[Federal Register Volume 61, Number 47 (Friday, March 8, 1996)]
[Notices]
[Pages 9487-9498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5472]



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DEPARTMENT OF JUSTICE

Antitrust Division
[Case No. 1:94CV02693]


United States v. Vision Service Plan; Public Comments and United 
States' Response to Public Comments

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16 (b)-(h), the United States publishes below the comments received on 
the proposed Final Judgment in United States v. Vision Service Plan, 
Case No. 1:94CV026923, United States District Court for the District of 
Columbia, together with the response of the United States to the 
comments.
    Copies of the response and the public comments are available on 
request for inspection and copying in room 215 of the Antitrust 
Division, U.S. Department of Justice, 325 7th Street, N.W., Washington, 
D.C. 20004, and for inspection at the Office of the Clerk of the United 
States District Court for the District of Columbia; 3rd Street and 
Constitution Ave., NW.; room 1825; Washington, DC 20001.
Rebecca P. Dick,
Deputy Director of Operations, Antitrust Division.

United States' Response to Public Comments

I. Introduction

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, (commonly referred to as the ``Tunney Act''), 15 U.S.C. 
16 (b)-(h), the United States hereby responds to public comments 
regarding the Final Judgment initially proposed as the basis for 
settling this proceeding in the public interest. Since the comments 
regarding the first proposed Final Judgment were submitted, the parties 
have agreed to a superseding, proposed Revised Final Judgment, filed on 
November 1, 1995, which reflects changes to a few provisions. After 
careful consideration of the comments on the formerly proposed Final 
Judgment, viewed in light of the proposed Revised Final Judgment, the 
United States concludes that the Revised Final Judgment will provide an 
effective and appropriate remedy for the antitrust violation alleged in 
the Complaint. Once the public comments and this response have been 
published in the Federal Register, pursuant to 15 U.S.C. 16(d), the 
United States will request that the Court enter the Revised Final 
Judgment.

II. Procedural History

    On December 15, 194, the United States filed a Complaint alleging 
that Vision Service Plan (``VSP''), in all or parts of the many states 
in which it does business as a vision-care insurer, has entered into 
agreements with its panel doctors that unreasonably restrain 
competition by discouraging the doctors from discounting their fees for 
vision-care services, in violation of Section 1 of the Sherman Act, 15 
U.S.C. 1. Simultaneously with the filing of the Complaint, the United 
States filed a proposed Final Judgment and a Stipulation signed by both 
it and the defendant, agreeing to the entry of the Final Judgment 
following compliance with the Tunney Act.
    Pursuant to the Tunney Act, on December 23, 1994, VSP filed the 
required description of certain written and oral communications made on 
its behalf; the United States filed a Competitive Impact Statement 
(``CIS'') on January 13, 1995. A summary of the terms of the proposed 
Final Judgment and the CIS and directions for the submission of written 
comments were published in the Washington Post for seven consecutive 
days, from January 22-28, 1995. The proposed Final Judgment and the CIS 
were published in the Federal Register on January 26, 1995. 60 FR 5210-
17 (1995). The 60-day period for public comments on the then proposed 
Final Judgment began on January 27, 1995, and expired on March 27, 
1995. Five comments were received.
    The United States filed the five comments with the Court on May 12, 
1995, and was preparing to file its response to them when VSP raised 
issues about the application of certain provisions of the then-proposed 
Final Judgment to its operations. On June 23, 1995, the United States 
advised the Court that the parties were considering whether those 
issues warranted any modification to the proposed Final Judgment. 
Reflecting the outcome of those negotiations are the parties' 
Superseding Stipulation, the proposed Revised Final Judgment, and the 
Revised CIS, filed on November 1, 1995. The latter two documents are 
styled as ``Revised'' because they reflect changes made to a few of the 
provisions of the proposed Final Judgment and to related portions of 
the CIS. The Government agreed to these revisions to remedy certain 
problems that VSP had experienced while operating under the terms of 
the originally proposed Final Judgment, which, pursuant to Stipulation, 
it had been doing since the proposed Final Judgment was filed.
    In a letter accompanying the superseding filings, the United States 
informed the Court of its intent to provide public notice of the 
proposed Revised Final Judgment and the Revised CIS in accordance with 
the Tunney Act. Pursuant to the Act, under cover of a letter dated 
November 27, 1995, the defendant filed the required description of 
certain written and oral communications made on its behalf. A summary 
of the terms of the proposed Revised Final Judgment and the Revised CIS 
and directions for the submission of written comments were published in 
the Washington Post for seven consecutive days, from November 12-18, 
1995. The proposed Revised Final Judgment and the Revised CIS were 
published in the Federal Register on November 13, 1995. 60 FR 57017-21 
(1995). The 60-day period for public comments started on November 14, 
1995, and expired on January 13, 1995. No comments on the proposed 
Revised Final Judgment were received.

III. Factual Background

    VSP contracts with businesses, government agencies, health-care 
insurers, and other organizations to provide prepaid vision-care 
insurance to 

[[Page 9488]]
employee groups and beneficiaries in 46 states and the District of 
Columbia. In 1994, VSP covered about 15 million persons, and its 
revenues totaled about $650 million. The United States sought 
injunctive relief to remedy the anticompetitive consequences of a fee 
non-discrimination clause in VSP's agreements with doctors in private 
practice who have agreed to become VSP ``panel doctors'' and, 
accordingly, provide vision care to patients covered by VSP.\1\ VSP 
contracts with at least 17,000 such doctors--predominantly optometrists 
and a relatively small number of ophtalmologists--across the nation. 
The challenged clause is similar in substance to clauses commonly 
called ``most-favored-nation'' (``MFN'') clauses. VSP's MFN clause 
required each of its panel doctors to charge VSP no more than the 
lowest price the doctor charged any non-VSP patient or insurance plan.

    \1\ Such service consist primarily of diagnostic services and 
the dispensing of optical goods, such as corrective lenses and 
frames.
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    As a result of the MFN clause, a VSP-panel doctor could not charge 
any non-VSP plan or patient less than VSP for equivalent services. If 
the doctor wished to charge a non-VSP plan or patient less than he or 
she had been charging VSP, the doctor would also have had to grant an 
equal discount to VSP for all VSP-insured patients the doctor served. 
In all or parts of many states in which VSP does business, it contracts 
with a high percentage of local optometrists,\2\ and in these areas 
most optometrists earn a significant part of their professional income 
from VSP. For these doctors, the financial consequences of granting a 
greater discount for services provided to all of their VSP patients 
would be substantial, so they ceased or refrained from discounting 
below VSP-payment levels to anyone. In addition to discouraging the 
discounting of vision care services below VSP-payment levels, VSP's MFN 
clause made it impossible for some competing vision-care plans to 
obtain or retain sufficient panel doctors to serve their members at 
competitive prices, thus limiting the amount of competition faced by 
VSP from other plans.

    \2\ For example, in 1993 VSP reported that 98% of all 
optometrists licensed in Nevada were VSP-panel doctors, and today in 
California, VSP contracts with about 90% of optometrists in 
independent private practice.
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IV. Response to Public Comments

    All five of the comments address the originally proposed Final 
Judgment. Some of the comments contend that Section V of that Judgment, 
which expressly permits VSP to engage in certain activities, undermines 
the prohibitions of the Judgment. Other comments urge that additional 
relief be ordered for the conduct that was challenged. Finally, several 
of the comments concern practices that the United States did not 
challenge and that are not enjoined by the Judgment. The United States 
has concluded that the Revised Final Judgment reasonably and 
appropriately addresses the harm alleged in the Complaint. Therefore, 
following publication of the comments and this response, pursuant to 
the Tunney Act, and submission of the United States' certification of 
compliance with the Act, the United States intends to urge this Court 
to enter the proposed Revised Final Judgment based on the Court's 
determination that that Judgment is in the public interest.
A. Comments About the Permitted Activities
    Two comments from Alaska, Arizona, Hawaii, Nevada, New Mexico, 
Oregon and Washington, (``the seven states'') and comments from 
Northwest Administrators and First American Health Concepts question 
Section V of the formerly proposed Final Judgment, which expressly 
permitted VSP to collect from its panel doctors sufficient information 
about the fees they charged non-VSP plans and patients to enable VSP to 
calculate each doctor's modal or median fees, which were then to be 
used by VSP in setting its own fees to panel doctors. The commenters 
raised various concerns about these provisions.
    In their initial comment, the seven states reported that several of 
them have been examining the competitive effects of various VSP 
business practices in addition to the MFN clause. Although they 
recognized that the proposed Final Judgment was ``an agreement between 
the parties with no precedential effect,'' they nevertheless expressed 
concern about ``a potential problem with the inclusion of certain 
language in the [proposed Final Judgment] which could potentially 
inhibit future law enforcement efforts by the states'' against possible 
horizontal price-fixing by VSP. They feared that the provisions in 
Section V permitting certain activities may be ``taken out of context 
to support horizontal price-fixing activity, which is beyond the scope 
of [this] * * * lawsuit.''
    It is well established, however, that ``a consent judgment, even 
one entered at the behest of the Antitrust Division, does not immunize 
the defendant from liability for actions, including those contemplated 
by the decree, that violate the rights of nonparties.'' Broadcast 
Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 13 
(1979). Therefore, nothing in the formerly proposed Final Judgment 
would have precluded any of the states, or any other party, from 
bringing future antitrust claims against VSP, whether based on a per se 
or rule of reason analysis. Nor would any provision in the formerly 
proposed Final Judgment have obstructed entry of full and appropriate 
relief in a subsequent suit. These conclusions apply equally to the 
proposed Revised Final Judgment.
    In their later comment, the states asserted directly that the 
gathering by VSP of fee information and its setting of fees, in the 
manner permitted by Section V of the formerly proposed Final Judgment, 
would be per se violations of the Sherman Act when undertaken by a 
provider-controlled plan. Even if VSP were controlled by optometrists, 
as the states apparently believe they can prove, its setting of fees to 
its panel doctors, as an activity related to the offering of a separate 
and additional product--insurance--might in some circumstances be 
analyzed under the rule of reason rather than the per se rule.\3\ See 
generally id. at 19-24. Insurance plans such as VSP commonly establish 
doctor panels to provide services to their insureds and set the fees 
that the plan will pay the panel doctors for these services. VSP's fee-
setting policies may be reasonably ancillary to its operation of a 
vision-care insurance plan, and, if so, they would appear to be subject 
to rule of reason analysis.

