[Federal Register Volume 64, Number 9 (Thursday, January 14, 1999)]
[Notices]
[Pages 2514-2517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-825]


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DEPARTMENT OF JUSTICE

Antitrust Division
[Civil Action No. 1:98 CV 2172]


United States v. Medical Mutual of Ohio; Public Comments and 
United States' Response to Comments

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States publishes below the comment received on 
the proposed Final Judgment in United States v. Medical Mutual of Ohio, 
Civil Action 1:98 CV 2172, United States District Court for the 
Northern District of Ohio, Eastern Division, together with the response 
of the United States to the comment.
    Copies of the response and the public comment are available on 
request for inspection and copying in Room 400 of the U.S. Department 
of Justice, Antitrust Division, 325 7th Street, NW., Washington DC 
20530, and for inspection at the Office of the Clerk of the United 
States District Court for the Northern District of Ohio, Eastern 
Division, 201 Superior Ave., Cleveland, Ohio, 44114.
Rebecca P. Dick,
Director of Civil Non-Merger Enforcement, Antitrust Division.

Response of the United States to Public Comments

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act (the ``Tunney Act''), 15 U.S.C. 16(b)-(h), the United 
States hereby responds to public comments received regarding the 
proposed Final Judgment.
    On September 23, 1998, the United States filed a Complaint alleging 
that Medical Mutual of Ohio (``Medical Mutual'') unlawfully reduced 
hospital discounting and price competition among hospitals in the 
Cleveland, Ohio

[[Page 2515]]

area in violation of section 1 of the Sherman Act, 15 U.S.C. 1, by 
requiring hospitals wishing to do business with it to agree to a ``Most 
Favorable Rates'' (``MFR'') provision. Simultaneously, the United 
States filed a proposed Final Judgment, a Stipulation signed by all 
parties agreeing to the entry of the proposed Final Judgment, and a 
Competitive Impact Statement (``CIS'').
    The proposed Final Judgment and CIS were published in the Federal 
Register on Thursday, October 1, 1998 at 63 FR 52,764 (1998). 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 September 27 through October 3, 
1998 and in the Cleveland Plain Dealer from September 27 through 
October 3, 1998. The 60-day period for public comment expired on 
December 1, 1998.
    The United States received one comment on the proposed Final 
Judgment, from University Hospitals of Cleveland (``UHC''). Although 
UHC does not oppose the entry of the proposed Final Judgment, it 
requests that the Final Judgment be broadened to address certain of 
Medical Mutual's other contracting practices which, UHC believes, are 
as pernicious to competition as Medical Mutual's use of MFR provisions. 
After careful consideration of UHC's comment, a copy of which is 
attached to this Response, the United States has concluded that the 
additional relief suggested by UHC is unrelated to the violations 
investigated by the Department and alleged in the Complaint. For that 
reason, once the comment and the Response have been published in the 
Federal Register pursuant to 15 U.S.C. 16(d), the United States will 
move the Court to enter the proposed Final Judgment.

I. Background

    As explained more fully in the Complaint and CIS, defendant Medical 
Mutual is the largest commercial health care insurer in the Cleveland 
Region. With more than 730,000 enrollees there, Medical Mutual covers 
approximately 36% of the commercially insured population and accounts 
for approximately 25 to 30% of commercial payments to local hospitals. 
Nearly all of the Cleveland hospitals depend on Medical Mutual for the 
largest share of their commercial business.
    The Complaint alleges that starting in 1986, Medical Mutual 
successfully imposed a MFR provision in all of its contracts with acute 
care hospitals in the Cleveland Region. Such provisions, sometimes 
referred to as ``Most Favored Nations'' or ``MFN'' provisions, 
typically require that a buyer health plan receive a rate at least as 
low as the lowest rate the medical provider charges any other plan. 
Medical Mutual's MFR provision, however, required hospitals to charge 
any smaller commercial health plan rates substantially higher--15 to 
30% higher--than it charged Medical Mutual. This buffer gave Medical 
Mutual a significant advantage over its rivals in the purchase of 
hospital services and insulated Medical Mutual's plans from price 
competition.
    The Complaint also charges that Medical Mutual's enforcement of its 
MFR clause prevented Medical Mutual's competitors from lowering their 
hospital costs through more efficient or better management of hospital 
services, raised the cost of hospital services and health insurance for 
businesses and consumers in the Cleveland area, and suppressed 
innovation in the local health insurance industry. The United States 
believes that these actions, along with the other conduct alleged in 
the Complaint, violated section 1 of the Sherman Act.
    In September 1998, the parties stipulated that the proposed Final 
Judgment be entered by this Court to settle this action. The proposed 
Final Judgment, if entered, will enjoin and restrain Medical Mutual 
from adopting, maintaining, or enforcing in the Cleveland Region a Most 
Favorable Rates requirement or any policy, practice, rule, or 
contractual provision having the same purpose or effect. In addition, 
the proposed Final Judgment will prohibit Medical Mutual from directly 
or indirectly requiring hospitals participating in its panels to 
disclose the rates such hospitals charge any non-governmental payer 
except in extremely limited circumstances.

