FTC opinion heartens imaging independents

December 29, 1993

Imaging centers and radiology groups fearful of getting shut outof health-care reform have sought strength in numbers by formingnetworks to contract with insurers and managed-care plans. Suchnetworks give independent radiologists the clout to deal

Imaging centers and radiology groups fearful of getting shut outof health-care reform have sought strength in numbers by formingnetworks to contract with insurers and managed-care plans. Suchnetworks give independent radiologists the clout to deal withthird-party payors, but at the same time raise fears of prosecutionby federal antitrust enforcers.

Networked centers can rest easier now. In an advisory opinionissued last month, the Federal Trade Commission gave its blessingto a group of California radiologists forming a statewide network.In the opinion, the FTC stated that the network, California ManagedImaging (CMI), does not violate federal antitrust laws.

CMI sought the FTC's opinion to assuage its members, who werenervous about antitrust prosecution, according to Bert Morganof Morgan, Miller and Blair, CMI's legal counsel.

"In discussing (the network) with various physicians,they wanted to be assured before they participated that nothingwould be done unless there was some kind of approval of the mechanism,"Morgan said. "Because of antitrust rules, physicians didnot feel they were in a position to come together and collectivelyrespond to (third-party payor contracts)."

CMI is believed to be the first network to have sought theagency's imprimatur, according to Thomas Greeson, general counselfor the American College of Radiology.

CMI was formed last year in response to a large number of statewideand regional medical imaging contracts being put up for bid bymajor insurance carriers. Among those who have been vying forthe contracts are scan brokers--nonmedical professionals who assembleimaging networks and act as intermediaries between radiologistsand insurers (SCAN 5/5/93).

Imaging centers and radiology groups that wish to cut out themiddleman and form their own networks have felt hamstrung by antitrustrules, however. Gathering a large number of radiologists togethercould be interpreted as building a monopoly, while establishinga fee schedule for fee-for-service contracts with third-partypayors could lead to charges of price fixing.

In a letter to CMI, however, the FTC said that the networkas structured does not run afoul of the law. The FTC's opinionwas based on a detailed description of CMI's business structurethe network gave the agency.

According to the FTC's letter, CMI plans to offer imaging servicesto third-party payors at costs lower than those provided by brokernetworks. CMI will keep costs in check through strict utilizationmanagement protocols.

The network expects most of its initial contracts to be fee-for-servicearrangements. CMI will move to capitated arrangements and willset up a fee schedule as soon as it gathers enough data on coststo determine pricing for imaging services. The intention of CMIis to be a capitated contracting organization, according to Morgan.

ESTABLISHING A FEE SCHEDULE would raise regulatory eyebrows ifCMI had exclusive control over a high percentage of radiologistsin a given market, the FTC said. CMI would then be able to raiseor fix the prices of radiology services without regard to competitivepressures, and would be able to prevent managed-care plans fromentering markets where CMI had market power.

CMI, however, maintained that scan brokers are a competitivealternative to CMI that ensures that the network will not achievemarket control. In any event, no broker network in Californiahas more than a 1.5% share of all diagnostic imaging servicesin the state. CMI believes that a 2% market share for CMI wouldbe extremely optimistic, in part because CMI's target clients--large,statewide payors--are only a small share of the total diagnosticimaging services market.

CMI's member radiologists will also be free to join other radiologyor broker networks, according to the company. On the other hand,CMI plans to restrict its membership to radiologists who meetits criteria, a business practice that could constitute an unlawfulgroup boycott if CMI had control over a particular market andprevented the formation of other networks. The FTC, however, foundthat such restrictions could be procompetitive and would be justifiedif they were implemented to advance legitimate business goalsand CMI did not have market power.

Having secured a positive opinion from the FTC, CMI plans tobegin pursuing third-party payor contracts. CMI has more than350 radiologist members, each of whom pays $2000 for a share inthe company. CMI's revenues will be allocated among participatingphysician groups and imaging facilities under a predeterminedformula.

Industry observers say more antitrust reform is needed to facilitatearrangements like radiologist networks. The FTC opinion is goodnews, however, for independent imaging centers searching for waysto survive in a managed-care environment.

"We are very encouraged by the FTC's advisory opinionfor CMI, despite all the caveats in it," the ACR's Greesonsaid. "Good antitrust attorneys had been advising networksto structure generally along the lines of CMI. It's useful tosee the FTC delineate the arrangements with an opinion that theyare procompetitive and would not be subject to antitrust scrutinyas structured."

BRIEFLY NOTED:

  • Therapy and imaging center firm Radiation Care of Atlantaran into more bad luck this month, according to reports in theAtlanta Constitution. The publication reported that COO Ted P.Crowley pleaded guilty to embezzlement five years ago. Crowleytook over management of the firm following the resignation ofits president and CEO, Robert L. Goodman.

The Inspector General of the Department of Health and HumanService investigated Radiation Care last year regarding its referring-physicianownership structure (SCAN 7/1/92). The firm operates 17 radiationtherapy centers and four diagnostic imaging centers in 10 states.

  • Mobile imaging services firm Maxum Health still hasn'tresolved its financial difficulties. The Dallas firm was takenoff the American Stock Exchange in November because it did notmeet listing requirements, according to The Wall Street Journal.

Problems include Maxum's negative stockholders' equity andits history of operating losses, the Journal said. The firm continuesto seek renegotiation of its scanner leases (SCAN 3/24/93).