    \3\ Statements 6 and 8 of the Statements of Enforcement Policy 
and Analytical Principles Relating to Health Care and Antitrust, 
jointly issued by the Department of Justice and the Federal Trade 
Commission in 1994 and cited by the states, do not address the 
issuance of insurance, the activity at issue here.
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    The seven states also asserted that permitting VSP to base its fees 
on its panel doctors' modal or median prices to non-VSP plans for 
patients risks the same anticompetitive harm that has resulted from 
VSP's enforcement of its MFN clause. Two other commenters, Northwest 
Administrators and First American Health Concepts, raised similar 
arguments. Under the Revised Final Judgment, VSP will no longer 
maintain the option, contained in the formerly proposed Final Judgment, 
to calculate payments made to its panel doctors based on a doctor's 
modal or median fees. Rather, under Section V of the Revised Final 
Judgment, VSP will retain the option of calculating the fees that it 
pays panel doctors based merely on their usual and customary fees 
charged to private patients before any discounts are applied. The 
proposed 

[[Page 9489]]
Revised Final Judgment's narrowing of VSP's permitted fee-calculation 
options to a method based on a panel doctor's usual and customary fees, 
defined as such fees before any discounts are applied, eliminates any 
possibility that VSP's permitted fee-setting activity will inhibit 
discounting.\4\

    \4\ Similarly, VSP's permitted use (under the formerly proposed 
Final Judgment) of modal or median fee calculations as the basis for 
its own fees, unlike VSP's enforcement of its MFN clause, should not 
have discouraged doctors from discounting to non-VSP plans or 
patients. A substantial percentage of vision-care patients are 
uninsured, and for the most part, these are not the patients who are 
able to obtain discounts in any amount. Thus, a VSP-panel doctor's 
median or modal fee, even though calculated in part on fees charged 
to other plans to which the doctor does offer a discount, would 
likely have been well above the lowest fee charged by the doctor to 
a non-VSP plan or patient. Under the formerly proposed Final 
Judgment, discounting by a VSP-panel doctor to some non-VSP plans or 
patents was, therefore, not likely to have significantly depressed 
the doctor's income from VSP. Thus, this method of fee-setting by 
VSP, unlike the MFN clause, should not have operated to deter 
effective competition to VSP from other vision-care plans. Indeed, 
the modification of this provision of the decree (the substitution 
of a ``usual and customary'' for a ``median'' or ``modal'' basis 
from which VSP may set its panel doctors' fees) arose from VSP's 
practical difficulties in implementing a ``median'' or ``modal'' 
methodology, rather than from competitive concerns.
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    The commenters also objected to some of the practices permitted 
under Section V of the formerly proposed Final Judgment on other 
grounds. First American Health Concepts contended that the collection 
of fee information would enable VSP to punish panel doctors if they 
discount to or even participate in non-VSP plans. This claim, however, 
ignores Sections IV (C) and (D) of the Final Judgment (and Revised 
Final Judgment), which clearly prohibit such conduct.\5\ In any event, 
the proposed Revised Final Judgment no longer permits VSP to obtain fee 
information that reflects a panel doctor's discounting.

    \5\ Section IX of the Revised Final Judgment authorizes the 
United States to investigate VSP's compliance with the Judgment at 
any time upon reasonable notice. The United States may inspect and 
copy VSP documents, interview VSP employees, and require VSP to 
submit written reports under oath. Moreover, the Judgment, once 
entered, is an injunction, violations of which are punishable by the 
Court's contempt power.
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    First American also contended that the information-collection 
provision (Section V(A) of the formerly proposed Final Judgment) would 
have enabled VSP to impose burdensome recordkeeping requirements on 
doctors. But most doctors already keep, in the ordinary course of their 
business, all of the information VSP would have been allowed to seek. 
At any rate, Section V(A) of the proposed Revised Final Judgment 
effectively reduces a panel doctor's potential fee-reporting 
obligations to an annual submission of the doctor's usual and customary 
fees for a retrospective period of up to 12 months. Such a requirement 
entails no more than submission of the doctor's fee schedule(s) in 
effect for the relevant period.
    As the preceding discussion shows, the theme of many of the 
comments was that Section V of the formerly proposed Final Judgment 
went too far in granting VSP leeway to continue to operate its business 
despite the restrictions imposed by Section IV. Although the United 
States believes that Section V of the formerly proposed Final Judgment 
granted VSP nothing that compromised the remedy embodied in Section IV, 
the proposed Revised Final Judgment's narrowing of VSP's permitted 
activities substantially addresses most of the commenters' arguments. 
Moreover, the United States fully intends to monitor VSP's practices 
under the Revised Final Judgment and to seek enforcement or additional 
relief if warranted. Should competitive problems again restrain 
optometrists from discounting their fees for vision-care services to 
plans competing with VSP or to others, the United States stands ready 
to take all appropriate action.
B. Comments Seeking Additional Relief for the Challenged Conduct
    Northwest Administrators urged that additional relief be obtained 
in the then-proposed Final Judgment. Its comment applies equally to be 
the Revised Final Judgment, which also does not provide for the 
additional relief sought. Northwest Administrators wanted the formerly 
proposed Final Judgment to require VSP to take affirmative steps to 
encourage doctors to rejoin competing plans and to repay doctors the 
difference between what VSP has paid them and what it would have paid 
them in the absence of its MFN clause. Pursuant to the Stipulation 
filed with the Complaint in this action, VSP has already provided all 
of its panel doctors with an addendum to its Panel Doctor's Agreement 
that expressly nullifies the MFN clause. In addition, the proposed 
Revised Final Judgment would require VSP to give each panel doctor a 
copy of the Judgment, which enjoins VSP from taking actions to deter 
panel doctors from participating in non VSP plans. As to payments, it 
is not the role of the United States to secure monetary damages for 
private parties.
C. Comments About Conduct Not Challenged in the Complaint
    The Optical Laboratories Association and First American Health 
Concepts urged that the formerly proposed Final Judgment (and, by 
extension, the Revised Final Judgment) be expanded to cover a variety 
of conduct not challenged in the Complaint. Essentially, these 
commenters disagreed with the United States' prosecutorial decision 
about what conduct to challenge. As explained below, however, the 
Tunney Act does not authorize the Court to reject the proposed Revised 
Final Judgment on the ground that it does not enjoin conduct, allegedly 
in violation of the antitrust laws, that was not challenged in the 
Complaint. The scope of a governmental antitrust challenge is a matter 
solely within the discretion of the United States and is beyond the 
scope of the Court's Tunney Act review.

V. The Legal Standard Governing the Court's Public Interest 
Determination

    The Tunney Act directs the court to determine whether entry of the 
proposed Judgment ``is in the public interest.'' 15 U.S.C. Sec. 16(e). 
In making that determination, ``the court's function is not to 
determine whether the resulting array of rights and liabilities is one 
that will best serve society, but only to confirm that the resulting 
settlement is within the reaches of the public interest.'' United 
States v. Wester Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.), cert. 
denied, 114 S. Ct. 487 (1993) (emphasis added, internal quotation and 
citation omitted).\6\ Consequently, the Court should evaluate the 
relief set forth in the proposed Revised Final Judgment in light of the 
claims alleged in the Complaint and should enter the decree if it falls 
within the government's ``rather broad discretion to settle with the 
defendant within the reaches of the public interest.'' United States v. 
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995). The Tunney Act 
does not empower the Court to reject the remedies in the proposed 
Decree based on the belief that ``other remedies were preferable.'' Id. 
at 1460.

    \6\ The Western Electric decision concerned a consensual 
modification of an existing antitrust decree. The Court of Appeals 
assumed that the Tunney Act was applicable.
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    The Court is not ``to make de novo determination of facts and 
issues.'' Western Elec. 993 F.2d at 1577. Rather, ``[t]he balancing of 
competing social and political interests affected by a proposed 
antitrust decree must be left, in the first instance, to the discretion 
of the Attorney General.'' Id. (internal quotation and citation omitted 
throughout). In particular, the Court must defer to the Department's 
assessment of like, competitive 

[[Page 9490]]
consequences, which it may reject ``only if it has exceptional 
confidence that adverse antitrust consequences will result--perhaps 
akin to the confidence that would justify a court in overturning the 
predictive judgments of an administrative agency.''\7\ Id. Thus, the 
Court may not reject a decree simply ``because a third party claims it 
could be better treated.'' Microsoft, 56 F.3d at 1461 n.9.

    \7\ The Tunney Act does not give a court authority to impose 
different terms on the parties. See, e.q., United States v. American 
Tel. & Tel. Co., 552 F. Supp. 131, 153 n. 95 (D.D.C. 1982), aff'd 
sub nom. Maryland v. United States, 460 U.S. 1001 (1983) Mem.); 
accord H.R. Rep. No. 1463, 93d Cong., 2d Sess. 8 (1974). A court, of 
course, can condition entry of a decree on the parties' agreement to 
a different bargain, see, e.g., AT&T, 552 F. Supp. at 225, but if 
the parties do not agree to such terms, the court's only choices are 
to enter the decree the parties proposed or to leave the parties to 
litigate.
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    To a great extent it is the realities and uncertainties of 
litigation that constrain the role of courts in Tunney Act proceedings. 
See United States v. Gillette Co., 406 F. Supp. 713, 715-16 (D. Mass. 
1975). As Judge Greene has observed,

    If courts acting under the Tunney Act disapproved proposed 
consent decrees merely because they did not contain the exact relief 
which the court would have imposed after a finding of liability, 
defendants would have no incentive to consent to judgment and this 
element of compromise would be destroyed. The consent decree would 
thus as a practical matter be eliminated as an antritrust 
enforcement tool, despite Congress' directive that it be preserved.

