Abstract
I am pleased to invite Mr Jeffrey S. Hilton, S.C., Former Associate Commissioner, Australian Competition and Consumer Commission, to share with us an abridged version of a paper he presented to the Medico-Legal Society of New South Wales Inc. on 17 November 1999. It is important to make a bridge between the legal and medical professions in a matter as complicated as this.
COMPETITION LAW AND THE AUSTRALIAN MEDICAL PROFESSION
At least since 21 July 1997, the medical profession has been fully subject to the provisions of Part IV of the Trade Practices Act 1974 (the Act), which proscribe and regulate agreements and conduct restrictive of competition in trade and commerce. This has followed the 1993 Hilmer Report on National Competition Policy and the passing by each State and Territory of complementary legislation applying these provisions as State or Territory law.
The object of the Act is ‘to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’. This statutory object represents a recognition by the Parliament that competition in relevant markets is to be promoted, not for its own sake, but because it is likely to enhance the welfare of Australians generally. According to economists, competition will do this because it is likely to promote efficiency which is beneficial because, over time, it boosts the growth of the economy and hence national wealth, and because it is likely to offer consumers a wider choice of, and newer and better, goods and services at lower prices.
The medical profession resisted the application of the Act essentially upon the basis that, as members of a learned profession bound by rigorous ethical standards, doctors were not to be treated as mere service providers engaged in trade or commerce in one or more markets. Secondly, given the asymmetry of information as between doctors and their patients, it was irrational to treat the market for medical services in a manner akin to any other market for traded goods or services. Thirdly, the market for medical services was unique, given the conjunction of the availability of government and private cost subsidies, and the ability of the providers of medical services to generate the demand for their services independently of consumer wants.
These policy arguments against the application of the Act were overshadowed by the sheer financial magnitude of the resources devoted to health care in Australia—about $45 billion or 8% of Australia's gross domestic product (GDP) of $540 billion. Despite the resistance of the profession, the Commonwealth, and the State and Territory Governments, decided the Act should apply with full force and effect to the medical profession (as it does to all other professions).
The Act was substantially based upon United States anti-trust law, principally as set out in the Sherman and Clayton Acts. The website of the Federal Trade Commission (“FTC”), which is a law enforcement agency empowered to take action under these laws against anti-competitive behaviour, and deceptive and unfair practices, contains approximately thirty pages of summaries of cases in which the FTC has taken proceedings against various groups of American medical professionals relating to anti-trust violations including price fixing (50 separate cases involving virtually every American specialist college); agreements to obstruct innovative forms of health care delivery or financing (40 cases including proceedings against the American Medical Association which reached the United States Court of Appeals), restraints on advertising or other forms of solicitation, illegal tying and other arrangements restricting access to hospitals.
While the system for the delivery of health care in the United States of America is significantly different from that prevailing in Australia, where Australian governments and others (including private hospitals and health funds) decide to introduce innovative methods for the delivery of health services—presumably on the basis that better quality and lower cost can thereby be achieved—they are likely, as has been the American experience, to resort to the Act in order to overcome professional resistance.
SCHEME OF THE ACT
Section 4 of the Act relevantly defines “services” so as to put beyond doubt that the provision of medical services to a patient, or pursuant to a contract with a hospital is likely to comprise the supply of services in trade or commerce for the purposes of the Act.
Part IV of the Act, which is headed ‘Restrictive Trade Practices’ proscribes certain broadly defined types of anti-competitive agreements or conduct including:
an anti-competitive agreement or informal arrangement among competitors for the supply of goods or services—a so called ‘horizontal’ agreement—including a price fixing, agreement, a boycott agreement or any other agreement having the purpose or effect of substantially lessening competition in a market (sections 4D, 45 and 45A).
an agreement or informal arrangement between a supplier and acquirer of goods or services—a so called ‘vertical’ agreement including a tying or third line forcing agreement or any other exclusive dealing agreement having the purpose or effect of substantially lessening competition in a market (section 47).
