Bundled Vendor Services and Possible
Unfair Methods of Competition
Introduction
This brief critique examines the federal unfair methods of competition issues with respect to bundled, or combined, vendor services which might possibly be in violation of certain federal or state laws. The concern of the writer is that such possibility might become a reality thereby offering proponents of a single-payer health system an additional argument therefore. A relatively simple solution to such potential problem is suggested; i.e., a special-purpose audit, selectively made, which would demonstrate compliance with both the spirit and letter of applicable federal and state laws. This critique is limited to general asset self-funded plans where the only claims under scrutiny are hospital-related.
The critique is in these parts:
Problem
Discussion
Solution
Exhibits
A – Definitions
B – Illustration of Possible Infractions
Italicized words are defined in Exhibit A
Problem
When any of the four vendor-provided functions to a self-funded health plan are provided in combination (i.e., bundled there exists the possibility of unfair competition as contemplated by state or federal laws. Potential unfair methods competition exists because of the presence of conflicted interest (disclosed or otherwise) with such combined vendors. Plan Sponsors should be able to rely on vendors that act solely in the best interests of the plan sponsors. When such services are bundled this goal is compromised by structural conflicted interests. Where the four vendors are each freestanding, no conflicted interest is deemed possible.
If a special-purpose audit is made of the activities of the combined vendors, it may well be demonstrated that, as a result of the conflicted-interest of the vendors, an unfair method of competition did, in fact occur. If such is shown to be the case, an FTC investigation might be made at the instigation of: (a) interested parties (regulators, e.g.); (b) aggrieved parties (providers, e.g.) (c) any of the four vendors not involved with, but harmed by, such alleged discrimination and (d) plan sponsors. It is important to note that plan beneficiaries are not usually involved in that the unfair methods of competition under discussion do not typically afflict plan benefits. There are instances where plan beneficiaries may be harmed if a course of treatment or case setting decreases the cost to the MCO while increasing the cost to the beneficiary. It has been seen that a transfer out of network for a dubious evaluation and/or experimental procedure may, in fact, result in the beneficiary exceeding the maximum benefits limitations. Examples of infractions which arise from conflicted interest and which may likely be unfairly competitive are illustrated in Exhibit B, attached.
The infractions alleged to be unfair methods competition which are set forth in Exhibit B may or may not be found by the FTC to be such depending on facts and circumstances. These are the Type B infractions shown in the Definitions-Federal Laws. Such infractions may be corrected by the FTC without civil or criminal penalties to the miscreant(s). However, an act may be a Type B and also a Type A infraction in which event the miscreant(s) may have to face the draconian antitrust penalties (most particularly the treble damage award where the damages are usually the creations of hired economists).
Discussion
Additional topic-related comments are as following:
1. Producers, typically are not miscreant-participants in unfair trade or antitrust infractions (Spitzer-type investigations notwithstanding). However, producers do have a critical role in explaining and disclosing, as hired experts, the structural conflicts of interest that may exist in a bundled environment. Such producers have two options:
· Do not disclose or recommend a special audit and present and or recommend bundled services and rely on their advisory role without outside second opinion.
· Discuss, disclose and document the advice that structural conflicts of interest do exist and thus enable the plan sponsor to make an educated decision.
2. Central to the writer’s thesis is the following assertion:
· With an oligopolistic economic environment such as hospital services…
· Any significant unfair competition infraction…
· That does not have an economic justification…
· Might be deemed a violation of certain federal laws…
· Unless otherwise shown to be pro-competitive by applying the rule of reason test.
3. Miscreant practices are primarily unfair methods of competition or unfair or deceptive practices in nature; they are secondarily (if at all) monopolistic on trade-restraining in nature. Rules of interpretation used with infractions of the Clayton Act will usually be used with unfair methods of competition infractions, however.
4. MGUs do not gain a place in the critique because they are an extension (or alter ego) of the stop-loss carrier.
Solution
The vendors, who are bundled or in combination for plan services, have a choice between the following two options as regards the acquisition of a special-purpose audit:
Facts and circumstances will dictate the more prudent course of action in each instance.
It is the assertion of the writer that, while Exhibit B shows instances where conflicted interests might lead to indefensible unfair methods of competition and/or unfair/deceptive practices which would probably fail the rule of reason test, the majority of such vendor combinations are likely above reproach as respects such activities.
Exhibit A
Definitions
Beneficiaries mean all covered persons.
Bundling and Combining are essentially synonymous; such may occur between corporate entities or divisions or by tying arrangements.
Chargemaster means the hospital’s posted sticker price for its charges prior to discounts.
Clayton Act as amended by the Robinson-Patman Act, in brief, is part of the Federal Antitrust law and says, in effect:
Combination means any of the 11 ways by which the four vendors may be connected or bundled together taking them either two, three or four at a time; i.e.:
|
|
|
Conflicted Interest exists where the adjudicating-vendor has a financial interest (direct or indirect) in the outcome.
