Advisory opinion letter to Mr. Horoschak: professional peer review of physicians’ fees

1132 FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 117 F.T.C.
August 24, 1992
Dear Mr. Horoschak:

This will respond to your request for additional information regarding the petition filed by the American Medical Association (AMA) and the Chicago Medical Society (CMS) for a Federal Trade Commission advisory opinion concerning professional peer review of physicians’ fees. As we stated in our petition, we believe that a more than adequate basis has long existed to grant the AMA-CMS petition in full given the procedural safeguards contained in our proposal. Nonetheless, this letter will address each of the nine issues raised in your letter. In addition, enclosed are documents reflecting examples of fee peer review conducted by CMS, the Los Angeles County Medical] Association (LACMA) and the Orange County (Cal.) Medical Association (OCMA). These societies were selected because they have active fee peer review committees that employ a variety of procedures, and a review of their documents should answer the questions contained in your letter. They confirm both the broad interest in, and the unnecessary obstacles to, effective peer review of fees. The documents are described briefly below. We ask the Commission to act favorably on the petition to give the profession the authority it needs to self-regulate in this important area. It has been nearly seven years since the AMA first approached the Commission on this issue. At that time the Commission’s staff was not receptive to any self-regulatory endeavor involving fees, and little progress was made. We appreciate the apparent seriousness with which the Commission is reviewing the current petition. We are prepared to meet at your earliest convenience, hopefully within a month, to discuss the issues raised by our request. Sample Fee Peer Review Documents 1. CMS. The enclosed CMS documents contain: (1) Twenty-four fee mediation complaints and related records from the latter part of 1991 and the first part of 1992. Physician and patient identifiers have been removed.

AMERICAN MEDICAL ASSOCIATION 1133 1091 Advisory Opinion (2) A summary of these particular files entitled “Summary of the 24 Most Recent Cases To Be Closed in the Fee Mediation Committee.” (3) Six forms or form letters used by the CMS in its fee mediation process.

(4) A summary of the number of CMS fee mediation cases during the last five years.

(5) A summary of 16 complaints relating to one particular doctor covering the past nine years.

A general description of the CMS peer review structure is contained in the April 30, 1992, AMA-CMS petition at page 8. A review of the twenty-four fee mediation complaints and related records provides a more complete picture of the CMS fee peer review process. The CMS Fee Mediation Committee receives complaints or inquiries from patients, insurance companies, and physicians. The CMS receives a fee from insurance companies to cover administrative costs. Complaints from patients are handled free of charge. Based on information submitted by the patient (or insurance company) and the physician, as well as their own knowledge and experience, the members of the Fee Mediation Committee provide an advisory opinion whether the fee in question is within, above, or significantly above the range of usual and customary. The CMS makes no effort to compel a physician to set fees within any range; it merely provides an opinion as to the fee the physician has decided to charge. Nevertheless, if the Fee Mediation Committee determines that the fee is above or significantly above the range of usual and customary, it first notifies the physician to provide an opportunity for an appeal to the CMS Physician Review Committee before notice of the decision is sent to the patient.

Until January of this year, physicians were not compelled to participate in the fee mediation process, even if they were CHS members. The CMS decided that the credibility and effectiveness of its peer review process would be improved through its ability to compel members to participate. It is too early to determine the effect of this change in policy.

The effectiveness of the CMS fee peer review system continues to be adversely affected by the inability to discipline physicians for fee gouging. The decisions of the Fee Mediation Committee are advisory only; the CMS does not discipline physicians in any manner for charging excessive fees, even in the most egregious circum Advisory Opinion 117 F.T.C.

stances. Included in the enclosed CMS documents is a summary of sixteen complaints filed against one physician over a period of nine years. Of the fourteen complaints of which records still exist, the CMS found the physician’s fee to be above the range of usual and customary in five cases, and significantly above the range of usual and customary in another five cases. The CMS committee specifically directed this physician to discuss the level of her fees with patients in advance, yet the complaints continued. It is therefore likely that this physician did not receive informed consent for the excessive fees. This case history provides an example of physician behavior that would merit disciplinary action. The physician was found to have repeatedly and regularly charged fees above (and significantly above) the range of usual and customary fees. It is evident that a pattern of egregious conduct of this kind cannot be stopped simply by a series of mediations.

