[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Notices]
[Pages 30542-30545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14186]



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FEDERAL TRADE COMMISSION
[Dkt. C-2856]


The American Academy of Orthopaedic Surgeons; Prohibited Trade 
Practices and Affirmative Corrective Actions

AGENCY: Federal Trade Commission.

ACTION: Set Aside Order.

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SUMMARY: This order reopens a 1976 consent order, that was modified in 
1985,--which prohibited the respondent from initiating, publishing or 
circulating relative value scales for medical or surgical procedures--
and sets aside the modified consent order based on changed conditions 
of facts, such as, the decision by Congress to base reimbursement for 
medical services provided under Medicare on resource based relative 
value scales.

DATES: Consent order issued December 14, 1976. Set aside order issued 
May 4, 1995.

FOR FURTHER INFORMATION CONTACT:
Roberta Baruch, FTC/S-2115, Washington, D.C. 20580. (202) 326-2861.

SUPPLEMENTARY INFORMATION: In the Matter of The American Academy of 
Orthopaedic Surgeons. The prohibited trade practices and/or corrective 
actions are removed as indicated.

[[Page 30543]] (Sec. 6, 38 Stat. 721; 15 U.S.C. 46. Interprets or 
applies sec. 5, 38 Stat. 719, as amended; 15 U.S.C. 45)
    In the matter of: The American Academy of Orthopaedic Surgeons, 
a corporation.

Order Setting Aside Order

    On November 23, 1994, the American Academy of Orthopaedic Surgeons 
(``AAOS'') filed a Petition To Reopen and Rescind or Modify Consent 
Order (``Petition'') in Docket C-2856 (``Order''), pursuant to Section 
5(b) of the Federal Trade Commission Act, 15 U.S.C. Sec. 45(b), and 
Section 2.51 of the Commission's Rules of Practice, 16 C.F.R. 
Sec. 2.51. In its Petition, AAOS requests that the Commission reopen 
the Order and rescind it or, in the alternative, modify provisions of 
the Order that restrict the ability of AAOS to develop and distribute a 
relative value scale (``RVS''), as defined in the Order.
    AAOS asserts in its Petition that changed conditions of law or fact 
and the public interest warrant reopening the Order and rescinding or 
modifying it. A redacted version of the Petition was placed on the 
public record for thirty days; no comments were received. For the 
reasons described below, the Commission has determined that the Order 
should be reopened and set aside.

I. Background

    The Commission's complaint alleged, among other things, that the 
preparation and circulation by AAOS of comparative numerical values for 
services performed by orthopaedic surgeons had the effect of 
establishing or maintaining fees charged by orthopaedic surgeons for 
their services, in violation of Section 5 of the FTC Act. The complaint 
also alleged that the numerical values were convertible into a monetary 
fee by application of a dollar conversion factor. The Order, in 
relevant part, requires AAOS to cease initiating, publishing or 
circulating, in whole or in part, any relative value scale, as 
defined.\1\ The American Academy of Orthopaedic Surgeons, 88 F.T.C. 968 
(1976).

    \1\ ``Relative value scale'' is defined in the Order as any list 
or compilation of surgical or medical procedures that states 
comparative numerical values for those procedures or services. Order 
Paragraph I.A.
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    The Order does not prevent AAOS from exercising rights under the 
First Amendment to the Constitution to petition state or federal 
government agencies and to participate in federal or state 
administrative or judicial proceedings or from providing information or 
views to third party payers concerning any issue, including 
reimbursement. The American Academy of Orthopaedic Surgeons, 105 F.T.C. 
248 (1985) (modifying Order).

II. The Petition

    AAOS requests that the Commission reopen the Order and rescind or 
modify it to permit the AAOS to provide information concerning Medicare 
resource based relative value scales (``RBRVS'') to third party payers, 
managed care organizations, other physician organizations and others in 
the private sector, including its members. AAOS states that the 
information will facilitate the development and adoption of RBRVS that 
accurately reflect the values of orthopaedic procedures, resulting in 
the efficient allocation of resources. AAOS already has provided 
information to government entities involved in medical reimbursement 
issues; it wants to provide the information to nongovernment entities 
and to its members.
    In particular, AAOS wants to be able to circulate the Abt Restudy, 
a physician work value scale commissioned by AAOS.\2\ AAOS also wants 
to be able to sponsor and disseminate future research projects that 
analyze other components of the Medicare RBRVS.