Federal Law includes the following:
A. Antitrust Laws
B. Unfair Competition Law
Any violation of (A) is automatically a violation of (B); any violation of (B) may or may not be a violation of (A).
FTC means Federal Trade Commission which is the federal agency designated to administer the relevant laws.
Functions mean the vendor services whether provided by (a) affiliates or subsidiaries, (b) vendor divisions or (c) contractual arrangements.
MGU means managing general underwriter.
Oligopolistic means an economic environment with only a few producers so that some, but not all, of the evils of monopoly are found.
Plan is limited to a self-funded plan, whether ERISA-exempt or not, and funded by the general assets of the plan sponsor.
Plan Sponsor means the employer; (i.e., excludes MEWAs and similar).
Possibility means any such alleged acts of unfair competition must be (a) shown to be such, (i.e., rule of reason) and not (b) assumed to be such (i.e., per se rule).
Producers mean agents, brokers, consultants and risk managers.
Providers mean hospitals only; this critique excludes physicians which should be considered using different standards.
Regulators mean the Department of Justice or the Federal Trade
Commission or comparable state offices.
Special-purpose Audits means any audit which specifically targets price and service discrimination as contemplated by applicable federal laws. Other plan-related audits (IRS/DOL Form 5500 audit; employer or TPA internal audit; stop-loss audit; regulatory audit; e.g.) have no standing. Focus of the special-purpose audit must be on unfair method of competition, unfair/deceptive practices or restraint of trade issues. The plan sponsor is the party most likely to engage a special-purpose auditor being motivated by both financial and fiduciary concerns.
State law, comparable to the federal law as regards to unfair methods of competition but is not discussed in this brief critique.
Unfair Method of Competition means an act among persons, corporation or partnerships which involves interstate commerce, as determined by the FTC, the courts and common sense to be such. Unfair method of Competition includes any acts which are either unfair or deceptive.
Vendors mean any of the following entities (each of which is publicly-regulated):
Exhibit B
Illustration of Possible Infractions
We consider four employers:
The only difference is that for Employer A, the vendors are totally independent, while for Employer B-D, the vendors are tied together either by ownership or by contract in some significant way.
Analysis of Cost Distributions
|
Hospital Charge Gross Charge Discount Balance Billing Net Charge Financed as
Follows Employer Participant Stop-loss Carrier Total |
Plan A $125,000 25,000 0___ $100,000 $75,000 2,000 23,000 $100,000 |
Plan B $150,000 0 0___ $150,000 $75,000 2,000 73,000 $150,000 |
Plan C $125,000 25,000 0___ $100,000 $28,000 2,000 0___ $100,000 |
Plan D $100,000 20,000 20,000_ $100,000 $75,000 2,000 3,000_ $80,000 |
Plan D $175,000 25,000 0___ $150,000 $100,000 2,000 48,000_ $150,000 |
Notes
The Net Charge is the legal liability of the covered person as contemplated by IRC §105.
Plan Differences
A-All four vendors are independent.
B-MCO, UR and TPA are combined.
C-Stop-loss and TPA are combined.
D-MCO and UR are combined.
E-All four vendors are combined.
Explanation of Why Cost Distribution Varies
Plan A
With all four vendors being independent, this is the correct distribution of costs.
Plan B
With the MCO, UR and TPA acting in concert, ABC agrees with the MCO and the UR that the case is best provided in another hospital. Therefore, the covered person is sent to a non-network hospital another with the consent of such person being obtained in some manner. The application of maximums (annual or lifetime) would cause the distribution of the $150,000 between Employer Participant and carrier to change.
Plan C
The stop-loss carrier and the TPA claims game so that the paid claims straddle the plan year so that the $98,000 benefit is paid in such a manner that the employer has to meet the two specifics and not the one specific. Depending on numerous factors, this activity may or may not gain the McCarran-Ferguson safe harbor. Even if such safe harbor is available, there is the likelihood that the state’s unfair trade practice laws would apply.
Plan D
The UR, MCO and stop-loss carrier are connected so that ABC will necessarily acquiesce to the accepted charges by the reasonable and customary provisions of the plan which will be $100,000 and not $125,000. ABC is presumed to insist on balance-billing to the covered person. Such person has no recourse but to accept such balance billing because of the terms of the consent to treatment agreement executed by the covered person.
Plan E
ABC elects to bill the hospital-administered infusion-type Rx at Rx AWP where such Rx administration could have been home administered with equal care and safety. The additional hospital costs were $50,000 in amount, of which only $25,000 was allowed by the stop-loss carrier.
Commentary to Exhibit B
It is the assertion of the writer that the infractions above-sited have the potential for being FTC-determined violations of the “unfair methods of competition and for unfair acts and deceptive practices” provisions of the FTCAct (15USC ch.2§45) depending on the facts and circumstances surrounding such activities. It is also the assertion of the writer that such activities might also be in restraint of trade or monopolistic but leaves that issue for others to ponder.
Of interest in that analysis are the following comments: