[Federal Register Volume 63, Number 104 (Monday, June 1, 1998)]
[Notices]
[Pages 29736-29738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14420]


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FEDERAL TRADE COMMISSION

[File No. 961-0005]


Institutional Pharmacy Network, et al.; Analysis to Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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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 draft 
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 July 31, 1998.

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

FOR FURTHER INFORMATION CONTACT:
William Baer or Willard Tom, FTC/H-374, Washington, DC 20580. (202) 
326-2032 or 326-2786.

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 complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for May 21, 1998), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, NW, 
Washington, DC 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 accepted, subject to final 
approval, an agreement to a proposed consent order from Institutional 
Pharmacy Network (IPN) and its five members: Evergreen Pharmaceutical, 
Inc.; NCS Healthcare of Oregon, Inc.; NCS Healthcare of Washington, 
Inc.; United Professional Companies, Inc.; and White, Mack and Wart, 
Inc.
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms. The proposed consent order has been entered into for 
settlement purposes only and does not constitute an admission by any 
proposed respondent that the law has been violated as alleged in the 
complaint.

Description of the Draft Complaint

    A complaint that the Commission prepared for issuance along with 
the proposed order alleges the following:
    Evergreen Pharmaceutical, Inc.; NCS Healthcare of Oregon, Inc.; NCS 
Healthcare of Washington, Inc.; United Professional Companies, Inc.; 
and White, Mack and Wart, Inc., are institutional pharmacies that 
compete to serve institutional care facilities, such as nursing homes. 
Institutional pharmacies provide specialized services, including 
providing medications in single dose packages, maintaining an 
``emergency box'' at the client facility with drugs for use in 
emergency situations, and providing consulting and quality assurance 
services to institutional care facilities. The institutional pharmacy/
respondents together provide pharmacy services for approximately 80 
percent of the patients that receive institutional pharmacy services in 
Oregon.
    The State of Oregon created the Oregon Health Plan (``OHP'') in 
1994 to provide health care to Medicaid recipients and other needy 
Oregonians. Under OHP, the state contracts with Fully Capitated Health 
Plans (``Plans''), which are managed care organizations that receive a 
fixed payment to care for

[[Page 29737]]

OHP patients. The Plans in turn contract with providers, including 
nursing homes, hospitals, physicians, retail pharmacies, and 
institutional pharmacies. OHP covers about half of all institutional 
care patients in Oregon.
    The institutional pharmacy respondents formed IPN to offer their 
services jointly. Their purpose to negotiate collectively has been to 
maximize their resulting leverage in bargaining over reimbursement 
rates with the Plans. Indeed, even before forming IPN, they saw ``an 
advantage to negotiate from strength for reimbursement'' because they 
recognized that competition among themselves would drive down 
reimbursement rates. IPN neither provides new or efficient services, 
nor enables its members to provide new or efficient services. Moreover, 
IPN members do not share risk.
    IPN has contracted with three Plans. Pursuant to each of those 
contracts, each Plan pays IPN members a higher rate than it pays 
institutional pharmacies that are not IPN members and that did not 
negotiate collectively with that Plan. IPN also attempted to contract 
with at least four other Plans. Clinical, Evergreen, IPAC, ProPac, and 
UPC agreed that, before conducting individual negotiations, each member 
would give IPN time to attempt to negotiate a contract. Pursuant to 
this agreement, the pharmacies negotiated separately with three of the 
Plans only after IPN failed to reach an agreement on behalf of the 
group. IPN also negotiated with a fourth Plan that is by far the 
largest purchaser of institutional pharmacy services for OHP patients. 
Although this Plan sought to deal with the pharmacies individually, 
they largely refused to respond and instead approached the Plan as a 
group. After months of attempting to negotiate individually with the 
institutional pharmacy members of IPN, and under pressure to implement 
pharmacy arrangements for institutional care patients under OHP, the 
Plan began negotiating with IPN. As a result of these negotiations, the 
Plan agreed to pay higher rates to IPN members than it had agreed to 
pay other institutional pharmacies.
    The institutional pharmacy members of IPN have agreed among 
themselves, and used IPN, to engage in collective negotiations over 
price and other terms with the Plans and thereby to fix the fees they 
charge the Plans. In so doing, IPN and its institutional pharmacy 
members have fixed, stabilized, or increased the price of institutional 
pharmacy services and otherwise restrained competition among 
institutional pharmacies in Oregon and thereby deprived the State of 
Oregon, the Plans, nursing homes and other long-term care facilities, 
and OHP beneficiaries of the benefits of competition among providers of 
institutional pharmacy services in Oregon.

