[Federal Register Volume 59, Number 250 (Friday, December 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32145]
[[Page Unknown]]
[Federal Register: December 30, 1994]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Classic Care Network, Inc., North Shore
University Hospital, North Shore University Hospital at Glen Cove,
Brookhaven Memorial Hospital Medical Center, Central Suffolk Hospital,
Good Samaritan Hospital, Huntington Hospital, John T. Mather Memorial
Hospital and South Nassau Communities Hospital, No. CV 94 5566
(E.D.N.Y., filed December 5, 1994)
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16 (b)-(h), that a proposed Final Judgment,
Stipulation and Competitive Impact Statement have been filed with the
United States District Court for the Eastern District of New York in
the above-captioned case.
On November 29, 1994, the United States filed a complaint to
prevent and restrain the defendants from violating Section 1 of the
Sherman Act. The complaint alleges that the defendants created a joint
sales agency, the purpose and effect of which was to eliminate
discounting on inpatient hospital rates to licensed health maintenance
organizations (HMOs) and to limit discounting on outpatient hospital
rates to HMOs and managed care plans. Consequently, HMOs that operated
in Nassau and Suffolk Counties in New York were prevented from
contracting with the defendants for competitive rates for inpatient
hospital services, and both HMOs and managed care plans were limited to
contractual discounts on outpatient rates of no more than 10% off any
defendant hospital's established rate for any outpatient procedure.
The proposed Final Judgment prohibits the defendants from entering
into or continuing to participate in any unlawful agreements between
themselves or with any competing hospitals that would restrain price
competition for the delivery of inpatient or outpatient hospital
services to purchases of those services, such as HMOs and third-party
payers, and that would ultimately raise the prices that individual
consumers pay for health insurance coverage.
Public comment is invited within the statutory 60-day period. Such
comments will be published in the Federal Register and filed with
Court. Comments should be addressed to Ralph T. Giordano, Chief, New
York Office, U.S. Department of Justice, Antitrust Division, 26 Federal
Plaza, Room 3630, New York, New York 10278 (telephone 212/264-0390).
Constance K. Robinson,
Director of Operations, Antitrust Division.
COMPLAINT
The United States of America, by its attorneys, acting under the
direction of the Attorney General of the United States, brings this
civil action to obtain equitable relief against the above-named
defendants and complains and alleges as follows:
I
Jurisdiction and Venue
1. This Complaint is filed and these proceedings are instituted
under Section 4 of the Sherman Act (15 U.S.C. 4) in order to prevent
and restrain violation by defendants, as hereinafter alleged, of
Section 1 of the Sherman Act (15 U.S.C. 1). This Court has jurisdiction
over this matter pursuant to 28 U.S.C. 1331 and 1337.
2. Defendants maintain offices, transact business and are found
within the Eastern District of New York, within the meaning of 15
U.S.C. 22 and 28 U.S.C. 1391(c).
II
Defendants
3. Classic Care Network, Inc. (Classic Care) is a not-for-profit
corporation organized and existing under the laws of the state of New
York. Its principal place of business is Nassau County, New York. Each
of the defendant hospitals is a member of Classic Care and is
represented with a seat on Classic Care's board of Directors.
4. North Shore University Hospital (North Shore) is a 440 bed,
acute care, non-profit hospital corporation organized and existing
under the laws of the State of New York with its principal place of
business in Manhasset, New York. North Shore is a member of Classic
Care and its Chief Executive Officer (CEO) serves as a voting director
of Classic Care.
5. North Shore University Hospital at Glen Cove (Glen Cove) is a
265 bed acute care voluntary hospital organized and existing under the
laws of the State of New York with its principal place of business in
Glen Cove, New York. Since 1990 Glen Cove has been an affiliate of
North Shore University Hospital. Glen Cove is a member of Classic Care
and is represented by a non-voting director of Classic Care.
6. Brookhaven Memorial Hospital Medical Center (Brookhaven) is a
321 bed acute care voluntary hospital organized and existing under the
laws of the State of New York and located in East Patchogue, New York.
Brookhaven is a member of Classic Care and its CEO serves as a voting
director of Classic Care.
7. Central Suffolk Hospital (Central Suffolk) is a 214 bed acute
care voluntary hospital organized and existing under the laws of the
State of New York and located in Riverhead, New York. Central Suffolk
is a member of Classic Care and its CEO serves as a voting director of
Classic Care.
8. Good Samaritan Hospital (Good Samaritan) is a 425 bed acute care
voluntary hospital organized and existing under the laws of the State
of New York and located in Bay Shore, New York. Good Samaritan is a
member of Classic Care and its CEO serves as a voting director of
Classic Care.
9. Huntington Hospital (Huntington) is a 377 bed, acute care non-
profit hospital organized and existing under the laws of the State of
New York and located in Huntington, New York. Huntington is a member of
Classic Care and its CEO serves as a voting director of Classic Care.
10. John T. Mather Memorial Hospital (Mather) is a 248 bed acute
care voluntary hospital organized and existing under the laws of the
State of New York and located in Port Jefferson, New York. Mather is a
member of Classic Care and its CEO serves as a voting director of
Classic Care.
11. South Nassau Communities Hospital (South Nassau) is a 429 bed
acute care voluntary hospital organized and existing under the laws of
the State of New York and located in Oceanside, New York. South Nassau
is a member of Classic Care and its CEO serves as a voting director of
Classic Care.
III
Trade and Commerce
12. Each of the defendant hospitals provides both general acute
care inpatient and outpatient medical services in connection with the
diagnosis, care and treatment of patients. Various of the defendant
hospitals compete with each other and other hospitals in Nassau and
Suffolk Counties for patients who are members of health maintenance
organizations (HMOs) and managed care plans.
13. General acute care hospitals compete for patients on the basis
of price, quality, reputation and services. The defendant hospitals
endeavor to maintain or increase their patient occupancy rates,
admissions and the utilization of their outpatient services by seeking
contracts with HMOs and managed care organizations pursuant to which
those entities influence or direct their enrollees to use the
facilities of defendant hospitals.
