[Federal Register Volume 61, Number 214 (Monday, November 4, 1996)]
[Notices]
[Pages 56682-56684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28277]


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FEDERAL TRADE COMMISSION

[File No. 911-0008]


Montana Associated Physicians, Inc.; Billings Physician Hospital 
Alliance, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair or deceptive acts or practices and unfair methods of 
competition, this consent agreement, accepted subject to final 
Commission approval, would prohibit, among other things, two 
organizations of Billings, Montana physicians from negotiating or 
refusing to deal with third-party payers; determining the terms upon 
which physicians deal with such payers; or fixing the fees charged for 
any physicians's services. The agreement settles allegations that the 
respondents obstructed the entry of managed care plans into Billings, 
agreed on prices that they would accept from third-party payers, and 
otherwise acted to thwart cost-containment measures. According to the 
Commission, these actions resulted in higher prices and fewer health 
care choices for patients of Billings physicians.

DATES: Comments must be received on or before January 3, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
Mark Whitener, Federal Trade Commission, H-374, 6th and Pennsylvania 
Ave, NW, Washington, DC 20582. (202) 326-2845. Robert F. Leibenluft, 
Federal Trade Commission, S-3115, 6th and Pennsylvania Ave, NW, 
Washington, DC 20582. (202) 326-2756.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the FTC 
Home page, on the World Wide Web, at ``http://www.ftc.gov/os/actions/
htm.'' A paper copy can be obtained from the FTC Public Reference Room, 
Room H-130, Sixth Street and Pennsylvania Avenue, N.W., Washington, 
D.C. 20580, either in person or by calling (202) 326-3627. Public 
comment is invited. Such comments or views will be considered by the 
Commission and will be available for inspection and copying at its 
principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has agreed to accept, subject to final 
approval, a proposed consent order settling charges that Montana 
Associated Physicians, Inc. (``MAPI'') and the Billings Physician 
Hospital Alliance, Inc. (``BPHA'') violated Section 5 of the Federal 
Trade Commission Act.
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The purpose of this analysis is to facilitate public comment on the 
agreement. The analysis is not intended to constitute an official 
interpretation of either the proposed complaint or the proposed consent 
order, or to modify their terms in any way.
    The proposed consent order has been entered into for settlement 
purposes only and does not constitute an admission by MAPI or BPHA that 
the law has been violated as alleged in the complaint.

The Complaint

    The complaint charges that MAPI restrained competition among 
physicians in the area of Billings, Montana, by, among other things, 
combining or conspiring with its respective physician members or acting 
as a combination of its physician members to fix the terms under which 
they would deal with third-party payers, and to conduct boycotts and 
other resistance to cost-containment efforts. The complaint further 
charges that MAPI was extensively involved in BPHA's formation, had the 
power to affect and control BPHA's dealings with third-party payers 
seeking contracts for physician services, and that BPHA carried on 
MAPI's anticompetitive conduct. The allegations set forth in the 
Commission's complaint are summarized below.
    MAPI is an association of approximately 115 physicians in over 30 
independent practices. These physicians constitute approximately 43% of 
all physicians in Billings, Montana. Most of the other physicians in 
Billings are part of a multispecialty physician group practice. MAPI's 
members constitute over 80 percent of all ``independent'' Billings 
physicians, that is, those who are not part of the multispecialty 
physician practice or employed by a hospital. Third-party payers 
seeking to contract with a Billings physician panel constituting a 
range of physician services must either contract with the 
multispecialty physician practice or with many MAPI members.
    The complaint charges that MAPI was formed in 1987 in substantial 
part to be a vehicle for its members to deal collectively with managed 
care plans. At that time, there were no health maintenance 
organizations (HMOs) or preferred provider organizations (PPOs) 
operating in Billings, but physicians there were concerned that such 
plans would soon attempt to enter Billings, and that competitive 
pressure could force physicians to deal with such plans at reduced 
prices or on other than usual fee-for-service terms. The purpose of 
engaging in collective dealings through MAPI was to obtain greater 
bargaining power with third-party payers by presenting a united front, 
and thereby to resist competitive pressures to discount fees and to 
avoid accepting reimbursement on other than the traditional fee-for-
service basis.
    In 1987, MAPI began negotiating with third-party payers on behalf 
of its members. Members of MAPI who were approached by managed care 
plans told the plans to deal with MAPI. When HMO Montana, an HMO owned 
and operated by Blue Cross/Blue Shield of Montana, sought to contract 
with MAPI physicians, MAPI rejected all contracts proposed by the HMO. 
No member of MAPI entered into a contract with HMO Montana until 1993, 
after MAPI became aware of the Commission's investigation. When another 
health plan sought to establish the first PPO program in Billings, MAPI 
offered a contract to the health plan that provided

