Organized Medicine on Trial: The Federal Trade Commission vs. the American Medical Association

During the 1970s, the Federal Trade Commission took on the powerful American Medical Association, hastening the end of the medical profession's domination of the health-care industry. The pivotal confrontation was the FTC's administrative action (the "FTC proceeding"), commenced in 1975, against the AMA. ¹ According to the FTC, ethical restrictions on physician advertising, solicitation, and contract practice bore no reasonable relationship to procompetitive concerns, the touchstone of the FTC's public-interest calculus. By eliminating these restraints, FTC commissioners and attorneys cut the ties that bound rank-and-file physicians to their national, state, and local medical societies, thereby undermining the structure of organized medicine. Stripped of its organizing principles and enforcement mechanisms, the medical establishment weakly resisted the formation of large-scale provider networks and the integration of insurance products and delivery systems, known as health maintenance organizations or HMOs.

The FTC proceeding signaled a fundamental shift in the federal government's relationship with the medical profession. Until 1975, the learned professions, medicine among them, enjoyed protection from the antitrust laws. Consequently, they were able to regulate their own spheres of activity, generally free from government interference. Organized medicine took full advantage of the situation, securing a high degree of autonomy for physicians in their professional pursuits. By establishing and enforcing certain rules of professional conduct, organized medicine prevented physicians from interacting with competing providers of health care, such as chiropractors, and from engaging in the corporate practice of medicine, including the formation of prepaid group practices. Government, insurance companies, hospitals, and consumers had limited abilities to influence medical affairs so long as certain competitive restrictions, established in codes of medical ethics, remained intact.

Guild power began to erode even before the U.S. Supreme Court's pronouncement in 1975 that the antitrust laws would henceforth apply to the learned professions. Physician membership in the AMA had declined from a high of 73 percent in 1963 to 61 percent by 1971, with many young physicians and those in academic medicine spurning the AMA's conservative approach to health-care delivery. ² But medicine, for the most part, remained a unique case, escaping the "free market" ideology that brought corporate and bureaucratic forms of organization to other sectors of the economy. ³ Most physicians remained in private practice and, in Paul Starr's words, "channeled the development of hospitals, health insurance, and other medical institutions into forms that did not intrude on their autonomy." ⁴ When the Supreme Court applied the antitrust laws to the learned professions, it undermined government support for the status quo. The antitrust agencies of the federal government, principally the Federal Trade Commission, subsequently opened the health-care industry to market competition, thereby demonstrating that the legal/administrative process can direct public policy when democratically elected branches of government fail to pursue comprehensive reform.

This article relies on numerous legal briefs, court rulings, government reports, and internal FTC memoranda to reconstruct the context for administrative action against the AMA. It explores the ethical principles at the center of the controversy, the FTC's litigation strategy, the allegations and defenses of the primary parties, and the decisions of the administrative law judge, the FTC commissioners, and the appellate courts. Finally, the article explains why the AMA lost and examines the consequences for the health-care industry. I will show that consumer advocates from the left converged with free-market economists from the right to isolate the medical profession both politically and ideologically. Using the administrative process to its advantage, the FTC redefined the public interest in health care to emphasize economic efficiency and, in the process, expanded its own administrative authority at the expense of professional self-regulation. The irony is that current legislative initiatives designed to protect patients from the excesses of HMOs reflect a realization that market-based health policies sometimes fail to serve the public interest.

The...