United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 151 
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 
(1983) (Mem.). Indeed, where, as here, the proposed consent decree 
comes before the Court at the time the Complaint is filed, ``the 
district judge must be even more deferential to the government's 
predictions as to the effect of the proposed remedies * * *'' 
Mircosoft, 56 F.3d at 1461.
    Moreover, the entry of a governmental antitrust decree forecloses 
no private party from seeking and obtaining appropriate antitrust 
remedies. Thus, VSP will remain liable for any illegal acts, and any 
private party may challenge such conduct if and when appropriate. If 
any of the commenting parties has a basis for suing VSP, they may do 
so. The legal precedent discussed above holds that the scope of a 
Tunney Act proceeding is limited to whether entry of this particular 
proposed Consent Decree, agreed to by the parties as settlement of this 
case, is in the public interest.
    Finally, the Tunney Act does not contemplate judicial reevaluation 
of the wisdom of the government's determination of which violations to 
allege in the Complaint. The government's decision not to bring a 
particular case on the facts and law before it at a particular time, 
like any other decision not to prosecute, ``involves a complicated 
balancing of a number of factors which are peculiarly within [the 
government's] expertise,'' such as ``whether [the government's] 
resources are best spent on this violation or another, whether the 
[government] is likely to succeed if it acts, whether the particular 
enforcement action requested best fits the [government's] overall 
policies, and, indeed, whether the [government] has enough resources to 
undertake the action at all.'' Heckler v. Chaney, 470 U.S. 821, 831 
(1985); See also Maryland v. United States, 460 U.S. 1001, 1106 (1983) 
(Rehnquist, J., dissenting from summary affirmance). The Court may not 
``reach beyond the complaint to evaluate claims that the government did 
not make and to inquire as to why they were not made.'' Microsoft, 56 
F.3d at 1459 (emphasis added). Entry of the proposed Revised Final 
Judgment will not prevent the government from investigating and 
challenging, if appropriate, conduct not addressed in the current 
action.

VI. Conclusion

    The Tunney Act requires that public comments and this response be 
published in the Federal Register. When that publication has been 
accomplished, the United States will notify the Court and urge entry of 
the proposed Revised Final Judgment based on the Court's determination 
that the Judgment is in the public interest.

    Dated: February 16, 1996.

      Respectfully submitted,
Steven Kramer,
Richard S. Martin,
U.S. Department of Justice, Antitrust Division, Bicentennial Building--
Room 9420, 600 E Street NW., Washington, DC 20530, (202) 307-0997.
January 19, 1995.
Gail Kursh
Chief Professional & Intellectual Property Section, Antitrust 
Division, U.S. Department of Justice, 600 E. Street NW., Room 9300, 
Washington, DC 20530.

    Dear Ms. Kursh: These comments are submitted regarding United 
States of America vs. Vision Service Plan, case number 1:94CV02693.
    Northwest Administrators, Inc. (NW) is a third party 
administrator which manages a vision care plan which competes with 
Vision Service Plan in the Northwestern United States. Our vision 
plan is known as the Northwest Benefit Network (NBN) vision care 
plan. During the past several years, NBN has experienced the anti-
competitive actions by VSP as described in the U.S. Justice 
Department ``Complaint''. Eventually, we took our concerns to the 
Washington State Attorney General, which has conducted its own 
investigation.
    We are concerned that the proposed settlement will enable VSP to 
continue to engage in anti-competitive activities, and we request 
that your settlement be modified to include the following:
    1. VSP should be prohibited from asking participating panel 
doctors for any information regarding fees accepted from other plans 
or regarding participation in any other plan. By allowing this 
activity, you permit them to identify doctors who they may wish to 
punish for cooperating with competing plans. By allowing them to 
collect fee information about their competitors, they will be in a 
position to continue to use the information in restraint of trade 
even if they don't do so under the authority of a ``most favored 
nation'' contract clause.
    To support my concern, I am enclosing a copy of a letter from 
VSP to its panel doctors in which VSP states, ``In the future, VSP's 
payments will be based on the range of fees the doctor accepts, 
rather than the lowest fee.'' The ``range'' of a doctor's fees, by 
definition, includes the lowest and highest fees which the doctor 
accepts. This is the type of information which VSP has misused in 
the past.
    2. ``Permitted Activities'' described on page five of your Final 
Judgment neutralize several of the activities described in 
``Prohibited Conduct'' on page four and five of your Final Judgment. 
For example, VSP is prohibited from ``monitoring or auditing the 
fees any VSP panel doctor charges any non-VSP patient or any non-VSP 
plan; and communicating in any fashion with any VSP panel doctor 
regarding the doctor's participation in any non-VSP plan or 
regarding the doctor's fees charged to any non-VSP patient or to any 
non-VSP plan.'' In the very next section, under ``Permitted 
Activities'', VSP is allowed to collect fee information and to audit 
fee information regarding doctors' charges to non-VSP patients. The 
only way to insure that such information is not used for anti-
competitive activities is to prohibit them from collecting or 
possessing such information.
    3. VSP should be required to notify all doctors who withdrew 
from competing plans that they will not in any way be penalized for 
re-enrolling in other non-VSP plans. As currently written, your 
``Compliance Measures'' simply assist VSP in becoming more 
monopolistic. To enhance competition and provide equitable relief, 
competing plans which were damaged should be made whole. Due to 
VSP's dominant market position, when forced to choose between 
dropping their participation in VSP and dropping their participation 
in non-VSP plans, providers almost always choose to drop their 
participation in non-VSP plans. Your efforts should be to help non-
VSP plans regain lost providers; not to help VSP to become bigger 
and stronger. Non-VSP plans should be 

[[Page 9491]]
allowed to monitor the distribution of such notices to insure that all 
affected providers receive proper notification.
    4. VSP should be required to repay all doctors who were 
penalized for participating in other non-VSP plans. VSP should be 
required to reimburse the difference in the amount they would have 
paid and the reduced amount paid because the doctor was on a 
competing plan which paid less than VSP.
    Finally, I would like to request clarification of Section X of 
the Final Judgment which states that ``This Final Judgment shall 
expire within five years from the date of its entry.'' Does that 
mean that VSP can resurrect their ``Most Favored Nation'' activities 
after five years?
    We would like to express our sincere gratitude to the Justice 
Department for helping to level the playing field and for attempting 
to restore a competitive market environment. We also appreciate your 
consideration of our suggestions regarding the proposed settlement 
with VSP.

      Sincerely,
James H. Baker,
Vice President.
March 17, 1995.
Gail Kursh,
Chief, Professions & Intellectual Property Section, Department of 
Justice, Antitrust Division, 600 E. Street NW., Room 9300, 
Washington, DC 20530.
    Re: U.S. v. Vision Service Plan, USDC for District of Columbia, 
Case No. 1:94CV02693
    Dear Sir/Madam: This comment on the proposed Final Judgment in 
the above--entitled case is filed on behalf of the Optical 
Laboratories Association, ``(OLA''), a trade association who address 
is P.O. Box 2000, Merrifield, VA 22116-2000. Many of the members of 
the Association have agreements with VSP as ``VSP contract 
laboratories'' to ``perform opthalmic prescription work for VSP''.
    The thrust of this comment is that the proposed consent order 
should be expanded to prohibit the MFN clause in VSP's contracts 
with its contract laboratories.
    A vision service plan needs agreements with two sets of 
providers: a panel of optometrists to perform refractions for the 
plan members; and a panel of optical laboratories to perform 
prescription work and provide completed devices--lenses and frames--
to be delivered to the plan members. A plan which cannot secure the 
services of adequate panels in each of these areas cannot be 
competitive in the market place.
    The Department's Competitive Impact Statement adequately 
describes conditions in the optical industry, and provides 
justification for the proposed consent order. However, it does not 
go far enough. The word ``laboratory'' could be substituted for the 
word ``optometrist'' wherever the latter word appears in the 
Statement to describe the reluctance of contract laboratories to 
give discounts to plans that compete with VSP. This means that the 
market can be made competitive for other vision service plans only 
if the laboratories can be freed from enforcement of VSP's MFN 
clause.
    Attached is a copy of VSP's ``Laboratory Agreement''. Paragraph 
``J'' refers to prices and provides that--``these prices . . . 
reflect discounts which are greater than Laboratory gives to any 
non-VSP customer.'' Paragraph ``H'' provides that--``Laboratory 
agrees not to sell . . . any vision care group plan . . .'' There 
can be no doubt that the agreement is designed to lock the 
laboratory into a non-competitive position.
    Also attached is a copy of a typical letter received by a 
contract laboratory after VSP had audited its prices. There is no 
question that VSP enforces its MFN clause.
    In view of the above, it is submitted that in order to assure 
competitive conditions in the market for vision care plans, VSP must 
be enjoined from enforcing a MFN clause in any Laboratory Agreement.