    \2\ Noether & Sheehy, The Abt Restudy of Physician Work Values 
for Orthopaedic Surgery (Sept. 23, 1992), attached as Exhibit 8 to 
the AAOS Petition (hereafter ``Abt Restudy'').
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    AAOS cites as changed conditions the adoption and implementation by 
the federal government of resource based relative value scales for 
purposes of physician reimbursement under Medicare. In 1986, Congress 
created the Physician Payment Review Commission (``PPRC'') to make 
recommendations regarding physician reimbursement under Medicare. At 
that time, physician reimbursement was determined by the ``customary, 
prevailing and reasonable'' (``CPR'') method, which relied on 
historical fees. The PPRC concluded that the CPR method increased costs 
under Medicare and recommended adopting instead a relative value scale 
based on resource costs.\3\ In 1989, Congress enacted the Omnibus 
Budget Reconciliation Act of 1989, which, among other things, requires 
use of resource based relative value scales for purposes of physician 
reimbursement under Medicare.\4\ The Act provides for consultations 
with ``organizations representing physicians'' to develop relative 
values for medical services.\5\

    \3\ See Physician Payment Review Commission, Annual Report to 
Congress (1988); Physician Payment Review Commission, Medicare 
Physician Payment: An Agenda for Reform (1987).
    \4\ Section 6102 of the Omnibus Budget Reconciliation Act of 
1989, 42 U.S.C. Sec. 1395w-4. Medicare RBRVS bases physician 
reimbursement on (1) a relative value unit for the medical service, 
which is based on physician work, practice costs and professional 
liability costs; (2) a geographic adjustment factor; and (3) a 
conversion factor. Components of the RBRVS are to be updated 
periodically. Payment is based on the lesser of the RBRVS amount and 
the physician's actual fee. Petition at 12-13.
    \5\ 42 U.S.C. Sec. 1395w-4(c)(2)(B)(iii).
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    According to AAOS, the Abt Restudy was commissioned to respond to 
perceived shortcomings in Medicare RBRVS for orthopaedic services. See 
Petition at 13-15; Abt Restudy at 1. Providing the Abt Restudy to 
government entities is consistent with the proviso to the Order,\6\ 
which permits AAOS to petition government agencies and legislatures. 
AAOS would like to distribute the Abt Restudy to third party payers and 
other nongovernment entities, such as other medical societies, and to 
individual members of AAOS, at least for the limited purpose of 
preparing AAOS representatives to lobby state government bodies 
regarding physician reimbursement practices. AAOS also would like to 
sponsor future research projects analyzing other components of Medicare 
RBRVS. According to AAOS, to the extent that it is precluded by the 
Order from providing information concerning reimbursement levels, the 
efficiency of RBRVS-based systems is lessened, ``payers who would 
benefit from more efficient payment mechanisms are hindered in their 
ability to compete, and physicians and patients are given distorted 
incentives, and market signals for production and consumption of 
resources.'' \7\

    \6\ 105 F.T.C. at 249; see letter from Roberta S. Baruch, Deputy 
Assistant Director, Bureau of Competition, FTC, to Richard N. 
Peterson, General Counsel, American Academy of Orthopaedic Surgeons 
(May 12, 1993) (``staff advisory opinion''), Petition Exhibit 16.
    \7\ Petition at 25-26.
III. Standard for Reopening a Final Order of the Commission

