[Federal Register Volume 63, Number 37 (Wednesday, February 25, 1998)]
[Pages 9549-9551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4754]



[Dkt. 9284]

Mesa County Physicians Independent Practice Association, Inc.; 
Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.


SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the complaint that 
accompanies the consent agreement and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before April 27, 1998.

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

William Baer or Robert Leibenluft, FTC/H-374, Washington, D.C. 20580. 
(202) 326-2932 or 326-3688.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 3.25(f) of 
the Commission's Rules of Practice (16 CFR 3.25(f)), 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 complaint. An electronic copy of the full text to 
the consent agreement package can be obtained from the FTC Home Page 
(for February 19, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions/htm.'' A paper copy can be obtained

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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 

Analysis of Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission (Commission) has accepted, subject to 
final approval, an agreement to a proposed consent order from Mesa 
County Physicians Independent Practice Association, Inc. (Mesa IPA), a 
physician organization in Mesa County, Colorado. The agreement would 
settle ongoing litigation concerning charges by the Commission that 
Mesa IPA has violated Section 5 of the Federal Trade Commission Act by: 
(1) Conspiring to obstruct the entry of third-party payers into Mesa 
County; (2) acting as the de facto exclusive bargaining agent for its 
physician members; (3) fixing the terms on which its members deal with 
payers; and (4) collectively refusing to deal with payers.
    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 review the agreement 
and the comments received, and will decide whether it should withdraw 
from the agreement or make final the agreement's proposed order.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. The analysis is not intended to constitute an official 
interpretation of the agreement and proposed order to modify in any way 
their terms. Further, the proposed consent order has been entered into 
for settlement purposes only and does not constitute an admission by 
Mesa IPA that the law has been violated as alleged in the complaint.

The Complaint

    The complaint, issued by the Commission on May 13, 1997, charges 
that Mesa IPA has restrained competition in the provision of physician 
services in the Mesa County area by fixing the prices and other terms 
on which its members deal with third-party payers. The allegations in 
the Commission's complaint are summarized below.
    Mesa IPA, an organization of more than 180 physicians, includes at 
least 85% of all the physicians, and at least 90% of the primary care 
physicians (family practitioners, general practitioners, internists, 
and pediatricians), in private practice in Mesa County, Colorado, an 
area of over 100,000 people. The IPA was formed in 1987 to protect the 
economic interests of Mesa County physicians in their dealings with 
third-party payers. Mesa IPA contracted with Rocky Mountain Health 
Maintenance Organization, a third-party payer based in Mesa County, 
whose enrollees comprise at least 50% of the total patient volume of 
Mesa IPA's members. in 1993, Mesa IPA began negotiating on behalf of 
its members with several third-party payers seeking to enter Mesa 
    Mesa IPA operated as the de facto exclusive bargaining agent for 
its physician members in dealing with third-party payers. Mesa IPA 
encouraged its physician members not to deal individually with third-
party payers, or to do so only on terms that were approved by the IPA's 
Contract Review Committee. Mesa IPA's Board of Directors approved a set 
of guidelines and a schedule of fee conversion factors to be used by 
the IPA's Contract Review Committee in reviewing contract offers from 
payers. Mesa IPA's fee conversion factors resulted in significantly 
higher prices for physician services being charged to several payers 
than would have been charged absent the agreement among the IPA's 
    Mesa IPA's members have not integrated their medical practices so 
as to create efficiencies sufficient to justify their collective 
contract negotiations and other conduct alleged in the complaint.
    As a result of Mesa IPA's activities, a wide range of third-party 
payers of physician services, including preferred provider 
organizations, health maintenance organizations, and employer health 
care purchasing cooperatives, were excluded from doing business in Mesa 
County. Although most payers sought alternatives to Mesa IPA, they were 
forced either to contract with the IPA to obtain the physician services 
they needed to market viable plans to employers and consumers, or else 
to abandon their efforts to enter Mesa County. Mesa IPA's actions have 
harmed consumers in Mesa County by, among other things, increasing the 
prices paid by consumers for physician services, depriving consumers of 
the benefits of competition in the purchase of physician services, and 
hindering the development of alternative health care financing and 
delivery systems in Mesa County.

The Proposed Consent Order

    The proposed consent order is designed to prevent the illegal 
concerted action alleged in the complaint, while allowing Mesa IPA to 
engage in legitimate joint conduct. Paragraph II of the proposed order 
contains the core operative provisions. It prohibits Mesa IPA from: (1) 
Engaging in collective negotiations on behalf of its members; (2) 
orchestrating concerted refusals to deal; (3) acting as an exclusive 
bargaining agent for its members; (4) restricting the ability of its 
members to deal with third-party payers and others individually or 
through arrangements other than Mesa IPA; (5) coordinating the terms of 
contracts with third-party payers with other physician groups in Mesa 
County or in any county contiguous to Mesa County; (6) exchanging or 
facilitating the exchange of information among physicians concerning 
the terms upon which physicians are willing to deal with third-party 
payers; and (7) encouraging or pressuring others to engage in any 
activities prohibited by the order.
    Paragraph II also sets forth terms that Mesa IPA must observe, for 
a period of five years, if it seeks to act as an agent for individual 
physicians in dealings with third-party payers. Arrangements that do 
not involve agreements among competing providers on price or price-
related terms, sometimes referred to as a ``messenger model,'' can 
facilitate contracting between physicians and third-party payers. 
Although messenger models can take various forms, the key in any such 
arrangement is that it does not create or facilitate any agreement 
among competitors on price or price-related terms. The order permits 
Mesa IPA to use a messenger model, but prescribes the manner in which 
Mesa IPA may structure and operate such an arrangement (should it chose 
to employ one). This provision is necessary to guard against collusion, 
especially because the IPA has incorrectly claimed that some of its 
prior dealings with third-party payers were based on a messenger model. 
Thus, the messenger model specified in the order is tailored to the 
particular facts and circumstances of this case.
    Paragraph II includes a proviso allowing Mesa IPA to engage in 
conduct (including collectively determining reimbursement and other 
terms of contracts with payers) that is reasonably necessary to operate 
(a) any ``qualified risk-sharing joint arrangement,'' or (b) provided 
the IPA complies with the order's prior notification requirements,

