FTC Staff Comment Before the Nevada Attorney General Concerning Proposed Regulation of State Board of Physical Therapy

FEDERAL TRADE COMMISSION
~OMMISSION
,:_, APPROVED
San Francisco Regional Office
Box 36005
450 Golden Gate Ave.
San Francisco, CA 94102
(415) 556-1270
Lin 	Ng, 	Esq.
Deputy 	Attorney 	General
Office 	of 	the 	Attorney 	General
300 	South 	Fourth 	Street, 	Suite
Las 	Vegas, 	Nevada 	89101 1100
1
Re: 	Proposed 	Regulation 	of 	State 	Board 	of 	Physical
Therapv
Dear 	Ms. 	Ng:
The 	Federal 	Trade 	Commission's 	Bureaus 	of 	Competition,
Consumer 	Protection 	and 	Economics, 	and 	its 	San 	Francisco
Regional 	Office, 	are 	pleased 	to 	respond 	to 	your 	request 	for
comments 	on 	a 	regulation 	proposed 	by 	the 	Nevada 	State 	Board 	of
Physical 	Therapy 	("Board").l 	The 	proposed 	regulation 2 	defines
certain 	prohibited 	business 	practices 	that 	may 	subject
physical 	therapists 	to 	discipline 	by 	the 	Board. 	As 	discussed
below, 	we 	believe 	that 	Section 	21 	of 	the 	proposed 	regulation,
which 	apparently 	is 	primarily 	intended 	to 	prohibit 	a 	physical
therapist 	from 	being 	employed 	by 	a 	referring 	physician, 	would
unreasonably 	restrict 	competition 	among 	physicial 	therapists,
and 	between 	physicians 	and 	physical 	therapists. 	As 	a 	result,
consumers 	would 	be 	deprived 	of 	the 	benefits 	of 	competition
among 	these 	providers, 	and 	would 	be 	limited 	in 	their 	choice 	of
the 	types 	of 	practices 	from 	which 	they 	may 	obtain 	physical
therapy 	treatment. 	The 	Board 	thus 	runs 	significant 	antitrust
risk 	if 	it 	adopts 	the 	proposed 	regulation.
For 	several 	years, 	the 	Commission 	has 	investigated 	the
competitive 	effects 	of 	rest~ictions on 	the 	business 	practices
of 	state-licensed 	professionals, 	including 	dentists, 	lawyers,
physicians, 	non-physician 	health 	care 	providers, 	and 	others.
These 	comments 	represent 	the 	views 	of 	the 	Commission's
Bureaus 	of 	Competition, 	Consumer 	Protection, 	and 	Economics, 	and
of 	its 	San 	Francisco 	Regional 	Office, 	and 	do 	not 	necessarily
represent 	the 	views 	of 	the 	Commission 	or 	any 	individual
Commissioner. 	The 	Commission, 	however, 	has 	authorized 	the
submission 	of 	these 	comments.
2 Chapter 	640, 	Section 	21.

Lin 	Mg, 	Esq.
Deputy 	Attorney 	General Page 	2
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The 	goal 	of 	the 	Commission 	has 	been 	to 	identify 	and 	urge 	the
removal 	of 	those 	restrictions 	on 	practice 	that 	impede
competition, 	increase 	costs, 	or 	harm 	consumers 	without
providing 	adequate 	countervailing 	benefits. 	We 	believe 	that
proposed 	Section 	21 	may 	have 	these 	effects.
Section 	21 	of 	the 	proposed 	regulation 	identifies 	the
kinds 	of 	financial 	arrangements 	that 	would 	subject 	a 	physical
therapist 	to discipline. 	Part 	l(b} 	of 	proposed 	Section 	21
prohibits 	a 	physical 	therapist 	from:
Profiting 	by 	means 	of 	credit 	or 	other 	valuable
consideration, 	including 	wages, 	an 	unearned
commission, 	a 	discount 	or 	gratuity, 	from 	a 	referral 	of
a 	patient 	including 	any 	relative 	or 	associate 	of 	the
person making 	the 	referral.
We 	understand 	that 	the 	Board's 	intent 	is 	to 	prohibit 	employment
of 	physical 	thera~ists by 	physicians 	who 	prescribe 	physical
therapy 	services. 	This 	intent 	is 	evident 	from 	the 	1anQuaqe 	of
Section 	21.2, 	which 	excludes 	from 	the 	rule's 	coverage 	only
emplovment 	situations 	where 	physical 	therapists 	work 	for 	either
hospitals 	or 	other 	physicia1 	therapists. 	However, 	the 	proposed
rule's 	effect 	is 	much 	broader 	than 	prohibiting 	physician-phys5ca1
therapist 	employment 	relationships. 	The 	rule 	would 	also 	prohibit
employment 	of 	a 	physical 	therapist 	by 	a 	clinic, 	health
maintenance 	organization, 	or 	any 	health 	care 	entitity 	not
specifica!ly 	excluded 	under 	Section 	21.2. 	We 	believe 	this 	will
have 	significant 	anticompetitive 	results.
OUr 	primary 	concern 	is 	that 	the 	proposed 	rule 	would 	deny
consumers 	the 	benefits 	of 	the 	full 	range 	of 	service, 	price, 	and
quality 	options 	that 	a 	competitive 	market 	would 	provide. 	The
proposed 	employment 	restrictions 	would 	hinder 	the 	development 	of
more 	efficient 	practices 	that 	reduce 	costs 	through 	economies 	of
scale 	or 	scope. 	In 	addition, 	providers 	would 	be 	limited 	in
offering 	a11ie~ services 	at 	a 	single 	location, 	which 	may 	provide
greater 	convenience 	and 	lower 	costs 	to 	consumers 	who 	would
otherwise 	have 	to 	go 	to 	different 	locations 	to 	obtain 	these
services. 	For 	example, 	a 	patient 	may 	wish 	to 	obtain 	care 	at 	a
A literal 	reading 	of 	the 	regulation, 	however, 	might 	lead 	to
absur~ results. 	For 	example, 	under 	the 	regulation, 	a 	physical
therapist 	may 	not 	receive 	any 	remuneration 	from 	a 	referral 	of 	a
patient. 	Because 	proposed 	Section 	2l.l(b} 	does 	not 	define 	the
source 	of 	the 	remuneration, 	it 	could 	conceivably 	subject 	physical
therapists 	to discipline 	for 	receiving 	payment 	(i.e., 	·valuab1e
consideration W) 	from 	patients 	who 	are 	referred, 	thus 	outlawing
free 	standing 	physical 	therapy 	practices. 	We 	do 	not 	believe 	this
was 	the 	Board's 	intent.