14. Third-party payers provide health insurance coverage including
coverage for inpatient hospitalization and outpatient hospital services
for patients who either individually, or through their employer, have
subscribed for that coverage and who pay a fixed rate or premium for
that coverage. Third-party payers include both HMOs and managed care
payers.
15. An HMO in New York State must be licensed by the State in order
to operate. HMOs provide reimbursement payments for inpatient services
to the defendant hospitals at rates that are either determined by the
state's Diagnosis Related Group (DRG) reimbursement system or, in
accordance with New York State law, at discounted rates determined
pursuant to a voluntary agreement between the HMO and the hospital.
16. Voluntary agreements for discounted rates between HMOs and
hospitals for the delivery of hospital services can include the
adoption and utilization of per diem-based inpatient hospital rates. A
per diem-based inpatient hospital rate rewards third-party payers such
as HMOs with lower overall hospital prices for their members who
require hospitalization based on efficient patient management and
shorter lengths of stays at hospitals.
17. Under New York State law both HMOs and managed care payers may
enter into contracts with the defendant hospitals for discounted rates
in connection with the provision of outpatient services to their
subscribers or plan members.
18. HMOs and managed care payers compete between themselves to
obtain employer contracts and enrollees on the basis of price,
services, convenience and other factors including the reputations of
contracted providers including hospitals. They frequently seek to
minimize their costs while also arranging for the participation of a
sufficient number of reputable hospitals and other providers to attract
members. HMOs and managed care payers periodically direct their members
away from higher cost hospitals in favor of lower cost providers of
hospital services in order to minimize their costs.
19. In response to efforts by various HMOs to obtain discounts off
inpatient hospitalization rates and to direct patients away from higher
cost hospital providers in Nassau and Suffolk Counties to lower cost
hospitals, the defendant hospitals formed Classic Care in the fall of
1991 and signed a memorandum of understanding pursuant to which each
defendant agreed (1) that no member of Classic Care would enter into
any contract with an HMO or managed care payer without the collective
approval of the defendant hospitals; and (2) that Classic Care would be
the exclusive bargaining agent for the defendant hospitals in
connection with any negotiations relating to contracts with HMOs and
managed care payers.
20. The defendant hospitals and Classic Care also entered into an
understanding and agreement that no discounts would be permitted off
any Classic Care member's inpatient hospital rates in contracts with
HMOs or managed care payers and that discounts off any defendant
hospital's outpatient rates would be limited to no more than 10% off
those rates.
21. The defendant hospitals purchase substantial amounts of
supplies and equipment from out-of-state vendors that are shipped
across state lines. The United States government sends from outside the
State of New York substantial amounts of funds to the defendant
hospitals to pay for the treatment of Medicare and Medicaid recipients
residing in New York. The defendant hospitals also sell hospital
services that are paid for by insurers, managed care plans and HMOs
that are headquartered outside of New York State.
22. The general business activities of the defendant hospitals and
Classic Care, and the violations and practices described herein are
within the flow of, or have a substantial effect upon interstate
commerce.
IV
Violation Alleged
23. Beginning at least as early as April of 1991, and continuing at
least until January of 1992, defendants engaged in a continuing
combination and conspiracy in unreasonable restraint of interstate
trade and commerce in violation of Section 1 of the Sherman Act, 15
U.S.C. 1. This offense is likely to recur unless the relief prayed for
is granted.
24. The combination and conspiracy consisted of an agreement among
defendants to form a joint sales agency to coordinate contracting with
HMOs, the purpose and effect of which was to prevent discounting off
any defendant hospital's inpatient hospital rates and to limit
discounting on outpatient rates to HMOs and managed care payers.
25. In furtherance of this combination and conspiracy, defendant
hospitals, Classic Care and others did the following things, among
others:
(a) Agreed to refrain from contracting with HMOs that sought to
convert DRG rates on inpatient hospital services to per diem rates for
those same services;
(b) Agreed to prohibit discounts off any defendant hospital's
inpatient hospital rates in connection with any negotiated contract
between a defendant hospital and any HMO;
(c) Agreed on the terms and conditions upon which a most favored
nation clause proposed by a third-party payer for prices on outpatient
rates would be accepted by the defendant hospitals; and
(d) Agreed to limit discounts on outpatient services in contracts
between the defendant hospitals and any HMO or managed care payer to no
more than 10% off any defendant hospital's existing outpatient rates.
V
Effects
26. The combination and conspiracy has had the following effects,
among others:
(a) unreasonably restrained price competition between the defendant
hospitals for the sale of inpatient hospital services to HMOs;
(b) unreasonably restrained price competition between the defendant
hospitals for the sale of outpatient services to HMOs and managed care
payers; and
(c) deprived HMOs and managed care payers of the benefits of free
and open competition in connection with the purchase of hospital
services by those entities.
VI
Prayer
Wherefore, Plaintiff prays:
1. That the court adjudge and decree that the defendants have
engaged in an unlawful combination and conspiracy in unreasonable
restraint of interstate trade and commerce in violation of Section 1 of
the Sherman Act.
2. That each defendant, and each of their officers, administrators,
agents, servants, representatives, employees, successors, and assigns,
and all other persons acting or claiming to act under, through, or for
any defendant, be enjoined and restrained for a period of 5 years from
directly or indirectly continuing, maintaining, or renewing the alleged
combination, conspiracy, contract, agreement, understanding, or concert
of action or adopting or following any practice, plan, program or
device having a similar purpose or effect as the alleged combination
and conspiracy.
3. That the defendants be required to institute a compliance
program to ensure that defendants do not enter into, maintain or
participate in any contract, agreement, plan, program, or other
arrangement having a purpose or effect of continuing or renewing such
combination or conspiracy, and that defendants are fully informed of
the application of the antitrust laws to joint activities between
hospitals.
