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Agreement By Dentists To Avoid Discounts Overturned

August 30, 1994

WASHINGTON (AP) _ The Justice Department and the Arizona attorney general broke up an agreement Tuesday among 85 percent of the dentists in that state that ended discounts for patients. Five similar agreements on health care prices, including two that operate nationwide, are under federal investigation.

The end of the dentists’ agreement ″could save Arizona residents $6 million to $10 million a year,″ Assistant Attorney General Anne K. Bingaman said at a news conference. ″This shows how antitrust enforcement can help lower health care costs.″

Before the agreement was aggressively enforced in early 1993, a dental crown cost $250 on average under managed care or discount plans but between $575 and $800 from dentists in the Delta Dental Plan of Phoenix, said Suzanne Dallimore, an attorney for the state. Delta had enlisted 85 percent of Arizona’s dentists.

The dental plan agreed to end the practice while denying it had violated any law. Delta agreed to let dentists charge whatever they want.

″We filed this case because we were hearing from a lot of people who were getting hurt,″ said Arizona Attorney General Grant Woods. ″People were going without″ treatment. Complaints also came from dentists in four competing dental plans that offered lower prices.

This case was the first time the Justice Department has gone to court to challenge so-called ″most-favored-nation″ or MFN clauses. The label is from the language of international trade; a country that is granted MFN status by the United States - as most are - is assured its exports will be subject to the lowest tariffs the United States imposes.

Thus, Delta’s MFN clause said participating dentists had to give patients covered by Delta’s contracts with employers the lowest prices they offered.

Such clauses are not always illegal or anti-competitive, Bingaman said. They can lower prices when used by groups with low market shares. Each one must be studied individually to determine its impact.

Bingaman explained that because 85 percent of Arizona’s dentists participated in the Delta plan and because they got substantial proportions of their patients from it, the clause eliminated rather than expanded discounts.

For instance, dentists who also belonged to a discount dental plan that covered 10 percent of their patients would be forced under the clause to give the same discounts to the 80 percent of their patients enrolled by Delta, Bingaman said.

Rather than cut their incomes, they gave up discounts entirely, Bingaman said. Arizona dentists resigned en masse from competing discount plans.

″There’s no rule of thumb,″ Bingaman said. But in health plans that have 70 or 80 or 90 percent of the market share there is more likely to be an anti- competitive impact, she said.

Last September, the Justice Department wrote Pennsylvania state insurance regulators and successfully urged them to reject a similar pricing clause proposed by Blue Cross of Western Pennsylvania, which covers 63 percent of the people with private hospitalization coverage in the area.

In May, New York state insurance regulators cited that letter in striking down an MFN clause by Blue Cross, Bingaman noted.

She would not give details of the five cases under investigation other than to say they all involved health care and two of the clauses operated nationwide. She said such clauses have been growing in the health industry since the explosion of managed care in the last three or four years.

Complaints reaching the antitrust division have been in health care, Bingaman said, but the division would be willing to examine the working of MFN clauses in other industries. They are widely used by energy companies, she said.

The joint state-federal civil complaint - the first ever in a price-fixing case - was filed in U.S. District Court in Phoenix along with a proposed settlement. The settlement will become final upon court approval after a 60- day public comment period.

Asked about the plan’s denial of violations, Woods said, ″That’s what they always say.″ The plan could have fought the case in court if it chose to, he added.

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