Description of the Proposed Consent Order

    The proposed order would prohibit IPN and the institutional 
pharmacy respondents from entering into, maintaining, or enforcing any 
agreement with any pharmacy concerning fees or fixing, raising, 
stabilizing, maintaining, or tampering with any fees. The proposed 
order contains a number of provisos.
    Proviso (1) allows each respondent 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) upon prior notice 
to the Commission, any ``qualified clinically integrated joint 
arrangement.'' The proviso addresses the arrangements that the 
respondents may enter into, rather than the overall nature of the 
group, because a pharmacy network 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: (a) 
participating pharmacies must share substantial financial risk and (b) 
the arrangement must be non-exclusive. The order lists ways in which 
pharmacies might share financial risk. These track the four types of 
financial risk sharing set forth in the Joint FTC-Department of Justice 
Statements of Antitrust Enforcement Policy in Health Care. 4 Trade Reg. 
Rep. (CCH) para. 13,153 (August 29, 1996). 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 pharmacies to contract outside the arrangement 
(individually or through other networks) with third-party payers, or 
facilitates refusals to deal outside the arrangement by participating 
pharmacies, does not fall within the proviso. Although exclusive joint 
arrangements are not necessarily anticompetitive, they can impair 
competition, particularly when they include a large portion of the 
pharmacies in a market. In light of the IPN members' large share of the 
Oregon institutional pharmacy market, this definition does not permit 
the respondents to form or participate in exclusive arrangements.
    A qualified clinically integrated joint arrangement includes 
arrangements in which the pharmacies 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 pharmacies 
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 pharmacy services 
provided through the arrangement. As with risk-sharing arrangements, 
the definition of clinically integrated arrangements reflects the 
analysis in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy 
in Health Care and the arrangement must be non-exclusive. Because the 
definition of a clinically integrated arrangement is by necessity less 
precise than that of a risk sharing arrangement, the order imposes 
prior notification requirements. Such prior notification will allow the 
Commission to evaluate the likely competitive impact of a specific 
proposed arrangement and thereby help guard against the recurrence of 
acts and practices that have restrained competition and consumer 
choice.
    The remaining provisos allow business arrangements typical to 
pharmacy markets. Proviso (2)(a) allows the proposed respondents to 
contract with pharmacy benefit managers that own or are affiliated with 
retail pharmacies. Provisos (2)(b) and (3) together permit price 
agreements between a pharmacy and a nursing home even if the nursing 
home is affiliated with a pharmacy. Provisio (2)(c) permits a pharmacy 
to enter into subcontracting agreements where it is not reasonable for 
a pharmacy with an agreement with a nursing home or third-party payer 
to provide services by itself. Such agreements are common among both 
retail and institutional pharmacies. Proviso (2)(c) also allows for 
such subcontracts where the respondent that operates a long-term care 
network (as UPC does) enters into an agreement with the incumbent 
pharmacy provider for an institutional facility within that network. 
Finally, Proviso (4) permits pharmacy agreements to operate or manage a 
pharmacy.
    Parts III.A and III.B of the proposed order require the respondents 
to distribute the order to the Fully Capitated Health Plans and to 
certain officers, directors, and managers. Parts III.C, III.D, and 
III.E require each

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respondent to file compliance reports, retain certain documents, and 
notify the Commission of certain changes in its corporate structure.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-14420 Filed 5-29-98; 8:45 am]
BILLING CODE 6750-01-M