4. That plaintiff have such other and further relief as the nature
of the case may require and the court may consider just and proper.
Dated: December 5, 1994.
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations.
Ralph T. Giordano,
Chief, New York Field Office.
Geoffrey Swaebe (GS6073)
Patricia L. Jannaco (PJ7155)
Attorneys, Antitrust Division, U.S. Department of Justice, 26 Federal
Plaza, Rm. 3630, New York, N.Y. 10278, (212) 264-0652.
Certificate of Service
I, Geoffrey Swaebe, hereby certify that on the 5th day of December,
1994, I served the foregoing Complaint by causing copies thereof to be
sent by Federal Express to:
John Stack, Esq., Winston & Strawn, 35 West Wacker Drive, Chicago,
Illinois 60601, Counsel for Classic Care Network, Inc.
Robert Wild, Esq., Garfunkel, Wild & Travis, P.C., 175 Great Neck Road,
Great Neck, New York 11021, Counsel for Brookhaven Memorial Hospital
Medical Center, Central Suffolk Hospital, Good Samaritan Hospital,
Huntington Hospital, John T. Mather Memorial Hospital and South Nassau
Communities Hospital
and by hand delivery to:
Anthony J. D'Auria, Esq., Winston & Strawn, 175 Water Street, New York,
New York 10038, Counsel for North Shore University Hospital and North
Shore University Hospital at Glen Cove.
Geoffrey Swaebe,
Attorney, Antitrust Division, U.S. Department of Justice, 26 Federal
Plaza, Room 3630, New York, New York 10278, (212) 264-0652.
Stipulation
It is stipulated by and between the undersigned parties, by their
respective attorneys, that:
1. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon motion of any
party or upon the Court's own motion at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. 16), and without further notice to any party or other
proceedings, provided that Plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on Defendants and by filing that
notice with the Court;
2. In the event Plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation shall be of no effect whatever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
Dated: December 5, 1994.
For Plaintiff United States of America:
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations.
Ralph T. Giordano,
Chief, New York Field Office.
Geoffrey Swaebe,
Patricia L. Jannaco,
Attorneys, Antitrust Division, U.S. Department of Justice, 26 Federal
Plaza, Rm. 3630, New York, N.Y. 10278, (212) 264-0652
For the Defendants:
John Stack,
Counsel for Classic Care Network, Inc.
Winston & Strawn, 35 West Wacker Drive, Chicago, Illinois 60601.
Anthony J. D'Auria,
Counsel for North Shore University Hospital, and North Shore University
Hospital at Glen Cove.
Winston & Strawn, 175 Water St., New York, New York 10038.
Robert Wild,
Counsel for Brookhaven Memorial Hospital Medical Center, Central
Suffolk Hospital, Good Samaritan Hospital, Huntington Hospital, John T.
Mather Memorial Hospital, and South Nassau Communities Hospital.
Garfunkel, Wild & Travis, P.C., 175 Great Neck Road, Great Neck, New
York 11021.
FINAL JUDGMENT
Plaintiff, United States of America, having filed its complaint on
December 5, 1994, and plaintiff and defendants, by their respective
attorneys, having consented to the entry of this Final Judgment without
trial or adjudication of any issue of fact or law, and without this
Final Judgment constituting any evidence against or an admission by any
party with respect to any such issue;
NOW, THEREFORE, before the taking of any testimony and without
trial or adjudication of any issue of Fact or Law, and upon consent of
the parties, it is hereby
ORDERED, ADJUDGED AND DECREED as follows:
I
Jurisdiction
This court has jurisdiction over the subject matter of and the
parties to this action. The Complaint states a claim upon which relief
may be granted against each defendant under Section 1 of the Sherman
Act, 15 U.S.C. Sec. 1.
II
Definitions
As used in this Final Judgment:
A. ``Agreement'' means any contract, combination, conspiracy,
concert of action, mutual understanding, formal or informal, express or
implied, with any other person;
B. ``Fee'' means any proposed, suggested, recommended, or actual
charge, reimbursement rate, relative value conversion factor, relative
value unit, case-based payment rate, price term or condition for any
inpatient or outpatient hospital service or any methodology for
determining or computing any of the foregoing. The term includes any
actual or possible discount off any fee relating to any case-based
diagnosis related group or any policy regarding any fee in any
agreement between a hospital and a third-party payer, including the use
of any most favored nation clause;
C. ``Fee schedule'' means any list of hospital services showing a
fee, range of fees, or methodology for determining or computing fees
for such services;
D. ``Inpatient hospital services'' means hospital services provided
to patients who stay overnight at a hospital;
E. ``Integrated joint venture'' means a joint arrangement to
provide hospital services in which hospitals that would otherwise be
competitors pool their capital to finance the venture, by themselves or
together with others, and share substantial financial risk;
F. ``Long Island area'' means Queens, Nassau and Suffolk Counties
in the State of New York;
G. ``Most favored nation clause'' means any term or condition in an
agreement between a hospital and a third-party payer that provides that
the hospital will not charge any other payer a lower fee than that
charged to the payer who has entered into the agreement;
H. ``Negotiated fee'' means any actual or possible discount off any
fee in an agreement between a hospital and a third-party payer;
I. ``Per Diem'' means the reimbursement by any third-party payer of
any fee for inpatient hospital services on a daily or overnight basis;
and
J. ``Third-party payer'' means any person or entity that regularly
and pursuant to an organized plan or proposal purchases, pays or
reimburses for health care services provided to any other person and
includes, but is not limited to, health maintenance organizations,
preferred provider organizations, health insurance companies, prepaid
hospital, medical or other health insurance plans such as Blue Shield
or Blue Cross plans, government health benefits programs, self-insured
health benefits programs and employers or other entities providing
self-insured health benefits programs.
III
Applicability
This Final Judgment applies to each defendant and to each of their
officers, administrators, agents, servants, representatives, employees,
successors, and assigns and to all other persons in active concert or
participation with any of them who receive actual notice of this Final
Judgment by personal notice or otherwise.
