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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.
Copyright 2007, Davis Wright Tremaine
LLP.
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