2. LACMA. The enclosed LACMA documents contain a representative sample of twelve completed case files of the LACMA Committee on Insurance Review (CIR). Unlike CMS, LACMA does not mediate complaints from patients regarding physician fees. Instead, LACMA provides advisory opinions on the degree of liability of the insurance company to the patient for the physician services rendered in each case. The review is conducted following the submission of a claim by the insurance company to LACMA, including a small fee to offset administrative costs. LACMA refers the claim to one or more physician reviewers, who make a recommendation to the CIR on such questions as whether the physician’s fee was above the prevailing fee for the area (Case 2), whether a procedure was “cosmetic” (Case 1), or whether diagnostic tests (Case 3) or an assistant surgeon (Case 6) were medically necessary. The CIR usually, but not always (Case 5), concurs with the recommendation of the physician reviewers. The opinion of the CIR is advisory only, but can be appealed to LACMA for re-review or to the California Medical Association. The CIR advisory opinion is specifically limited to the question of the amount of the physician’s fee for which the insurance company bears liability; LACMA does not express an opinion as to the amount the physician should bill the patient. In other words, LACMA does not mediate disputes between physicians and patients. It focuses solely on the amount of the physician’s bill to be paid by the insurance company. LACMA’s reluctance to take

AMERICAN MEDICAL ASSOCIATION 1135 1091 Advisory Opinion direct action with regard to the level of physicians’ fees reflects a fear of litigation exposure.

3. OCMA. The OCMA Public Services Committee (PSC) receives requests for fee review from insurance companies, physicians and patients. Requests from insurance companies are subject to a small administrative fee. OCMA member physicians may submit one request per year. Requests from patients constitute the largest volume of claims, and are handled free of charge as a public service. Requests for review, together with additional necessary documentation, are sent to a physician member of the PSC who practices the same specialty as the physician who provided the services under review. The physician reviewer then presents the case to the full PSC, which must decide whether the services provided were medically necessary and/or whether the fee was reasonable. Questions of medical necessity may be referred to the OCMA Medical Review and Ethics Committee. The reasonableness of the fee is determined by comparison to the results of an ad hoc survey of at least five members of the same specialty in the county or, if necessary, larger geographic area. The results of the survey, as well as all of the review file, remain confidential. If the PSC finds that the care provided was not medically necessary or that the fee was unreasonable, then the physician is given two weeks to request an appeal before the insurance company or patient is notified. Insurance companies and patients may also appeal findings in the physician’s favor. Clarification Requested by Commission Staff Following is a discussion of the specific issues raised in your letter. A review of the CMS, LACMA and OCMA documents shows the variety of procedures currently employed in fee peer review. Some degree of variety is likely to survive the Commission’s advisory opinion in this matter, whatever form it takes. Nevertheless, we will attempt to respond to your inquiry as directly and completely as possible.

1. While the number of cases varies from year to year, large county medical societies that still engage in fee peer review (many have stopped) process a substantial volume of complaints regarding physician fees. For example, the CMS Fee Mediation Committee

Advisory Opinion 117 F.T.C.

handled 73 cases in 1987, 92 in 1988, 71 in 1989, 98 in 1990, and 133 in 1991. The Public Service Committee of OCMA receives approximately 300 fee complaints each year. These numbers might even be higher if medical societies felt free to publicize fee peer review services.

These data indicate that a significant number of fee disputes arise between physicians and patients. The ability of the profession to resolve these disputes in a satisfactory manner contributes to patient’s confidence in the fairness of the health care system. Of course, not all complaints result in a finding that the physician has charged an excessive fee. To the extent that fee peer review identifies excessive fees and causes physicians to accept a lower fee, there are obvious cost savings for patients and payers. Clearly, these cost savings would be greater if fee peer review were more widely and aggressively practiced. Today, relatively few medical societies engage in fee peer review, and even fewer feel comfortable in compelling members to participate. The very existence of a more vigorous fee peer review system may deter physicians from charging excessive fees. But the cost savings attributable to fee peer review are extremely difficult, if not impossible, to quantify. We are aware of no empirical data which reflect the contribution of fee gouging to the overall level of health care costs.

Cost savings, though beneficial to the public, are not the primary reason that the profession performs fee peer review. The principal focus of fee peer review is mediation. It is not designed to regulate physician fees, but to identify particular instances in which the physician has charged an excessive fee under the circumstances. Charging an excessive fee represents a serious breach of the trust patients have in their physicians. Patients must be able to rely on the fact that the profession will not permit physicians to exploit, for personal financial gain, a relationship in which patients trust their health and lives to physicians.

