[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Notices]
[Pages 2832-2836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1497]
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[[Page 2833]]
FEDERAL TRADE COMMISSION
[File No. 951-0059]
RxCare of Tennessee, Inc; Consent Agreement With Analysis To Aid
Public Comment
AGENCY: Federal Trade Commission.
ACTION: Consent Agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
bar the leading provider of pharmacy network services in Tennessee from
having ``most favored nation'' clauses in its pharmacy participation
agreements. The draft complaint accompanying the consent agreement
alleges that RxCare's use of these clauses discourages the pharmacies
from discounting and thereby limits price competition among the
pharmacies in their dealings with pharmacy benefits managers and third-
party payers.
DATES: Comments must be received on or before March 29, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary
Room 159, 6th St. and Pa Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Michael D. McNeely, Federal Trade Commission, S-3231, 6th and
Pennsylvania Avenue, NW, Washington, DC 20580. (202) 326-2904.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the
Commission's rules of practice (16 CFR 2.34), notice is hereby given
that the following consent agreement containing a consent order to
cease and desist, having been filed with and accepted, subject to final
approval, by the Commission, has been placed on the public record for a
period of sixty (60) days. Public comment is invited. Such comments or
views will be considered by the Commission and will be available for
inspection and copying at its principal office in accordance with
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR
4.9(b)(6)(ii)).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of RxCare of Tennessee, Inc. (``RXCare''), and its
parent, the Tennessee Pharmacists Association (``TPA''), and it now
appearing that RXCare and TPA, hereinafter sometimes referred to as
``proposed respondents,'' are willing to enter into an agreement
containing an Order to remedy the alleged lessening of competition
resulting from proposed respondents' practices and providing for other
relief:
It is hereby agreed by and between proposed respondents, by their
duly authorized officers and attorneys, and counsel for the Commission
that:
1. Proposed respondent RxCare is a corporation organized, existing,
and doing business under and by virtue of the laws of the State of
Tennessee with its office and principal place of business located at
1226 17th Avenue South, Nashville, Tennessee 37212.
2. Proposed respondent TPA is an unincorporated trade association
organized, existing, and doing business under and by virtue of the laws
of the State of Tennessee with its office and principal place of
business located at 226 Capitol Blvd., Suite 810, Nashville, Tennessee
37219-1893.
3. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint.
4. Proposed respondents waive:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. All rights to seek judicial review or otherwise to challenge or
contest the validity of the Order entered pursuant to this agreement;
and
d. Any claim under the Equal Access to Justice Act.
5. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondents, in which
event it will take such action as it may consider appropriate, or issue
and serve its complaint (in such form as the circumstances may require)
and decision, in disposition of the proceeding.
6. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law has been
violated as alleged in the draft of complaint or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
7. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
rules, the Commission may, without further notice to the proposed
respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint and its decision containing the
following Order in disposition of the proceeding, and (2) make
information public with respect thereto. When so entered, the Order
shall have the same force and effect and may be altered, modified or
set aside in the same manner and within the same time provided by
statute for other orders. The Order shall become final upon service.
Delivery by the U.S. Postal Service of the complaint and decision
containing the agreed-to Order to proposed respondents' addresses as
stated in this agreement shall constitute service. Proposed respondents
waive any right they may have to any other manner of service. The
complaint may be used in construing the terms of the Order, and no
agreement, understanding, representation, or interpretation not
contained in the Order or the agreement may be used to vary or
contradict the terms of the Order.
8. Proposed respondents have read the draft of complaint and Order
contemplated hereby. Proposed respondents understand that once the
Order has been issued, they will be required to file one or more
compliance reports showing that they have fully complied with the
Order. Proposed respondents further understand that they may be liable
for civil penalties in the amount provided by law for each violation of
the Order after it becomes final.
