Arizona Hospital Association Agrees to Stop Imposing Uniform Rates on Nurse Staffing Agencies

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.