2. Issue 2 contains several questions, many of which use the word “usually”. A review of the enclosed documents indicates that fee peer review arises in a variety of contexts and for a variety of purposes. It may not be possible to describe a “usual” scenario. Fee review committees often are asked to determine whether a particular fee charged for a particular service was reasonable, or in the range of usual and customary (or prevailing), by patients, insurance companies, or even the physician involved. A patient may wish to know

AMERICAN MEDICAL ASSOCIATION 1137 1091 Advisory Opinion whether the amount she was balance billed was appropriate; an insurance company may wish to know whether the amount it has paid for a service meets its obligation to its insured (the patient); and a physician may seek assistance in resolving a fee dispute with a patient. In many cases the medical necessity of the service performed, as well as its cost, will be at issue.

Our best information suggests that physicians and patients often do not agree on fees in advance, at least for non-elective procedures. This may occur for several reasons. In many cases, it is difficult to predict in advance the precise nature or complexity of services required. For example, physician reimbursement for Medicare patients under the RBRVS system often cannot be known a priori; for many procedures, the appropriate CPT code to be used (and therefore the appropriate level of reimbursement) depends on variables that can only be known after the service has been provided. A possible range of fees could be given to the patient in advance, but a broad range would still leave room for dispute as to the appropriate fee. The very nature of the physician-patient relationship may explain why a prior agreement on fees does not occur with more frequency. Patients may be reluctant to select physicians in the same manner as a television or automobile: that is, as an essentially fungible commodity in which price is the critical decision making element. Finally, patients with insurance coverage may be concerned less with the physician’s fee than with the amount of the physician’s fee not covered by the insurance company. Indeed, many of the complaints received by fee peer review committees are from patients facing a large physician bill after the insurance company has paid its share, requesting advice whether the physician’s fee was excessive or whether the insurance company failed to meet its obligations (or both). The patient often cares little what the answer is, as Jong as the final bill is reduced.

3. The experience of current fee peer review committees suggests that physicians who agree to participate in the mediation process generally accept the decision, or advisory opinion, of their peers, and reduce fees found to be excessive. Often, the fee dispute is resolved without formal action by the committee. Simply by filing a complaint, the patient may initiate a dialogue with the physician that will resolve the dispute. This process fails completely if physicians refuse to participate. Medical societies should have the authority to require their members to participate in the mediation process. Absent

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unusual circumstances (discussed in issue 5 below), the physician will not be disciplined for refusing to reduce an excessive fee. Nevertheless, medical societies must be able to require, as a condition of membership, that physicians make a good faith effort to participate in the peer review process. If they cannot, the process lacks credibility and effectiveness. The determination of whether a fee was reasonable under the circumstances requires the exercise of professional judgment by members of the peer review committee. The committee members may rely on their own knowledge and experience, or they may seek input from other physicians, perhaps in the form of an ad hoc survey. The AMA Council on Ethical and Judicial Affairs lists the following factors as relevant in determining the reasonableness of a fee: “A. the difficulty and/or uniqueness of the services performed and the time, skill and experience required; B. the fee customarily charged in the locality for similar physician services; C. the amount of the charges involved; D. the quality of performance; E. the nature and length of the professional relationship with the patient; and F. the experience, reputation and ability of the physician in performing the kind of services involved.” As the enclosed peer review files demonstrate, committees often review substantial documentation in making their determinations.

Notice of the committee’s decision is usually given first to the physician in cases in which the physician is found to have charged an excessive fee. This provides the physician an opportunity to request an appeal of the decision, either from a second committee of the local medical society or from the state medical society. Notice is then provided to the complainant. Sample correspondence of this type is contained in the CMS, LACMA and OCMA documents. 4. Mediation or grievance committees usually provide at least one level of appeal for parties dissatisfied with the decision of the committee. Because the decisions of these committees are not enforced, a further appeal would have little value. In contrast, disciplinary actions taken by local medical societies may be appealed to the state medical society and then to the AMA’s Council on Ethical and Judicial Affairs (CEJA), which is the ultimate appellate body for organized medicine.