[[Page 56683]]

for physicians to be paid their usual fees with no discounts, and 
represented to the health plan that this was what MAPI's members would 
accept. When the health plan subsequently sought to collect current fee 
information from MAPI members in order to devise a proposed physician 
fee schedule, MAPI urged its members to submit prices higher than they 
were currently charging in order to inflate the fees the health plan 
developed for the schedule.
    In addition, MAPI gathered detailed fee information from its 
members, enabling MAPI to determine for most physician services the 
prevailing fees and the maximum reimbursement allowed by Blue Cross/
Blue Shield of Montana. Using this information, MAPI advised certain 
physicians to raise their fees, and some fees were raised in accordance 
with these recommendations.
    In 1991, MAPI joined with Saint Vincent Hospital and Health Center 
in Billings to form BPHA, a physician-hospital organization. Almost all 
of MAPI's members joined BPHA, making MAPI members a substantial 
majority of BPHA's physician membership. BPHA's structure and 
governance gave MAPI substantial control over BPHA dealings with third-
party payers regarding physician contracting, and thus allowed MAPI to 
continue to exercise the collective power of its physician members in 
BPHA's dealings with third-party payers seeking contracts.
    Through BPHA's Physician Agreements, MAPI was designated as the 
agent of almost all BPHA physicians who were MAPI members with respect 
to their membership in BPHA. This agency designation gave MAPI the 
authority to accept or reject all contracts negotiated by BPHA with 
third-party payers, as well as the power to elect and remove physician 
members of BPHA's Board of Directors. In addition, BPHA's structure 
gave its physician members (most of whom were MAPI members) the ability 
to control BPHA's pricing and other terms of contracts for physician 
services.
    By virtue of this structure, MAPI was able to carry on its unlawful 
activities through BPHA. Though payers sought to contract with BPHA for 
physician services, and did contract with Saint Vincent directly for 
hospital services, BPHA did not enter into any contract for physician 
services until nearly two years after its creation, after the time BPHA 
and MAPI became aware of the Commission's investigation.
    Although MAPI and BPHA did not explicitly bar their members from 
dealing with managed care plans individually or on terms other than 
ones endorsed by MAPI or BPHA, these physicians largely dealt with such 
plans exclusively through MAPI and BPHA. Physician members and 
officials of MAPI and BPHA directed payers to deal with MAPI and BPHA 
rather than with individual physicians. Few physicians who were members 
of MAPI or BPHA participated in any managed care plans.
    Neither the physician members of MAPI, nor the physician members of 
BPHA, have integrated their practices in any economically significant 
way, nor have they created efficiencies sufficient to justify their 
acts or practices described above.
    The complaint charges that the conduct of MAPI and BPHA has injured 
consumers by restraining competition among physicians, fixing or 
increasing prices for physician services, and depriving third-party 
payers and patients of the benefits of competition among physicians.