Order
I
It is ordered That the following definitions shall apply herein:
A. ``RxCare'' means RxCare of Tennessee, Inc.; its predecessors,
divisions, subsidiaries, affiliates, joint ventures, successors, and
assigns; and all directors, officers, employees, agents, and
representatives of the foregoing;
B. ``TPA'' means the Tennessee Pharmacists Association; its
predecessors, divisions, subsidiaries, affiliates, joint ventures,
successors, and assigns; and all directors, officers, employees,
agents, and representatives of the foregoing;
C. ``Third-party payer'' means any person or entity that provides a
program or plan pursuant to which such person or entity agrees to pay
for prescriptions dispensed by pharmacies to individuals described in
the plan or program as eligible for coverage (``coveraged
[[Page 2834]]
persons'') and includes, but is not limited to, health insurance
companies; prepaid hospital, medical, or other health service plans,
such as Blue Cross and Blue Shield plans; health maintenance
organizations; preferred provider organizations; and health benefits
programs for government employees, retirees and dependents;
D. ``Participation agreement'' means any existing or proposed
agreement, oral or written, in which a third-party payer, prescription
benefit manager (PBM), pharmacy service administrative organization
(PSAO), or other firm agrees to reimburse a pharmacy firm for the
dispensing of prescription drugs to covered persons, and the pharmacy
firm agrees to accept such payment from the third-party payer, PMB,
PSAO, or other firm for such prescriptions dispensed during the term of
the agreement;
E. ``Pharmacy firm'' means any partnership, sole proprietorship,
corporation, or other entity that owns, controls or operates one or
more pharmacies; and
F. ``Most Favored Nations Clause'' or ``MFN'' means any agreement,
understanding, or course of dealing between RxCare or TPA and any
pharmacy firm under which, in the event the pharmacy firm accepts or
agrees to accept from another third party payer, PBM, PSAO or other
firm a lower reimbursement rate than the lowest RxCare reimbursement
rate, the pharmacy firm must thereafter accept a reduction in its
reimbursement rate for any or all RxCare contracts in which it
participates. The term ``Most Favored Nations Clause'' includes, but is
not limited to, any price protection clause, buyer protection clause,
prudent buyer clause, consumer protection clause, meet or release
clause, best price clause, or meeting competition clause.
II
It is further ordered That RxCare and TPA shall forthwith cease and
desist, directly or indirectly, from:
A. Entering into, maintaining, or enforcing a Most Favored Nations
Clause in any participation agreement with any pharmacy firm or by any
other means or methods;
B. Auditing any pharmacy firm for the purpose of enforcing a Most
Favored Nations Clause; or
C. Inducing, suggesting, urging, encouraging, or assisting any
person or entity to take any action that if taken by RxCare or TPA
would violate this order.
III
It is further ordered That RxCare shall, within thirty (30) days
after the date this Order becomes final:
A. Remove all Most Favored Nations Clauses from its agreements with
pharmacy firms;
B. Distribute a copy of this Order, the attached Appendix, and the
complaint to each pharmacy firm with which RxCare has a participation
agreement; and
C. Publish the Appendix to this Order in the RxCare Update and on
the ``RxCare Network News'' page of the Tennessee Pharmacist, or any
successor publication(s).
IV
It is further ordered That, for the purpose of determining or
securing compliance with this Order, RxCare and TPA each shall:
A. Within sixty (60) days after the date this Order becomes final,
submit to the Commission a verified written report setting forth in
detail the manner and form in which they intend to comply, are
complying, and have complied with this Order;
B. One year (1) from the date this Order becomes final, annually
for the next four (4) years on the anniversary of the date this Order
becomes final, and at other times as the Commission may require, file a
verified written report with the Commission setting forth in detail the
manner and form in which they have complied and are complying with this
Order. Respondents shall include in their compliance reports all
written communications, internal memoranda, and reports and
recommendations concerning compliance with this Order;
C. For a period of ten (10) years after the date this Order becomes
final, permit any duly authorized representative of the Commission:
1. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of respondents relating to any matters contained in this
Order; and
2. Upon five days' notice to respondents and without restraint or
interference from it, to interview officers, directors, or employees of
respondents; and
D. For a period of ten (10) years after the date this Order becomes
final, notify the Commission at least thirty (30) days prior to any
proposed change in TPA or RxCare such as dissolution, assignment, sale
resulting in the emergence of a successor corporation, or the creation
or dissolution of subsidiaries or any other change in the corporation
that may affect compliance obligations arising out of the Order.
V
It is further ordered That this Order shall terminate twenty (20)
years from the date this Order becomes final.
Appendix
[Date]
Announcement
The Tennessee pharmacists Association (TPA) and RxCare of
Tennessee, Inc. (RxCare), have entered into a consent agreement with
the Federal Trade Commission. Pursuant to this consent agreement,
the Commission issued a consent order on [Date] providing that
RxCare and TPA may no longer enforce a most Favored Nations (MFN)
clause in the RxCare network provider agreements. The MFN clause
requires that if a participating pharmacy accepts a lower
reimbursement rate than the lowest RxCare rate, the pharmacy shall
accept its lower reimbursement rate for all RxCare contracts in
which it participates. As a result of the consent order, RxCare will
not require that pharmacies in its network that enter into any
agreement at a lower reimbursement rate than the RxCare
reimbursement rate shall accept such lower reimbursement rat for
RxCare contracts.
For more specific information, TPA or RxCare pharmacy network
members should refer to the FTC consent order itself. TPA and RxCare
will provide a copy of the consent order to each pharmacy firm with
which RxCare has a participation agreement.
Baeteena Black,
Pharm. D., Executive Director, Tennessee Pharmacists Association.