    Section 5(b) of the Federal Trade Commission Act, 15 U.S.C. 
Sec. 45(b), provides that the Commission shall reopen an order to 
consider whether it should be modified if the respondent ``makes a 
satisfactory showing that changed conditions of law or fact'' so 
required. A satisfactory showing sufficient to require reopening is 
made when a request to reopen identifies significant changes in 
circumstances and shows that the changes eliminate the need for the 
order or make continued application of it inequitable or harmful to 
competition. S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979) 
(significant changes or changes causing [[Page 30544]] unfair 
disadvantage); Louisiana-Pacific Corp., Docket No. C-2956, Letter to 
John C. Hart (June 5, 1986), at 4 (unpublished) (``Hart Letter'').\8\

    \8\ See also United States v. Louisiana-Pacific Corp., 967 F.2d 
1372, 1376-77 (9th Cir. 1992) (``A decision to reopen does not 
necessarily entail a decision to modify the order. Reopening may 
occur even where the petition itself does not plead facts requiring 
modification.'').
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    Section 5(b) also provides that the Commission may modify an order 
when, although changed circumstances would not require reopening, the 
Commission determines that the public interest so requires. Respondents 
are therefore invited in petitions to reopen to show how the public 
interest warrants the requested modification. Hart Letter at 5; 15 
C.F.R. Sec. 2.51. In such a case, the respondent must demonstrate as a 
threshold matter some affirmative need to modify the order. Damon 
Corp., Docket No. C-2916, Letter to Joel E. Hoffman, Esq. (March 29, 
1983), at 2 [1979-1983 Transfer Binder] Trade Reg. Rep. (CCH) para. 
22,207 (``Damon Letter''). For example, it may be in the public 
interest to modify an order ``to relieve any impediment to effective 
competition that may result from the order.'' Damon Corp., 101 F.T.C. 
689, 692 (1983). Once such a showing of need is made, the Commission 
will balance the reasons favoring the requested modification against 
any reasons not to make the modification. Damon Letter at 2. The 
Commission also will consider whether the particular modification 
sought is appropriate to remedy the identified harm. Damon Letter at 4.
    The language of Section 5(b) plainly anticipates that the burden is 
on the petitioner to make a ``satisfactory showing'' of changed 
conditions to obtain reopening of the order. The legislative history 
also makes clear that the petitioner has the burden of showing, other 
than by conclusory statements, why an order should be modified. The 
Commission ``may properly decline to reopen an order if a request is 
merely conclusory or otherwise fails to set forth specific facts 
demonstrating in detail the nature of the changed conditions and the 
reasons why these changed conditions require the requested modification 
of the order.'' S. Rep. No. 96-500, 96th Cong., 1st Sess. 9-10 (1979); 
see also Rule 2.51(b) (requiring affidavits in support of petitions to 
reopen and modify). If the Commission determines that the petitioner 
has made the necessary showing, the Commission must reopen the order to 
consider whether modification is required and, if so, the nature and 
extent of the modification. The Commission is not required to reopen 
the order, however, if the petitioner fails to meet its burden of 
making the satisfactory showing required by the statute. The 
petitioner's burden is not a light one in view of the public interest 
in response and the finality of Commission orders. See Federated 
Department Stores, Inc. v. Moitie, 425 U.S. 394 (1981) (strong public 
interest considerations support repose and finality).

IV. The Order Should Be Reopened

    AAOS has shown changed conditions of fact that require the Order to 
be reopened to consider modification.\9\ The decision by Congress to 
base reimbursement for medical services provided under Medicare on 
resource based relative value scales, with the participation of 
physicians and medical professional societies in identifying and 
modifying RBRVS for Medicare purposes, is a changed condition that 
makes application of the order inequitable.