The Proposed Consent Order

    The proposed consent order would prohibit MAPI and BPHA from 
engaging in any agreement with physicians to (1) negotiate or refuse to 
deal with any third-party payer; (2) determine the terms upon which 
physicians deal with such payers; or (3) fix the fees charged for any 
physician's services. In addition, under Part III of the proposed 
consent order, MAPI is prohibited from: (1) advising physicians to 
raise, maintain, or otherwise adjust the fees charged for their medical 
services; (2) encouraging adherence to any fee schedule for physicians' 
services; and (3) encouraging any person to engage in any action 
prohibited by the order.
    Notwithstanding these provisions, however, the proposed consent 
order would not prevent MAPI and BPHA from operating, or participating 
in, a legitimate joint venture. First, MAPI and BPHA respectively, if 
they are operating through a ``risk-sharing joint venture,'' may enter 
into agreements with physicians regarding terms of dealing with third-
party payers, provided that the physicians participating in the venture 
remain free to deal individually with third-party payers. A ``risk-
sharing joint venture,'' for purposes of this order, is one in which 
physicians who would otherwise be competitors share a substantial risk 
of loss from their participation in the venture.
    The order's proviso permiting MAPI and BPHA to engage in joint 
dealing through ``risk-sharing joint ventures'' extends only to those 
that are ``non-exclusive,'' that is, those in which the participating 
physicians are available to contract with payers outside the venture. 
Although exclusive physician networks are not necessarily 
anticompetitive, they can impair competition, particularly when they 
include a large portion of the physicians in a market. Given the large 
share of the physicians in Billings that participated in MAPI and BPHA, 
along with evidence that as part of the challenged conduct these 
physicians largely refused to deal with managed care plans outside of 
MAPI or BPHA, the proviso does not permit exclusive risk-sharing 
ventures.
    The proposed order allows MAPI and BPHA to operate or participate 
in joint ventures that involve collective price setting by competing 
physicians, even if those physicians do not share substantial financial 
risk as defined in the order, provided that they first receive the 
prior approval of the Commission. The order uses a prior approval 
provision because it is not feasible to define in an order all of the 
types of procompetitive joint ventures that MAPI or BPHA might seek to 
operate. The prior approval mechanism will allow the Commission to 
evaluate a specific proposal and assess its likely competitive impact. 
Allowing MAPI and BPHA the opportunity to seek prior approval of non-
risk-sharing joint ventures will help to ensure that they are able to 
respond to dynamic changes in health care markets in ways that promote 
competition, while guarding against the recurrence of acts and 
practices that have restrained competition and consumer choice.
    In addition, the proposed order contains a provision designed to 
make it clear that BPHA, as a physician-hospital organization, can take 
actions to facilitate contracting between its physician members and 
third-party payers that do not create or facilitate the kind of 
agreements that the order prohibits. The provision sets forth the 
aspects of a ``messenger model'' that would not run afoul of the order. 
The messenger model used here is remedial, and tailored to particular 
facts and circumstances.
    The proposed order would also specifically permit BPHA to keep in 
effect contracts with third-party payers that were in effect on 
September 30, 1994, in order to avoid any disruption that might result 
from applying the order's prohibitions to those existing contractual 
arrangements.
    Part V of the proposed order would require MAPI and BPHA to publish 
and distribute copies of the order and accompanying complaint. Parts VI 
and VII of the order impose certain reporting requirements in order to 
assist the Commission in monitoring compliance with the order.

[[Page 56684]]

    The proposed consent order would terminate 20 years after the date 
it is issued.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in Montana 
Associated Physicians, Inc.

[File No. 911-0008]

    I concur in the decision to issue the complaint and accept the 
order for public comment and write separately to emphasize two 
points. First, the complaint and order do not directly challenge the 
organization and conduct of the Billings Physician Hospital 
Alliance, Inc., as a physician hospital organization (PHO), and in 
my view, this order should cast no shadow on the activities of 
PHO's. Second, although I concur in the unusual and complicated 
fencing-in relief in the particular circumstances of this case, in 
my view, this negotiated order is not, and should not be viewed as, 
a guide for what a PHO can and cannot do.

[FR Doc. 96-28277 Filed 11-1-96; 8:45 am]
BILLING CODE 6750-01-M