Gary Cripps,
Pharm. D., Chairman and President, RxCare of Tennessee, Inc.
RxCare, 951 0059
Analysis of Proposed Consent Order to Aid Public Comment
The Federal Trade Commission has agreed to accept, subject to
final approval, a proposed consent order settling charges that
RxCare of Tennessee, Inc., and the Tennessee Pharmacists Association
(TPA) violated Section 5 of the Federal Trade Commission Act.
The proposed consent order has been placed on the public record
for sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it
should withdraw from the agreement or make final the agreement's
proposed order.
The purpose of this analysis is to facilitate public comment on
the proposed order, and it is not intended to constitute an official
interpretation of the agreement and proposed order, nor to modify in
any way their terms.
The proposed consent order has been entered into for settlement
purposes only and does not constitute an admission by RxCare or TPA
that the law has been violated as alleged in the complaint.
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Description of Complaint
The complaint prepared by the Commission for issuance along with
the proposed order alleges the following:
TPA is the largest association of pharmacists in Tennessee.
Among TPA's goals is to ``define and promote appropriate
compensation to pharmacists for patient care.'' TPA owns RxCare.
RxCare is a pharmacy network, i.e., a group of pharmacies that
offer their services to pharmacy benefit managers (PBMs) and to
third-party payers (such as managed care plans, insurers, and
employers who pay for prescription drugs provided as part of
employee health benefit plans). Third-party payers pay for about
half of all prescriptions in Tennessee.
The complaint further alleges that RxCare is the leading
pharmacy network in Tennessee, providing PBM and/or network services
to managed care plans and PMBs accounting for approximately 2.4
million residents of Tennessee, who represent more than half of
Tennessee citizens with third-party pharmacy benefits. Because the
RxCare network is the largest source of third-party business for
Tennessee pharmacies, there is a strong incentive for those
pharmacies to participate in the RxCare network. The RxCare network
includes approximately 95% of Tennessee pharmacies.
According to the Commission's complaint, RxCare's agreements
with the pharmacies in its provider network include a ``most favored
nation'' or ``MFN'' clause. This clause requires that if a network
pharmacy accepts a reimbursement rate lower than its RxCare
reimbursement rate, the pharmacy shall accept the lower
reimbursement rate for all RxCare business. Each pharmacy in the
RxCare network agrees to this clause as a condition of remaining
within the network and RxCare enforces this clause against
pharmacies that have accepted lower reimbursement rates from other
payers. In addition, RxCare has discouraged pharmacies from
participating in rival networks seeking to offer prices below the
RxCare reimbursement level. RxCare did so by urging pharmacies to
refrain from such participation and by warning that acceptance of
such rates could trigger the MFN clause.
The complaint further alleges that, because RxCare represents
such a large portion of their business, most Tennessee pharmacies
would incur an unacceptable revenue loss if violating the MFN clause
caused them to accept reduced reimbursement rates on all of their
RxCare business. Thus, the MFN clause has provided a mechanism to
diminish significantly the incentives of RxCare network pharmacies
to discount their rates to third-party payers seeking to offer
network services with lower reimbursement rates. The MFN clause has
also enabled the pharmacies to assure each other that they will not
compete by selectively discounting their rates. Further, the
complaint alleges that third-party payers in states other than
Tennessee frequently offer reimbursement rates below the RxCare
reimbursement rate and that the MFN clause has caused payers to pay
higher rates in Tennessee than in other states.
The complaint alleges that RxCare's adoption and enforcement of
the MFN clause has injured consumers by restricting price
competition among pharmacies in Tennessee, effectively establishing
the RxCare network rate as a price floor for most Tennessee
pharmacies and inhibiting the entry of lower-priced pharmacy
networks.
There are judicial decisions upholding the use of MFN clauses
against antitrust challenges. See, e.g., Blue Cross and Blue Shield
United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th Cir.
1995); Ocean State Physicians Health Plan, Inc. v. Blue Cross and
Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), cert.
denied, 494 U.S. 1027 (1990). The Commission notes that these cases
rest on facts that differ significantly from those giving rise to
this enforcement action. Cf. Marshfield, 65 F.3d at 1415 (``Perhaps
* * * these clauses are misused to anticompetitive ends in some
cases; but there is no evidence of that in this case''). In
particular, the conduct challenged in the present enforcement action
involved a combination of competing sellers using its market power
to stabilize prices.
In Ocean State, the First Circuit Court of Appeals rejected a
rival HMO's claim that Blue Cross and Blue Shield of Rhode Island
violated Section 2 of the Sherman Act by requiring its participating
physicians to adhere to a MFN clause. The court concluded that the
MFN clause was not unreasonably exclusionary, despite the finding
that Blue Cross possessed market power. Ocean State, 883 F.2d at
1110. The court in Ocean State reasoned that a health insurer's
unilateral decisions about what it will pay providers do not violate
the Sherman Act and stated that Blue Cross, ``like any buyer of
goods or services,'' may lawfully ``bargain with its providers for
the best price it can get.'' Id. at 1111.
