plans to request that these parties consider using the RVG as a guide in deveJoping reimbursement programs consistent with the approach contained in the RVG. The RVG would cover services that are provided by physicians who specialize in internal medicine ("internists ). ASIM proposes in the future to work with other physician organizations including surgical societies, to deveJop RVGs for other medical and surgical services.

The proposed RVG would Jist medical services by descriptive codes. ASIM intends to assign numeric vaJues to each coded service, relative to one another, determined on the basis of costs, time, compJexity, and the Jevel oftraining required to perform each service. The RVG would not in itself be a fee scheduJe, but could be converted to a fee scheduJe by physicians or third-party payors simply by multiplying the reJative values by a doJJar conversion factor. ASIM has indicated that it would 506 FEDERAL TRADE G'OMMISSION DECISIONS not provide conversion factors with its RVG; that the RVG and the other proposed aspects of ASIM's conduct would be voluntary and advisory" in nature; and that there would be no explicit or implicit threats or coercion against physicians or third-party payors to induce them to use the RVG.

ASIM has stated that it wants to deveJop the RVG to redress an aJJeged disparity in reimbursement for "cognitive" and "procedural" services provided by physicians. According to ASIM, a high level of insurance reimbursement now encourages physicians to use and sometimes overuse costly t'procedural" services such as surgery, electrocardiograms, x-rays, and other technology-intensive services. At the same time, ASIM submits, relativeJy low levels of reimbursement discourage physicians from using more time.consuming " cognitive services such as the diagnosis of patient health care problems, preventative education, and life style evaluation. ASIM's members are internists, most of whom are chiefly engaged in primary care and the delivery of cognitive services. ASIM proposes to increase the relative value of cognitive services and decrease the relative value of procedural services to encourage use of more cognitive services and discour, ifage overuse of procedural services. ASIM states that its RVG widely adopted, would reduce health care costs by creating incentives to substitute low-cost care for high-cost care. It further states that an increase in the relative amount at which cognitive services are reimhursed, as compared to proceduraJ services, would encourage physicians to spend more time in personalized aspects of care and would provide new incentives for physicians to choose primary care specialties utiJizing reJatively large amounts of cognitive services. ASIM plans to use the "Delphi technique" to reach consensus on the reJative values to be assigned to each of the services commonJy provided by internists. In separate maiJ surveys, representatives of internal medicine subspecialty! organizations and two ASIM state affliates would be asked anonymously to assign relative values to medical services on the basis of time, compJexity, costs, and training. Median and average figures computed by ASIM based on the first round of responses would then be submitted to the same physicians to use in making a second round of responses. The process would continue until a consensus or as much uniformity as possible was reached. ASIM's Resource Cost Committee would then review the product of each of these survey determinations and determine reJative values using the DeJphi consensus-buiJding technique. The resulting RVG would then be submitted to ASIM's Board of Trustees for approval or disapproval without modification. ASIM also plans to send a "white paper" to physicians and thirdI Internal medicine subspecillJties indude cardiology, gastroenteroiol'Y, allerl!V. endocrinolol!. hernatnlrwv ADVISORY OPINION

party payors that would explain the cognitive/procedural reimbursement disparity and use of its RVG to reduce the disparity. It -would also iJustrate how to use the RVG to "change the reimbursement structure from the current procedural service basis to a cost of resources basis." The stated purpose of the "white paper" would be to persuade and not to coerce.

Legal Analysis The antitrust issue raised by ASIM's proposaJ is whether it presents a substantial danger of an agreement that unreasonably restrains trade.2 The threshold question in resolving this issue is wljether there is danger of an agreement in restraint of trade. If there is a substantial danger of such an agreement occurring, the second question is whether there is a substantial danger that it would unreasonably restrain trade. The antitrust laws prohibit, of course, only those agreements that restrain trade unreasonably. Danger of Agreement in Restraint of Trade ASIM' s adoption and dissemination of an RVG, as it proposes, could involve or faciJitate two types of agreements in restraint of trade: (1) an agreement among ASIM, its members, and possibly other physicians to adhere to the RVG in determining charges for their services; and (2) an agreement between ASIM, acting on behalf of its members and one or more third-party payors, possibly resulting from coercion that the third-party payor(s) wil adhere to the RVG in reimhursing physicians for covered services. The Commission concludes there is a substantial danger that the first type of agreement may occur; there does not appear to he a substantial danger of the second type of agreement.

With respect to the first type of agreement, if a professional association expressly or implicitly suggests or advises marketplace conduct on the part of its members or other competitors and the intent or likely consequence of the communication is that association members or others wil concertedly or interdependently modify their behavior in the marketplace to restrain trade, both the professional association and the individuals so acting could properly be found to be parties to an agreement in restraint of trade. 4 In contrast, when an association provides information or advice to its members or others that could be

The Commssion di!\usss the antitrust risks of ASIM's proposal in tem3 of"s1.bstantial danger" because til advis.ry opinion seeks approval for propose future conduct, the precise nature andspecific effects of which cannonowUnited Statcs u.beStandard Oil rleternnedCo., 221 U.S. 1 59-0 (1911). . See generally Interstate Circuit, Inc. v. United States,306 U.s. 208, 226-27 (1939) ("It was enough (for unlawful conspiracyJ that, krwwing that concertd action was contempJated 2nd invited, the(yJ gave their adhe ence to the scheme and participate in it. Each. . . was advised that the others were asked to participate; ea, knew that cooperation was esntial to successful operation of the plan. They knew that the plan, jfcarried O! would resuJt in a restraint ofc.ommerce, whic.h. . was unreasonable..., and knowing it, al!participated in t pian.