[[Page 9551]]

any ``qualified clinically integrated joint arrangement.'' The proviso 
addresses the arrangements that the IPA may enter into, rather than the 
overall nature of the group, because of physician group may enter into 
legitimate arrangements with some third-party payers but engage in 
illegal conduct with respect to others. For the purposes of the order, 
a ``qualified risk-sharing joint arrangement'' must satisfy two 
conditions. First, it must be one in which participating physicians 
share substantial financial risk. The order lists ways in which 
physicians might share financial risk. These track the four types of 
financial risk sharing set forth in the Statements of Antitrust 
Enforcement Policy in Health Care, issued jointly by the FTC and the 
Department of Justice.\1\

    \1\ Statements of Antitrust Enforcement Policy in Health Care, 
issued August 28, 1996, 4 Trade Reg. Rep. (CCH) para. 13,153 (also 
available at http://www.ftc.gov).

    Second, to be a ``qualified'' risk-sharing arrangement, the 
arrangement must also be non-exclusive, both in name and in fact. An 
arrangement that either restricts the ability of participating 
physicians to contract outside the arrangement (individually or through 
other networks) with third-party payers, or facilitates refusals to 
deal outside the arrangement by participating physicians, does not fall 
within the proviso. Although exclusive physician joint arrangements are 
not necessarily anticompetitive, they can impair competition, 
particularly when they include a large portion of the physicians in a 
market. In light of Mesa IPA's large share of the physician market, 
this definition does not permit the IPA to form exclusive arrangements.
    A ``qualified clinically integrated joint arrangement'' includes 
arrangements in which the physicians undertake cooperative activities 
to achieve efficiencies in the delivery of clinical services, without 
necessarily sharing substantial financial risk. For purposes of the 
order, such arrangements are ones in which the participating physicians 
have a high degree of interdependence and cooperation through their use 
of programs to evaluate and modify their clinical practice patterns, in 
order to control costs and assure the quality of physician services 
provided through the arrangement. As with risk-sharing arrangements, 
the definition of clinically integrated arrangements reflects the 
analysis contained in the 1996 FTC/DOJ Statements of Antitrust 
Enforcement Policy in Health Care. In addition, as with risk-sharing 
arrangements, the clinically integrated arrangements must be non-
    The definition of a clinically integrated arrangement is by 
necessity less premise than that of a risk-sharing arrangement. 
Therefore, in order for a qualified clinically integrated joint 
arrangement to fall within the proviso, Mesa IPA must comply with the 
order's requirements for prior notification. The prior notification 
mechanism will allow the Commission to evaluate a specific proposed 
arrangement and assess its likely competitive impact, in order to help 
guard against the recurrence of acts and practices that have restrained 
competition and consumer choice.
    Paragraph III requires that Mesa IPA (1) notify its members and 
certain third parties about the order; (2) amend its ``Physician 
Manual'' to bring the manual in compliance with the order; and (3) 
abolish its Contract Review Committee, which the complaint charges was 
one of the instruments through which the IPA orchestrated its 
anticompetitive activities. This paragraph also will require 
termination of any existing contracts with third-party payers that do 
not comply with Paragraph II of the order, at the earlier of the 
termination or renewal date of the contract, or receipt of a written 
request from the payer to terminate the contract. Automatic termination 
of such contracts is not required, to order to avoid disruption that 
might result from applying the order's prohibitions to existing 
contractual arrangements between Mesa IPA and third-party payers. In 
addition, Mesa IPA must, for the next five years, distribute copies of 
the complaint and order to new members; annually publish to members a 
copy of the complaint and order; and annually brief members on the 
meaning and requirements of the order and the antitrust laws. These 
provisions are aimed at monitoring, and hence preventing, possible 
anticompetitive conduct.
    Paragraphs IV, V, and VI consist of various reporting procedures, 
consistent with those found in other Commission consent orders, that 
are designed to assist the Commission in monitoring compliance with the 
order. Finally, Paragraph VII terminates the order twenty years after 
the date it is issued, in accordance with Commission policy.
    The consent order does not require Mesa IPA to reduce its share of 
primary care physicians in Mesa County. Although the ``Notice of 
Contemplated Relief'' issued along with the complaint in this case 
included such a structural change as a possible form of relief, the 
Commission has determined that structural relief is not necessary given 
changes in the market since the Commission issued its complaint. In 
particular, evidence suggests that significant numbers of IPA members 
are now contracting with third-party payers outside Mesa IPA on 
competitive terms, alternatives to Mesa IPA are developing, and a 
number of third-party payers have been able to enter the market or 
expand their presence in the market. Accordingly, the Commission has 
concluded that a consent order governing Mesa IPA's conduct will 
provide the necessary relief.
Donald S. Clark,
[FR Doc. 98-4754 Filed 2-24-98; 8:45 am]