[Federal Register Volume 63, Number 244 (Monday, December 21, 1998)]
[Notices]
[Pages 70407-70409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33707]


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FEDERAL TRADE COMMISSION

[File No. 9810153]


Asociacion de Farmacias Region de Arecibo, Inc., 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 February 19, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
Gary H. Schorr or Steven J. Osnowitz, FTC/s-3115 601 Pa. Ave., N.W., 
Washington, D.C. 20580, (202) 326-3063 or (202) 326-2746.

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 field 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 December 14, 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, 600 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 (Commission) has accepted, subject to 
final approval, an agreement to a proposed consent order from the 
Asociacion de Farmacias Region de Arecibo (``AFRA'') and Ricardo 
Alvarez Class (``Alvarez''). AFRA is an organization of approximately 
125 pharmacies operating in northern Puerto Rico and Alvarez, a 
pharmacy owner in Manati, Puerto Rico, is one of AFRA's officers. The 
agreement settles charges that the proposed respondents violated 
Section 5 of the Federal Trade Commission Act by fixing the terms and 
conditions, including prices, under which AFRA's members would contract 
with a third party payer to provide

[[Page 70408]]

services to indigents under Puerto Rico's Health Insurance Act of 1993 
(the ``Reform''), and by threatening to withhold services if AFRA's 
terms were not met.
    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 either of the 
proposed respondents that the law has been violated as alleged in the 
complaint.

Summary of the Complaint Allegations

    The Administracion de Seguros de Salud (``ASES''), a public 
corporation, implements and administers the Reform, the Puerto Rico 
government program designed to provide health care to the indigent and 
certain other residents of Puerto Rico. ASES has divided Puerto Rico 
into regions, soliciting bids for each region from payers to organize 
and provide services for beneficiaries. ASES currently selects one 
payer with which to contract per region. That payer then contracts with 
providers, including hospitals, physicians, pharmacies, and dentists. 
After reviewing bids from several payers, ASES selected Triple-S to 
administer the North Region of the Reform beginning April 1, 1995. The 
North Region consist of the municipalities of: Arecibo, Barceloneta, 
Camuy, Ciales, Florida, Hatillo, Lares, Manati, Morovis, Quebradillas, 
Utuado, and Vega Baja. The combined population of these municipalities 
is 434,000, of whom 260,000 are beneficiaries of the Reform.
    Respondent AFRA, whose members are located in the North Region of 
the Reform, was formed on November 22, 1994, as a vehicle for its 
members to jointly negotiate with health plans. Each AFRA member agreed 
that AFRA would serve as its bargaining agent. Respondent Alvarez 
served as AFRA's president from its inception until March 1997, and is 
currently its treasurer. Alvarez provided the leadership necessary to 
unite otherwise competing pharmacies, and directed AFRA's efforts to 
set prices and other terms for participation in the Reform by its 
members.
    In January 1995, AFRA began negotiating on behalf of its members 
with Triple-S. Alvarez served as AFRA's chief spokesman and negotiator. 
AFRA sought to increase compensation for its members, and to require 
Triple-S to contract with all AFRA members who were interested in 
providing services. Alvarez exhorted AFRA's members to refuse to sign 
contracts with Triple-S until advised to do so by AFRA. The refusal by 
AFRA members to provide services caused Triple-S to raise the fees paid 
to AFRA members, so that they would have a viable network of pharmacies 
to provide services under the Reform.
    In March 1996, Triple-S lowered the fees paid to AFRA member 
pharmacies. In response, AFRA, under Alvarez's leadership and guidance, 
threatened to withhold its members' services as of June 10, 1996, 
unless Triple-S rescinded its fee schedule and increased reimbursement 
to its members. Thereafter, Triple-S acceded to AFRA's demands. The new 
fee schedule amounted to a 22% increase over the March 1996 fee 
schedule.
    AFRA's members have not integrated their practices in any 
economically significant way, nor have they created efficiencies 
sufficient to justify their acts or practices described above.
    The complaint alleges that the proposed respondents, by fixing the 
compensation upon which pharmacies would participate in the Reform, 
raised the cost of pharmacy goods and services to be furnished to the 
beneficiaries of the Reform, and thereby deprived the Commonwealth of 
Puerto Rico, payers, and consumers of the benefits of competition among 
pharmacies.

The Proposed Consent Order

    The proposed consent order would prohibit the proposed respondents 
from concertedly 1) negotiating on behalf of any pharmacies with any 
payer or provider; 2) refusing to deal, boycotting, or threatening to 
boycott any payer or provider; 3) determining any terms, conditions, or 
requirements upon which pharmacies will deal with any payer or 
provider, including, but not limited to, terms of reimbursement; or 4) 
restricting the ability of pharmacies to deal with payers individually 
or through any arrangement outside of AFRA.
    The proposed consent order would, however, allow either of the 
proposed respondents 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.''
    For the purposes of the order, a ``qualified risk-sharing joint 
arrangement'' must satisfy two conditions. First, participating 
pharmacies must share substantial financial risk. The order lists ways 
in which pharmacies might share financial risk. Second, the arrangement 
must be non-exclusive, both in name and in fact. The order does not 
permit arrangements that either restrict the ability of participating 
pharmacies to contract outside the arrangement (individually or through 
other networks) with third-party payers, or facilitate refusals to deal 
outside the arrangement by participating pharmacies.
    For the purposes of the order, 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 
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 proposed order would permit respondent Alvarez to negotiate 
with any payer or provider on behalf of pharmacies that he owns. The 
proposed order would also permit Alvarez to negotiate on behalf of 
pharmacies that he operates pursuant to a contract, provided that he 
submits written notice and a copy of the contract to the Commission 
within ten (10) days of entering into such contract and refrains from 
negotiations with any payer or provider for at least thirty (30) days 
after providing such notice.

[[Page 70409]]

    Part III of the proposed order would require the AFRA distribute 
copies of the order and accompanying complaint, as well as certified 
Spanish translations, to each person who, at any time since November 
22, 1994, has been an officer, director, manager, employee, or 
participating pharmacy in AFRA, and to each payer or provider, who at 
any time since November 22, 1994, has communicated any desire, 
willingness, or interest in contracting for pharmacy goods and services 
with AFRA members.
    Parts IV and V of the order impose certain reporting requirements 
in order to assist the Commission in monitoring compliance with the 
order.
    The proposed consent order would terminate 20 years after the date 
it is issued.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-33707 Filed 12-18-98; 8:45 am]
BILLING CODE 6750-01-M