The illegality of fixing minimum charges for medical services

Introduction:

Recently, several private medical and dental organisations have been attempting to fix minimum charges for services amongst their members. This has no doubt been fuelled by price wars in the practice arena. Most medical and dental professionals, despite cautions, are unaware that fixing minimum prices by organisations for its members is an illegal act as per the laws of the country. 

The minimum price fixing by organisations are being done on the pretext that the recently introduced Clinical Establishment Act requires all medical and dental practitioners to publicly display the charges for various treatments. What the private organisations do not realise is that the CEA was legislated not for the purpose of minimum charges but rather in the interest of transparency for the public who can make an informed choice on who to take treatment from based on their charges for service. 

The minimum charge fixation, in addition to being illegal, is also going to work against the interest of the members because those professionals who are not members of these associations are free to fix their own charges and can undercut them by declaring that they are willing to offer services at a lower cost. The associations do not realise that they are putting themselves at a disadvantage if the recommended cost is publicly announced. In fact even members of these associations, may in private, offer services at lower cost by citing the recommended fees. 

However, the bigger issue is that it violates established laws of the country and the associations are liable to enormous fines for cartelization ( forming groups to fix prices) under the Competition Law of 2002 enacted in Parliament in 2003.

What does the law say?

The competition law in India was legislated in 2002 to replace the Monopolies and Restrictive Trade Policies Act ( MRTP) of 1969. (1)

This law gives overreaching powers to the Competition Council of India ( CCI) to impose exemplary fines for violation of these laws. The law was created in line with similar laws around the world like Anti Trust laws in USA which is enforced by the Federal Trade Commission or the Competition and Markets Act ( CMA) or the Competition Act of the UK and European Union respectively. (2)

So what is Competition law in India?

The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws. The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations which causes or likely to cause an appreciable adverse effect on competition within India.[3)

There are some features of this law which we must be familiar with. 

Cartelisation: This refers to any group that forms into a cartel ( group) to fix prices or in any way impedes the process of competition. So let us see how cartels are defined in Indian law.

Cartel:Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit control or attempt to control the production, distribution, sale or price of goods or provision of services (3)

This means that competition  should be a product of market forces and cannot be controlled by any group or organisation that forms into a cartel to fix minimum prices.

Predatory pricing:Predatory pricing means the sale of goods or provision of services, at a price which is below the cost of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.(4)

This is the opposite of cartelisation. No person or group of persons can charge abnormally low prices to drive other competitors out of business. An example is telephone companies charging low prices, even at a loss, to eliminate others from competition.

There are several other commercial clauses but these two are most relevant to medical practice.

Do doctors and other professionals come under this Act?

 In India, like many other countries, medical service comes under the definition of contract for services ( under section 2 (1) ( 0) of the Consumer Protection Act) and are therefore commercial services as decided in the VP Shantha vs IMA and others.

In the USA,  ‘It was generally assumed that professions, such as the practice of law or medicine, would be exempt from antitrust ( Competition Law) considerations. The 1975 U.S. Supreme Court ruling in Goldfarb v Virginia State Barwould change that assumption’(5).

If and when any medical association tries to fix minimum prices, it will be a violation of Competition Law and the organisation fixing these prices can face enormous fines. 

Who can punish for violation?

Any complaint with the Competition Council of India (CCI) by any person affected by any violation can prefer a complaint to the competition council. This maybe a member of the organisation who is prevented from fixing his/her own charges or a person from the public who feels that the cost of service has been escalated by an association of professionals involved in cartelisation.

It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.(6)

What is the punishment for violation of Competition Act?

According to the Act the punishment for violation is as follows

If any person fails to comply with the orders or directions of the Commission shall be punishable with fine which may extend to ₹ 1 lakh for each day during which such non compliance occurs, subject to a maximum of ₹ 10 crore.

Further disregard can invite 3 Years imprisonment and upto ₹25 crores.(7)

Conclusion

Associations such as the Indian Medical Association and Indian Dental Association should refrain from forming into a group and fixing minimum prices, in the same way that Government agencies should stop fixing maximum prices. 

There are at least three reasons why fixing minimum charges will work against the members of these organisations 

1. It is illegal and the associations are liable for penalty.
2. Only 15% of dentists are members of the dental associations. Dentists who do not belong to the association will see an opportunity to undercut members of associations as they are not bound by their recommendations or dictates.
3. Private teaching institutions have started paid clinics as income generating measures ( due to low demands for seats). They fall outside of these recommendations and members will lose patients to these institutions that deploy their paid staff who can earn more with lesser profit. 

It is high time that the matter is carefully thought out before making recommendations.

References

1. https://en.m.wikipedia.org/wiki/The_Competition_Act,_2002
2. https://en.m.wikipedia.org/wiki/Competition_law
3. "Section 2(c) of Competition Act 2002". Indian Kanoon.
4. The Competition Act – Act No. 12 of 2003"
5. https://www.healio.com/orthopedics/business-of-orthopedics/news/print/orthopedics-today/%7Bb4d25dee-71a8-44ba-8006-b7089a8dc5a0%7D/physician-mergers-antitrust-law-are-often-complicated-for-individuals-groups
6. "About CCI | Competition Commission of India". www.cci.gov.in. Retrieved 19 November 2015.
7. https://en.m.wikipedia.org/wiki/The_Competition_Act,_2002