,

used by its recipients unilaterally in the marketplace and it is neither intended nor likely that the communication wil result in concerted interdependent action to restrain trade, the association would probabJy not he found party to an agreement in restraint of trade. 5 In this matter, the substance and market context of ASIM' s communications and physician actions in response to them would be critical in determining the existence of an agreement in restraint of trade. Although any action by ASIM, an association of individual practitioners many of whom compete with one another, to develop an RVG would reflect an agreement to take that action, ASIM' s development of an RVG, standing aJone, would not constitute an agreement restraint of trade. No one would be party to an understanding by which he or she is committed to any particular course of conduct in the marketplace. However, antitrust analysis of ASIM's proposal must be focused on the entire course of conduct planned by ASIM to determine whether the proposal is intended to or could be expected to involve or faciJitate an agreement in restraint of trade. Several factors indicate there is substantial danger that ASIM' proposed conduct would be intended to or wouJd result in concerted interdependent action by physicians to adhere to the RVG in pricing their services. Despite the disclaimers it would make in its distribution of the RVG, ASIM appears to be proposing implicitly to invite physicians to adhere to the RVG in determining their charges. ASIM plans to send members the RVG on a "purely advisory" basis, leaving individuaJ members "free to make independent fee decisions , with a white paper" that would "illustrate 'how to' use the (RVGJ to change the current reimbursement structure." The RVG would be prescriptive in nature, describing a set of pricing relationships that ASIM would be supporting as what should be. The RVG would be designed to change future market transactions with respect to physician charges and output. Such pricing information programs are more likely to result in agreements in restraint oftrade than are exchanges of descriptive data, which merely describe or reflect historical or ;urrent market transactions.6 Indeed, there is a danger that use ofthe lVG could lead to an agreement among physicians on a single converion factor to apply to each service on the RVG. Thus, the RVG could asily become the means for physicians in at least some communities o coordinate a coJlusive pricing scheme.

Further, for a number of reasons there appears to be a substantial See generally MOl1anto v. Spray.Rite Service Corp. 104 S.Ct. 1464, 1471 (1984) (To find an agreement (tJhere 1St be evidence that tends to exclude the possibility that the manufacturer and the nonterminated distributors re acting independently.. . (TJhe antitrust plaintiff shouJd present direct or circumstantial evidence that sonably tends to prove that the manufacturer and others 'had a conscious commitment to a common scheme igned to achieve an unlawful objective.''' (citation omitted));Nat'lFirstBank u.Cities Service Co., 391 U.S. 253 -88 (1962) (the inference of a conspiracy does not JogicalJy follow in the ab!Ince of either direct conspiratoriaJ leDee at motive to enter a tacit agreement). See Goldfarb v. Virginia.Slate Bar 421 U.S. 773, 781 (1975); Maple Flooring Mfrs ' Ass n u. United Slates, 268 563 585-86 (1925) ADVISORY OPINION 509

danger that concerted adherence to the BVG by physicians in response to ASIM's invitation would be widespread. The invitatioilto use the RVG would emanate from a leading national medical specialty association and would presumably have the support of the other medical organizations that wouJd have heJped to build the "consensus" the RVG reflects. Concerted adherence to an ASIM RVG would appear more likeJy than if an independent outside organization were to formulate an RVG. Moreover, ASIM' s invitation to adhere to the RVG would be attractive to the many primary care physicians who would benefit financialJy from increased reimbursement forcognitive services. Also, the RVG would be circulated in a form easily used by individuaJ physicians in setting their prices. It would require only that the physician identify the appropriate code for each medical service rendered and appJy a conversion factor he or she seJects to each Jisted relative vaJue to determine his or her charge for every service.

Widespread adherence to the RVG by physicians in local communities would likely be interdependent because it would probabJy not be in the economic seJf-interest of individual physicians to charge on the basis of the RVG unless they beJieve most competing physicians would be doing Jikewise. Physicians choosing to price in conformance with the RVG would likely do so to effect increases in the absolute If onJy a few physicians level of their charges for cognitive services.7 were to increase their charges for cognitive services, insurers might refuse to pay the increased amounts on the ground that for each such physician, it reflected a fee exceeding the "usual and customary charge of internists. In light of increasing competition at the primary care level, individual physicians considering adherence to the RVG would know that patients who were not fulJy reimbursed by insurance and who incurred higher out-of-pocket costs for cognitive services could over time go elsewhere for their medical care (e. to other private practice physicians or to health maintenance organizations). If most primary care physicians in an area adhered to the RVG, in contrast, insurers ' Ucustomary" screen levels would over time increase, likely resulting in higher reimbursement aJlowances. Patients would then have less incentive to seek, and could less easily find, a lower-cost provider. Thus, concerted or interdependent conduct by a very substantial number of physicians could succeed, and would probably be necessary to succeed, in raising the relative price level of cognitive services. If concerted conduct were not necessary, physicians concerned about the disparity identified by ASIM couJd address it uniJateralJy, and presumably already would have in their own 7 Adherence to the RVG would likely require physicians to depart from their current fee schedules- It would be unkely that physicians would voluntarily elect to confonn to the RVG and choose conversion factors that would keep their prices for cognitive services at roughly their current levels and would result in redltction oftheir charges for procedural services

practices, by increasing charges for cognitive services. ASIM's likely knowledge that individual physicians probably could only effectively use the RVG interdependently, or concertedly, would help support a finding that ASIM contemplated a concerted response by physicians to its promuJgation of the RVG.