IV
Prohibited Conduct
Unless permitted to engage in activities relating to conduct as set
forth in Paragraphs V., VI. and VII. of this Final Judgment:
A. Each defendant is enjoined and restrained from:
1. Directly or indirectly entering into any agreement with any
hospital in the Long Island area concerning:
(a) the negotiation, selection, approval, acceptance or refusal of
any contract with any third-party payer for the delivery of hospital
services,
(b) the terms or amounts of any fee to nay third-party payer, or
(c) the utilization of per diem-based fees in any agreement with
any third-part payer; and
2. Directly or indirectly communicating any negotiated fee, or any
refusal to grant discounts off any fee to any third-party payer, to any
hospital in the Long Island area.
B. Each defendant hospital is enjoined and restrained from directly
or indirectly utilizing the defendant Classic Care or any other agent
to set, maintain or determine any fee of any hospital in the Long
Island area.
C. Defendant Classic Care is enjoined and restrained from directly
or indirectly:
(1) entering into any agreement with any hospital in the Long
Island area to hold itself out as an exclusive negotiating agent with
any third-party payer;
(2) entering into any agreement with any hospital in the Long
Island area to hold itself out as an exclusive negotiating agent with
any third-party payer;
(3) developing, adopting or distributing any fee schedule for use
with any third-party payer; and
(4) recommending that any hospital withdraw from or refuse to enter
into any agreement with any third-party payer.
D. Each defendant shall terminate any agreement or portion thereof
entered into with any other defendant that conditions any actual or
possible agreement relating to fees between a hospital and a third-
party payer on the formal or informal approval, review or acquiescence
of any other defendant.
V
Bona Fide Joint Ventures
A. Nothing in this Final Judgment shall prohibit a defendant from
continuing to be or becoming a member of an integrated joint venture
before or after the entry of this Final Judgment so long as the
integrated joint venture in no way discourages, impedes or prohibits
any participating hospital from negotiating or entering into any
agreement independently with any third-party payer. Each individual
defendant shall promptly inform plaintiff of the name and address of
any integrated joint venture it joins after the entry of this Final
Judgment.
B. Each defendant may seek plaintiff's approval for any other type
of joint venture in the Long Island area in which it seeks to engage.
In such event, the defendant shall promptly report the details of the
proposed venture, together with the relevant underlying documentation
and a statement identifying the proposed implementation date, to
plaintiff. Plaintiff may make reasonable requests for additional
information relating thereto. The defendant will not consummate the
proposed venture for at least 30 days following the submission of any
information requested by plaintiff or, if no information is requested,
for at least 30 days following its reporting of the proposed venture to
plaintiff.
VI
Merged Entities
Nothing in this Final Judgment shall apply to agreements between
hospitals that are parties to a lawful merger or acquisition with each
other or that are subject to common corporate control.
VII
First Amendment Rights
Nothing in this Final Judgment shall prohibit any defendant acting
either alone or with others from exercising rights permitted under the
First Amendment of the United States Constitution to petition any
federal or state government executive agency concerning legislation,
rules or procedures, or to participate in any federal or state
administrative judicial proceeding.
VIII
Compliance Program
Each defendant is required to maintain an antitrust compliance
program which shall include:
A. Distributing within 60 days from the entry of this Final
Judgment, a copy of this Final Judgment and Competitive Impact
Statement to all officers, directors,trustees and administrators;
B. Notifying within 60 days from the entry of this Final Judgment,
all officers, directors, trustees and administrators that the defendant
will not be bound by any agreement that requires the approval of the
defendant Classic Care or any other defendant hospital in connection
with any actual or possible agreement for the delivery of hospital
services, including any agreement relating to fees for hospital
services, between the defendant and any third-party payer;
C. Distributing in a timely manner a copy of this Final Judgment
and Competitive Impact Statement to any successor corporation or person
who succeeds to a position as officer, director, trustee, or
administrator;
D. Holding a briefing annually for all operating offices,
directors, and administrators on (1) the meaning and requirements of
this Final Judgment including the consequences of non-compliance with
this Final Judgment; and (2) the application of the federal antitrust
laws to the defendant's activities including potential antitrust
concerns raised by hospitals (a) engaging in agreements or arrangements
with competitors to set or maintain any fee or to limit discounts on
any fee, or (b) engaging in agreements with a competitor to refrain
from dealing with a third-party payer;
E. Obtaining from each operating officer and administrator an
annual written certification that he or she has: (1) read, understands,
and agrees to abide by this Final Judgment; (2) has been advised and
understands that noncompliance with this Final Judgment may result in
his or her conviction for criminal contempt of court and/or fine; and
(3) is not aware of any violation of this Final Judgment;
F. maintaining for inspection by plaintiff a record of recipients
to whom this Final Judgment and Competitive Impact Statement have been
distributed and from whom the certification required by Paragraph VIII.
E. has been obtained; and
G. conducting an audit of its activities within 60 days from the
entry of this Final Judgment and annually to determine compliance with
this Final Judgment.
IX
Certifications
A. Within 75 days after the entry of this Final Judgment, each
defendant shall certify to plaintiff whether it has made the
distribution of this Final Judgment in accordance with Paragraph VIII.
A. above.
B. For five (5) years after the entry of this Final Judgment, on or
before its anniversary date, each defendant shall certify annually to
plaintiff whether defendant has complied with the provisions of
Paragraph VIII., Sections C., D., E., F., and G.
X
Other Relief as May Be Required
Nothing in this Final Judgment shall bar the United States from
seeking, or the Court from imposing, against any defendant or any
person any other relief available under any applicable provisions of
law for violation of this Final Judgment.