II. Response to Public Comment

    UHC submitted the only comment in response to the proposed Final 
Judgment, urging that the proposed Final Judgment be modified to 
address other allegedly anticompetitive contracting schemes by Medical 
Mutual, not just its use of the MFR provision. Specifically, UHC 
alleges that Medical Mutual has entered into a fourteen-year 
restrictive agreement with UHC's main competitor in the Cleveland area, 
the Cleveland Clinic Foundation (``CCF''), which explicitly provides 
that the rates CCF charges Medical Mutual will dramatically increase if 
Medical Mutual includes UHC or UHC's affiliate hospital in its 
``SuperMed'' managed care panels. UHC believes that this provision 
violates the antitrust laws by reducing consumers' choice of health 
care providers, stifling competition, and raising UHC's costs of doing 
business.
    The United States believes that UHC's comment provides no 
justification for reconsidering the merits of the proposed Final 
Judgment. First, selective or exclusionary contracting is not 
necessarily anticompetitive. See Smith v. Northern Michigan Hospitals, 
Inc., 703 F.2d 942 (6th Cir. 1983) (``not all exclusive dealing 
contracts even by a monopolist are illegal''). Indeed, selective or 
exclusive contracting by health plans and providers can in some 
circumstances be procompetitive; health plans and providers can use 
such provisions to direct patient volume to providers in exchange for 
lower prices and/or higher quality services, and any savings can be 
passed on to subscribers in the form of lower premiums. See Jefferson 
Parish Hospital District No. 2 v. Hyde,  466 U.S. 2, 45 (1984); U.S. 
Healthcare, Inc. v. Healthsource, Inc. 986 F.2d 589, 594 (1st Cir. 
1993); Interface Group v. Massachusetts Port Auth., 816 F.2d 9, 11-12 
(1st Cir. 1987).
    Second, the agreement between Medical Mutual and CCF that UHC 
alleges is anticompetitive is far outside the scope of the Department's 
investigation, which was limited to Medical Mutual's use and 
enforcement of its MFR provision. The Department did not purport to 
investigate--or remedy through the proposed Final Judgment--all 
possible anticompetitive conduct by Medical Mutual. Nothing in the 
proposed Final Judgment limits the ability of the Department to look 
into other anticompetitive conduct by Medical Mutual in the future, or 
restricts the right of private parties, including UHC, to pursue the 
full range of remedies available under the antitrust laws.

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

    Section 2(e) of the Antitrust Procedures and Penalties Act, 15 
U.S.C. 16(e), requires that the Court's entry of the proposed Final 
Judgment be in the public interest. The Act permits a court to 
consider, among other things, the relationship between the remedy 
secured and the specific allegations set forth in the government's 
complaint, whether the decree is sufficiently clear, whether 
enforcement and compliance mechanisms are adequate, and whether the 
decree may harm third parties. See United States v. Microsoft Corp., 56 
F.3d 1448, 1461-62 (D.C. Cir. 1995). Consistent with Congress' intent 
to use consent decrees as an effective tool of antitrust enforcement, 
the Court's function is ``not to determine whether the resulting array 
of rights and