In Marshfield, defendant Marshfield Clinic (a multi-specialty
medical group practice) required independent physicians contracting
with its subsidiary HMO to adhere to a MFN clause. The Seventh
Circuit Court of Appeals, in holding that the Clinic's use of the
MFN clause did not violate Section 1 of the Sherman Act, appears to
have focused on the Clinic's role as a purchaser of physician
services and found no evidence to warrant the conclusion that the
MFN clause was used as a device to stabilize prices. 65 F.3d at 1415
(MFN clauses ``are standard devices by which buyers try to bargain
for low prices * * *. The Clinic did this to minimize the cost of
physicians to it * * *.''). In addition, the court concluded that
the Clinic's HMO lacked market power, finding that less than 50
percent of physicians in the market were HMO providers and that the
HMO did not represent enough of each physician's business to impede
selective discounting. Id. at 1411 (``The 900 independent
contractors derive only a small fraction of their income from these
[Marshfield] contracts'').
In the present case, however, the Commission found reason to
believe that a group of competing sellers exercised market power
through use of an MFN clause, and that the evidence, analyzed under
a full rule-of-reason inquiry, demonstrated that the RxCare MFN
clause, on balance, has harmed consumers. In particular, the
Commission found reason to believe that:
The MFN clause, in conjunction with the high percentage of
Tennessee pharmacies' participation in the RxCare network and the
substantial amount of third-party business arising from
participation in that network, has made it possible for RxCare to
exercise market power. Under these conditions, the MFN clause
effectively created a price floor by discouraging discounting. In
addition, RxCare sought to use the MFN clause to stabilize prices.
For example, RxCare sought to persuade payers to increase their
reimbursement rates to the RxCare level. The evidence, as a whole,
was sufficient to demonstrate that the anticompetitive effects of
the MFN clause outweighed any potential efficiencies.
Description of the Proposed Consent Order
The proposed order would prohibit RxCare and TPA from entering
into, maintaining, or enforcing any MFN clause, including auditing
any pharmacy for the purpose of enforcing an MFN clause.
The proposed order would require RxCare to remove all MFN
clauses from its contracts with pharmacies, to distribute the order
and accompanying complaint to network pharmacies, and publish the
order and related documents. The order would also require RxCare and
TPA to file compliance reports, retain certain documents, and notify
the Commission of certain changes in its corporate structure.
Donald S. Clark,
Secretary.
Concurring Statement of Commissioner Mary L. Azcuenaga in RxCare of
Tennessee, Inc., File No. 951-0059
I join in the Commission's decision to accept for public comment
a consent order requiring the Tennessee Pharmacists Association
(``TPA''), a trade association of pharmacists, and its affiliated
provider of pharmacy network services, RxCare of Tennessee, Inc., to
eliminate the most favored nation clause from its provider network
contracts. I write separately to emphasize that this order does not
call into question the general lawfulness of most favored nation
clauses.\1\ Although most favored nation clauses usually raise no
competitive concerns, in this case, the clause was used in
furtherance of a horizontal agreement to stabilize the reimbursement
rates for retail pharmacy services, as alleged in paragraph eight of
the complaint.
\1\ Although this point, among others, is made in the Analysis
To Aid Public Comment, I express no opinion on that analysis, which
by its own terms ``is not intended to constitute an official
interpretation'' of the Commission's action.
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Statement of Commissioner Christine A. Varney in the Matter of RxCare,
File No. 951-0059
RxCare, a pharmacy network established and owned by the
Tennessee Pharmacists Association, contracts with health plans to
provide prescription drugs to the plans' subscribers. I have voted
to issue the complaint and accept the consent order in this matter
because I agree that the most favored nations clause, in this case,
may have
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lessened competition. But, in doing so, I want to emphasize that joint
ventures by retail pharmacists can be precompetitive by injecting
new competition into the market for pharmacy benefit management
services.\2\ I believe many of RxCare's programs can be
procompetitive. The matter before the FTC concerns only one aspect
of RxCare's pharmacy benefit management programs--its imposition of
a most favored nations clause. By working on an expedited basis,
staff has been able to identify this concern quickly and, by working
closely with RxCare, has resolved it in a mutually agreeable
fashion.
\2\ See Prepared Remarks of Christine A. Varney, ``Responses to
the Managed Care Revolution: A Competition Policy Perspective,''
Conference of the National Ass'n of Retail Druggists, March 27,
1995.
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[FR Doc. 96-1497 Filed 1-28-96; 8:45 am]
BILLING CODE 6750-01-M