The American Academy of Orthopaedic Surgeons; Prohibited Trade Practices and Affirmative Corrective Actions

FEDERAL TRADE COMMISSION

[Dkt. C-2856]

The American Academy of Orthopaedic Surgeons; Prohibited Trade

Practices and Affirmative Corrective Actions

AGENCY: Federal Trade Commission.

ACTION: Set Aside Order.

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SUMMARY: This order reopens a 1976 consent order, that was modified in

1985,--which prohibited the respondent from initiating, publishing or

circulating relative value scales for medical or surgical procedures--

and sets aside the modified consent order based on changed conditions

of facts, such as, the decision by Congress to base reimbursement for

medical services provided under Medicare on resource based relative

value scales.

DATES: Consent order issued December 14, 1976. Set aside order issued

May 4, 1995.

FOR FURTHER INFORMATION CONTACT:

Roberta Baruch, FTC/S-2115, Washington, D.C. 20580. (202) 326-2861.

SUPPLEMENTARY INFORMATION: In the Matter of The American Academy of

Orthopaedic Surgeons. The prohibited trade practices and/or corrective

actions are removed as indicated.

[[Page 30543]] (Sec. 6, 38 Stat. 721; 15 U.S.C. 46. Interprets or

applies sec. 5, 38 Stat. 719, as amended; 15 U.S.C. 45)

In the matter of: The American Academy of Orthopaedic Surgeons,

a corporation.

Order Setting Aside Order

On November 23, 1994, the American Academy of Orthopaedic Surgeons

(``AAOS'') filed a Petition To Reopen and Rescind or Modify Consent

Order (``Petition'') in Docket C-2856 (``Order''), pursuant to Section

5(b) of the Federal Trade Commission Act, 15 U.S.C. Sec. 45(b), and

Section 2.51 of the Commission's Rules of Practice, 16 C.F.R.

Sec. 2.51. In its Petition, AAOS requests that the Commission reopen

the Order and rescind it or, in the alternative, modify provisions of

the Order that restrict the ability of AAOS to develop and distribute a

relative value scale (``RVS''), as defined in the Order.

AAOS asserts in its Petition that changed conditions of law or fact

and the public interest warrant reopening the Order and rescinding or

modifying it. A redacted version of the Petition was placed on the

public record for thirty days; no comments were received. For the

reasons described below, the Commission has determined that the Order

should be reopened and set aside.

I. Background

The Commission's complaint alleged, among other things, that the

preparation and circulation by AAOS of comparative numerical values for

services performed by orthopaedic surgeons had the effect of

establishing or maintaining fees charged by orthopaedic surgeons for

their services, in violation of Section 5 of the FTC Act. The complaint

also alleged that the numerical values were convertible into a monetary

fee by application of a dollar conversion factor. The Order, in

relevant part, requires AAOS to cease initiating, publishing or

circulating, in whole or in part, any relative value scale, as

defined.\1\ The American Academy of Orthopaedic Surgeons, 88 F.T.C. 968

(1976).

\1\ ``Relative value scale'' is defined in the Order as any list

or compilation of surgical or medical procedures that states

comparative numerical values for those procedures or services. Order

Paragraph I.A.

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The Order does not prevent AAOS from exercising rights under the

First Amendment to the Constitution to petition state or federal

government agencies and to participate in federal or state

administrative or judicial proceedings or from providing information or

views to third party payers concerning any issue, including

reimbursement. The American Academy of Orthopaedic Surgeons, 105 F.T.C.

248 (1985) (modifying Order).

II. The Petition

AAOS requests that the Commission reopen the Order and rescind or

modify it to permit the AAOS to provide information concerning Medicare

resource based relative value scales (``RBRVS'') to third party payers,

managed care organizations, other physician organizations and others in

the private sector, including its members. AAOS states that the

information will facilitate the development and adoption of RBRVS that

accurately reflect the values of orthopaedic procedures, resulting in

the efficient allocation of resources. AAOS already has provided

information to government entities involved in medical reimbursement

issues; it wants to provide the information to nongovernment entities

and to its members.

In particular, AAOS wants to be able to circulate the Abt Restudy,

a physician work value scale commissioned by AAOS.\2\ AAOS also wants

to be able to sponsor and disseminate future research projects that

analyze other components of the Medicare RBRVS.

\2\ Noether & Sheehy, The Abt Restudy of Physician Work Values

for Orthopaedic Surgery (Sept. 23, 1992), attached as Exhibit 8 to

the AAOS Petition (hereafter ``Abt Restudy'').