      Respectfully submitted,

Optical Laboratories Association, by:
Joseph S. Gill,

VSP Laboratory Agreement

    The undersigned optical laboratory, hereinafter referred to as 
``Laboratory,'' hereby agrees to perform ophthalmic prescription 
work for VISION SERVICE PLAN, hereinafter referred to as ``VSP,'' as 
a ``VSP contract laboratory.''
    A. Term. This contract shall be effective upon the date of 
acceptance by VSP and shall remain in full force and effect until 
terminated by either party hereto giving the other fifteen (15) days 
prior written notice of intent to terminate. Laboratory agrees to 
complete and deliver any prescription orders already in process on 
the date of termination of this contract, and VSP agrees to pay for 
these prescriptions at the contract prices listed herein. Laboratory 
agrees that VSP will exercise its sole discretion in determining 
that laboratories with which it will contract and that VSP reserves 
the right to cancel this contract and remove Laboratory's name from 
its approved list, subject only to the fifteen (15) day notice 
provided for hereinabove.
    B. Laboratory Representations. Laboratory agrees and represents 
that:
    (1) It adheres to applicable ANSI Z-80 Standards.
    (2) It conducts a complete wholesale optical service, serving 
all optometrists and ophthalmologists without discrimination as to 
race, color or creed.
    (3) It has surfacing and finishing capabilities in-house or 
through the parent company (a lab by the same name) which is located 
within the same region.
    (4) It is not owned, in whole or in part, by any person 
practicing as an optometrist, ophthalmologist or dispensing optician 
or by any person owning any part of a dispensary or retail outlet.
    (5) It has listed below all persons having an ownership interest 
in Laboratory.
    (6) It will notify VSP immediately of any change in ownership of 
laboratory.
    (7) It understands and agrees that this contract is not 
assignable and becomes invalid if the Laboratory changes ownership, 
name, or address.
    (8) It agrees to adhere to and be bound by all policies and 
procedures of VSP.
    (9) It agrees to notify VSP of any price changes by sending its 
revised price lists to the VSP Contract Laboratory Department within 
thirty (30) days of the effective new prices.
    C. Audits and Inspections. Laboratory agrees that 
representatives of VSP may visit Laboratory at any reasonable time 
during normal business hours for the purpose of inspecting 
Laboratory's facilities, stock, and fabrication operations, and to 
audit any records. Laboratory will allow VSP representatives to 
analyze pricing and discount information by reviewing wholesale 
invoices and statements selected from Laboratory's files. Laboratory 
will provide VSP all wholesale prescription price lists used for any 
and all Laboratory customers, including buying groups. Pricing 
information shall be held in strictest confidence by VSP, and shall 
be utilized solely for VSP's internal purposes. Pricing information 
will not be disseminated to any other laboratory or third party.
    D. Name Use. Laboratory agrees not to sue the name ``Vision 
Service Plan, ``VSP,'' the VSP logo, or any variation of any of them 
without having first obtained the express written consent of VSP and 
agrees that using either the name of servicemarks of VSP for any 
purpose without the express written consent of VSP is a violation of 
state and federal law and will result in immediate termination of 
this contract.
    E. Financial Incentives. Laboratory agrees not to offer or 
provide any discounts, gifts, premiums, or other financial 
inducements to VSP member doctors to attract VSP prescriptions. 
Laboratory agrees not to include the VSP volume when determining a 
VSP member doctor's volume discount on private prescriptions.
    F. Insurance. Laboratory agrees to provide and maintain general 
and product liability insurance in a minimum amount of $1,000,000 
per occurrence and to have VSP named as an additional insured on the 
general and product liability policies.
    G. Cooperation. Laboratory agrees not to take any actions 
demonstrating any unwilliness or inability to work cooperatively for 
the best interest of VSP, its doctors, subscribers or subscriber 
groups.
    H. Competition. Laboratory agrees not to sell or offer to sell, 
directly or indirectly (including through any partnership, 
association or corporation in which Laboratory owns more than 10% of 
outstanding shares), any vision care group plan except safety 
eyewear programs.
    I. Redos. Laboratory shall honor lab and doctor redos for at 
least six (6) months from the date of completion of the original Rx. 
Lab redos shall be remade until correct at no charge, and the VSP 
member doctor will be the final judge of quality. A doctor redo 
shall be remade at no additional charge. Laboratory agrees that the 
contract prices paid for original Rxs cover the costs of doctor 
redos.
    J. Prices. Laboratory agrees to perform VSP prescription work 
for the prices listed below. These prices include all materials and 
labor involved in supplying finished and mounted prescription lenses 
to VSP member doctors and reflect discounts which are greater than 
Laboratory gives to any non-VSP customer.

All single Vision Lenses................................     $__________

[[Page 9492]]
                                                                        
All bifocal Lenses......................................     $__________
All Other Prescriptions Including Trifocal, Lenticular,                 
 Double Seg., Etc.......................................     $__________
Laboratory will supply frames for VSP prescriptions at                  
 the catalog price on the date the prescription is                      
 completed less:                                                  15%   
                                                             $__________
                                                                        



    Laboratory agrees there will be no service charge to VSP or the 
doctor for supplying any frame normally available to Laboratory's 
customers. The price for each category of prescription lenses 
includes all types of lenses within that category, and is the total 
price, except for times on the VSP Lab Options List. Laboratory 
agrees not to charge the VSP member doctor directly unless 
authorized by VSP. Laboratory agrees not to refuse any VSP 
prescription because of its cost. Laboratory agree to at all times 
give VSP prescriptions the same priority as non-VSP prescriptions. 
Laboratory understands and agrees that some prescriptions within 
each of these categories are more expensive than others, and these 
prices cover all prescriptions. Laboratory agrees not to divulge any 
of these prices to any other party.
    K. Laboratory Ownership. The following are the only persons who 
have an ownership interest in the Laboratory:

------------------------------------------------------------------------
                                                              Percentage
                      Name of owner(s)                            of    
                                                              ownership 
------------------------------------------------------------------------
[None Listed]                                                           
------------------------------------------------------------------------

Vision Service Plan, Contract Laboratory Program, 333 Quality Drive, 
Rancho Cordova, CA 95670-7989, (910) 851-5000 (800) 852-7609, 
Telefax (916) 851-4866

    Enclosed is a new laboratory contract for your completion. 
Please carefully review this new contract. Among other changes, note 
the following.
    * The minimum general and product liability insurance coverage 
has increased to $1,000,000 per occurrence. In addition, VSP is to 
be named as an additional insured on the policies.
    * When we last surveyed all contract laboratories on their 
current liability limits, it was evident that most labs already 
realized the necessity of higher liability coverage. We found that 
85% of our contract labs carried at least $1,000,000 coverage.
    Please forward a Certificate of Insurance reflecting the minimum 
of $1,000,000 general and product liability, as well as showing VSP 
as an additional insured.
    * The laboratory agrees not to sell any competing vision care 
group plan. Safety eyewear programs may continue to be sold by 
contract laboratories.
    * As a result of increased communications between VSP and 
contract labs, a paragraph titled ``Confidential Information'' has 
been added. This will help ensure confidentiality of any information 
exchanged.
    * The laboratory's bid prices must reflect competitive pricing 
for VSP.
    A recent price audit was conducted on your laboratory prices. 
The audit utilizes the frequency of options, different lens 
prescriptions and styles, and miscellaneous add-on items, and then 
compares the amount VSP pays against your laboratory's private 
pricing.
    VSP has found through this audit process that VSP is not 
receiving a discount off maximum discounted private prices. As a 
remedy to this situation, we ask that you submit a new bid to 
continue as a VSP Contract Laboratory.
    Your cooperation on returning the completed contract with new 
bid prices and Certificate of Insurance by (____________________) is 
appreciated. If you have any questions, please call me.

    Sincerely,
Teri M. Lew,
Contract Laboratory Program Administrator.

TML/td
Enclosures

March 28, 1995.
Gail Kursh,
Chief, Professional and Intellectual Property Section, Antitrust 
Division, United States Department of Justice, 600 W. Street NW., 
Room 9300, Washington, D.C. 20530

Re: United States v. Vision Service Plan, Case Number 1:94CV02693

    Dear Ms. Kursh: The undersigned states offer the following 
comments in the matter of United States v. Vision Service Plan. We 
are pleased that you have attempted to address some of the problems 
raised by VSP's practices and applaud your enforcement efforts. 
However, on behalf of the chief antitrust enforcement officers of 
our respective states we would like to point out a potential problem 
with the inclusion of language in the Consent Decree which could 
potentially inhibit any future enforcement efforts by the states. 
Although we recognize that the proposed Consent Decree is merely an 
agreement between the parties with no precedential effect, we 
nevertheless feel that the Decree could be improved to more 
adequately address the public interest in this matter.
    As you are aware, Vision Service Plan (VSP) is based in 
California and does business throughout the western United States. 
As your investigation revealed, many states have been impacted by 
VSP's activities. Consequently, for some time now several states 
have been examining VSP's practices and their effects on consumers 
in our region. The scope of our review is somewhat broader than the 
DOJ investigation, focusing on other issues in addition to the most 
favored nation clause.
    Our purpose in submitting comments is to raise our concern that 
the Consent Decree as proposed might be interpreted as a court-
sanctioned seal of approval for the activities which have been 
specifically identified in Section V of the Decree. That section 
permits, inter alia, the defendant to continue to gather fee 
information from participating doctors. The fees gathered are then 
permitted to be used as part of a determination of median or modal 
fees, which are in turn used to set reimbursement rates. Although 
this activity has been permitted in the context of responding to 
your concerns about misuse of most favored national clauses, we are 
concerned that it will be taken out of context to support horizontal 
price-fixing activity, which is beyond the scope of activity 
addressed in your lawsuit. It would be disturbing to see such a 
result.
    We suggest that our concern would be eliminated if Section V is 
simply moved to the Stipulation between the parties, rather than 
made a part of the court's order. Alternative by, language should be 
inserted which makes it clear that the permitted activities are 
permitted only insofar as they are not part of action which would be 
otherwise illegal, such as horizontal price-fixing. Either solution 
would address our concern by clarifying the scope of the Consent 
Decree, yet would not affect the substance of your settlement with 
VSP.
    Thank you for your consideration. Please feel free to contact us 
if you have any questions.

        Very truly yours,
Tina E. Kondo,
Brian Dew,
Assistant Attorneys General, State of Washington.
Daveed Schwartz,
Assistant Attorney General, State of Alaska.
Kenneth S. Countryman,
Assistant Attorney General, State of Arizona.
Michael T. Lee,
Deputy Attorney General, State of Hawaii.
Marty Howard,
Deputy Attorney General, State of Nevada.
Susan G. White,
Assistant Attorney General, State of New Mexico.
Andy Aubertine,
Assistant Attorney General, State of Oregon.

April 21, 1995.
Ms. Anne Bingaman,
Assistant Attorney General, Antitrust Division, U.S. Department of 
Justice, 600 E. Street N.W., Washington, D.C. 20530

Re: United States v. Vision Service Plan, Case No. 1:94CV026993 TPJ

    Dear Ms. Bingaman: Pursuant to conversations with the Department 
of Justice (the Department), the undersigned states submit this 
Additional Comment in the matter of United States v. Vision Service 
Plan. We are concerned that entry of the proposed Final Judgment, as 
drafted, would not be in the public interest. Entry of the decree 
would give VSP a court order which arguably allows it to engage in 
activity which the Ninth Circuit, the Department and the Federal 
Trade Commission (FTC) consider to be per se illegal. Although the 
decree contains prohibitions against certain activities associated 
with most favored nation clauses, Section V can be interpreted as 
overruling them and allows VSP to engage in many of these 
activities. Although we applaud the Department's recognition that 
VSP's business practices have severe and significant anticompetitive 
effects and support the Department's efforts to address the problem, 
we fear that the proposed Final Judgment will create more problems 
than it 

[[Page 9493]]
will solve. Accordingly, we object to entry of the proposed Final 
Judgment.

I

Section V May Allow VSP to Engage in Activities That Would 
Otherwise be per se Illegal

    In Hahn v. Oregon Physicians' Service, 868 F.2d 1022 (9th Cir. 
1988), the Ninth Circuit held that a provider-controlled plan which 
collected fee information and set reimbursement rates and maximum 
fee caps for other providers could be construed as a horizontal 
price fixing conspiracy, and thus per se illegal. Moreover, the 
Department and the FTC, in jointly prepared guidelines declare that 
activities such as information gathering and fee setting by 
provider-controlled plans is per se illegal.