Finally, to the extent third-party payor coverage "desensitizes insured patients to price increases, concerted conformance to the RVG in an effort to raise charges for cognitive services would be more likely contemplated, attempted, and successful in the medical marketplace than restraints of trade in other market contexts in which consumers are more "price sensitive. " If the RVG were adhered to by a substantial number of physicians, then "discounting" might not be as advantageous for physician competitors as it typically is for other competitors seeking to undercut higher charges resulting from collusion. As noted above, general adherence to the RVG wouJd Jikely create a new range of "customary" charges, so that third-party payors would, as time passes, likely recognize and pay higher charges for cognitive services. In this event, even if some physicians did not adopt the RVG and charged lower prices for cognitive services, they might not be able to undercut effectively those adhering to the RVG because fees below those recognized as customary by insurers might not attract many insured patients away from other physicians. Patients with paid-in-full insurance coverage or only small co-payment obligations, who are treated hy physicians whose fees are within the "customary" range, could have little, if any, monetary incentive to switch physicians.

The Commission recognizes, notwithstanding the foregoing discussion, that substantial arguments can be made against the likelihood that concerted adherence to the RVG would result from ASIM' proposed conduct. For example, physicians' different cost structures and diversity across the country in practice patterns and pricing relationships among various medical subspecialties may make it unlikely that physicians would reach a common understanding to utilize any single RVG. Also, the cost-containment practices of third-party payors would pose a major obstacJe. Nonetheless, although the Commission cannot, in this advisory opinion context, predict that widespread concerted conformance to the RVG would necessarily result from its dissemination by ASIM, the available information on this specific RVG proposal indicates that this type of agreement in restraint of trade is a substantial danger. ASIM also proposes to disseminate its RVG to insurers and other third-party payors and encourage them to adopt the RVG as a basis for their reimbursement structures. This conduct raises the question of whether ASIM' s proposal may lead to the second type of possibJe y,

ADVISORY OPINION 511

tween ASIM, on behalf of its membe , and third-party payors that such third-party payors wil adhere to the RVG in their reimbursement systems. Such an agreement between ASIM and a third-party payor could lessen competition among ASIM's members over the terms of their dealings with the third-party payor. The Commission does not find a substantial danger that this type of an agreement would resuJt from the proposed conduct.

No agreement in restraint of trade involving ASIM occurs if a third-party payor decides to adopt an RVG as the basis for its reimbursement system, even if its decision results from discussions with ASIM, so long as the third-party payor s decision is a unilateral one is not the resuJt of coercion by ASIM or of an agreement coerced or voluntary, between ASIM and the third-party payor. In this regard, ASIM's request letter states that its discussions with third-party payors wouJd he advisory and not coercive in nature. ASIM also states that it wouJd not be acting as a common agent or in a representative capacity for its members in its dealing with thirdparty payors; rather it would simpJy seek to persuade third-party payors of the effcacy of reimbursement systems hased on the RVG. Based on these representations and the absence of factors indicating serious risk in this regard, the Commission does not believe there is a substantial danger that ASIM wil negotiate an agreement with, or coerce, third-party payors to use the RVG, so as to constitute an agreement in restraint of trade)O Reasonableness of Potential Agreement in Restraint of Trade Because the Commission has concluded there is a substantial danger that ASIM's proposed conduct would involve an agreement in restraint of trade among ASIM and physicians to concertedJy adhere to the RVG, the remaining issue is whether such an agreement would unreasonably restrain trade and therefore be ilegal. The Commission concludes that such an agreement wouJd be inherently suspect, in Jight of its purposes and likely anticompetitive effects. The Commis. sion further concludes that the likely anticompetitive effects of sucl an agreement probahly would not be outweighed by any countervaiJ s Because of the conclusion reached in this advisory opinion it is not nl)cessary to reach the question ofwheth an agreement to adopt and promulgate an RVG by a medical society cDl ld result in an unreasonable ft:straint trade, even absent a finding of concerted adherence to it by phygicians or an agreement between the medica) HOC), aod any third.party payors See Virginia Academy of Clinical Psychologists u. Blue Shield of V4. 624 F.2d 476, 483 (4th Cir. J980), e denied 450 U.s. 916 (1981);Michigan State Medir:l Soc 101 F. C. 191 286 (198.1) MSMS" ); Monsonto Ct. at 1471 10 ASIM' s dcvelopment of an RVG for dissemination to third-party payors, although not raising an appa ubstantiaJ danger of agreement in reRtraint of trade between ASIM and third. party payon!, CQuld noneth, result in an agreement hetween ASIM and its members to adhere to the RVG. If ASIM were to develop an Ilnd support it in discus-Gians with third-party payors, its members' knowledge of this action and the 8pp.cif the RVG cOl1ld result in concerted adherence to it for many of the same reasons stated above. Althoug evidentiary situation would be different., this conduct could raise antitrust risks like those resulting from, dissemination of the RVG to ASIM's memhers with encouragcrnet1t to use it. , y, ),

ing effciency justifications that may flow from ASIM's proposed conduct. As a result, as is discussed below, an agreement among physicians to adhere to the ASIM RVG would be likely to restrain trade unreasonably. The Commission, therefore, cannot approve ASIM' proposed actions.