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AAOS cites as changed conditions the adoption and implementation by

the federal government of resource based relative value scales for

purposes of physician reimbursement under Medicare. In 1986, Congress

created the Physician Payment Review Commission (``PPRC'') to make

recommendations regarding physician reimbursement under Medicare. At

that time, physician reimbursement was determined by the ``customary,

prevailing and reasonable'' (``CPR'') method, which relied on

historical fees. The PPRC concluded that the CPR method increased costs

under Medicare and recommended adopting instead a relative value scale

based on resource costs.\3\ In 1989, Congress enacted the Omnibus

Budget Reconciliation Act of 1989, which, among other things, requires

use of resource based relative value scales for purposes of physician

reimbursement under Medicare.\4\ The Act provides for consultations

with ``organizations representing physicians'' to develop relative

values for medical services.\5\

\3\ See Physician Payment Review Commission, Annual Report to

Congress (1988); Physician Payment Review Commission, Medicare

Physician Payment: An Agenda for Reform (1987).

\4\ Section 6102 of the Omnibus Budget Reconciliation Act of

1989, 42 U.S.C. Sec. 1395w-4. Medicare RBRVS bases physician

reimbursement on (1) a relative value unit for the medical service,

which is based on physician work, practice costs and professional

liability costs; (2) a geographic adjustment factor; and (3) a

conversion factor. Components of the RBRVS are to be updated

periodically. Payment is based on the lesser of the RBRVS amount and

the physician's actual fee. Petition at 12-13.

\5\ 42 U.S.C. Sec. 1395w-4(c)(2)(B)(iii).

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According to AAOS, the Abt Restudy was commissioned to respond to

perceived shortcomings in Medicare RBRVS for orthopaedic services. See

Petition at 13-15; Abt Restudy at 1. Providing the Abt Restudy to

government entities is consistent with the proviso to the Order,\6\

which permits AAOS to petition government agencies and legislatures.

AAOS would like to distribute the Abt Restudy to third party payers and

other nongovernment entities, such as other medical societies, and to

individual members of AAOS, at least for the limited purpose of

preparing AAOS representatives to lobby state government bodies

regarding physician reimbursement practices. AAOS also would like to

sponsor future research projects analyzing other components of Medicare

RBRVS. According to AAOS, to the extent that it is precluded by the

Order from providing information concerning reimbursement levels, the

efficiency of RBRVS-based systems is lessened, ``payers who would

benefit from more efficient payment mechanisms are hindered in their

ability to compete, and physicians and patients are given distorted

incentives, and market signals for production and consumption of

resources.'' \7\

\6\ 105 F.T.C. at 249; see letter from Roberta S. Baruch, Deputy

Assistant Director, Bureau of Competition, FTC, to Richard N.

Peterson, General Counsel, American Academy of Orthopaedic Surgeons

(May 12, 1993) (``staff advisory opinion''), Petition Exhibit 16.

\7\ Petition at 25-26.

III. Standard for Reopening a Final Order of the Commission

Section 5(b) of the Federal Trade Commission Act, 15 U.S.C.

Sec. 45(b), provides that the Commission shall reopen an order to

consider whether it should be modified if the respondent ``makes a

satisfactory showing that changed conditions of law or fact'' so

required. A satisfactory showing sufficient to require reopening is

made when a request to reopen identifies significant changes in

circumstances and shows that the changes eliminate the need for the

order or make continued application of it inequitable or harmful to

competition. S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979)

(significant changes or changes causing [[Page 30544]] unfair

disadvantage); Louisiana-Pacific Corp., Docket No. C-2956, Letter to

John C. Hart (June 5, 1986), at 4 (unpublished) (``Hart Letter'').\8\

\8\ See also United States v. Louisiana-Pacific Corp., 967 F.2d

1372, 1376-77 (9th Cir. 1992) (``A decision to reopen does not

necessarily entail a decision to modify the order. Reopening may

occur even where the petition itself does not plead facts requiring

modification.'').

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Section 5(b) also provides that the Commission may modify an order

when, although changed circumstances would not require reopening, the

Commission determines that the public interest so requires. Respondents

are therefore invited in petitions to reopen to show how the public

interest warrants the requested modification. Hart Letter at 5; 15

C.F.R. Sec. 2.51. In such a case, the respondent must demonstrate as a

threshold matter some affirmative need to modify the order. Damon

Corp., Docket No. C-2916, Letter to Joel E. Hoffman, Esq. (March 29,

1983), at 2 [1979-1983 Transfer Binder] Trade Reg. Rep. (CCH) para.

22,207 (``Damon Letter''). For example, it may be in the public

interest to modify an order ``to relieve any impediment to effective

competition that may result from the order.'' Damon Corp., 101 F.T.C.

689, 692 (1983). Once such a showing of need is made, the Commission

will balance the reasons favoring the requested modification against

any reasons not to make the modification. Damon Letter at 2. The

Commission also will consider whether the particular modification

sought is appropriate to remedy the identified harm. Damon Letter at 4.