A. Provider Control

    VSP is a provider-controlled plan. Historically, all of its 
directors have been doctors. Its mission ``is to put . . . dollars 
into optometric bank accounts.'' \1\ Currently, twelve of its 
thirteen directors are doctors. Each of these twelve director-
doctors is also a VSP panel doctor. Under these panel doctors' 
direction, VSP collects information about the fees charged by all 
panel doctors. The director-doctors are ultimately responsible for 
using this information to set fee reimbursement rates and maximum 
fee caps for their fellow doctors. Each of these activities: 
information gathering and fee setting, is per se illegal when 
engaged in by a provider-controlled plan.\2\

    \1\ ``The mission of our corporation as stated by the founders, 
reaffirmed by the present board, and by all of the leaders in 
between, is to put patients into our panel doctors' offices and 
dollars into optometric bank accounts.'' February 12, 1987 Speech by 
VSP's President, John O'Donnell, p. 8. Exhibit 62 to Declaration of 
Jeffrey M. Shohet in Support of Plaintiffs' Motion for Partial 
Summary Judgment in Allstate Optical Services, Inc. v. California 
Vision Service, Docket No. C87-20572WAI, U.S. District Court, 
Southern District of California.
    \2\ A ``safe harbor'' exists where a provider-controlled plan 
shares substantial financial risk through capitation or withholding 
of at least 20%. Statement 8 of The Department of Justice and 
Federal Trade Commission Statements of Enforcement Policy and 
Analytical Principles Relating to Health Care and Antitrust. VSP, 
however, does not use capitation and only withholds a maximum of 2%. 
Accordingly, VSP does not qualify for the safe harbor.
---------------------------------------------------------------------------

B. Information Gathering

    A number of provisions in Section V arguably would allow VSP to 
engage in illegal information gathering. Section V(A) of the 
proposed Final Judgment would allow VSP to collect fee information 
from panel doctors in order to determine doctors' median or modal 
fees. The median fee is defined as ``the fee below and above which 
there are an equal number of fees,'' and the modal fee is defined as 
the fee charged most frequently to non-VSP patients. Either 
measurement requires knowledge of every fee charged by a doctor 
during the preceding year. Accordingly, this section would allow 
VSP's doctor-controlled board to collect information about all fees 
charged by fellow member doctors during the preceding year and use 
this information to set fee reimbursement rates and maximum fee 
caps.
    The Department and the FTC explicitly condemn this activity. 
``If an exchange among competing providers of price or cost 
information results in an agreement among competitors as to the 
prices for health care services . . . that agreement will be 
considered unlawful per se.'' Statement of Department of Justice and 
Federal Trade Commission Enforcement Policy on Provider 
Participation in Exchanges of Price and Cost Information, BNA 
Antitrust Trade and Regulation Reporter, Sep. 29, 1994, p. S-14.

C. Fee Setting

    A number of provisions in Section V arguably would allow VSP to 
engage in illegal fee setting. Section V(B) would allow VSP to 
calculate the fees it pays to panel doctors on the basis of median 
or modal fees. Section V(D) would allow VSP to devise a fee system 
for new panel members based on average fees. Section V(E) would 
allow VSP to maintain the current fee reimbursements and maximum fee 
caps it has already set. Taken together, these sections seem to 
allow VSP's doctor-controlled board to continue to set fee 
reimbursement rates and maximum fee caps as long as they do not base 
them on the lowest fees charged by panel doctors. The fact that 
providers are setting fees for fellow providers, however, should be 
more of a concern than the statistic used to set the fee.\3\

    \3\ As the Department points out at p. 7 of the Competitive 
Impact Statement, one of the effects of VSP's practices is that fees 
for vision care services are 30% higher in areas where VSP is 
dominant. The Department implies that VSP currently bases its fees 
on the lowest fees accepted by its doctors. By encouraging VSP to 
set fees based on any amount other than the lowest fees, however, 
costs for vision care services are likely to rise even higher.
---------------------------------------------------------------------------

    The Department notes that Section V would allow VSP to use a fee 
schedule, which is ``an approach used by other vision care insurance 
plans.'' Competitive Impact Statement, p. 12. VSP is not like other 
vision care insurance plans. It is controlled by doctors. ``Even if 
a fee schedule is therefore desirable, it is not necessary that the 
doctors do the price fixing.'' Arizona v. Maricopa County Medical 
Society, 457 U.S. 332, 352 (1982).
    15 U.S.C.A. Sec. 16(e) (1995) requires that the proposed Final 
Judgment be in the public interest. If the proposed Final Judgment 
is entered, it will give to VSP, a collection of doctors the 
government contends have already acted anticompetitively, a court 
order which arguably allows further behavior the Ninth Circuit, the 
Department and the FTC all consider per se illegal. This behavior 
will most likely result in even higher vision care costs in areas 
where VSP is dominant. Because of Section V, the proposed Final 
Judgment not only fails to remedy the anticompetitive effects of 
VSP's actions, it arguably makes them worse. Entry of such a consent 
judgment can not be in the public interest.

II

Section V Compromises the Decree's Ability to Terminate Alleged 
Violations

    The proposed Final Judgment, as drafted, also fails the public 
interest test because it does not terminate the alleged violations. 
The complaint alleges that one of the ``agreements'' between VSP and 
panel doctors that has raised prices for vision care services is the 
most favored nation (MFN) clause. The complaint also alleges that 
the MFN clause creates disincentives to discounting. Although 
Section IV of the proposed Final Judgment purports to prohibit 
various activities associated with the MFN clause, section V 
overrules these restrictions and explicitly permits VSP to engage in 
many of these activities. Because of section V, the decree also 
fails to remove the disincentives to discounting.

A. MFN Activities

    Section IV of the proposed Final Judgment attempts to prevent 
illegal conduct regarding most favored nation clauses. Although 
Sections IV(E) and IV(F) would prohibit VSP from monitoring, 
auditing or communicating with any panel doctor about the fees the 
doctor charges any non-VSP patient or plan, Section V(C) allows VSP 
to audit any of its doctors and Section V(A), as discussed above, 
allows VSP to collect (monitor and communicate) information on each 
fee charged by a doctor to a non-VSP patient or plan. Section IV(B) 
would prohibit VSP from linking panel doctor payments to fees 
charged by the doctor to non-VSP patients or plans. Section V(B), 
however, allows VSP to calculate payments to doctors on median or 
modal fees which are, by definition, calculated exclusively on fees 
paid to non-VSP patients or plans. Finally, whereas Section IV(C) 
would prohibit VSP from differentiating payments to doctors who 
charge lower fees to non-VSP patients or plans, Section V(E) allows 
VSP to maintain current fees which, because of most favored nation 
enforcement, already differentiate.

B. Discounting Disincentives

    Use of modal or median fees in place of the lowest fee fails to 
remove disincentives to discounting. For example, the median fee, 
``the fee below and above which there are an equal number of fees,'' 
is potentially lowered anytime a provider discounts his fee to a 
non-VSP patient or plan. Providers are still unlikely to risk 
reducing the amounts they receive from VSP, which constitutes a 
significant portion of many practices, by accepting anything less 
than their VSP fees.\4\

    \4\ Perhaps most significantly, the proposed Final judgment 
fails to address what is arguably the strongest disincentive to 
discounting. Many optometrists feel that VSP is ``optometry's 
plan.'' They see discounting or membership on a competitor's panel 
as forms of disloyalty. The decree thus would leave intact the most 
significant disincentive to discounting.
---------------------------------------------------------------------------

    Section V thus not only facilitates price fixing, it also 
compromises the proposed Final Judgment's attempts to prohibit MFN 
activities and remove disincentives to discounting. Moreover, by 
allowing VSP to maintain the current fees which are the result of 
years of VSP's misuse of most favored 

[[Page 9494]]
nation clauses, the proposed Final Judgment fails to remedy a specific 
practice alleged in the Complaint. It would not be in the public 
interest to simply tell VSP to ``sin no more'' without also 
addressing the unfair advantage it has already gained.\5\

    \5\ It is unclear why the proposed Final Judgment in this case 
differs so significantly from the proposed Final Judgment in the 
Department's recent Arizona Delta Dental case. The complaint in the 
Delta Dental case, like the VSP case, included allegations of misuse 
of most favored nations clauses. The decree in Delta Dental does not 
contain a section of permitted activities. There is no apparent 
difference in the Complaints that would explain the presence of 
Section V in this case.
---------------------------------------------------------------------------

III. Conclusion

    Nothing is alleged in the VSP complaint which would necessitate 
the inclusion of Section V. This section arguably would allow VSP to 
engage in conduct that would otherwise be illegal. Section V also 
reduces the safeguards of Section IV to nothing more than an 
illusion. For these reasons we object to entry of the proposed Final 
Judgment in this matter.
    Respectfully Submitted this 21st day of April, 1995.
    Very truly yours,
Tina E. Kondo,
Brian L. Dew,
Assistant Attorneys General, State of Washington.
Bruce M. Botelho,
Attorney General.
Daveed A. Schwartz,
Assistant Attorney General, State of Alaska.
Kenneth S. Countryman,
Assistant Attorney General, State of Arizona.
Michael T. Lee,
Deputy Attorney General, State of Hawaii.
Marty Howard,
Deputy Attorney General, State of Nevada.
Susan G. White,
Assistant Attorney General, State of New Mexico.
Andrew E. Aubertine,
Assistant Attorney General, State of Oregon.
    United States of America, Plaintiff, vs. Vision Service Plan, 
Defendant.

[No. CV 94-2693 TPJ]

Comment of First American Health Concepts, Inc.

    Pursuant to the Antitrust Procedures and Penalties Act, 15 
U.S.C. Sec. 16(b), First American Health Concepts, Inc., (``FAHC''), 
an interested person, submits to the Department of Justice for 
filing with the United States District Court for the District of 
Columbia and publication in the Federal Register its written Comment 
on the Final Judgment proposed by the parties to this action. This 
Comment is supported by the attached Memorandum of Points and 
Authorities and all Exhibits hereto.\1\

    \1\ FAHC incorporates at Exhibits A and B the letters dated 
October 10, 1994 and October 17, 1994, and all exhibits thereto, 
submitted to the Department of Justice by Daniel F. Gruender.
---------------------------------------------------------------------------

    Respectfully Submitted this 29th day of March, 1995.

    Shimmel Hill, Bishop & Gruender, P.C.
Daniel F. Gruender,
Michael V. Perry,
Glenn B. Hotchkiss,
3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First 
American Health, Concepts, Inc.