Naked horizontal agreements to restrict output or tamper with price are per se iJegal. No elaborate inquiry into market power or actual effects is required for condemnation of such agreements under the antitrust laws, and insistence on the "need" in the marketplace for such arrangements cannot provide a defense'!! An agreement on precise fees is not required for a finding ofiJegality,!2 "Any combination which tampers with price structures is engaged in unlawful activity. . . . (T)o the extent that they raised, lowered, or stabilzed prices they would be directly interfering with the free play of market forces. 13 As the Supreme Court has recognized, "An agreement to payor charge rigid, uniform prices would be an iUegaJ agreement under the Sherman Act. But so would agreements to raise or lower prices whatever machinery for price-fixing was used. 14 Thus, an agreement to use a particular formula, like an RVG, could support a finding of ilegal price-fixing,'5 because "tampering with the means of setting prices is tantamount to tampering with reimbursement levels. 16 Similarly, the Supreme Court has condemned as per se unlawful a horizontal agreement to fix only one element of price, such as credit terms,!7 If an agreement encompassing promulgation and adherence to the I\SIM RVG is found, the agreement would have purposes and likely ,ffects that under the foregoing precedent would condemn the agreeGent as per se unlawful absent plausible effciency justifications. The greement wouJd tamper with market pricing structures, and pose a "ious danger of higher prices, at Jeast with respect to some medical 'rvices , and other anticompetitive effects. United Stale v. Socol1y- Vacuum Oil Cu. 310 U.S. 150, 218 (1940);NCAA v. Board of Regents of University )k/ahomu, 104 S.Ct. 2948, 2960, 2965 (1984). Per se cond.emnation has been deomed appmpriat€ even when 1) suggested prices were used hy a trade dation s members only as a "starting point" for individualnegotialiol1s and price competition continued wut/! IJealersAss n of N Cal. v- United States,279 F.2d 128, 132 (9th Cir. 1960), and 2) there were no sanctions 1St members not adhering to the 8uggested priceE and suggested prices in fllet were not strictly adhered to embers United States u. Nationwide Trailer Rental $Y8. , Inc. 156 F.8upp. 800, (D, Kan. afrd per curium S, 10 (1957), In regard to "advisory" price schedules possibly supporting a finding of agreement in restraint de compare dictum in Goldfarb 421 U.S. at 781 (1975) ("(a) purely advisory fee schedule issued to provide mes without a showing of an actual restmint on trade, would present us with a different question with i States v. Nation.al A8. n of Renl Estate Ed-s. 339 U.B- 485, 488-9 (1950) (in regard to a "non-mandatory hedule lsJubtle iDf1uences may be just as effective as the threat or use of forma! sanctions to hold people izona v. Maricopa COtinty Med. Soc 457 U.S. 332, 346 (1982) (quotingSocony- Vacuum). See ols" MSMS at291 on.y. Vacuum 310 UB. at 222 (€mphasis added). Morrison v. NissanMotor Co., 601 F.2d 139 (4th Cir. 1979) (regarding an autumobi1€ r€pair flat rate

I-S, 101 F, C. at 291'10M, Inc. v. TargetSQlcI$, Inc., 446 U.S, 643 (1980), ADVISORY OPINION 516

First, the agreement would tamper with the market' s pricing structures by locking competing physicians into use of a particular prIcing formula, if not uniform prices. It would fix the relationships among each physician s prices for different services, so that ratio would not depend upon the production costs or quality of each physician s service, nor on the degree of demand he or she faces for various services. Second, use by physicians of the proposed RVG would apparently be designed to achieve, and would likeJy resuJt in, payment and reimbursement for cognitive services at higher absolute levels than prevail currently. It can be inferred from ASIM's own statements that ASIM' s purpose in developing the RVG includes raising . prices for cognitive services on an absolute basis as welJ as on a relative basis. Examples include an ASIM resolution in 1983 stating: "Resolved, that in ASIM's campaign to reduce the discrepancy in reimbursement between cognitive and proceduraJ services, the Board of Trustees continues to actively promote enhanced reimbursement for cognitive services. . . . 18 In proposing in 1982 that the Department of Health and Human Services adopt an RVG demonstration project, ASIM stated, "A new scheduJe of alJowance providing for increased reimbursement for internist's cognitive services would he created. 19 Moreover, ASIM very likely knows that its members would have every incentive to use the RVG to increase the absolute level of their prices for cognitive services. As noted above, physicians who voluntarily convert their current fee scheduJes to the new ASIM RVG would be unlikely to adopt a conversion factor that wouJd result in Jower prices for procedural services and no increase in their cognitive services charges. The effect of widespread use of the ASIM RVG by physicians to bil higher fees for cognitive services, even without the RVG' explicit adoption hy third-party payors, would likely be incorporated into third-party payors' physician fee profie data for computing usu, customary, and reasonable charges and raise third-party payors reimbursement levels for cognitive services. Third, a "fragmentation" phenomenon of new biling categori81 being created has apparently arisen with use of some other RVGs an. could in the instant case result in increases in overalJ biling charge, For exampJe, a study of the California Medical Association RVG CO! cluded that more detailed and fractionalized RVG descriptive cod, resulted in overalJ increases in payments to physicians.20 Here, the is some danger, for example, of ASIM's RVG providing for ll charges by procedure-oriented physicians for cognitive aspects ofs, vices, when patients were previously charged only for a procedu

'8 ASIM, Reference Committee B Report 1983 House of Delegates 4 (emphasis added) 19 ASIM, Proposal (or Demonstration Project 3 (OcL 1982) (emphasis added). 20 Sobaski Health Ins. Statistics USDHEW Effects of the1969 California Relative Value Stltdies on Physician Services Under SMI Pub. No (SSA) 75-11702 (June 20 , 1975), at 5; see aiM; Urban Institute Alter MethocL of Developing Relative Value Scale of Physicians ' Services: Year End Report 7-8 (1983) (" Institule Study ,

D14 FEDERAL TRADE COMMISSION DECISIONS

Such a tendency in the ASIM RVG could arise in the evolution of the consensus" needed among both cognitive and procedure-oriented physicians for the RVG's contents.