XI
Plaintiff's Access
A. For the sole purpose of determining or securing compliance with
this Final Judgment, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the Department of
Justice shall, upon written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, and on
reasonable notice to any defendant, be permitted:
(1) access during office hours of such defendant to inspect and
copy all records and documents, excluding individual patient records
and records directly relating to the performance by that defendant of
any medical or quality assurance review program, in the possession or
under the control of such defendant, who may have counsel present, and
which relate to any matters contained in this Final Judgment; and
(2) subject to the reasonable convenience of such defendant and
without restraint or interference from it, to interview directors,
officers, employees or agents of such defendant, who may have counsel
present, regarding any such matters.
B. Upon the written request of the Attorney General or the
Assistant Attorney General in charge of the Antitrust Division made to
any defendant, such defendant shall submit such written reports, under
oath if requested, relating to any of the matters contained in this
Final Judgment as may be requested.
C. No information or document obtained by the means provided in
Paragraph XI. shall be divulged by any representative of the Department
of Justice to any person other than a duly authorized representative of
the United States, except in the course of legal proceedings to which
the United States is a party, or for the purpose of securing compliance
with the Final Judgment or as otherwise required by law.
D. If at the time information or documents are furnished by any
defendant to plaintiff, such defendant represents and identifies in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure,'' then ten (10) days notice shall be given by
plaintiff to such defendant prior to divulging such material in any
legal proceeding (other than a grand jury proceeding) to which that
defendant is not a party.
XII
Jurisdiction Retained
Jurisdiction is retained by this Court to enable any of the parties
to this Final Judgment to apply to this Court at any time for such
further orders and directions as may be necessary or appropriate for
the construction or implementation of this Final Judgment, for the
enforcement or modification of any of its provisions, and for the
punishment of any violation hereof.
XIII
Notifications
Each defendant shall notify plaintiff in writing at least 30 days
before any proposed change in its legal structure such as dissolution,
reorganization or merger resulting in the acquisition of any hospital
or the creation of a successor corporation or association, or any other
change which may affect compliance with this Final Judgment.
XIV
Expiration of Final Judgment
This Final Judgment shall expire five (5) years from the date of
entry.
XV
Public Interest Determination
Entry of this Final Judgment is in the public interest.
Dated: ________.
______________________
United States District Judge
Certificate of Service
I, Geoffrey Swaebe, hereby certify that on the 5th day of December,
1994, I served the foregoing Stipulation and Proposed Final Judgment by
causing copies thereof to be sent by Federal Express to:
John Stack, Esq., Winston & Strawn, 35 West Wacker Drive, Chicago,
Illinois 60601, Counsel for Classic Care Network, Inc.
Robert Wild, Esq., Garfunkel, Wild & Travis, P.C., 175 Great Neck Road,
Great Neck, New York 11021, Counsel for Brookhaven Memorial Hospital
Medical Center, Central Suffolk Hospital, Good Samaritan Hospital,
Huntington Hospital, John T. Mather Memorial Hospital and South Nassau
Communities Hospital
and by hand delivery to:
Anthony J. D'Auria, Esq., Winston & Strawn, 175 Water Street, New York,
New York 10038, Counsel for North Shore University Hospital and North
Shore University Hospital at Glen Cove.
Geoffrey Swaebe,
Attorney, Antitrust Division, U.S. Department of Justice, 26 Federal
Plaza, Room 3630, New York, New York 10278, (212) 264-0652.
COMPETITIVE IMPACT STATEMENT
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act (``APPA'' or ``Tunney Act''), 15 U.S.C. Sec. 16(b)-(h), the United
States submits this Competitive Impact Statement relating to the
proposed Final Judgment submitted for entry in this civil antitrust
proceeding.
I
Nature and Purpose of the Proceeding
On December 5, 1994 the United States filed a civil antitrust
complaint pursuant to Section 4 of the Sherman Act as amended, 15
U.S.C. 4, against the defendants Classic Care Network, Inc; North Shore
University Hospital; North Shore University Hospital at Glen Cove;
Brookhaven Memorial Hospital Medical Center; Central Suffolk Hospital;
Good Samaritan Hospital; Huntington Hospital; John T. Mather Memorial
Hospital; and South Nassau Communities Hospital. The complaint alleges
that beginning at least as early as April of 1991, and continuing at
least until January of 1992, the defendants created a joint sales
agency, the purpose and effect of which was to eliminate discounting on
inpatient hospital rates to licensed health maintenance organizations
(HMOs) and to limit discounting on outpatient hospital rates to HMOs
and managed care plans in violation of Section 1 of the Sherman Act, as
amended, 15 U.S.C. 1. As a consequence of this arrangement, HMOs that
operated in Nassau and Suffolk counties were prevented from contracting
with the defendants for competitive rates for inpatient hospital
services and both HMOs and managed care plans were limited to
contractual discounts on outpatient rates of no more than 10% off any
defendant hospital's established rate for any outpatient procedure.
The complaint seeks injunctive relief to prevent the defendants
from continuing to participate in, or entering into any unlawful
agreements between themselves or with any competing hospitals that
would restrain price competition for the delivery of inpatient or
outpatient hospital services to purchasers of those services, such as
HMOs and third-party payers, and that would ultimately raise the prices
that individual consumers pay for health insurance coverage.
On December 5, 1994 the United States and defendants filed a
Stipulation pursuant to which the parties consented to entry of the
attached proposed Final Judgment. This Final Judgment, as explained
more fully below, enjoins the defendants from entering into agreements
between themselves or any competing hospital in Queens, Nassau, or
Suffolk Counties that would eliminate or reduce price competition in
connection with the provision of inpatient or outpatient hospital
services to purchasers of those hospital services.
The United States and defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the Antitrust
Procedures and Penalties Act unless the government withdraws its
consent. Entry of the proposed Final Judgment would terminate this
action, except that the Court would retain jurisdiction to construe,
modify, and enforce the proposed Final Judgment and to punish
violations thereof.