Memorandum of Points and Authorities

I. Introduction

    FAHC is an Arizona corporation formed in 1981 and a competitor 
of the Defendant, Vision Service Plan (``VSP''), in the market for 
pre-paid vision care services. Both FAHC and VSP offer their 
enrolled members eye examinations and eyeware (eyeglasses and 
contact lenses) through a network of affiliated service providers, 
primarily optometrists and opticians.
    FAHC incorporates the factual recitations contained in the 
Competitive Impact Statement Sections I and II filed in this action.
    FAHC opposes the proposed Final Judgment for the following 
reasons. As explained in Sec. II(B) below, mere elimination of the 
Most Favored Nations (``MFN'') provision by name from the VSP Panel 
Doctor Agreement does not remedy VSP's anti-competitive practice of 
penalizing panel doctors for accepting lower fees from competing 
plans because Sec. V(B) of the proposed Final Judgment permits VSP 
to continue calculating the fees it will pay its panel doctors in 
relation to what those doctors accept from non-VSP patients. As 
explained in Sec. II(C) below, the proposed Final Judgment is 
deficient because it does not even address, let along prohibit, 
VSP's illegal tying/exclusive dealing arrangement between a VSP 
panel doctor's membership on a VSP panel and then purchase of 
eyeglasses from a VSP-controlled sources.
    For all these reasons, and as further explained in Sec. II(D), 
FAHC respectfully suggests that the proposed Final Judgment be 
modified in the following respects:
    (1) VSP should be prohibited from calculating the fees it will 
pay its panel doctors based directly or indirectly on the fees those 
doctors charge to non-VSP patients;
    (2) VSP should be prohibited from requiring VSP panel doctors to 
maintain or produce any information relating to the fees those 
doctors charge to non-VSP patients, and also should be prohibited 
from auditing VSP panel doctors' records to discover such 
information; and
    (3) VSP should be prohibited from tying the VSP membership of 
its panel doctors to the purchase of vision products manufactured by 
VSP-owned or controlled sources or requiring that VSP panel doctors 
obtain vision products only from VSP-controlled sources.

II. Analysis

A. Introduction

    The Tunney Act requires that before entering the proposed Final 
Judgment, this Court must first determine that entry of the Final 
Judgment is in the public interest. 15 U.S.C. Sec. 16(e). As stated 
in United States v. Airline Tariff Pub. Co., 836 F.Supp. 9, 11 
(D.D.C. 1993):
    Courts have developed a two-pronged public interest inquiry. 
First, courts inquire as to whether the proposed relief effectively 
will foreclose the possibility that antitrust violations will occur 
or recur * * *. Second, courts consider whether the relief impinges 
upon other public policies. (citations omitted)
    In making the public interest determination, the Court must 
evaluate whether the proposed Final Judgment provides a valid 
antitrust remedy by ``pry[ing] open to competition a market that has 
been closed by [VSP's] illegal restraints.'' International Salt Co. 
v. United States, 332 U.S. 392, 401 (1947). See also United States 
v. Microsoft, 159 F.R.D. 318, 331 (D.D.C. 1995). Stated another way, 
in assessing whether a proposed consent judgment passes muster, the 
Court must determine that it (a) rectifies the behavior the 
government perceives to be a current antitrust violation, and (b) 
does not allow the settling defendant to engage in similar anti-
competitive behavior. Airline Tariff, supra, at 12-13. The Court 
must independently review the proposed Final Judgment using the 
above analysis, and may not merely rubber stamp it. Microsoft, 
supra, at 329. Finally, in making the public interest determination, 
this Court is not restricted to the allegations of DOJ's Complaint, 
and instead, may look beyond the four corners of the Complaint to 
all relevant conduct and circumstances. Microsoft, supra, at 331. 
For the reasons set forth below, the proposed Final Judgment does 
not serve the public interest and should be rejected.

B. The Proposed Final Judgment Is Deficient Because It Allows VSP To 
Demand From Its Panel Doctors Information Regarding Fees Charged Non-
VSP Patients And To Continue Calculating The Fees It Pays Its Panel 
Doctors In Relation To What Those Doctors Charge Non-VSP Patients.

    On the simplest level, DOJ Claims that the proposed Final 
Judgment will eliminate VSP's anti-competitive practices and open 
the vision services industry to an unparalleled degree of 
competition. The proposed Final Judgment will bring about this 
result, DOJ says, because it renders the MFN provision in the VSP 
Panel Doctor's Agreement null and void. The vice in that MFN 
provision (and what presumably led DOJ to sue VSP in the first 
place) is that it allows VSP to calculate the fees it will pay its 
panel doctors in relation to the fees those same doctors charge non-
VSP patients and non-VSP plans. DOJ knows that VSP has a history of 
cutting providers' rates under the guise of the MFN alleging the 
provider is accepting lower fees from another competitor even when 
that allegation is incorrect or the fees involved are not 
comparable. Based on this evidence, there is no reason to expect VSP 
will not do the same with any other formula permitted. Based on what 
DOJ knows, it should, as it did in the case of Delta Dental, 
prohibit VSP access to any fee information of providers for others 
than its own patients and not put its imprimatur on any fee setting 
mechanism.

[[Page 9495]]

    An additional problem with the proposed Final Judgment is that 
while it prohibits VSP from enforcing the MFN provision, it 
expressly allows VSP to continue its anti-competitive practice of 
setting its fees in relation to the fees charged by its competitors.
    Part of the problem with the permitted Section V is it is based 
on the erroneous assumption that non-VSP fees will be for the 
identical or comparable level of service and product as VSP's. In 
fact, some providers use composite rates, one price for any exam, 
whether limited, intermediate or comprehensive, and the same type of 
lens and glasses while this is not in fact the case with VSP. 
Accordingly, efforts to construct ``median'' or ``modal'' fees are 
meaningless because it involves a comparison of dissimilar services 
or products.
    There is no doubt but that the proposed Final Judgment allows 
VSP to disguise and continue its anti-competitive comparative fee-
setting policy. Section IV of the proposed Final Judgment prohibits 
VSP from maintaining or enforcing the MFN and from linking payments 
made by VSP to its panel doctors to the fees charged by those 
doctors to any non-VSP patient or plan. However, the entirety of 
Sec. IV is qualified by the clause ``[e]xcept as permitted in 
Section V.'' Section V permits VSP to ``calculate the fees that it 
pays to a VSP panel doctor for services rendered to VSP patients 
based on either the panel doctor's modal or median fee. * * *.'' 
Sec. V(B). In turn, ``modal fee' and ``median fee'' are both defined 
in terms of ``the fee(s) charged * * * for each service rendered to 
non-VSP patients * * *.'' Sec. II(F) & (G) (emphasis added). In 
short, Section V expressly authorizes VSP to continue some vaguely 
defined comparative fee-setting policy which resulted in this 
lawsuit and which Section IV purports to prohibit.
    DOJ tacitly concedes that the proposed Final Judgment will not 
prohibit VSP from basing its payments on the fees paid by its 
competitors:
    Though Section V does not allow VSP routinely to base its 
payments on the lowest fee charged by its panel doctors to any non-
VSP plan or patient--as VSP has done through its MFN clause--Section 
V does permit VSP to base its payments to panel doctors on their 
median or modal fees charged to non-VSP plans and patients, two 
measures of usual and customary fees that are not linked directly to 
the lowest fee charged.

Impact Statement at 13 (emphasis added). Apparently, DOJ's position 
is that VSP may base its payments to its panel doctors on the fees 
those doctors receive from non-VSP patients or plans so long as VSP 
does not do so routinely or directly.
    The fallacy in DOJ's reasoning is obvious. If the fee-setting 
mechanism embodied in the MFN provision is the competitive evil DOJ 
says it is,\2\ then the policy must be prohibited whether it is 
implemented routinely or sporadically, directly or indirectly. 
Otherwise, VSP is free to do indirectly what it is prohibited from 
doing directly, in which case the very idea that competition will 
increase and consumers will benefit is laughable.

    \2\ In its Complaint, DOJ states that the MFN provision/
comparative fee policy: 1) unreasonably restrains competition among 
vision service care insurance plans; 2) results in higher prices for 
vision care services for non-VSP patients; and 3) deprives consumers 
of vision care services of the benefits of free and open 
competition. See Complaint at Sec. 18(a)-(c). FAHC agrees, which is 
why it files this Comment to see that this anti-competitive practice 
is stopped rather than reformulated.
---------------------------------------------------------------------------

    DOJ's only response is to suggest that in light of the fact that 
many patients have no vision coverage at all, the VSP panel doctor's 
median or modal (i.e., non-VSP) fee is not likely to be the doctor's 
lowest fee. Impact Statement at 13. This argument also misses the 
mark. The point is not that the median or modal fee will be a given 
doctor's lowest fee, but rather, that it will be a lower fee than 
the previously determined VSP fee. In that event, VSP can (and 
undoubtedly will) lower its fee to the lower level, the VSP panel 
doctor will suffer financially due to his membership in a competing 
plan, and the doctor's financial incentive will be to drop his 
membership in the competing plan to the detriment of that plan which 
reduces the competitor's ability to be an effective competitor which 
results in higher costs to the consumer. This is exactly the anti-
competitive chain of events of which DOJ complains in its Complaint. 
See Complaint at Paras. 9-11.
    DOJ's inadequate remedy also presents a significant obstacle to 
a doctor's decision to join another panel in addition to VSP. Under 
Sec. V(A) of the proposed Final Judgment, VSP can compel a panel 
doctor to provide on an annual basis information sufficient to 
determine that doctor's modal and median fee. The modal fee is 
defined as the doctor's most frequently charged fee to non-VSP 
patients or for non-VSP covered services, while the median fee is 
defined as the doctor's fee below and above which there are an equal 
number of fees charged to non-VSP patients or for non-VSP covered 
services. Proposed Final Judgment at Sec. II(F) & (G).
    DOJ's modal/median fee scheme will require doctors to carry an 
enormous record-keeping burden in order to comply with VSP's 
requirements. Each doctor who participates in both a VSP panel and a 
competing panel will have to maintain (and produce at least 
annually), and probably compile and compute from, extensive records 
regarding each non-VSP patient and the fees charged to each non-VSP 
patient. The cost of this type of record-keeping could well be 
prohibitive. The failure to comply with the record-keeping 
requirement could be even worse because the proposed Final Judgment 
also permits VSP to impose unspecified penalties on doctors who 
misrepresent their fees or the frequency with which they charge 
those fees.\3\ Proposed Final Judgment at Sec. V(F). Rather than go 
through all that red tape and risk unspecified reductions and 
potential penalties and costs, providers will stay off of other 
panels just as they have under the MFN by whatever name it has been 
called.