Fourth, widespread adherence to the RVG could also tend to stabilize prices artificially. Such a phenonemon could be in contrast to the stability of price one might expect in a competitive market in which homogeneous, fungihle goods are sold. The price relationships of different services, and possibly ahsolute prices as well 22 would be stabilized to a degree not already effected by third-party payment and without regard to differences in the quality of each physician s services or his or her effciency. Fifth, the RVG may also faciJtate direct price fixing. In the absence of an RVG the diffcuJties in forming a consensus among physicians on a fee schedule would involve deciding which services to include in a price-fixing ageement and agreeing on what value each service should have in relation to another. Agreement on a full-blown fee schedule would be faciltated by adherence to the RVG and would involve additional agreement only on a conversion factor. Although ASIM has disclaimed any intent to encourage such conduct, agreements among physicians to use a particular conversion factor with an RVG can arise. Agreement on conversion factors does not appear to be a part of ASIM's plan nor an inevitable result of it, but it is a possible result of ASIM's conduct, particularly in subspecialties at local levels.

Finally, in addition to affecting price, concerted adherence to "-SIM's RVG would also appear to fix or restrict output of certain ervices, also a type of agreement that can be per se ilegal. ASIM' lated intent is to change the mix of cognitive and procedural services elivered by internists, if not all physicians, through change in reimlrsement levels. ASIM's proposal apparently contemplates a reducm in the output of procedural services, and could, depending on the pact on demand of any significant price increases for cognitive vices, reduce output of cognitive services. 3ecause of its apparent purpose to raise price levels for some seres and the substantiaJ danger of anticompetitive effects on price

e Am. Med News, Nov. 23/30 1984, at30, coL 3 (au.gical80ciety otIcial quoted as stating there is "cognition OR (operating roo011 too ); see alsa Am. Med. News Oct. 14, 1983, at 14, co!. 1 (gurgica! society offcial quoted ing "surgeons use cognition before, durng and aftr surgery ; physician quoted a8 stating that "resistance :eons to concept of reducing cognitive and procedural aervices disparity began to "diaappear" in state 1 society when internsts explained to surgeons that hecaul! oftbe reimbursement bias surgeoll do . cognitive consultations that they have to consider throwaways" or "time lost" empirical study suggests that HVG use is assiated with less fee dispen;ion, although not necessrily fees. B. EiBeuberg,Informa.tiun Exchange Among Competi/urs: The Issue o( Relative Vulue Scales. for ' Services, 23 J.L. & F.-on. 441 , 457-58 (1980). The study s data were not suffcieDt to indicate whether ction in dispersion reflected more effcient market perfonnance, or a p()SIibly unwarranted tret1d toward i7.ed prices by physicians offent1g differing qualily service. The study did fit1d a positive a/lodation RVG U8C Hod higher price!!, but the assciation was not statistically gjgnificant. A, 104 S.Cl. at 2948;National Macaroni Mfrs. v. FTC 65 F. C. 583 (1964),a.frd, 345 F.2d 421 (7th Cir. , ),

ADVISORY OPINION 515

and output, the agreement to adhere to the RVG that could result from ASIM's proposal would be inherentJy suspect or prima~ facie anticompetitive. Such an agreement would not be condemned outright under the per se rule as a naked restraint of trade if a plausible procompetitive effciency rationale existed for it, but the burden would be on ASIM to estabJish justifications Jegitimizing the agreement. ' If ASIM established procompetitive effciency justifications they would then be weighed against the anticompetitive effects of the conduct to determine net competitive effects. If such justifications were not shown to be valid, the prima facie anticompetitive or inherently suspect conduct in question would be condemned without further proof of anticompetitive effects. This method of analysis can be deemed a truncated, quick-look, or limited rule of reason anaJysis. Showing adequate justification for concerted promulgation and adherence to ASIM's RVG would he particularly critical given the power of ASIM and those physicians, hoth ASIM members and others who might concertedly use the RVG to effect significant changes in the marketplace. ASIM membership includes 19 000 physicians, a significant portion ofthe nation s 63 000 internists. The Commission understands that ASIM also has the support of at least 12 other physician organizations in its effort to make cognitive services reimbursement more "equitable." Concerted action by physicians who are members of these organizations to adhere to the RVG would Jikely have a substantial effect on the marketplace. In addition, primary care physicians who are not members of these organizations might also he attracted to the ASIM RVG because use of it would be in their financial interest. FinaUy, future proposed ASIM RVG activity encompassing aU physician services could command widespread, acrossthe-board adherence by physicians in aU specialties.

2- NCAA 104 S.Ct. at 2967; cf, MSMS 101 F. C. at 291; seeRl'nerally Brunet Streamlining Antitrll.'/ Litigation By "Paciol Examinu.tiu/I Of Restrain!s: The Burger Caur/And The Per Se Rule Of Reusan Distinction 60 Wash L. Rev. l (1984).

25 United StatestI. American Soey of Anesthesiologists, Inc. 473 F.8upp. 147 (S. Y. 1979) ABA" cited by ASIM, warrants discussion, In that case, the court rejected the Department of Justice s contention that AS/' committed a pl'r . violation of the Shennan Act through its dissemination of an RVG fOT anesthesia services am fOUDd no violation under the rule of reason. TheABA case was tried solely on pera 51' theory 80 there was no fu exposition of possible anti ompetitive effects. The court, in fad, found no agreement to adhere to thlJ RVe wit the purpose or effectofrai ing or tabilizing price ASA at 159, and instead found that ABA had not "encouragei anyone to use its RVG. No evidence was cited showing any intent on the part of ASA to achieve an j!1crea fee levels. ASA at 159-0. ThlJ court also empha ized that delivery of anesthesia services i somewhat unique medical practice-little or no contad with patients prior to surgery and virtually 100 percent insurance covera of fees-ld. The present matter differs significantly in these respects. 2fiSee, e. , General asewnys v. Nntional Truck Lensin,; Ass 744 F.2d 588, 59:)-96 (7th Cir. 1984) (prelimim injunction); Brief for the United Swtes AmicusliS Curiae in Support of Affnnance NCAA at 9-12 In referel to the quick-IDok rue of reason (sJeasoned antitrust lawyers recognize that the threshold facial examinatio, Dot that novel and is entirely consistent with older landmark cases.United S ates I). Addys/on. Pipe and Steel evideuces the historical foundation underlying the quick look method. " Brunet supra note 24, at 22. Even full-blown ruJe of reason analysis weTe the appropriate mode of analysis for an aweement encompassing conee adherence to ASIM's RVG, the apparently anticompetitive purposes and potential effects discussed above, an( likelihood that ASIM members and other physicians coJ1ectively using the RVG could exercise market pow. discussed below, would very likely make out aprima facie case, once estabiished in an evidentiary rp.cord. would then, as in a truncated rule of TeaSOD analysis, have to proffer evidence shDwing proeompetitive efTe' greater or at least equivalent weight uJ.O FEDERAL TRADE COMMISSION DECISIONS

