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FTC Imposes Civil Penalty for Faulty “Messenger Model” Contracting | Foley & Lardner LLP

On September 30, the Federal Trade Commission (FTC) filed a complaint and proposed judgment in US District Court for the District of Columbia against San Juan IPA, Inc. (San Juan) for allegedly operating an unlawful “messenger model” in violation of a prior FTC order. The FTC’s action against San Juan serves as a reminder that the FTC continues to focus on antitrust issues in health care and that provider groups should ensure their contracting practices and collaborations comply with the antitrust laws.

The FTC’s September complaint against San Juan (the 2022 Complaint) originates from a prior complaint (the 2005 Complaint) and consent agreement entered in 2005 between the FTC and San Juan. San Juan is an independent practice association with approximately 450 provider members in the northwestern area around Farmington, New Mexico. The 2005 Complaint alleged that San Juan did not engage in a legal messenger model with its participating physicians. Specifically, the FTC accused San Juan of orchestrating and implementing agreements among its physician members to fix prices and other terms on which they would deal with payors and refusing to deal with such payors except on collectively determined terms. Under a lawful messenger model, the network entity does not negotiate on behalf of its member providers but instead acts as a mere “messenger” that conveys offers and responses between each potential payor and provider. The Department of Justice and FTC warn in their Statements of Antitrust Enforcement Policy in Health Care that providers must exercise caution when using a messenger model so that the messenger is not used as an agent to facilitate unlawful collusive activity.

The FTC and San Juan settled the 2005 Complaint. Under the Decision and Order proposed in the consent agreement and entered by the FTC (the 2005 Order), San Juan was ordered to cease and desist from entering or participating in any agreement: to negotiate on behalf of any physician with any payor; to deal, refuse to deal, or threaten to refuse to deal with any payor; not to deal individually with any payor or only through San Juan; or that included any term, condition, or requirement upon which any physician deals with any payor.

Seventeen years later, the FTC continues to police how independent physician associations (IPA) may use messenger models. The 2022 Complaint alleges that, starting in 2014, San Juan “refused to deal or threatened to refuse to deal with a payor, negotiated or attempted to negotiate price-related terms rather than leave such terms for the payor to negotiate individually with each of San Juan’s members, and engaged in efforts to have its members deal with a payor only through the IPA and encouraged them to do so.” The FTC details alleged instances of San Juan violating the terms of the 2005 Order with payors in 2014 and 2017, including when San Juan allegedly threatened to terminate a payor on behalf of all providers when the payor had not completed negotiations with some providers and tried separately to negotiate a provision that a payor only deal with a physician member through San Juan. The 2022 Complaint alleges that San Juan’s conduct resulted in higher prices for medical services for consumers.

The 2022 Stipulated Final Judgment and Order (the 2022 Order) contains broad relief. Specifically, the 2022 Order imposes a civil penalty for $263,000 against San Juan and requires San Juan to (i) file a report with the FTC detailing whether and how San Juan intends to operate as a messenger with payors in the future and providing specific information about the arrangement; (ii) provide a copy of new payor contracts with a description and supporting documents of how San Juan complied with the 2022 Order during the payor negotiation; (iii) retain copies of all written communications with any payor or third party and all internal memoranda and reports relating to the negotiation of any payor contract for five years and provide copies upon FTC request; (iv) send a copy of the 2022 Order and 2022 Complaint to San Juan members and each payor that executed a contract with San Juan for the provision of physician services since January 1, 2018 and continue to do so for five years; and (v) agree to terminate without penalty or charge a preexisting contract with a payor for the provision of physician services after the payor receives copies of 2022 Order and 2022 Complaint and requests to do so. The 2022 Order also reopens the 2005 Order to modify and extend the termination date to June 30, 2030.

By revisiting a matter that settled over seventeen years ago, the FTC is signaling its continued interest in healthcare provider collaborations. For San Juan, the 2022 Order now subjects it and its members to broad terms that may have long-term consequences for its business and payor contracts. As a result, providers should continue to be diligent in how they form and operate collaborations that may involve actual or potential competitors.

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