Penalties and other sanctions for the breach of these provisions are provided for in Part VI of the Act. Although breach of Part IV is not a criminal offence, financial penalties of up to $10 million in the case of a corporation and $500,000 in the case of an individual may be imposed by the Federal Court upon the application of the Australian Competition and Consumer Commission (“ACCC”).
It is doubtful whether liability for these penalties would be covered by professional indemnity insurance. Moreover it is at least an open question whether breach of the Act is to be regarded as professional misconduct or unsatisfactory professional conduct.
As well as these penalties, conduct in breach of Part IV of the Act may be the subject of proceedings in the Federal Court for an injunction and/ or compensation, both at the suit of the ACCC or any other entity suffering loss or damage by reason of the conduct (sections 80, 82 and 87).
The Act recognises that there may be circumstances in which agreements or conduct injurious to competition should nevertheless be permitted because of public interest considerations, which outweigh any relevant anti-competitive effect. Pursuant to section 88 of the Act the ACCC may grant an authorisation to engage in particular conduct that, absent the authorisation would, or might contravene the Act.
CASE STUDIES: PRICE FIXING AND BOYCOTTS
In October 1997 the ACCC instituted proceedings against a small number of anaesthetists operating at three Sydney private hospitals and against the Australian Society of Anaesthetists alleging that they had made an agreement or arrangement with each other whereby they would charge $25.00 per hour for “on call” services which ensured an anaesthetist, although not on site, was available for emergency and after-hours anaesthetic services at the hospital. If the making of such an agreement or arrangement were proved, this would be a price fixing agreement among competitors.
The ACCC also alleged that these anaesthetists had reached an agreement or arrangement whereby they would tell one of the private hospitals that unless it agreed to pay for the supply of on call services from 1 May 1996 at the rate of $25.00 per hour, those anaesthetists would not supply such services. Again, if such an agreement were proved, that would constitute boycott or an agreement or arrangement among competitors not to supply services to a particular target(s).
The proceedings by the ACCC were resolved on 17 December 1998, when the ASA and the anaesthetists gave undertakings to the Court that they would not make or give effect to any price fixing or boycott agreement. The ASA also undertook to the Court to develop and implement at its own expense a program of compliance, to be based on Australian Standard AS3806. The respondents also agreed to pay $60,000 towards the ACCC's costs.
As this was the first enforcement action against medical professionals following the enactment of the complementary laws by the States and Territories the ACCC did not seek an imposition of any pecuniary penalty. In a press release issued following the settlement of the proceedings, the ACCC stated it would not hesitate to seek pecuniary penalties in the future in the case of other conduct contravening the Act.
The practice of circulating ‘recommended fee schedules’ among groups of medical professionals as to the level of fees to be charged for particular types of consultations or procedures is fraught with risk. Were the matter to be tested in a court, there is a substantial prospect it would find this to be a price fixing arrangement or understanding, whereby members of the group to whom the recommendations were circulated expected each other to adhere to these recommendations, almost as a matter of professional comity, or adhered to the recommendations because they believed they had a common interest in keeping their fees at or above the recommended levels.
The first occasion upon which doctors took advantage of the opportunity to seek an authorisation for an agreement that might otherwise contravene the Act was 21 July 1997 when the South Australian and Federal branches of the AMA applied for authorisation to negotiate for and give effect to a common service agreement for the remuneration of visiting medical officers practising in South Australian rural hospitals, which provided for their remuneration to be on an agreed fee for service basis. Although the ACCC granted authorisation on 31 July 1998, it did so only for a period expiring on 30 June 1999 and subject to the condition that all parties covered by the authorisation were prohibited from conducting any boycott action.
The ACCC considered the practice was likely to be in breach of s45 and 45A of the Act as constituting a price fixing agreement between rural doctors providing services to SA rural hospitals and was likely to be anti-competitive, because it acted as a price floor, whereby all rural hospitals had to pay the same minimum rates to all visiting doctors regardless of location or the skill and expertise of any particular doctor. Hence, it should not be authorised beyond 30 June 1999 and would be subject to prosecution under the Act if it continued thereafter.