Lin 	Ng, 	Esq.
Deputy 	Attorney 	General Page 	3
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clinic 	where 	complementary 	medical 	services 	(i.e., 	diagnosis 	and
therapy) 	are 	offered 	at 	the 	same 	location 	(e.g., 	a 	sports
medicine 	clinic, 	or 	occupational 	health 	clinic). 	If 	the 	iroposed
regulation 	is 	adopted, 	this 	option 	will 	not 	be 	available.
We 	understand 	that 	the 	regulation 	may 	be 	intended 	to 	prevent
the 	potential 	for 	abuse 	of 	the 	trust 	that 	a 	patient 	places 	in 	a
practitioner 	to 	make 	appropriate 	referrals 	based 	on 	his 	or 	her
independent 	professional 	judgment 	of 	the 	patient's 	best
interest. 	The 	Board 	may 	be 	concerned 	that 	consumers 	could 	be
deceived 	about 	the 	financial 	arrangement 	between 	physicians 	and
physical 	therapists. 	There 	are, 	however, 	less 	restrictive 	means
of 	oreventing 	abuse 	or 	deception 	than 	prohibiting 	employment
arrangements. 	For 	example, 	an 	ownership 	disclosure 	requirement
could 	be 	adopted. 	Nevada 	law 	already 	provides 	that 	a 	physician
may 	be 	disciplined 	f0 5 failing 	to 	disclose 	to 	patients 	any
conflict 	of 	interest.
Because 	of 	their 	adverse 	effects 	on 	consumer 	welfare, 	the
Commission 	has 	taken 	legal 	action 	against 	restrictions 	on
employment 	relationships 	in 	health 	care 	practice. 	For 	example,
in 	a 	case 	challenging 	various 	ethical 	code 	provisions 	enforced 	by
the 	American 	Medical 	Association, 	the 	Commission 	found 	that
restrictions 	on 	physicians' 	employment 	relationships 	precluded
the 	use 	of 	salaries 	or 	other 	arrangements 	that 	may 	permit 	the
development 	of 	innovative 	forms 	of 	health 	care 	delivery 	that 	are
cost 	efficient, 	and 	therefore 	beneficial 	to 	consumers. 6 	In
addition, 	the 	Commission 	found 	that 	the 	AHA's 	restrictions 	on
joint 	business 	arrangements 	between 	physicians 	and 	non-physicians
inevitably 	had 	an 	adverse 	effect 	on 	competition 	because 	they
prevented 	physicians 	from 	adopting 	more 	efficient 	business
formats. 7 	The 	proposed 	rule 	could 	have 	similar 	anticompetitive
Arguably, 	the 	proposed 	regulation's 	prohibitions 	on 	employ-
ment 	would 	still 	permit 	physicians 	and 	physical 	therapists 	to
practice 	at 	the 	same 	location 	as 	separate 	business 	entities.
Restrictions 	on 	efficient 	forms 	of 	practice, 	however, 	generallY
harm 	consumers 	bv 	raising 	costs 	and 	prices.
5 	Nev. 	Rev. 	Stats. 	S 630.305(6) 	(1985). 	See 	also 	Cal. 	Bus. 	&
Prof. 	Code 	S654.2, 	which 	requires 	that 	physicians 	disclose 	in
writing 	to 	patients 	any 	financial 	interest 	they 	have 	in
facilities 	to 	which 	patients 	are 	referred, 	and 	inform patients
that 	they 	do 	not 	have 	to 	go 	to 	the 	provider 	the 	physician 	has
selected.
6 	American 	Medical 	Ass'n, 	94 	F.T.C. 	701, 	1016-18, 	aff'd 	as
modified, 	638 	F.2d 	443 	(2d 	Cir. 	1980), 	aff'd 	memo 	by 	an 	equallv
divided 	Court, 	455 	U.~. 	676 	(1982).
(Footnote 	continued)