II
Facts Giving Rise to the Alleged Violation
At trail the Government would have contended the following:
1. Classic Care Network, Inc. (Classic Care) is a not-for-profit
corporation organized and existing under the laws of the State of New
York. Its principal place of business is Nassau County, New York.
Defendant Classic Care was formed by the defendant hospitals and each
is a member of Classic Care's and is represented with a seat on Classic
Cares' board of directors.
2. The defendant hospitals are each voluntary non-profit hospitals
that provide both general acute care inpatient services and outpatient
medical services in connection with the diagnosis, care and treatment
of patients. Each has its principal place of business located in Long
Island, New York, and each is independently owned and operated with the
exception of North Shore University Hospital at Glen Cove which is an
affiliate of North Shore University Hospital. Various of the defendant
hospital members of Classic Care compete with each other and other
hospitals in Nassau and Suffolk Counties for patients who are members
of HMOs and managed care plans.
3. Third-party payers provide health insurance coverage including
coverage for inpatient hospitalization and outpatient hospital services
for patients who either individually, or through their employers, have
subscribed for that coverage and who pay a fixed rate or premium for
that coverage. Third-party payers include both HMOs and managed care
payers.
4. An HMO is an entity that, for a set premium, provides for
comprehensive health care services including inpatient and outpatient
hospital services to its members. Employers contract with HMOs to
provide health care services to their employees and dependents.
5. An HMO in New York State must be licensed by the State in order
to operate. In 1992, twelve licensed HMOs contracted to deliver health
care services to approximately 358,000 individuals in Nassau and
Suffolk Counties who had enrolled in those HMOs.
6. An HMO in New York must provide both inpatient and outpatient
services to its members in order to be licensed by the State. HMOs
frequently provide these services by contracting directly with
independent hospitals. HMOs provide reimbursement payments for
inpatient services to the defendant hospitals at rates that are either
determined by the State's diagnosis related group (DRG) reimbursement
system or at a discounted rate determined by voluntary agreement
between the HMO and the hospital that is subject to the approval of the
New York State Commissioner of Health pursuant to N.Y. Ins. Law
Sec. 2807-a 3. and Sec. 2807-c 2.(b)(i) (McKinney Supp. 1993).
7. Voluntary agreements between HMOs and hospitals for the delivery
of hospital services can include the adoption and utilization of per
diem-based inpatient hospital rates. A per diem-based inpatient
hospital rate rewards third-party payers such as HMOs with lower
overall hospital prices for their members who require hospitalization
based on efficient patient management and shorter lengths of stays at
hospitals.
8. Under New York State law, both HMOs and managed care payers may
enter into contracts with the defendant hospitals for discounted rates
in connection with the provision of outpatient services to their
subscribers or plan members.
9. HMOs and managed care payers compete with each other to obtain
employer contracts and enrollees on the basis of price, services,
convenience and other factors including the reputations of contracted
providers, such as hospitals. They frequently seek to minimize their
costs while also arranging for the participation of a sufficient number
of reputable hospitals and other providers to attract members. HMOs and
managed care firms periodically direct their members away from higher
cost hospitals in favor of lower cost providers of hospital services in
order to minimize their costs.
10. General acute care hospitals compete for patients on the basis
of price, quality, reputation and services. Defendant hospitals
endeavor to maintain or increase their patient occupancy rates,
admissions and the utilization of their outpatient services by seeking
contracts with HMOs and managed care organizations pursuant to which
those entities influence or direct their enrollees to use the
facilities of defendant hospitals.
11. In response to efforts by various HMOs to obtain discounts off
inpatient hospitalization rates and to direct patients away from higher
cost hospital providers in Nassau and Suffolk Counties to lower cost
hospitals, the defendant hospitals formed Classic Care in the fall of
1991 and signed a memorandum of understanding pursuant to which each
defendant agreed (a) that no member of Classic Care would enter into
any contract with an HMO or managed care payer without the collective
approval of the defendant hospitals; and (b) that Classic Care would be
the exclusive bargaining agent for the defendant hospitals in
connection with any negotiations relating to contracts with HMOs and
managed care firms.
12. In connection with that memorandum of understanding, each of
the defendant hospitals entered into an understanding and agreement
that no discounts would be permitted off any Classic Care member's
inpatient hospital rates in contracts with HMOs and that discounts off
any defendant hospital's outpatient rates to HMOs or managed care
payers would be limited to no more than 10% off their existing prices
for those services. The defendants also agreed to refrain from entering
into contracts with HMOs that sought to convert DRG rates on inpatient
hospital services to per diem rates for those same services, and agreed
on the terms and conditions upon which any most favored nation clause
would be accepted by the defendant hospitals.
13. The agreements had the following effects: (a) price competition
between the defendant hospitals for the sale of inpatient hospital
services to licensed HMOs was unreasonably restrained; (b) price
competition between the defendant hospitals for the sale of outpatient
services to licensed HMOs and managed health care payers was
unreasonably restrained; and (c) HMOs and managed health care entities
were deprived of the benefits of free and open competition in
connection with the purchase of hospital services of those entities.
III
Explanation of the Proposed Final Judgment
The United States and defendants have stipulated that the Court may
enter the proposed Final Judgment after compliance with the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16 (b)-(h).
Under the provisions of Section 2(e) of the Antitrust Procedures
and Penalties Act, 15 U.S.C. Sec. 16(e), the proposed Final Judgment
may not be entered unless the Court finds that such entry is in the
public interest. Paragraph XV. of the proposed Final Judgment sets
forth such a finding.
The proposed Final Judgment is intended to ensure that the
defendant Classic Care refrain from acting as an exclusive bargaining
agent on behalf of the defendant hospitals or otherwise acting as
conduit or coordinating agency for collective decision making by the
defendant hospitals relating to participation in contracts with third-
party payers and managed care plans and with respect to any pricing
terms as may be contained in such contracts. In addition, the proposed
Final Judgment is intended to ensure that the defendant hospitals reach
independent decisions and refrain from engaging in collective
anticompetitive practices in their contractual negotiations with
purchasers of inpatient and outpatient hospital services such as HMO
and managed care plans.