In the Australian Capital Territory and in Western Australia there have been instances where, as part of collective fee negotiations, a hospital or other health care provider has been threatened with “industrial action” by doctors if the negotiations were not successful. While the Act in s.51(2) specifically excepts from its operation acts done in relation to the working conditions of employees, usually doctors who threaten not to provide their services to an institution if appropriate fees cannot be agreed will be engaged in independent practice on their own account. Accordingly, for such doctors to agree among themselves to threaten not to provide their services if the agreement as to fees cannot be reached with them collectively will constitute an illegal boycott.
CONDUCT SUBSTANTIALLY LESSENING COMPETITION
Recently the Bulletin carried a cover story entitled: ‘Professions The Big Squeeze’ in which the Chairman of the ACCC, Professor Allan Fels, was said to have referred to ‘a public perception that the specialist (medical) colleges are closed shops to which entry is tightly controlled by incumbents so that they can maintain their workload and incomes’.
This suggests the ACCC is to focus upon the conduct of specialist colleges, to the extent they play a part in determining who in Australia is entitled to be accredited and to practise as a medical specialist. Obviously, its concern is that inappropriate restrictions upon specialist numbers are likely to reduce competitive forces thereby enabling incumbent specialists to raise prices, maintain unreasonably high prices and/or reduce quality of service.
EXCLUSIVE DEALING
A case currently being investigated by the ACCC involves an allegation that a small number of doctors practising in the same specialty agreed with a recently established private hospital that they would obtain visiting rights to that hospital and recommend to their patients they receive treatment in that hospital only upon the basis the hospital agreed not to allow any other practitioners in their specialty visiting rights to the hospital. In short the hospital and these specialists made an agreement whereby the hospital agreed to acquire the particular specialist services offered by these specialists exclusively from them.
If such an agreement were established, it could contravene section 47(2) of the Act as being exclusive dealing, where it were shown to have the purpose or likely effect of substantially lessening competition in the market in a discrete geographical area for the supply or acquisition of the professional services offered by these specialists.
Another form of exclusive dealing frequently the subject of complaint to the ACCC involves surgeons who prefer to operate with one or two particular anaesthetists. Provided the surgeon makes clear to the patient that his or her preference is to work with a particular anaesthetist, but that the patient is under no obligation to utilise the services of that anaesthetist, there will be no problem. However, if the surgeon either expressly, or by necessary implication, advises the patient that he or she must acquire services from the surgeon's preferred anaesthetist if the patient wants surgery carried out by that surgeon, there is likely to be a breach of section 47(6) of the Act, which deals with exclusive dealing, in that the surgeon will have engaged in third line forcing. This occurs where a person supplies or offers to supply services on the condition that the person to whom the services are supplied or offered to be supplied will acquire services of a particular kind directly or indirectly from another person.
CONCLUSION
Now that the profession is subject to the Act, it needs to change its ‘culture’. If it does not accept this then it can look forward to expensive and potentially embarrassing litigation with the ACCC, being litigation which, given the scope of the Act, is likely to lose.
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ASSOCIATION FOR BAHA'I STUDIES, AUSTRALIA
ANNUAL CONFERENCE
29 September–1 October 2000 University of Southern Queensland, Toowoomba
What is the relationship between health and religion? Does religious life help or hinder the development of a sound mind and a sound body? If so, what are the mechanisms responsible? Can illness strengthen faith? Can faith be shaken by illness? How does spirituality create a resilient individual, community, and nation? How can the community participate in health planning? What models of health exist within the Baha'i community? Does the Baha'i community promote models of healthy living? Further details from:
Mr Owen Allen, 45 Cumbrian Ave, Atherton, Qld. 4883
Mrs Jillian Wiese, PO Box 54, Shellharbour Square, NSW 2529
Dr Vahid Payman, Peter James Centre, Locked Bag No.1, PO Forest Hill, VIC 3131