ASIM' s stated justification is esseniialJy that imperfections in the insurance payment system for reimbursing physicians have created wrong incentives a high level of reimbursement for costly technological and procedural services, which encourages overuse and more expensive medical care, and a low level of reimbursement for cognitive services, which discourages their use. ASIM further claims that redressing the reimbursement disparity between procedural and cognitive services through its proposed RVG would encourage greater use of more personalized cognitive services and provide new incentives for more physicians to choose primary care specialties. ASIM claims that its proposed RVG, besides influencing physicians to hetter meet the public s overalJ health needs, wouJd be designed to reduce health care costs.

ASIM' s purported objective-a lower-cost medical services marketplace, with concomitant health benefits to patients-is laudabJe. However, that objective wouJd not provide a cognizable justification or defense under the antitrust laws for an agreement to supplant determination of prices by market forces on the ground that prevailing prices were not at a level the parties to the agreement believed was optimal for them or society.27 In Professional Eng the Supreme Court confirmed that activities of professional societies are subject to the traditional antitrust test of reasonableness- whether the challenged agreement is one that promotes competition or one that suppresses competition -and may not be defended on the ground that the special characteristics of professional services markets make comoetitiveJy determined prices undesirahle. The diffculties in recognizing the availability of such a defense for II agreement to adhere to the ASIM RVG are ilustrated by the issues hat would have to be resolved to determine its vaJidity. A principal lctual issue wouJd be determining the accuracy of ASIM' s claim that ricing levels and output in the medical services marketplace are not . appropriate leveJs. If such nonoptimal performance is proven, one Juld then have to determine whether the results of the conduct in estion would be improvement or worsening of the market. A court ght welJ have to assess the likely result of physicians forming and ;ing upon a subjective consensus judgment, based on cost and other tors, of what pricing relationships would prevail in the market e the market working properJy. This inquiry would be akin to the ulatory determination ofa public utility commission and would ond any inquiry undertaken in prior antitrust cases. Indeed, to mpt to resolve empiricalJy whether competition and consumers Id ultimately be served or harmed by concerted agreement on a ng formula would require an inquiry that courts have long esred in antitrust cases- , to Hset sail on a sea of doubt" seeking Nation..l Sucy of Prof. Eng rs v. United Stutes 435 UB. 679, 688, 692 (1978) !!. g.,

ADVISORY OPINION

to decide "how much restraint of competition is ill the public interest and how much is not " with the court trying to assess the reasonableness of the prices charged. Also, even if it were demonstrated that the market changes ASIM proposes would in fact produce prices and output at a more optimal level in the immediate short term, they could over time produce unreasonable prices and output, with it heing virtually impossible to police the ongoing effects of such concerted use of ASIM's pricing formula.

Even if a defense by ASIM premised on the appropriateness of agreed-upon changes of industry pricing structures and output levels were legally cognizable as an effciency-enhancing device;1t is doubtful that ASIM could successfully establish, on the facts, that market performance wouJd improve through its proposed conduct to a doser approximation of optimal market pricing. For example, ASIM' proposal may drive up those prices that are now dose to or at a competitive Jevel, while Jeaving largely undisturbed prices for procedural services that may he reimbursed excessively. It is possible that market forces may be permitting above-optimal prices for procedural services, while keeping the prices of cognitive services at approximately optimal levels.3D If so, ASIM' s efforts could raise cognitive service prices above competitive levels. Thus, if it enhanced reimbursement for cognitive services, concerted adherence to ASIM' proposed RVG could distort the market to a point even further from optimal competitive performance than now exists. There is certainly no assurance that the price of procedural services wil be reduced by the ASIM RVG in the long run. ASIM' s efforts to reduce the reimbursement disparity between proceduraJ and cognitive services have reportedly met with concern from representatives of some internaJ medicine subspeciaJty groups whose members engage more heavily in proceduraJ services. These groups reportedly do not object to increasing reimbursement for cognitive services, but question a decrease in reimbursement for proceduraJ services." It i. very possihle that, once consensus on the RVG is reached, use in th, market ofthe relative vaJues accorded different services would resuJ in increases in reimbursement for cognitive services with Jittle or n decrease in reimbursement for proceduraJ services. Moreover , 1 reach consensus among physician representatives with divergent i

2" United States u. Addyston PijJ Sled Co. 85 F. 271, 283-84, 291 (6th Cir. 1898),a.(rd as modified 175 211 (1899).See also MSMS 101 F.T.G. at 293. 29 See Uniled Stotes Tnmton Potteries Co. 273 U.S. 392, 397-98 (1927) 3B Market forcl's that may be restraining the price of cognitive services to a greater degree than procca Aervices eQuJd include better COOi\umer knowledge of what a "fair" price is for mgnitiv€ services;mOTe acti' effective consumer involvement in determining whether and when to Reek primary care services; a gr proportion of out-or.pocket costs for patients ruceiving cognitive services because of the term of inHu coverage; the growth of ambuJatory care centers that have extended hounI; and growing competition frOII phYAician health care providers.See, e. AMA Council on Med. Service Effects of Competiti(Jn in Medicin 1. AM.A. 1864 (Apr. 1983); ASIM Reimbursement for Physician. ' Cognitive and Procedural Services: A Puper 1 (Jan. 1981).

