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Organized Medicine on Trial: The Federal Trade Commission vs. the American Medical Association

Published online by Cambridge University Press:  27 April 2009

Carl F. Ameringer
Carl F. Ameringer
Affiliation:
University of Wisconsin–Oshkosh
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Extract

During the 1970s, the Federal Trade Commission took on the powerful American Medical Association, hastening the end of the medical profession's domination of the health-care industry. The pivotal confrontation was the FTC's administrative action (the “FTC proceeding”), commenced in 1975, against the AMA. According to the FTC, ethical restrictions on physician advertising, solicitation, and contract practice bore no reasonable relationship to procompetitive concerns, the touchstone of the FTC's public-interest calculus. By eliminating these restraints, FTC commissioners and attorneys cut the ties that bound rank-and-file physicians to their national, state, and local medical societies, thereby undermining the structure of organized medicine. Stripped of its organizing principles and enforcement mechanisms, the medical establishment weakly resisted the formation of large-scale provider networks and the integration of insurance products and delivery systems, known as health maintenance organizations or HMOs.

Type
Articles
Information
Journal of Policy History , Volume 12 , Issue 4 , October 2000 , pp. 445 - 472
Copyright
Copyright © The Pennsylvania State University, University Park, PA. 2000

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References

Notes

1. In the Matter of The American Medical Association, et al., 94 F.T.C. 701 (1979).

2. Krause, Elliott A., Death of the Guilds: Professions, States, and the Advance of Capitalism, 1930 to Present (New Haven, 1996), 45Google Scholar; See also Ginzberg, Eli, The Medical Triangle: Physicians, Politicians, and the Public (Cambridge, Mass., 1990), 141–147.Google Scholar

3. See Krause, Death of the Guilds, 36–49; James Robinson, C., The Corporate Practice of Medicine: Competition and Innovation in Health Care (Berkeley and Los Angeles, 1999), 25–29Google Scholar; Starr, Paul, The Social Transformation of American Medicine (New York, 1982), book 2, chap. 5.Google Scholar

4. Starr, The Social Transformation of American Medicine, 420.

5. Executive Bulletin, “Seven Trends Shaping Managed Care Today,” December 1997. Prepared by the editors of Health Trends' 1998 Guide to Managed Care Markets.

6. Ibid.

7. See Ameringer, Carl F., State Medical Boards and the Politics of Public Protection (Baltimore, 1999), 28–56Google Scholar; Krause, Death of the Guilds, 36–49; Robinson, The Corporate Practice of Medicine, 25–29; Starr, The Social Transformation of American Medicine, book 2, chap. 4.

8. Robinson, The Corporate Practice of Medicine, 23.

9. Ibid., 27.

10. 94 F.T.C. at 801.

11. 94 F.T.C. at 1004.

12. Starr, The Social Transformation of American Medicine, book 1, chap. 3.

13. Weller, Charles D., “Antitrust Joint Ventures and the End of the AMA's Contract Practice Ethics: New Ways of Thinking About the Health Care Industry,” North Carolina Central Law Journal 14 (1983): 8.Google Scholar

14. 94 F.T.C. at 1007. For additional commentary and historical perspective, see Veatch, Robert M., A Theory of Medical Ethics (New York, 1981), 79–107Google Scholar; Konold, Donald E., A History of American Medical Ethics (New York, 1962).Google Scholar

15. Report of the Judicial Council, “Advertising, Physicians, and Health Maintenance Organizations and Health Plans,” in Proceedings of the House of Delegates (1974).

16. 94 F.T.C. at 1006.

17. Berlant, Jeffrey L., Profession and Monopoly: A Study of Medicine in the United States and Great Britain (Berkeley and Los Angeles, 1975), 256.Google Scholar

18. 94 F.T.C. at 1012.

19. 94 F.T.C. at 803.

20. 94 F.T.C. at 899–907.

21. Ameringer, State Medical Boards, 22–25; Berlant, Profession and Monopoly, 183; Starr, The Social Transformation of American Medicine, 162–69, 299–306.

22. Berlant, Profession and Monopoly, 256.

23. See Gross, Stanley J., Of Foxes and Hen Houses: Licensing and the Healing Professions (Westport, Conn., 1984), 76–79Google Scholar; Berlant, Profession and Monopoly, 253–59.

24. 15 U.S.C. sec. 1.

25. 15 U.S.C. sec. 45(a)(1)(1976).

