Chiropractic Association’s Collective Negotiation Tactics Strike a Nerve with the Department of Justice

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We are often asked by client physicians if they can collaborate with physicians in other practices to negotiate contracts with insurance companies.  Some physicians believe that there is strength in numbers, and that the larger the number of physicians working together, the greater their chances of achieving favorable rates.  However, it is important to note that in this sort of negotiation, the government requires a certain high level of integration among physicians.  Without this integration, the physicians may face allegations of improper collusion under the Anti-Trust Laws.  The most recent example of this arose in South Dakota, as exemplified in a proposed judgment published a few weeks ago.

The Chiropractic Associates Ltd. of South Dakota (CASD) has approximately 300 members who compromise about 80% of all chiropractic services in South Dakota.  On behalf of its members, CASD contracts with health insurers and other payers.  All CASD members authorized CASD to collectively negotiate rates on their behalf with payers.  Unfortunately for CASD, the Department of Justice (DOJ) filed suit, claiming that CASD and its members have engaged in a combination and conspiracy in unreasonable restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. §1.[1] Violations of 15 U.S.C. §1 constitute a felony and are punishable by a fine of up to $100,000,000 if a corporation, $1,000,000 if a person, and 10 years in prison.

In other words, the DOJ claimed that when CASD coordinated discussions with payers to enable the collective negotiation of higher fees from the payers, that CASD’s actions raised prices for the sale of chiropractic services and decreased the availability of chiropractic services.  Furthermore, the DOJ claims that CASD’s negotiations were not ancillary to any pro-competitive purpose of CASD and were not reasonably necessary to achieve any efficiencies.  Lastly, the DOJ claimed that CASD members did not share any financial risk in providing chiropractic services, did not collaborate to monitor and modify their practice patterns to control costs or ensure quality, and did not integrate their delivery of care to patients.

On April 8, 2013, the DOJ submitted a proposed final judgment, which, if adopted, would prohibit CASD from jointly determining prices for chiropractic services, negotiating insurance contracts on behalf of its members, and communicating with chiropractors or payers about any actual or proposed payer contract.  Furthermore, it would require CASD to terminate its payer contracts, its participating provider agreements with CASD members, and any other contracts relating to payers and CASD members.  Lastly, CASD would be required to certify its compliance with the proposed final judgment on an annual basis for the next 10 years and to submit to a compliance inspection.

After examining the CASD case, it appears that physician groups that are neither clinically nor financially integrated run a serious risk of anti-trust scrutiny for jointly negotiating non-risk contract terms with health insurers.  The lesson learned from these enforcement efforts is that it is prudent to obtain legal advice about the requisite level of integration prior to beginning any type of insurance negotiation.   It is possible to achieve the goals that the CASD providers had in mind, but it is prudent to do so in the context of the law.

[1] United States v. Chiropractic Associates, Ltd. of South Dakota, No. cv-13-4030 (S.D. Apr. 8, 2013).  See also