3' See Am. Med, News, OcL 14, 1983, at 14, coJ. 1 ,HO FEDERAL TRADE COMMISSION DECISIONS

terests, compromises might result in identification of new cognitive services, not previously biled for, that procedural service oriented physicians can bil to insurers and patients. In addition, ASIM's implicit prediction that physicians would switch to providing more cognitive instead of procedural services and thereby contain health care costs is speculative. Even if some switching did occur, would it be enough to onset any increase in the price of cognitive services so as to Jower overall health care costs? Would the resulting output be more heneficial to consumers than the current one? These questions demonstrate the risk inherent in permitting price and output mix to be determined or redirected by private agreement among competitors who have a stake in the outcome. Finally, the means ASIM plans to use to develop its RVG highlights some of the dangers. ASIM proposes to derive appropriate relative values through a "consensus" building process-pollng physicians by means of the Delphi technique. A recent study on the pros and cons of various relative value guide alternatives prepared for the Department of Health and Human Services, noted that if the Delphi technique is used, the representational nature of the polled group is critically important.34 Physicians "would have a financial stake in the outcome of the RVS determinations and thereby have a substantial 35 The studyconflct of interest if em panelled to determine an RVS. explains:

Po the extent that various goals of an RVS would be encouraged as part of a group lecision process, e. , (the goal ofj more adequately reward(ingJ cognitive services, the roeess becomes less that of finding a solution and more that of achieving the most olitically acceptable choice. The findings of research on formal, group decision-making 'T problem solving tasks (showing the potential effcacy of such efforts) are unlikely be valid for group choice tasks in which participants have a stake in the outcome d no objectively correct solution exists. Id. 'r this and the other foregoing reasons it is not at all clear that lcerted use of the ASIM RVG would achieve the cost reductions and leficial public health poJicy results ASIM has projected. )ther possible justifications are also unlikely to provide an ade'.te ground of defense. Widespread adherence to a single RVG could .ide a common benchmark for physician pricing. Arguably, this d facilitate enhanced price competition and comparison shopping ng physicians by consumers and health plans on the basis of the rent conversion factors used by physicians. Some procompetitive fits of this sort couJd conceivably result from standard adherence ;ingle RVG, but it is entirely speculative how substantial those

wpm p. 12.

104 S.Ct. al2948.

o.son Group Decision-Making Me/hoth, in Urban Institute Study. sl.pm /lote 20, at 123. 121.

ADVISORY OPINION 0)1.;:

benefits would he and they would likely hot outweigh the anticompetitive impact of concerted use of the RVG. Although insurers could possibly have benefitted significantly some years ago from such pricing by physicians, most insurers now have or can obtain computer profies on physician fees that provide data on pricing differentials among physicians.

RVGs in some contexts can serve the legitimate, uniJateral business needs of third-party payors, promoting competition and effciency. An RVG adopted for use by an insurer, self-insured employer, health maintenance organization, or the government for its o'Yn use as a third-party payor could well be valuable. Here, when it horizontaJ agreement among physicians to adhere to the ASIM RVG is a realistic possibility, it is also possible that some procompetitive effciency benefits could be achieved from its unilateral use by individual thirdparty payors. It is, however, unclear how substantial such benefits would be. More important, if third-party payors have had a critical need for an RVG, it is not clear why private entrepreneurs, research centers, or the payors themselves would not have already satisfied that need, with whatever physician consultation was necessary, short of medical society promulgation ofthe proposed RVG with its attendant risks. Finally, informational benefits could flow from the availability of the ASIM RVG for unilateral use by physicians in the marketpJace. Such henefits, however, wouJd not be present when physicians conspire to adhere to the RVG, and do not merely use it as an informational tool. Such effciencies would not, therefore, appear to constitute a valid justification for the unreasonable pricing agreement that is a risk of ASIM's proposal.

The Commission concludes, on balance, that any procompetitiV! effciency benefits flowing from ASIM's proposed conduct would no be likely to outweigh the anticompetitive dangers of the agreemen to adhere to ASIM's RVG that is a serious risk of its proposal t develop an RVG raising the relative prices of cognitive services. Alternative Actions to Address the Cognitive/Procedural Disparit There are actions ASIM can take to further its goal of reducing t alleged reimbursement disparity between cognitive and procedu' services that would not appear to raise antitrust problems and tJ may be helpful to public and private third-party payors. To aid thi party payors in developing sound reimbursement programs and teria, ASIM has available a range of actions that do not requirf incurring antitrust risk through development of a comprehen Jo This information is based upon staff intervjew with representatives of large and smalJ insurers aDC partypayoradmin.strators ;n Commission stafr intervews of representatives of insurers genera.JJy indicated a lack of enthuaias" medical sodety developed RVG.