26. United States v. Aluminum Co. of Am., 148 F.2d 416, 427 (2d Cir. 1945).

27. 370 U.S. 294, 344.

28. Trial Brief of Respondent American Medical Association, Docket No. 9064 (filed 19 August 1977), 16–17.

29. Berlant, Profession and Monopoly, 184.

30. Starr, The Social Transformation of American Medicine, 209–20; 300–306; 320–27.

31. American Medical Association v. U.S., 317 U.S. 519 (1943).

32. See Kissam, Philip C., Webber, William L., Bigus, Lawrence W., and Holzgraefe, John R., “Antitrust and Hospital Privileges: Testing the Conventional Wisdom,” California Law Review 70 (1982): 619.CrossRefGoogle Scholar

33. Cf. Berlant, Profession and Monopoly, 246–47.

34. Goldberg, Lawrence G. and Greenberg, Warren, “The Effect of Physician-Controlled Health Insurance,” Journal of Health Politics, Policy and Law 2 (1977): 51.CrossRefGoogle ScholarPubMed

35. Ibid., 58–62.

36. United States v. Oregon Med. Soc., 95 F.Supp. 103, 109 (D. Ore. 1950).

37. United States v. Oregon Med. Soc., 343 U.S. 326, 338–39 (1952).

38. 343 U.S. at 336.

39. See Goldberg and Greenberg, “The Effect of Physician-Controlled Health Insurance,” 63.

40. Brown, Lawrence D., Politics and Health Care Organization: HMOs as Federal Policy (Washington, D.C., 1983), 31.Google Scholar

41. Ibid., 43.

42. Clarkson, Kenneth W. and Muris, Timothy J., The Federal Trade Commission since 1970: Economic Regulation and Bureaucratic Behavior (Cambridge, 1981), 2–6CrossRefGoogle Scholar; Eisner, Marc Allen, Antitrust and the Triumph of Economics: Institutions, Expertise, and Policy Change (Chapel Hill, 1991), 150–172Google Scholar. For further background on the reorganization of the FTC, see Katzmann, Robert A., Regulatory Bureaucracy: The Federal Trade Commission and Antitrust Policy (Cambridge, Mass., 1980).Google Scholar

43. Havighurst, Clark C., “The Role of Competition in Cost Containment,” in Competition in the Health Care Sector: Past, Present, and Future–Proceedings of a Conference Sponsored by the Bureau of Economics, Federal Trade Commission Held in Washington, D.C. 1–2 June 1977, ed., Greenberg, Warren (Washington, D.C., 1978), 390.Google Scholar

44. 421 U.S. 773 (1975).

45. Burrow, James G., Organized Medicine in the Progressive Era: The Move Toward Monopoly (Baltimore, 1977), 65.Google Scholar

46. 421 U.S. at 776–77.

47. Maynard F. Thompson, Bureau of Competition, to Commission, 12 December 1975, File No. 761–0027. Following references to page numbers refer to the Thompson memorandum.

48. 421 U.S. at 787–88.

49. Federal Trade Commission v. Sperry Hutchinson & Co., 405 U.S. 233, 244 (1972).

50. In Goldfarb, the Court stated that the “public service aspect and other features of the professions” might justify treating professional activities “differently” under the Sherman Act. Law professor Thomas Greaney persuasively argues that the Court has failed to expand this notion to encompass ethical norms that restrict market competition. Greaney, Thomas L., “Quality of Care and Market Failure Defenses in Antitrust Health Care Litigation,” Connecticut Law Review 21 (1989): 616–619.Google Scholar

51. Eisner, Antitrust and the Triumph of Economics, 31.

52. Ibid., 171–72.

53. Ibid., 117, 222.

54. Derthick, Martha and Quirk, Paul, The Politics of Deregulation (Washington, D.C., 1985), 35–39.Google Scholar

55. Lewis A. Engman to Commission, 16 December 1975, File No. 761–0027.

56. 94 F.T.C. at 702–3.

57. 94 F.T.C. at 706.

58. Elizabeth Hanford Dole to Commission, 12 April 1977, Docket No. 9064.

59. Transcript of informal conference with American Medical Association, Washington, D.C., 8 November 1976, Docket No. 9064, at page 11.

60. Alan K. Palmer, Deputy Director, Bureau of Competition, to Commission, 26 April 1979, re Blue Shield Investigation, File No. 761–0036.