5. Fee gouging can be defined as conduct by a physician which demonstrates flagrant disregard for the physician’s fiduciary duty to the patient. Following are examples of conduct that would meet this

AMERICAN MEDICAL ASSOCIATION 1139 1091 Advisory Opinion definition. Using the CEJA factors listed in the response to issue 3 above, grievance or disciplinary committees should be able to identify (probably rare) cases in which the physician’s fee exceeds the range of usual and customary, or reasonable, fees by a substantial amount. For example, it would be difficult to justify a fee two or three times the usual and customary fee for the procedure. (Of course, even a fee this high would not constitute actionable fee gouging if a fully informed and competent patient agreed to the fee in advance.) Other examples of fee gouging would include outright fraud, the exercise of undue influence over a patient, performing unnecessary services, and deliberately “unbundling” services for billing purposes to inflate the fee. The circumstances under which this conduct arose would be extremely relevant, as would evidence of repeated similar behavior by the physician under review. The analysis of new procedures or treatments will be handled in the manner described in the preceding paragraph and in the response to Issue 3. The committee will gather information relevant to the CEJA factors and determine whether the fee charged was reasonable under the circumstances. It is increasingly rare to find only one physician in a relevant geographic area performing any particular procedure, even a new one. Nevertheless, committees can, and do, survey physicians from other geographic areas to acquire information about emerging technologies when there are insufficient local sources of information to permit the committee to make an appropriate decision about a complaint. Committees will limit their inquiry to the reasonableness of the fee charged for the procedure performed, and will not attempt to ascertain whether a different, less expensive, procedure may have been appropriate. Note, however, that the inquiry over the fee charged may involve a discussion of the medical necessity of the procedure itself. 6. All documents generated in the peer review process will remain confidential. There will be no public disclosure of fees considered to be excessive, nor will the medical society publish information concerning reasonable fee levels. The review committees will simply decide the complaints submitted to them, and notify the parties involved of the result of the process. Members of the medical society who are not members of the committee will have no access to fee review information. Medical societies may publish a statement that a Physician has been disciplined for fee gouging in appropriate

Advisory Opinion 117 F.T.C.

cases, just as it would when disciplining a member for any ethical violation.

7. Medical societies would have the option of pursuing a fee mediation process even if there were a prior agreement between the patient and physician as to the fee to be charged. Such a process would enable the society to determine whether the patient knowingly consented to the fee, including whether the patient knew the fee to be substantially above the range of usual and customary. However, no disciplinary action would be taken against a physician for fee gouging if the patient were competent and gave informed consent to the fee.

CEJA Current Opinion 8.08 (Informed Consent) provides that “the patient’s right of self-decision can be effectively exercised only if the patient possesses enough information to enable an intelligent choice.” In the context of fees, informed consent would require, at a minimum, disclosure that the fee to be charged is above the range of usual and customary, and the factors which justify the fee (such as unusual complexity of the procedure). A patient who is incompetent or misled about any material information cannot provide informed consent to the fee.

8. A minority of members of local medical societies refuse to participate in fee mediation processes. The ability to discipline members in this situation would increase the effectiveness of mediation, and would add to the public’s confidence that the profession is committed to acting in the public interest. Patients have no reasonable alternative when told by a medical society that it cannot process a complaint because the physician refuses to participate. Not only is this result frustrating, but it also erodes the patient’s trust of physicians. The inability of medical societies to discipline physicians for egregious conduct prevents the profession from taking corrective action against its most unethical members. After all, a physician who is willing to defraud, mislead, or fleece patients, often repeatedly, is unlikely to agree to participate in mediation and voluntarily disgorge the proceeds. Fortunately, behavior of this type rarely occurs, but when it does the profession must be able to respond decisively. For example, the patients of the CMS physician referred to at pages 2-3 of whom sixteen complaints were filed in nine years would certainly have benefitted had CMS been able to take stronger measures. Cases of this kind take on a high profile, and thus a greater importance than

AMERICAN MEDICAL ASSOCIATION 1141 1091 Advisory Opinion their numbers would suggest. Medicine must be able to publicly announce to patients and physicians alike that fee gougers will not be welcome.

9. Enclosed is a copy of the AMA’s Model Guidebook for Medical Society Grievance and Disciplinary Committees. I hope that this letter and the enclosed documents add to your understanding of our request for an advisory opinion, as well as the reasons which underlie it. Please call me if you would like any further information. Thank you for your careful consideration of this

matter.
Sincerely,
Michael L. Ile