),

u..v FEDERAL TRADE COMMISSION DECISIONS RVG and its dissemination to both third-party payors and all its member physicians. For example, ASIM can seek to persuade thirdparty payors to change their reimbursement methods or amounts without running afoul of the antitrust Jaws so long as there is no coercive conduct engaged in or threatened, nor any price agreement entered into between ASIM and any third-party payor lessening competition among ASIM's members. ASIM can lobby Congress or the Department of Health and Human Services for changes it desires in physician reimbursement. Expressions of opinion on the policy question of reducing the reimbursement disparity between cognitive and procedural services as would be contained in an ASIM "white paper do not constitute a restraint of trade and also fall within the ambit of protected free speech. Finally, ASIM can conduct research and analyses that could be used with other information by the Department of Health and Human Services or other third-party payors in constructing an RVG. ASIM could, for example, study, analyze and report on the time, complexity, or costs of specific services performed by internists without developing a formal RVG mechanism and disseminating it to ASIM's member physicians. Conclusion The Commission has determined that the danger of an anticompetiive agreement in restraint oftrade is suffciently great that it cannot ive approval to ASIM's proposed course of conduct. ASIM can lOugh, legitimately engage in alternative actions to redress the reimlrsement inequities that it perceives. This advisory opinion does not fleet a determination by the Commission that ASIM's proposed nduct would necessarily violate the antitrust laws if undertaken. " does it denigrate ASIM's concerns about the public health and it implications of current third-party payor reimbursement patns. Rather, the Commission has determined only that advance "oval cannot be given for the specific actions ASIM has proposed. s advisory opinion, like all those the Commission issues, is limited he proposed conduct about which advice has been requested. direction of the Commission.

Letter of Request

March 1, 1984

Mr. Muris:

behalf of our client the American Society ofInternal Medicine we hereby request an advisory opinion pursuant to 16 1.1 to 1.4, concerning the development and dissemination of ADVISORY OPINION 521

a relative value guide designed to reduce the disparity in reimbursement between cognitive and proceduraJ physician services. I. Bac kground The American Society ofInternal Medicine is the national association of physicians specializing in internal medicine. ASIM believes that current reimbursement policy provides the wrong incentives for utiizing physician services and that these incentives need to be reevaluated. For example, under present insurance payment systems physicians are encouraged, by the high level of reimbursement, to use costly technoJogical and procedural services-EKGs, X-rays and surgical and diagnostic procedures. At the same time, physicians are discouraged, by the low Jevel of reimbursement, from utilizing more time consuming cognitive services--iagnosing patient health problems, providing preventive education, and evaluating lifestyle effects on health.

ASIM believes that the physician reimbursement system should he revalued to increase the relative value of cognitive services and decrease the relative value ofproceduraJ services, in order to encourage the use of more personal services and discourage the overuse ofprocedural services. It is further believed that an increase in the relative amount at which cognitive services are reimbursed, as compared to procedural services, would encourage physicians to spend more time and effort in personalized aspects of care. The increased value of cognitive services should also provide new incentives for more physicians to choose primary care specialities utilizing relatively large amounts of cognitive services.

II. Activities in Question ASIM wishes to promote the concept of changing the physiciar reimbursement incentives, away from costly technical services an' toward less costly personal care services-the cognitive services. IJ this effort, ASIM wil develop and disseminate its evaluation as t how cognitive services can be valued when compared to procedun services to suppJy an aJternative to the current reimbursement sy tem. ASIM wil also propose relative value guides for listed medic, and surgical services based on factors designed to reduce the discre ancy between cognitive and procedural services. Initially, ASIM proposes to develop relative value guides only f those cognitive and procedural services provided by physicians w specialize in internal medicine. ASIM intends in the future to we with other physician organizations-including the surgical societ to develop relative value guides for all listed medical and surgi services, also based on factors designed to reflect relative differen in the cognitive skils and costs required to provide each service

These relative value guides ("RVG proposal") wil contain no conversion factors or pricing information of any kind and wil in no way constitute a fee schedule but, instead, will merely list medical services against which relative values wil be assigned based on a listed set of relevant factors. As a result, the RVG proposal wil merely describe the relative cost and diffculty of certain cognitive services in relation to other services. In this regard, many third party payors agree with the need to reduce the disparity in payment incentive but point to the unavailabilty of any RVG that accomplishes the desired result. The development of such a relative value guide for internists' services wil necessitate that ASIM consult with various other physician organizations representing the subspecialties of internal medicine (cardiology, gastroenterology, infectious disease, allergy, et aI). Each organization wil be asked to share with ASIM its assessment of the relative time, complexity, training, and overhead costs involved in each service commonly provided by internists in its subspecialty, and the recommended relative value for each based on these factors. ASIM wil then take these recommendations, develop a draft RVG and attempt to build a consensus among the various internal medicine organizations in support of the new RVG as a valid basis for reducing the disparity between cognitive and procedural services. The RVG proposal wil be deveJoped in a "white paper" which wil explain the problems caused by the cognitive-procedural service reimhursement disparity and wil provide written examples, by way of relative value guides, as a method to reduce such disparity. The white paper" wil ilustrate "how to" use the relative value guides ;0 change the reimbursement structure from the current proceduraJ ,ervice basis to a cost of resources basis. The purpose of the "white mper" wil be to pursuade and it wil itself emphasize its voluntary nd advisory nature. It wil contain no explicit or implicit threats of ny kind against physicians, payors or purchasers. Nor wil ASIM 'sue any such threats in connection with its dissemination or otherise. ASIM intends to send the RVG proposal to its members, third party iyors, and preferred provider organizations C'PPOs ) and request at they consider using the RVG proposal as a guide to deveJop a imbursement program consistent with the approach contained in e proposal. ASIM also intends to hold follow up discussions and ,etings with interested payors. ASIM wil further advise each ofits ysician members to evaluate the proposal and wil recommend that vsicians supportive of the concept request a reevaluation of the ltive values of physician services in existing or proposed PPO angements, and to participate in any such reevaJuation. ASIM wil , however, engage in coercive conduct of any kind in this connec, nor wil it serve as common agent for any of its members which