A. Prohibitions and Obligations
Paragraph IV.A. of the proposed Final Judgment contains
prohibitions that run against both the defendant Classic Care and the
defendant hospitals. Pursuant to Paragraph IV.A., each defendant is
enjoined and restrained from directly or indirectly entering into any
agreement with any hospitals in the Long Island area concerning the
negotiation, selection, approval, acceptance or refusal of any contract
with any third-party payer for the delivery of hospital services; the
terms or amounts of any fee to any third-party payer; the utilization
of per diem-based fees in any agreement with any third-party payer; or
communicating any negotiated fee to any hospital in the Long Island
area. The ``Long Island area'' is defined in Paragraph II.F. as Queens,
Nassau and Suffolk Counties in the State of New York.
Paragraph IV.B is intended to enjoin and restrain the defendant
hospitals from directly or indirectly utilizing the defendant Classic
Care or any other agent to set, maintain or determine any fee of any
hospital in the Long Island area.
Paragraph IV.C. enjoins and restrains the defendant Classic Care
from directly or indirectly entering into any agreement with any
hospital in the Long Island area concerning the terms or amounts of any
fee charged to a third-party payer; entering into any agreement with
any hospital in the Long Island area to hold itself out as an exclusive
negotiating agent with any third-party payer; developing, adopting or
distributing any fee schedule for use with any third-party payer; and
recommending that any hospital withdraw from or refuse to enter into
any agreement with any third-party payer.
Paragraph IV.D. requires that both the defendant Classic Care and
the defendant hospitals terminate any agreement or portion thereof
entered into with any other defendant that conditions any actual or
possible agreement between a hospital and a third-party payer on the
formal or informal approval, review or acquiescence of any other
defendant.
Paragraph V.A. of the proposed Final Judgment provides that nothing
in Paragraph IV. shall prevent a defendant from participating in an
integrated joint venture. An integrated joint venture is defined by
Paragraph II.E. as a joint agreement in which hospitals that would
otherwise be competitors pool resources to provide hospital services
and share a substantial risk of adverse financial results.
Paragraph V.B. provides a procedure whereby defendants may seek
plaintiff's approval for any kind of joint venture not covered by
Paragraphs V.A. and II.E. of the proposed Final Judgment.
Paragraph VI. permits the defendants to enter into agreements
relating to a lawful merger or acquisition.
Paragraph VII. affirms that this judgment is not intended to place
a limit on the First Amendment rights of defendants to petition federal
or state government executive agencies.
Paragraph VIII. requires each defendant to maintain an antitrust
compliance program. Paragraph VIII. provides that this program at a
minimum shall include: A. distributing within 60 days from the entry of
this Final Judgment, a copy of this Final Judgment and Competitive
Impact Statement to all officers, directors, trustees and
administrators; B. notifying within 60 days from the entry of this
Final Judgment, all officers, directors, trustees and administrators
that the defendant will not be bound by any agreement that requires the
approval of the defendant Classic Care or any other defendant hospital
in connection with any actual or possible agreement between the
defendant and any third-party payer; C. distributing in a timely manner
a copy of this Final Judgment and Competitive Impact Statement to any
successor corporation or person who succeeds to a position as officer,
director, trustee, or administrator; D. holding a briefing annually for
all operating officers, directors, and administrators on (1) the
meaning and requirements of this Final Judgment including the
consequences of non-compliance with this Final Judgment; and (2) the
application of the federal antitrust laws to the defendant's activities
including potential antitrust concerns raised by hospitals (a) engaging
in agreements or arrangements with competitors to set or maintain any
fee or to limit discounts on any fee, or (b) engaging in agreements
with a competitor to refrain from dealing with a third-party payer; E.
obtaining from each operating officer or administrator an annual
written certification that he or she has (1) read, understands, and
agrees to abide by this Final Judgment; (2) has been advised and
understands that noncompliance with this Final Judgment may result in
his or her conviction for criminal contempt of court and/or fine and
(3) is not aware of any violation of this Final Judgment; F.
maintaining for inspection by plaintiff a record of recipients to whom
this Final Judgment and Competitive Impact Statement have been
distributed and from whom the certification required by Paragraph
VIII.E. has been obtained; and G. conducting an audit of its activities
within 60 days from the entry of this Final Judgment and annually to
determine compliance with this Final Judgment.
Paragraph IX. requires various certifications of the defendants.
Paragraph IX.A. requires each defendant to certify to plaintiff within
75 days after entry of the Final Judgment that defendant has made the
distribution and notification required by Paragraph VIII. of the Final
Judgment. Paragraph IX. B. requires each defendant to certify to
plaintiff annually for five (5) years after the entry of the Final
Judgment whether defendant has complied with the provisions of
Paragraph VIII. C.,D.,E.,F. and G. above.
Paragraph X. provides that nothing in the Final Judgment shall bar
the United States from seeking, or the Court from imposing, against
defendants or any person any other relief available under any
applicable provision of law for violation of the Final Judgment.
Paragraph XI. provides that an authorized representative of the
Department of Justice may visit defendants' offices, after providing
reasonable notice, to review their records and to conduct interviews
regarding any matter contained in the Final Judgment. Paragraph XI.
requires defendants to submit, upon plaintiff's request, written
reports, under oath, relating to any matter contained in the Final
Judgment.
B. Scope of the Proposed Final Judgment
Paragraph III. of the Final Judgment provides that the Final
Judgment shall apply to each defendant and to each of its officers,
administrators, servants, representatives, agents employees,
successors, and assigns and to all other persons in active concert or
participation with any of them who receive actual notice of the Final
Judgment by personal notice or otherwise.
Paragraph XIV. of the proposed Final Judgment provides that the
Final Judgment shall remain in effect for 5 years.