    \3\ The proposed Final Judgment does not define the term 
``misrepresent'' as that term is utilized in Sec. V(F). Therefore, a 
doctor who inadvertently fails to keep accurate records of all non-
VSP patient charges might be accused of misrepresenting his non-VSP 
fees.
---------------------------------------------------------------------------

    When faced with this Hobson's choice (between the cost of 
compliance and penalties for non-compliance), the only way for a 
doctor to escape the record-keeping burden and potential risks, 
expenses and uncertainties of ``modals'' and ``medians'' as well as 
penalties, is to drop his membership in a competing panel or simply 
not join if the fees are not the same as VSP. That is what most 
plans that have resisted VSP's MFN enforcement tactics have been 
forced to do, namely raise their rates to those provided by VSP. In 
other words, if a doctor chooses to join a VSP panel, and only a VSP 
panel, the onerous record-keeping requirements of Sec. V(A) do not 
apply to him because he is not providing services to any non-VSP 
patients.\4\ Again, the clear incentive is for the doctor to drop 
his membership in a competing plan and provide services only through 
VSP, and the end result is a corresponding diminution in the number 
of doctors available to competing plans such as FAHC or other non-
VSP plans and programs, and, of course, less competition for VSP who 
is growing by leaps and bounds.\6\

    \4\ Of course, to the extent that a doctor provides services to 
a non-VSP patient who is not affiliated with a competing plan, the 
record-keeping requirements would, in theory, still apply. However, 
it is doubtful that VSP would enforce the requirements where a 
competing plan is not involved.
    \5\ See Exhibit C and Exhibit D.
---------------------------------------------------------------------------

    If DOJ is serious about increasing competition in the vision 
services industry by providing incentives for providers to join more 
than one vision services plan (or at least by removing the 
disincentives to doing so), that goal can be accomplished only by 
prohibiting VSP, as the Justice Department required of a similar 
plan using a MFN clause and fee setting mechanism in the dental 
industry, from setting the fees it will pay its panel doctors in 
comparison to the lower fees those doctors accept from competing 
plans.\6\ DOJ does not explain why it prohibited Delta Dental from 
doing what it permits VSP to do. Any lesser remedy leaves VSP's 
litigation-inducing, anti-competitive practice intact.

    \6\ See Delta Dental Consent Judgment and Competitive Impact 
Statement in case of Delta Dental. Exhibits E and F.
---------------------------------------------------------------------------

C. The Proposed Final Judgment Is Deficient Because It Fails to Even 
Address the Tying/Exclusive Dealing Arrangement Between Membership on a 
VSP Panel and the Lenses VSP Panel Doctors Must Dispense.

1. Introduction

    In addition to the defects discussed above, the proposed Final 
Judgment fails to serve the public interest because it does not even 
address a VSP-imposed requirement which is either a tying 
arrangement or an exclusive dealing arrangement. Specifically, the 
VSP Member Doctor's Procedure Manual (the ``Manual'') requires that 
VSP panel doctors must obtain lenses to be dispensed to patients 
only from VSP-approved 

[[Page 9496]]
laboratories.\7\ This requirement should be (but is not) prohibited by 
the proposed Final Judgment.

    \7\ Under the heading ``Ophthalmic Laboratories,'' the Manual 
states ``VSP doctors must use one of the VSP contract laboratories 
listed in the Laboratory Section of this Manual.'' Manual at G-1. 
The Manual also states ``VSP POLICY DOES NOT ALLOW THE PANEL DOCTOR 
TO FABRICATE AND/OR SUPPLY LENSES OUT OF HIS OWN OFFICE STOCK. ALL 
TINTING MUST BE DONE BY THE VSP CONTRACT LAB THAT SUPPLIED THE 
LENSES.'' Manual at G-1 (capitalization in original).
---------------------------------------------------------------------------

2. Tying Arrangement

    A tying arrangement is ``an agreement by a party to sell one 
product but only on the condition that the buyer also purchases a 
different (or tied) product, or at least agrees that he will not 
purchase that product from any other supplier.'' Northern Pacific 
Railway Co. v. United States, 356 U.S. 1, 5-6 (1958) Not all tying 
arrangements violate the antitrust laws. A tying arrangement will 
violate Sec. 1 of the Sherman Act if the seller has ``appreciable 
economic power'' in the tying product market and if the arrangement 
affects a substantial volume of commerce in the tied market. Eastman 
Kodak Co. v. Image Technical Services, Inc., 119 L.Ed.2d 265, 280 
(1992). According to the Supreme Court, ``the essential 
characteristic of an invalid tying arrangement lies in the seller's 
exploitation of its control over the tying product to force the 
buyer into the purchase of a tied product that the buyer either did 
not want at all, or might have preferred to purchase elsewhere on 
different terms.'' Jefferson Parish Hospital District No. 2 v. Hyde, 
466 U.S. 2, 12 (1984).
    The elements of an invalid tying arrangement are: (1) Two 
separate products or services, (2) the tying of the sale of one 
product or service to the purchase of another product or service, 
(3) sufficient market power in the tying product to restrain trade 
in the market for the tied product, and (4) a not insubstantial 
amount of interstate commerce in the tied product. Virtual 
Maintenance, Inc. v. Prime Computer, Inc., 11 F.3d 660, 664 n.6 (6th 
Cir. 1993). Tying arrangements which satisfy all four elements 
violate Sec. 1 of the Sherman Act and Sec. 3 of the Clayton Act.\8\

    \8\ Clayton Act Sec. 3 is implicated only if both the tying 
product and the tied product are ``commodities,'' i.e., durable 
goods. Waldo v. North American Van Lines, Inc., 669 F.Supp. 722, 727 
(W.D. Pa. 1987). If either product is a service, only Sherman Act 
Sec. 1 is implicated. Id.
---------------------------------------------------------------------------

a. Separate Tying and Tied Products Or Services

    By definition, the tying product must be separate from the tied 
product. Otherwise, there is really only one product, and there can 
be no tying arrangement. In determining whether one or two products 
are involved, courts focus on the character of the demand for the 
two products. Jefferson Parish, supra, at 19. Thus, there must be a 
demand for the tied product separate from the tying product 
sufficient to identify a distinct market for the tied product. Id. 
at 21-22. Although the products must be separate, a tying 
arrangement may exist between two functionally related but separate 
products. See, e.g., Jefferson Parish, supra at 22-24 (hospital 
services and anesthesiological services held to be two 
distinguishable services for tying arrangement purposes).
    There is no doubt that a doctor's membership on a VSP panel\9\ 
and the lenses that doctor dispenses to patients are sufficiently 
distinct so as to constitute two separate products for tying 
arrangement purposes. But for the tying arrangement, VSP panel 
doctors would be free to acquire lenses for their VSP patients from 
sources not affiliated with VSP, or even to make the lenses 
themselves. These alternative sources for eyeglass lenses 
conclusively demonstrate that VSP panel membership and the lenses to 
be dispensed to patients are two separate ``products'' for tying 
arrangement purposes.

    \9\ The tying ``product'' is really the patient referrals which 
flow from membership on a VSP panel. It is this source of referrals 
which optometrists wish to purchase, and which induces them to join 
the VSP panel. For purposes of convenience, however, this Comment 
will refer to the tying product simply as VSP panel membership.
---------------------------------------------------------------------------

b. Tying of Sale of One Product To Purchase of Another Product

    The fact of a tie may be established either by reliance on a 
contract term, or by showing that defendant coerced the purchaser 
into accepting the tied product. Waldo, supra, at 727. In this case, 
the tie is beyond dispute because the Manual expressly requires VSP 
panel doctors to acquire lenses only from VSP-approved sources. See 
footnote 5, supra. In turn, the requirements of the Manual are 
incorporated by reference in the Panel Doctor's Agreement.\10\

    \10\ The VSP Panel Doctor's Agreement states ``THE DOCTOR AGREES 
to adhere to [VSP] policies and procedures as set forth in the panel 
doctors' manual * * * .'' Panel Doctor's Agreement at para.4.
---------------------------------------------------------------------------

c. Market Power To Restrain Trade in the Market for the Tied Product

    The requisite market power may in inferred from a dominant 
market share without a showing of actual restraint on competition in 
the relevant market. Eastman Kodak, supra, at 282; Jefferson Parish, 
supra, at 17-18. In the event of dominant market share, the tie is 
per se illegal, and is not subject to a rule of reason analysis of 
actual market conditions. Jefferson Parish, supra, at 13-15.
    VSP enjoys a dominant market share in California, other Western 
states, and quite probably, in most of the states in which it does 
business. FAHC is not able to more specifically identify VSP's share 
of the relevant market(s) because DOJ has avoided raising this issue 
in either its Complaint or Impact Statement. The proposed Final 
Judgment also is silent on VSP's market share. This lack of crucial 
information is reason enough to reject the proposed Final Judgment. 
See Microsoft, supra, at 332-33 (rejecting proposed decree in part 
because parties had failed to provide court with sufficient 
information to make the public interest determination).
    With respect to the market share component of an illegal tying 
arrangement, FAHC asks this Court to take judicial notice of VSP's 
dominant market share in California. FAHC also respectfully suggests 
that DOJ and VSP should be required to come forward with evidence of 
VSP's market share in the relevant market(s) so as to provide this 
Court with adequate information to analyze VSP's anti-competitive 
practices, including the tying arrangement.

d. Substantial Interstate Commerce

    The last element of a tying arrangement is that more than an 
insubstantial amount of interest commerce must be affected by the 
tie. As the Supreme Court noted in Jefferson Parish, ``if only a 
single purchaser were `forced' with respect to the purchase of a 
tied item, the resultant impact on competition would not be 
sufficient to warrant the concern of antitrust law.'' Id. at 16. 
However, from a dollar volume perspective, the requirement is easily 
reached. See, e.g., United States v. Loew's, 371 U.S. 38 (1962) 
($60,800 sufficient).
    VSP operates on a nationwide basis. Impact Statement at 2. VSP 
plans cover more than 15 million people. Id. VSP revenues in 1994 
alone exceeded $650 million. Id. These facts clearly establish that 
VSP's anti-competitive practices affect a substantial amount of 
interstate commerce.
    VSP's requirement that its panel doctors dispense only lenses 
obtained from VSP-approved sources as a condition of VSP panel 
membership is a classic tying arrangement which the proposed Final 
Judgment completely ignores. The proposed Final Judgment should be 
modified to prohibit this blatant anti-competitive practice. At the 
very least, this Court should require DOJ and VSP to explain why 
this practice does not violate the antitrust laws or should not be 
prohibited.\11\

    \11\ Specifically, Sherman Act Sec. 1 and Clayton Act Sec. 3.
---------------------------------------------------------------------------

3. Exclusive Dealing Arrangement

    VSP's lens requirement also constitutes an exclusive dealing 
arrangement \12\ in that it requires VSP panel doctors to obtain 
lenses only from VSP-controlled sources. Unlike tying arrangements, 
exclusive dealing arrangements are subject to review under a rule of 
reason analysis. Jefferson Parish, supra, at 44-45 (O'Connor, J., 
concurring) (citing Tampa Electric Co. v. Nashville Coal Co., 365 
U.S. 320, 333-35 (1961)). The relevant inquiry is whether the 
restraint in question promotes or suppresses competition. National 
Society of Professional Engineers v. United States, 435 U.S. 679, 
691 (1978). Tampa Electric sets forth a three-part test for 
determining the reasonableness of the restraint: (1) A determination 
of the line of commerce involved, (2) a determination of the area of 
effective competition, and (3) a determination of whether 
competition has been foreclosed in a substantial share of the 

[[Page 9497]]
relevant market. Tampa Electric, supra, at 327-29.