The language of Section 5(b) plainly anticipates that the burden is

on the petitioner to make a ``satisfactory showing'' of changed

conditions to obtain reopening of the order. The legislative history

also makes clear that the petitioner has the burden of showing, other

than by conclusory statements, why an order should be modified. The

Commission ``may properly decline to reopen an order if a request is

merely conclusory or otherwise fails to set forth specific facts

demonstrating in detail the nature of the changed conditions and the

reasons why these changed conditions require the requested modification

of the order.'' S. Rep. No. 96-500, 96th Cong., 1st Sess. 9-10 (1979);

see also Rule 2.51(b) (requiring affidavits in support of petitions to

reopen and modify). If the Commission determines that the petitioner

has made the necessary showing, the Commission must reopen the order to

consider whether modification is required and, if so, the nature and

extent of the modification. The Commission is not required to reopen

the order, however, if the petitioner fails to meet its burden of

making the satisfactory showing required by the statute. The

petitioner's burden is not a light one in view of the public interest

in response and the finality of Commission orders. See Federated

Department Stores, Inc. v. Moitie, 425 U.S. 394 (1981) (strong public

interest considerations support repose and finality).

IV. The Order Should Be Reopened

AAOS has shown changed conditions of fact that require the Order to

be reopened to consider modification.\9\ The decision by Congress to

base reimbursement for medical services provided under Medicare on

resource based relative value scales, with the participation of

physicians and medical professional societies in identifying and

modifying RBRVS for Medicare purposes, is a changed condition that

makes application of the order inequitable.

\9\ AAOS also cited changed conditions of law and the public

interest. Because the Order is set aside on the ground of changed

conditions of fact, the Commission need not and does not consider

the additional alleged grounds.

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The Order bars AAOS from ``directly or indirectly initiating,

originating, developing, publishing, or circulating, the whole or any

part of any proposed or existing relatives value scales,'' while the

Omnibus Budget Reconciliation Act of 1989, among other things, requires

use of resource based relative value scales for purposes of physician

reimbursement under Medicare and contemplates professional

participation in the development of RBRVS. The Act requires the

Department of Health and Human Services (``HHS'') to consult with

physician organizations in developing and modifying Medicare RBRVS. The

Order addressed conduct that allegedly contributed to the unlawful

maintenance of fees by orthopaedic surgeons. It now appears that the

Order may inhibit participation by AAOS in the development and revision

of RBRVS systems of reimbursement and thus may harm competition.

Accordingly, the Order should be reopened to consider modification.

V. The Order Should Be Set Aside

AAOS requests that the Order be set aside or modified to permit

AAOS to distribute the Abt Restudy and similar information to third

party payers, other medical societies and its members.

The Order, as modified in 1985, permits AAOS to ``discuss[]

relative value scales with governmental entities and third-party

payers.'' 105 F.T.C. at 248. The Commission, in modifying the Order in

1985, concluded that the Order's ``restriction on [AAOS]'s ability to

discuss relative value scales with third-party payers and governmental

entities * * * caused injury to [AAOS] and the public that outweighed

any benefit that might be derived from the restriction.'' Id. The

Commission also observed that the modification was consistent with its

opinion in Michigan State Medical Society, 105 F.T.C. 191 (1983)

(``MSMS''). Also consistent with MSMS, AAOS is not limited under the

Order to responding to requests from government and third party

payers.\10\ AAOS ``may have a useful role to play in offering

suggestions and advice to third payers on a wide variety of issues,

including reimbursement. * * * [T]he potential value of this role is

not limited to responsive communications but extends * * * to similar

communications initiated by'' AAOS. 105 F.T.C. at 308.\11\

\10\ The Order, as modified in 1985, permits AAOS to discuss

relative value guides with third party payers, but the staff of the

Commission construed the Order as barring AAOS from providing

relative value guides to third party payers. See Staff advisory

opinion at 3 (``[B]ased on the information we now have, we cannot

conclude that it would be consistent with the Order for AAOS to

publish or circulate the Abt Restudy to the AAOS membership or to

any non-governmental entity.'').

\11\ See also Advisory Opinion in American Society of Internal

Medicine, 105 F.T.C. 505, 510-11 (1985).

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As the Commission recognized in MSMS, ``there is some inherent

danger in allowing any collective dialogue with third party payers on

questions directly related to reimbursement amounts or policies.'' \12\

Similarly, in modifying the Order in AAOS, the Commission cautioned

that ``serious antitrust concerns would arise were AAOS to negotiate or

attempt to negotiate an agreement with any such party or engage in any

type of coercive activity to effect such an agreement.'' \13\ Such

actions concerning terms of reimbursement could be examined under

Section 5 of the Federal Trade Commission Act.\14\

\12\ The Order in MSMS permitted the dialogue and addressed the

risk by barring the medical society from entering into unlawful

agreements with third party payers regarding reimbursement. 101

F.T.C. at 308.