    \9\ AAOS also cited changed conditions of law and the public 
interest. Because the Order is set aside on the ground of changed 
conditions of fact, the Commission need not and does not consider 
the additional alleged grounds.
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    The Order bars AAOS from ``directly or indirectly initiating, 
originating, developing, publishing, or circulating, the whole or any 
part of any proposed or existing relatives value scales,'' while the 
Omnibus Budget Reconciliation Act of 1989, among other things, requires 
use of resource based relative value scales for purposes of physician 
reimbursement under Medicare and contemplates professional 
participation in the development of RBRVS. The Act requires the 
Department of Health and Human Services (``HHS'') to consult with 
physician organizations in developing and modifying Medicare RBRVS. The 
Order addressed conduct that allegedly contributed to the unlawful 
maintenance of fees by orthopaedic surgeons. It now appears that the 
Order may inhibit participation by AAOS in the development and revision 
of RBRVS systems of reimbursement and thus may harm competition. 
Accordingly, the Order should be reopened to consider modification.
V. The Order Should Be Set Aside

    AAOS requests that the Order be set aside or modified to permit 
AAOS to distribute the Abt Restudy and similar information to third 
party payers, other medical societies and its members.
    The Order, as modified in 1985, permits AAOS to ``discuss[] 
relative value scales with governmental entities and third-party 
payers.'' 105 F.T.C. at 248. The Commission, in modifying the Order in 
1985, concluded that the Order's ``restriction on [AAOS]'s ability to 
discuss relative value scales with third-party payers and governmental 
entities * * * caused injury to [AAOS] and the public that outweighed 
any benefit that might be derived from the restriction.'' Id. The 
Commission also observed that the modification was consistent with its 
opinion in Michigan State Medical Society, 105 F.T.C. 191 (1983) 
(``MSMS''). Also consistent with MSMS, AAOS is not limited under the 
Order to responding to requests from government and third party 
payers.\10\ AAOS ``may have a useful role to play in offering 
suggestions and advice to third payers on a wide variety of issues, 
including reimbursement. * * * [T]he potential value of this role is 
not limited to responsive communications but extends * * * to similar 
communications initiated by'' AAOS. 105 F.T.C. at 308.\11\

    \10\ The Order, as modified in 1985, permits AAOS to discuss 
relative value guides with third party payers, but the staff of the 
Commission construed the Order as barring AAOS from providing 
relative value guides to third party payers. See Staff advisory 
opinion at 3 (``[B]ased on the information we now have, we cannot 
conclude that it would be consistent with the Order for AAOS to 
publish or circulate the Abt Restudy to the AAOS membership or to 
any non-governmental entity.'').
    \11\ See also Advisory Opinion in American Society of Internal 
Medicine, 105 F.T.C. 505, 510-11 (1985).
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    As the Commission recognized in MSMS, ``there is some inherent 
danger in allowing any collective dialogue with third party payers on 
questions directly related to reimbursement amounts or policies.'' \12\ 
Similarly, in modifying the Order in AAOS, the Commission cautioned 
that ``serious antitrust concerns would arise were AAOS to negotiate or 
attempt to negotiate an agreement with any such party or engage in any 
type of coercive activity to effect such an agreement.'' \13\ Such 
actions concerning terms of reimbursement could be examined under 
Section 5 of the Federal Trade Commission Act.\14\

    \12\ The Order in MSMS permitted the dialogue and addressed the 
risk by barring the medical society from entering into unlawful 
agreements with third party payers regarding reimbursement. 101 
F.T.C. at 308.
    \13\ 105 F.T.C. at 249.
    \14\ See, e.g., Department of Justice and FTC Statements of 
Enforcement Policy and Analytical Principles Relating to Health Care 
and Antitrust, Statements 5 & 6, reprinted in 4 Trade Reg. Rep. 
(CCH) para. 13,152, at 20, 782-785 (1994) (``Health Care Policy 
Statements'').
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    AAOS also would like to provide copies of the Abt Restudy to other 
medical professional societies. The process of establishing and 
refining [[Page 30545]] Medicare RBRVS involves consideration of 
recommendations from the AMA/Specialty Society RVS Update Committee 
(``RUC''),\15\ which is composed of representatives of major medical 
societies, including AAOS. The Abt Restudy could be useful to the RUC 
and ultimately to the Health Care Financing Administration (``HCFA''), 
which administers the Medicare program, in the review and refinement of 
Medicare RBRVS.\16\ The inability of AAOS under the Order to 
disseminate the Abt Restudy to members of the RUC appears likely to 
hinder participation in the process sponsored by HCFA for identifying 
information relevant to revising Medicare RBRVS and could increase the 
costs to HCFA in obtaining such information. Such inhibitions resulting 
from the Order would be inconsistent with federal policy as expressed 
in the Omnibus Budget Reconciliation Act of 1989 and the implementing 
regulations. The Order should be modified to permit AAOS to disseminate 
the Abt Study to other medical professional societies.