61. Alan K. Palmer, Assistant Director, Bureau of Competition, to Secretary, 26 May 1977, Docket No. 9064.

62. Bureau of Competition, “Medical Participation in Control of Blue Shield and Certain Other Open-Panel Medical Prepayment Plans: Staff Report to the Federal Trade Commission and Proposed Trade Regulation Rule,” April 1979, 16, 54, 66.

63. Robert B. Reich, Director, Office of Policy Planning, to Commission re Commission Policy Review Session on Health Services, 5 June 1979, 32.

64. See Trial Brief of Respondent American Medical Association, Docket No. 9064 (filed 19 August 1977).

65. The FTC proceedings concerned the 1957 version of the Principles of Medical Ethics, which the AMA revised in 1980 to eliminate the ban on “solicitation.”

66. AMA, Judicial Council Opinions and Reports (1971 ed.), Section 5, Opinion 11.Google Scholar

67. A principal issue in the FTC proceedings was whether the AMA had abandoned its 1971 edition of the Judicial Council Opinions and Reports and replaced it with the 1977 edition, which was more consistent with contemporary U.S. Supreme Court pronouncements. The FTC, as well as the federal courts, ultimately dismissed the abandonment claim, holding that the AMA and its component societies had never expressly rescinded the 1971 edition and continued to enforce many of its provisions on advertising, solicitation, and contract practice. See 94 F.T.C. at 1018–29.

68. Trial Brief of Counsel Supporting the Complaint, Docket No. 9064 (filed 18 April 1977), 35–50.

69. Trial Brief of Respondent American Medical Association, Docket No. 9064 (filed 19 August 1977), 45.

70. Ibid., 53–66.

71. Ibid., 54.

72. Ibid., 86–87.

73. Ibid., 75–92.

74. Trial Brief of Counsel Supporting the Complaint, Docket No. 9064 (filed 18 April 1977), 53–78.

75. 94 F.T.C. at 706–8, 974.

76. 94 F.T.C. at 956, 974.

77. 94 F.T.C. at 954.

78. 94 F.T.C. at 951.

79. 94 F.T.C. at 971–72.

80. 94 F.T.C. at 976.

81. 94 F.T.C. at 1009.

82. Appeal Brief of Respondent American Medical Association, Docket No. 9064 (filed 31 January 1979).

83. 94 F.T.C. at 996, 1029.

84. 94 F.T.C. at 1029–30.

85. American Medical Ass'n v. FTC, 638 F.2d 443, 449 (2d Cir. 1980).

86. 638 F.2d at 457. Judge Mansfield referred specifically to Bates v. State Bar of Arizona, 433 U.S. 350, 369 n.20 (1977), where the Supreme Court noted with approval the AMA's revised standards.

87. American Medical Ass'n v. FTC, 455 U.S. 676 (1982).

88. 433 U.S. 350, 359 (1977).

89. Congress, House, Committee on Energy and Commerce, Federal Trade Commission Reauthorization: Hearings before the Subcommittee on Energy and Commerce. 97th Cong., 2nd sess., 20 April 1982, 408, 410. The AMA's assertion came in connection with Congressional hearings on H.R. 3722 (the Luken-Lee bill). H.R. 3722, which failed to pass, would have placed a moratorium on FTC activities related to the professions.

90. 435 U.S. 679 (1978).

91. 457 U.S. 332 (1982).

92. Greaney, “Quality of Care and Market Failure Defenses,” 608.

93. Joseph Eckhaus, attorney, Bureau of Competition, to Commission, 15 March 1994.

94. Edward B. Hirshfeld, The Case for Antitrust Reform for Physician Groups, 2–3. Paper presented as part of a conference, “Antitrust and Health Care: Antitrust Developments in Changing Health Care Markets,” co-sponsored by the Section of Antitrust Law and the Forum on Health Care of the American Bar Association, New Orleans, 6–7 October 1994.

95. Pertschuk, Michael, Giant Killers (New York, 1986), 82–84.Google Scholar

96. Krause, Death of the Guilds, 45; Starr, The Social Transformation of American Medicine, 398, 427.

97. Pertschuk, Giant Killers, 87.

98. Ibid., 91.

99. Tuinen, Ingrid Van, McCarthy, Phyllis, and Wolfe, Sidney, Questionable Doctors (Washington, D.C., 1991), 5. The first consumer's directory was published in 1974 in Prince George's County, Maryland.Google Scholar

100. Congress, Senate, Judiciary Committee, Hearing before the Subcommittee on Antitrust and Monopoly (statement of Michael Pertschuk), 10 October 1977. The hearings were canceled and the statement was never presented. The statement was appended to the Motion of the American Medical Association for the Recusal or Disqualification of Chairman Michael Pertschuk, Docket No. 9064 (filed 6 April 1979).