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Lin 	Ng, 	Esq.
Deputy 	Attorney 	General Page 	4
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effects 	and 	therefore 	be 	the 	subject 	of 	antitrust 	scrutiny.8
Finally, 	we 	understand 	that 	the 	Board 	is 	relying 	on 	Nevada
Revised 	S~atutes S640.l60 	to 	support 	promulgation 	of 	Section
21. 	The 	statute 	prohibits 	physical 	therapists 	from 	"entering
into 	any 	contract 	or 	arrangement 	which 	provides 	for 	the 	payment
of 	an 	unearned 	fee 	to 	any 	person 	following 	his 	referral 	of 	a
patient." 	Although 	we 	are 	not 	expert 	in 	Nevada 	law, 	we 	do 	not
believe 	this 	section 	of 	the 	statute 	provides 	a 	legally 	sufficient
basis 	for 	the 	proposed 	regulation. 	~ere 	is 	no 	indication 	in 	the
legislative 	history 	that 	the 	term 	·unearned 	fee" 	was 	intended 	to
include 	payment 	for 	services 	actually 	provided 	by 	an 	employee. 9
Nor 	is 	the 	plain 	meaning 	of 	the 	statute 	susceptible 	to 	such 	an
interpretation. 	Payment 	received 	for 	a 	nurse's 	administration 	of
an 	injection 	can 	hardly 	be 	considered 	an 	unearned 	fee 	to 	the
physician 	who 	employs 	the 	nurse. 	Similarly, 	payment 	received 	for
a 	physical 	therapist's 	administration 	of 	therapy 	does 	not
constitute 	an 	unear~Od 	fee 	to 	the 	physician 	who 	employs 	the
physical 	therapist.
In 	conclusion, 	the 	proposed 	regulation 	is 	likely 	to 	injure
consumers 	by 	reducing 	competition. 	It 	is 	also 	broader 	than
necessary 	to 	serve 	the 	Board's 	interest 	in 	protecting 	consumers,
who 	could 	be 	protected 	through 	less 	severe 	restrictions 	such 	as
7 	American 	Medical 	Ass'n, 	supra, 	94 	F.T.C. 	at 	1018.
Absent 	state 	action, 	anticompetitive 	conduct 	by 	state
regulatory 	boards 	can 	violate 	the 	antitrust 	laws. 	See, 	e.g.,
United 	States 	v. 	Texas 	State 	Board 	of 	Public 	Accountancy, 	464 	F.
Supp. 	400 	(W.O. 	Tex. 	1978), 	aff'd 	per 	curiam 	as 	modified, 	592 	F.
919 	(5th 	Cir.), 	rehearing 	denied, 	5~5 F.2d 	1221, 	cert. 	denied,
444 	U.S. 	925 	(1979): 	Louisiana 	State 	Board 	of 	Dentistry, 	FTC 	Dkt.
9188 	(Consent, 	Aug. 	26, 	1985): 	Massachusetts 	Board 	of
Registration 	in 	Optometry, 	FTC 	Dkt. 	9195 	(Initial 	Decision 	filed
June 	23, 	1986).
9 	Meeting 	of 	the 	Senate 	Committee 	on 	Commerce 	and 	Labor, 	March
11, 	1981, 	at 	p. 	8 	(Senator 	Wilson, 	Chairman).
10 	It 	is 	significant 	that 	other 	legislation 	directed 	at
resolving 	the 	same 	problem 	of 	patient 	exploitation 	and 	physician
conflict 	of 	interest 	has 	made 	it 	clear 	that 	employment 	rela-
tionships 	do 	not 	fall 	into 	the 	category 	of 	financial 	arrangements
that 	should 	be 	prohibited. 	For 	example, 	the 	Medicare 	and
Medicaid 	Antifraud 	and 	Anti-abuse 	Amendments 	of 	1977, 	42 	U.S.C.
S~ 139 5nn (b) (3) CB) 	and 	1396h (b) (3) (B)) 	spec if ica l1y 	do 	not 	apply
to 	"any 	amount 	paid 	by 	an 	employer 	to 	an 	employee 	(who 	has 	a 	bona
fide 	employment 	relationship with 	such 	emp10ver) 	for 	employment
in 	the 	provision 	of 	covered 	items 	or 	services."

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Lin 	Ng, 	Esq.
Deputy 	Attorney 	General Page 	5
disclosure 	of 	financial 	interests. 	Finally, 	the 	adoption 	of 	the
proposed 	regulation 	may 	expose 	the 	Board 	to 	antitrust 	risk. 	For
all 	of 	these 	reasons, 	the 	staff 	of 	the 	Federal 	Trade 	Commission
opposes 	the 	promulgation 	of 	the 	proposed 	regulation.
Very 	truly 	yours,
~Gr!}(~Director