    \15\ Petition at 13, citing 59 Fed. Reg. 32,754 & 32,760 (1994).
    \16\ See Petition at 18-19.
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    Finally, AAOS would like to provide copies of the Abt Restudy to 
its members, at least for the ``limited purpose of furthering the 
Academy's efforts to persuade government bodies to modify their own 
physician payment practices.'' For example, according to AAOS, ``in 
virtually all states, the Academy has no members who have ever seen the 
[Abt] Restudy, and therefore no one to meet with interested state 
officials responsible for compensation issues in Medicaid, workers' 
compensation or other medical programs.'' \17\

    \17\ Petition at 26.
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    The prohibition on distribution by AAOS of relative value scales to 
its members is at the core of the Order, because of the alleged effect 
of maintaining the prices charged by its members.\18\ Given the federal 
policy to rely on RBRVS for Medicare reimbursement and the increasing 
interest on the part of state governments and third party payers in 
relative value guides as a basis for physician reimbursement, however, 
the prohibition in the Order on dissemination by AAOS may inhibit the 
contributions of its members to the development of RBRVS and increase 
the costs of disseminating the information.\19\ Allowing AAOS to 
distribute the Abt Restudy to its members would allow them to 
participate in an informed manner in lobbying activities before state 
government agencies. Accordingly, AAOS should be permitted to 
distribute the Abt Restudy to its members.

    \18\ See also Advisory Opinion in American Society of Internal 
Medicine, 105 F.T.C. 505, 510 (1985) (``[A]lthough the Commission 
cannot * * * predict that widespread concerted conformance to the 
RVG would necessarily result from its dissemination * * * the 
available information on this specific RVG proposal indicates that 
this type of agreement in restraint of trade is a substantial 
danger.'').
    \19\ As a practical matter, material submitted to the Health 
Care Financing Administration on the public record presumably is 
available to members of AAOS on request.
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    The danger that AAOS members will use the Abt Restudy or other 
relative value guides as a basis for an unlawful agreement to fix the 
prices for their services has not been eliminated. Although the federal 
policy to use RBRVS for Medicare reimbursement counsels in favor of 
setting aside the restriction of the Order on distribution of relative 
values to AAOS members, AAOS and its members remain subject to the laws 
against price fixing. Setting aside the restrictions of the Order 
should not be construed as approval for use by AAOS or its members of a 
relative value guide as a basis for an unlawful agreement on price.
    In some circumstances, preparation and circulation by a medical 
society of a relative value scale may have anticompetitive 
consequences. For example, in American Society of Internal Medicine, 
105 F.T.C. 505 (1985) (advisory opinion), the Commission declined to 
approve a proposal to circulate a relative guide because of the 
``substantial danger that ASIM's proposed conduct would involve an 
agreement in restraint of trade amoung ASIM and physicians to 
concertedly adhere to the RVG.'' \20\ The Joint Health Care Policy 
Statements also caution that ``information exchanges among competing 
providers may facilitate collusion or otherwise reduce competition on 
prices.'' \21\

    \20\ Id. at 511.
    \21\ Health Care Policy Statements at 20,784.
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VI. Conclusion

    Accordingly, it is ordered that this matter be, and it hereby is, 
reopened, and that the modified Order in Docket C-2856 be, and it 
hereby is, set aside, as of the effective date of this order.

    By the Commission, Commissioner Starek concurring in the result 
only.
Donald S. Clark,
Secretary.
[FR Doc. 95-14186 Filed 6-8-95; 8:45 am]
BILLING CODE 6750-01-M