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Health Law Advisory Bulletin
Arizona Hospital Association Agrees
to Stop Imposing Uniform Rates on Nurse Staffing Agencies
By Douglas
C. Ross and Charles
S. Wright
[May 2007]
In a stipulated judgment with the Department
of Justice (DOJ) announced May 22, 2007, the Arizona Hospital and
Healthcare Association (AzHHA) has agreed not to set uniform rates
at which member hospitals would contract with nurse staffing agencies
for temporary nursing services. This stipulated judgment highlights
the importance of avoiding any form of price fixing, particularly
among members of group purchasing organizations.
Through a subsidiary, AzHHA set up the
AzHHA Registry, which acted as a group purchasing organization for
the association’s member hospitals to contract with nurse
staffing agencies. In its early years, the Registry focused primarily
on quality: ensuring that the agencies satisfied proper credentialing,
insurance and other qualifications. However, DOJ’s complaint
alleges that in 1997 the Registry started imposing uniform rates
on all staffing agencies that wished to participate in the Registry.
DOJ also alleges that the Registry enforced those rates by excluding
from participation in the Registry staffing agencies that would
not agree to those rates as well as hospitals that used the Registry
for less than 50 percent of their temporary staffing. Given the
purchasing power of the Registry alleged by DOJ, these methods proved
successful and allowed the Registry to command rates below what
the hospitals could have obtained in the absence of the Registry.
The stipulated judgment prohibits AzHHA
from establishing common rate structures on behalf of its members.
The judgment also prohibits AzHHA from using any mechanisms that
might enforce common rate structures (whether explicit or de facto),
including imposing minimum usage requirements on members, imposing
penalties for not using the Registry, offering financial incentives
for use of the Registry, or sharing competitively sensitive contract
information among members. The judgment does not, however, require
dismantling the Registry itself, and allows the Registry to continue
to impose non-economic restraints on nurse staffing agencies participating
in the Registry, including defining nurse types, setting fees for
staffing agencies to participate in the Registry, setting the criteria
for staffing agencies’ participation in the Registry as long
as such criteria do not violate the prohibitions of the judgment,
maintaining a credentialing program for the staffing agencies, and
setting insurance and indemnification requirements for the staffing
agencies. The judgment also permits individual hospitals to negotiate
their own rates with the staffing agencies. The judgment awaits
approval by the court.
This stipulation highlights the danger
of any form of collective setting of purchasing rates by hospitals.
While it is true that group purchasing (as distinct from joint selling)
has traditionally raised few antitrust issues, this case shows that
the antitrust enforcement agencies will not hesitate to take action
when purchase prices are set collectively and this conduct has an
anticompetitive effect.
DOJ and the Federal Trade Commission
have established a safety zone for group purchasing: to fall within
it, the purchases must account for less than 35 percent of the total
sales of the purchased product or service in the relevant market
and the cost of the products or services purchased jointly must
account for no more than 20 percent of the total revenues from all
products or services sold by each participant in the group. Hospitals
are advised to consult the safety zone before forming group purchasing
organizations. Venturing beyond the safety zone does not automatically
impose antitrust liability, but hospitals need to be particularly
sensitive to the risks of group purchasing where the safety zone
is not applicable. Conversely, the proposed consent judgment reiterates
that collective establishment of quality standards will be treated
far more leniently under the antitrust laws.
Hospitals considering joining (or already
a part of) joint purchasing organizations similar to the one challenged
in Arizona should consider the following:
- Hospitals should not exchange information among themselves
regarding nurse wages or pay rates. If hospitals provide this
information to a third-party organization, the organization should
keep this information confidential from other participating hospitals.
- The organization should not impose uniform purchasing rates
on the agencies.
- Each member hospital should contract individually with the agencies.
- Each contract should contain an “escape clause”
that permits either the agency or the hospital to terminate on
reasonable notice. In no way should the organization attempt to
discipline participating agencies or hospitals from exercising
this right.
- If the organization proposes price ranges in an RFP, the RFP
should make clear that the agencies are not required to meet that
range in order to be selected. Similarly, the organization should
not reject bids simply because they are above such a range.
- The organization should try to take advantage of the safety
zones identified by DOJ and FTC.
Failure to utilize all of these suggestions does not necessarily
mean that activity of the purchasing organization will be illegal.
However, considering these suggestions may help avoid actions that
would draw the attention of antitrust regulators.
For more information, please contact:
Other DWT contacts:
Kent
B. (Bernie) Thurber, Portland, (503) 241-2300, berniethurber@dwt.com
Paul
T. Smith, San Francisco, (415) 276-6500, paulsmith@dwt.com
John
R. Tate, Los Angeles, (213) 633-6800, johntate@dwt.com
This advisory is
a publication of the Health Law Group of Davis Wright Tremaine LLP.
Our purpose in publishing this advisory is to inform our clients
and friends of recent legal developments. It is not intended, nor
should it be used, as a substitute for specific legal advice as
legal counsel may only be given in response to inquiries regarding
particular situations. Attorney Advertising. Prior results do not
guarantee a similar outcome. Thank you.
Copyright 2007, Davis Wright Tremaine LLP.
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