C. Effect of the Proposed Judgment on Competition
The relief in the proposed Final Judgment is designed to ensure
that each defendant hospital, using its independent judgment, acts
unilaterally with respect to: (1) any decision by that hospital to
enter into a contract with a third-party payer for the delivery of
hospital services; (2) the terms or amounts of any fee; or the
utilization of per diem-based fees in any agreement with any third-
party payer. In addition, the proposed Final Judgment enjoins each
defendant hospital from communicating any negotiated fee, including any
actual or possible discount to any other hospital, or from utilizing
the defendant Classic Care or any other agent to set, maintain or
determine any fee of any hospital in the Long Island area. The
Defendant Classic Care is specifically enjoined and restrained from:
(1) Entering into any agreement with any hospital in the Long Island
area concerning the terms or amounts of any fee charged to a third-
party payer; (2) entering into any agreement with any hospital in the
Long Island area to hold itself out as an exclusive negotiating agent
with any third-party payer; (3) developing or distributing any fee
schedule for use with any third-party payer; and (4) recommending that
any hospital withdraw from or refuse to enter into any agreement with a
third-party payer. Finally, the proposed Final Judgment requires that
each defendant terminate any agreement or portion thereof entered into
with any other defendant that conditions any actual or possible
agreement between a hospital and a third-party payer on the formal or
informal approval or acquiescence of any other defendant.
Accordingly, the proposed Final Judgment is intended to ensure that
third-party payers, including HMOs and other firms that deliver managed
health care to their subscribers and patients, can obtain the benefits
of competitive prices and price terms in connection with the
negotiation of contracts with the defendants for the delivery of
hospital services.
The Department of Justice believes that the proposed Final Judgment
contains adequate provisions to prevent further violations of the type
upon which the Complaint is based and to remedy the effects of the
alleged conspiracy.
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages suffered as well as costs and reasonable attorney's fees.
Entry of the proposed Final Judgment will neither impair nor assist the
bringing of such actions. Under the provisions of Section 5(a) of the
Clayton Act, 15 U.S.C. 16(a), the judgment has no prima facie effect in
any subsequent lawsuits that may be brought against defendants in this
matter.
V
Procedures Available for the Modification of the Proposed Final
Judgment
As provided in Section 2(d) of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(d), any person believing that the proposed
Final Judgment should be modified may submit written comments to Ralph
T. Giordano, Chief, New York Field Office, U.S. Department of Justice,
Antitrust Division, 26 Federal Plaza, Room 3630, New York, N.Y. 10278,
within the 60 day period provided by the Act. These comments, and the
Department's responses, will be filed with the Court and published in
the Federal Register. All comments will be given due consideration by
the Department of Justice, which remains free to withdraw its consent
to the proposed Final Judgment at any time prior to entry. Paragraph
XII. of the proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI
Alternative to the Proposed Final Judgment
The alternative to the proposed Final Judgment would be a full
trial of the case. In the view of the Department of Justice, such a
trial would involve substantial cost to the United States and is not
warranted since the proposed Final Judgment provides the relief that
the United States seeks in its complaint, which effectively will
prevent any recurrence of the alleged violation.
VII
Determinative Materials and Documents
No materials and documents of the type described in Section 2(b) of
the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b), were
considered in formulating the Proposed Final Judgment.
Dated: December 5, 1994.
Respectfully submitted,
Geoffrey Swaebe (GS 6073)
Patricia L. Jannaco (PJ 7155)
Attorneys, U.S. Department of Justice, Antitrust Division, 26 Federal
Plaza, Room 3630, New York, NY 10278, Telephone (212) 264-0383.
Certificate of Service
I, Geoffrey Swaebe, hereby certify that on the 5th day of December
1994, I served the foregoing Notice of Lodging, Proposed Final Judgment
and Competitive Impact Statement by causing copies thereof to be sent
by Federal Express to
John Stack, Esq., Winston & Strawn, 35 West Wacker Drive, Chicago,
Illinois 60601, Counsel for Classic Care Network, Inc.
Robert Wild, Esq., Garfunkel, Wild & Travis, P.C., 175 Great Neck Road,
Great Neck, New York 11021, Counsel for Brookhaven Memorial Hospital
Medical Center, Central Suffolk Hospital, Good Samaritan Hospital,
Huntington Hospital, John T. Mather Memorial Hospital and South Nassau
Communities Hospital
and by hand delivery to:
Anthony J. D'Auria, Esq., Winston & Strawn, 175 Water Street, New York,
New York 10038, Counsel for North Shore University Hospital and North
Shore University Hospital at Glen Cove.
Geoffrey Swaebe,
Attorney, Antitrust Division, U.S. Department of Justice, 26 Federal
Plaza, Room 3630, New York, New York 10278, (212) 264-0652.
NOTICE OF LODGING
Pursuant to the Antitrust Procedures and Penalties Act (APPA), 15
U.S.C. 16 (b)-(h), the attached proposed Final Judgment (Consent
Decree) and Competitive Impact Statement are hereby lodged with the
Court for public comment. The Consent Decree, the Competitive Impact
Statement, and the opportunity to comment thereon, will be published in
the Federal Register. The United States will also publish summaries of
the Consent Decree and Competitive Impact Statement and a list and
location of the relevant documents and materials, in Newsday and The
Washington Post.
The United States will receive public comments on the Consent
Decree for the requisite sixty (60) day public comment period. During
the pendency of the public comment period, no action is required of
this Court. At the close of the public comment period, the United
States will file with the Court and publish in the Federal Register,
its response to any comments received. The United States will then move
the Court to sign and enter the Consent Decree, should it appear that
the settlement is in the public interest.
Dated: December 5, 1994.
Respectfully submitted,
Geoffrey Swaebe (GS 6073),
Attorney, Antitrust Division, United States Department of Justice, 26
Federal Plaza, Room 3630, New York, New York 10278, (212) 264-0652.
[FR Doc. 94-32145 Filed 12-29-94; 8:45 am]
BILLING CODE 4410-01-M