\13\ 105 F.T.C. at 249.

\14\ See, e.g., Department of Justice and FTC Statements of

Enforcement Policy and Analytical Principles Relating to Health Care

and Antitrust, Statements 5 & 6, reprinted in 4 Trade Reg. Rep.

(CCH) para. 13,152, at 20, 782-785 (1994) (``Health Care Policy

Statements'').

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AAOS also would like to provide copies of the Abt Restudy to other

medical professional societies. The process of establishing and

refining [[Page 30545]] Medicare RBRVS involves consideration of

recommendations from the AMA/Specialty Society RVS Update Committee

(``RUC''),\15\ which is composed of representatives of major medical

societies, including AAOS. The Abt Restudy could be useful to the RUC

and ultimately to the Health Care Financing Administration (``HCFA''),

which administers the Medicare program, in the review and refinement of

Medicare RBRVS.\16\ The inability of AAOS under the Order to

disseminate the Abt Restudy to members of the RUC appears likely to

hinder participation in the process sponsored by HCFA for identifying

information relevant to revising Medicare RBRVS and could increase the

costs to HCFA in obtaining such information. Such inhibitions resulting

from the Order would be inconsistent with federal policy as expressed

in the Omnibus Budget Reconciliation Act of 1989 and the implementing

regulations. The Order should be modified to permit AAOS to disseminate

the Abt Study to other medical professional societies.

\15\ Petition at 13, citing 59 Fed. Reg. 32,754 & 32,760 (1994).

\16\ See Petition at 18-19.

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Finally, AAOS would like to provide copies of the Abt Restudy to

its members, at least for the ``limited purpose of furthering the

Academy's efforts to persuade government bodies to modify their own

physician payment practices.'' For example, according to AAOS, ``in

virtually all states, the Academy has no members who have ever seen the

[Abt] Restudy, and therefore no one to meet with interested state

officials responsible for compensation issues in Medicaid, workers'

compensation or other medical programs.'' \17\

\17\ Petition at 26.

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The prohibition on distribution by AAOS of relative value scales to

its members is at the core of the Order, because of the alleged effect

of maintaining the prices charged by its members.\18\ Given the federal

policy to rely on RBRVS for Medicare reimbursement and the increasing

interest on the part of state governments and third party payers in

relative value guides as a basis for physician reimbursement, however,

the prohibition in the Order on dissemination by AAOS may inhibit the

contributions of its members to the development of RBRVS and increase

the costs of disseminating the information.\19\ Allowing AAOS to

distribute the Abt Restudy to its members would allow them to

participate in an informed manner in lobbying activities before state

government agencies. Accordingly, AAOS should be permitted to

distribute the Abt Restudy to its members.

\18\ See also Advisory Opinion in American Society of Internal

Medicine, 105 F.T.C. 505, 510 (1985) (``[A]lthough the Commission

cannot * * * predict that widespread concerted conformance to the

RVG would necessarily result from its dissemination * * * the

available information on this specific RVG proposal indicates that

this type of agreement in restraint of trade is a substantial

danger.'').

\19\ As a practical matter, material submitted to the Health

Care Financing Administration on the public record presumably is

available to members of AAOS on request.

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The danger that AAOS members will use the Abt Restudy or other

relative value guides as a basis for an unlawful agreement to fix the

prices for their services has not been eliminated. Although the federal

policy to use RBRVS for Medicare reimbursement counsels in favor of

setting aside the restriction of the Order on distribution of relative

values to AAOS members, AAOS and its members remain subject to the laws

against price fixing. Setting aside the restrictions of the Order

should not be construed as approval for use by AAOS or its members of a

relative value guide as a basis for an unlawful agreement on price.

In some circumstances, preparation and circulation by a medical

society of a relative value scale may have anticompetitive

consequences. For example, in American Society of Internal Medicine,

105 F.T.C. 505 (1985) (advisory opinion), the Commission declined to

approve a proposal to circulate a relative guide because of the

``substantial danger that ASIM's proposed conduct would involve an

agreement in restraint of trade amoung ASIM and physicians to

concertedly adhere to the RVG.'' \20\ The Joint Health Care Policy

Statements also caution that ``information exchanges among competing

providers may facilitate collusion or otherwise reduce competition on

prices.'' \21\

\20\ Id. at 511.

\21\ Health Care Policy Statements at 20,784.

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VI. Conclusion

Accordingly, it is ordered that this matter be, and it hereby is,

reopened, and that the modified Order in Docket C-2856 be, and it

hereby is, set aside, as of the effective date of this order.

By the Commission, Commissioner Starek concurring in the result

only.

Donald S. Clark,

Secretary.

[FR Doc. 95-14186 Filed 6-8-95; 8:45 am]

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