    \12\ In her concurrence in Jefferson Parish, Justice O'Connor 
noted that tying arrangements and exclusive dealing arrangements are 
similar in nature. Id. at 33, 44-45. Therefore, she separately 
analyzed the contract for anesthesiological services at issue in 
that case as both a tying arrangement and an exclusive dealing 
arrangement. Id. FAHC takes the same approach here with respect the 
VSP lens requirement.
---------------------------------------------------------------------------

    The line of commerce determination simply involves identifying 
the type of goods or services involved in the particular restraint. 
Tampa Electric, supra, at 327. In this case, VSP's exclusive dealing 
arrangement with its panel doctors relates specifically to eyeglass 
lenses.
    The area of effective competition determination is a function of 
the market in which the seller operates, and the market to which the 
purchaser can turn to obtain alternate supplies. Id. at 327. Here, 
the ``seller'' is VSP (through the labs it approves and controls) 
and the ``purchasers'' are the panel doctors. Because VSP operates 
on a national basis, and its panel doctors are located nationwide, 
the area of effective competition is the entire country.\13\

    \13\ For purposes of examining the reasonableness of the VSP-
imposed restraint on lenses, this broad definition of the relevant 
geographic market actually favors VSP. Despite this broad market 
definition, however, the restraint is still unreasonable.
---------------------------------------------------------------------------

    Finally, the Court must determine whether the restraint 
forecloses a substantial share of competition in the relevant 
market. Id. at 328-29. By any standard, the amount of competition 
foreclosed is substantial. VSP typically controls as much as 98% of 
the total number of optometrists in a given market,\14\ and more 
than 17,000 doctors in all. Impact Statement at 3. VSP's share of 
the pre-paid vision care services market is as high as 75% in some 
states such as California.\15\ Finally, the VSP-controlled portion 
of its panel doctors' income is ``substantial.'' Complaint at 
para.9.

    \14\ The figure provided is for the state of Nevada in 1993. 
Again, DOJ has not provided relevant data for the relevant 
market(s). This information is critical to the Court's public 
interest determination. See Microsoft, supra.
    \15\ Again, FAHC provides information to the best of its 
ability, given its status as a competitor of VSP. DOJ has the 
authority to compel VSP to disclose this information, and may have 
done so, but the Complaint, Impact Statement, and proposed Final 
Judgment contain no information concerning VSP's share of the 
relevant market(s).
---------------------------------------------------------------------------

    Thus, VSP, through its control over the vast majority of doctors 
and pre-paid vision care patients, is able to dictate the source of 
a substantial percentage of eyeglass lenses purchased in this 
country. Every pair of lenses purchased from a VSP-controlled source 
pursuant to the lens requirement forecloses all other lens suppliers 
from the market. The foreclosure of a substantial percentage of the 
lens market is obvious.
    VSP's lens requirement is an illegal exclusive dealing 
requirement which violates both Sec. 1 of the Sherman Act and Sec. 3 
of the Clayton Act. The proposed Final Judgment must be modified to 
prohibit this anti-competitive practice.

D. The Proposed Final Judgment Should Be Modified To Remedy All of 
VSP's a Anti-Competitive Practices

    Where a proposed consent decree provides an ineffective remedy--
one which does not pry open the relevant market to competition--a 
court can and should modify or reject the decree. See, e.g., 
Microsoft, supra, at 333-34. Where the proposed decree does not 
address anti-competitive practices, particularly those it prohibited 
in the similar circumstances in the dental industry, the reviewing 
court cannot shut its eyes to the obvious. Id. at 334.
    The proposed Final Judgment provides an ineffective remedy 
because: (1) It expressly allows VSP to continue setting its fees in 
comparison to its competitors, thereby allowing VSP the benefit of 
the MFN provision even while purporting to prohibit enforcement of 
that provision, and (2) it fails to even address the VSP lens 
requirement which is an illegal tying arrangement and/or exclusive 
dealing arrangement which has the anti-competitive effect of 
extending VSP's dominance in the pre-paid vision care market to the 
market for vision products.
    As earlier noted, the inadequate remedy set forth in the 
proposed final Judgment is especially disappointing given that just 
this past December, DOJ tackled the health care industry's use of 
most favored nations clauses in United States v. Delta Dental Plan 
of Arizona, Inc. \16\ That case arose out of a nearly identical most 
favored nations clause contained in the standard agreement defendant 
forced on its participating dentists. There, as here, the effect of 
the clause was to lower participating dentists' ``usual and 
customary fee'' to the lowest fee charged to any other person or 
plan.

    \16\ Case No. CIV 94-1793 PHX PGR.
---------------------------------------------------------------------------

    While the violations in the Delta Dental case and this one are 
nearly identical, the final judgments are not. The Delta Dental 
judgment, which is attached hereto as Exhibit E, completely 
prohibits the defendant from maintaining or enforcing an MFN 
provision, demanding information about competing plans or those 
plans' customers, auditing plan providers with respect to fees 
charged to competing plans or other persons, communicating with plan 
providers about such fees, or taking any action directly or 
indirectly to force plan providers to refrain from participating in 
other plans or offering discount fees to competing plans or those 
plans customers. See Exhibit E at Sec. IV. Unlike the proposed Final 
Judgment, the Delta Dental judgment does not allow the defendant to 
continue the same anti-competitive practices previously carried out 
through the MFN. In other words, there is no subsequent section, 
like the proposed Final Judgment's Sec. V, which guts the injunctive 
provisions of the judgment. FAHC respectfully submits that the 
proposed Final Judgment should be modified to tailor its injunctive 
provisions to the injunctive provisions of the Delta Dental 
judgment, and to delete Sec. V in its entirety.
    In addition, the proposed Final Judgment should be modified to 
prohibit VSP's other anti-competitive practices. Specifically, VSP 
should be prohibited from tying membership on its panels to the use 
of vision products under the control of VSP, or from requiring its 
panel doctors to purchase or obtain any vision products exclusively 
from sources controlled by VSP.
    The compliance measure requirement on page 7 of the Judgment 
which only requires VSP to send copies of the Final Judgment to 
``former'' VSP providers whom VSP ``should reasonably know have 
resigned because of the MFN clause'' is too vague and ambiguous to 
be enforced. VSP knows which providers it sent letters to in seeking 
to enforce the terms of the MFN. Those are the people who need to 
know VSP's anti-competitive activities are prohibited. A copy of the 
Judgment should be sent to each of those providers who are still 
licensed by the states in which they practice. VSP can probably say 
they do not know why a provider resigned unless he specifically 
provided them with a reason. Besides, it only refers to providers 
who resigned from VSP, not former VSP providers who resigned from 
other panels because of VSP's illegal conduct. Few, if any, 
providers resigned from VSP as a result of VSP's efforts to enforce 
the MFN or VSP would not have been so enthusiastic in enforcing it.

III. Conclusion

    VSP is the Microsoft of the pre-paid vision care industry. It 
enjoys the dominant position in the industry. It regularly employs 
anti-competitive practices to erect barriers to entry by its 
competitors. It continues to take all means necessary to deter 
licensed vision care providers from participating in competing 
plans. In these ways, VSP maintains its dominant market position at 
the expense of its competitors and vision care consumers, and in 
violation of this country's antitrust laws.
    The proposed Final Judgment does virtually nothing to curb VSP's 
anti-competitive behavior. In fact, the proposed Final Judgment 
sanctions VSP's conduct by expressing permitting it. Any person with 
even a passing familiarity with antitrust law would be hard pressed 
to conceive of a less effective mechanism to stop VSP's anti-
competitive practices.
    Therefore, VSP opposes entry of the proposed Final Judgment for 
all the reasons set forth in this Comment, and requests that the 
proposed Final Judgment be modified as requested in Sec. II(D). 
Anything less is not in the public interest.
    Respectfully Submitted this 29th day of March, 1995.

    Shimmel, Hill, Bishop & Gruender, P.C.
Daniel F. Gruender,
Michael V. Perry,
Glenn B. Hotchkiss,
3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First 
American Health Concepts, Inc.

Notice of Errata

    In its Comment on the proposed Final Judgment in this matter, 
First American Health Concepts, Inc. (``FAHC'') concluded by stating 
``VSP opposes entry of the proposed Final Judgment for all the 
reasons set forth in this Comment, and requests that the proposed 
Final Judgment be modified as requested in Sec. II(D).'' Comment at 
21. The above-quoted language should read ``FAHC opposes entry of 
the proposed Final Judgment for all the reasons set forth in this 
Comment, and requests that the proposed Final Judgment be modified 
as requested in Sec. II(D).''

[[Page 9498]]

    Respectfully Submitted this 6th day of April, 1995.

    Shimmel, Hill, Bishop & Gruender, P.C.
Daniel F. Gruender,
Michael V. Perry,
Glenn B. Hotchkiss,
3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First 
American Health Concepts, Inc.
[FR Doc. 96-5472 Filed 3-7-96; 8:45 am]
BILLING CODE 4410-01-M