101. Pertschuk, Giant Killers, 85. Pertschuk remained on the Commission despite President Reagan's appointment of James Miller as chair. Although Miller and Pertschuk found common ground in their fight with the AMA, they disagreed on most other matters. See Congress, House, Committee on Energy and Commerce, FTC Review (1977–1984): A Report Prepared by a Member of the Federal Trade Commission Together with Comments from other Commission Members, 98th Cong., 2d sess., 1984.

102. See Havighurst, “The Role of Competition in Cost Containment,” 360, 375; Stone, Deborah A., “The Doctor as Businessman: The Changing Politics of a Cultural Icon,” Journal of Health Politics, Policy and Law 22 (04 1997): 545–546.CrossRefGoogle ScholarPubMed

103. Marmor, Theodore R., Understanding Health Care Reform (New Haven, 1994), 61.Google Scholar

104. Ibid., 57–61; Feldstein, Paul J., Health Policy Issues: An Economic Perspective on Health Reform (Ann Arbor, 1994), 1–11Google Scholar. Economist Feldstein testified in the FTC proceedings on behalf of the FTC (94 F.T.C. at 927).

105. Brown, Politics and Health Care Organization, 16–18.

106. Havighurst, “The Role of Competition in Cost Containment,” 371–75.

107. Thompson memorandum, 16, 18.

108. See Eisner, Antitrust and the Triumph of Economics, 220–25; Robert E. McCormick, “A Review of the Economics of Regulation: The Political Process,” and Shughart, William F., “Antitrust Policy in the Reagan Administration: Pyrrhic Victories?” in Regulation and the Reagan Era: Politics, Bureaucracy, and the Public Interest, ed. Meiners, Roger E. and Yandle, Bruce (New York, 1989), 20–21, 96–97.Google Scholar

109. Pertschuk, Giant Killers, 91.

110. Congress, House, Committee on the Judiciary, Concerning H.R. 1304 the “Quality Health-Care Coalition Act of 1999” (appendix to statement of Robert Pitofsky, Chairman Federal Trade Commission), 22 June 1999.

111. Greaney, Thomas L., “When Politics and Law Collide: Why Health Care Reform Does Not Need Antitrust Reform,” Saint Louis University Law Journal 39 (1994): 141–143Google Scholar; Todd, James S., “Physicians as Professionals, Not Pawns,” Health Affairs 12 (Fall 1993): 145.CrossRefGoogle Scholar

112. See Hirshfeld, The Case for Antitrust Reform for Physician Groups, 14–24.

113. Hirshfeld, The Case for Antitrust Reform for Physician Groups, 13–15; Greaney, “When Politics and Law Collide,” 145; Board of Trustees Report 30, “Collective Bargaining as an AMA Advocacy Tool,” in Proceedings of the House of Delegates (Reference Committee I, 1999)Google Scholar

114. Robert Pitofsky, “Thoughts on ‘Leveling the Playing Field’ in Health Care Markets,” Speech before the National Health Lawyers Association Twentieth Annual Program on Antitrust in the Health Care Field, Washington, D.C., 13 February 1997.

115. Pitofsky statement before Congress concerning H.R. 1304 (June 1999).

116. Stone, “The Doctor as Businessman,” 544.

117. Pitofsky, Speech before the National Health Lawyers Association (February 1997).

118. Page, Leigh, “Market Spawns Doctor-Patient Alliances,” American Medical News, 13 11 1995, 3, 24Google Scholar; Sommerville, Janice, “HMOs Face State Legislative Efforts to Rein Them in,” American Medical News 22/29 04 1996, 5–6Google Scholar; Aston, Geri, “Congress Urged to Pass Patient Bill of Rights; Support Sought from AMA,” American Medical News 23–3003 1998, 1, 35.Google Scholar

119. For example, contrast Stone, Deborah, “Managed Care and the Second Great Transformation,” Journal of Health Politics, Policy and Law 24 (10 1999): 1213–1218CrossRefGoogle ScholarPubMed, with James Robinson, The Corporate Practice of Medicine.