[[Page 2516]]

liabilities is the one that will best serve society, but only to 
confirm that the resulting settlement is within the reaches of the 
public interest.'' Id. at 1460 (internal quotations omitted); see also 
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert. 
denied, 454 U.S. 1083 (1981). As a result, a court should withhold 
approval of a proposed consent decree ``only if any of the terms appear 
ambiguous, if the enforcement mechanism is inadequate, if third parties 
will be positively injured, or if the decree otherwise makes `a mockery 
of judicial power.' '' Massachusetts School of Law at Andover, Inc. v. 
United States, 118 F.3d 776, 783 (D.C. Cir. 1997) (quoting Microsoft, 
56 F.3d at 1462). None of these conditions are present here. The 
proposed Final Judgment is closely related to the allegations of the 
Complaint, the terms are unambiguous, the enforcement mechanism 
adequate, and third parties will not be harmed by entry of this 
Judgment. The conduct investigated--Medical Mutual's use of a MFR 
clause to inhibit competition--is fully remedied in the proposed Final 
Judgment. The fact that Medical Mutual may be acting in other ways 
detrimental to competition is simply not the issue here, and can be 
addressed by means still available to UHC.

IV. Conclusion

    The United States has concluded that the proposed Final Judgment 
reasonably, adequately, and appropriately addresses the harm alleged in 
the Complaint. As required by the Tunney Act, the United States will 
publish the public comment and this response in the Federal Register. 
After such publication, the United States will move this Court for 
entry of the proposed Final Judgment based on this Court's 
determination that the Decree is in the public interest.

        Respectfully submitted,
Paul J. O'Donnell,
Jean Lin,
Frederick S. Young,
Attorneys, Antitrust Division, Health Care Task Force, U.S. Dept. of 
Justice, 325 7th Street, NW., Suite 400, Washington, DC 20530, (202) 
616-5933.

Emily M. Sweeney,
United States Attorney, Northern District of Ohio, 1800 Bank One 
Center, 600 Superior Ave., E., Cleveland, Ohio 44114-2600, (216) 622-
3600.
Federal Express
December 7, 1998.
Re: United States v. Medical Mutual of Ohio

The Hon. Gail Kursh,
Chief, Healthcare Task Force, 325 Seventh Street, NW, Room 404, 
Antitrust Division, Department of Justice, Washington, DC 20530.

    Dear Ms. Kursh: We represent University Hospitals of Cleveland 
(``UHC'') and hereby submit these comments regarding the proposed 
consent decree (the ``Consent Decree'') entered into by the United 
States of America and Medical Mutual of Ohio (``Medical Mutual'') on 
September 23, 1998. The Consent Decree abrogates Medical Mutual's 
requirement that any hospital in the Cleveland area wishing to do 
business with it agree to a ``Most Favorable Rates'' (``MFR'') 
provision. In announcing the Consent Decree, the Justice Department 
stated that: ``[a]s a result of the Department of Justice's 
settlement of this suit, competition in the health insurance and 
hospital services market will be restored in the Cleveland area for 
the benefit of businesses and consumers.'' UHC submits these 
comments because UHC believes that the Consent Decree should be 
broadened to address Medical Mutual's other equally egregious 
contracting practices that directly impact and lessen competition in 
the Cleveland area market place.\1\ The MFR provision is but one 
means used to suppress competition. We urge, based on considerations 
of justice, fairness and expediency, that the Consent Decree be 
modified to deal specifically with Medical Mutual's other 
anticompetitive contracting schemes, not just its use of the MFR 
provision.
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    \1\ For purposes of these comments, UHC adopts the definition of 
``Cleveland area'' set forth in the Consent Decree, which refers to 
Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, and Wayne 
Counties in Ohio.
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    While the Consent Decree purports to rectify Medical Mutual's 
anticompetitive conduct, it focuses almost exclusively on Medical 
Mutual's use of the MFR provision, which requires Cleveland area 
hospitals to charge any non-governmental health plan with a total 
dollar volume of services lower than that of Medical Mutual, rates 
equal to or higher than the rates such hospitals charge Medical 
Mutual for services to its traditional indemnity subscribers. To 
avoid significant penalties for violating the MFR provision, 
Cleveland area hospitals charged Medical Mutual's competitors 
significantly more, often 15%-30% more, than they have charged 
Medical Mutual for identical services.
    The Competitive Impact Statement in this case found that the MFR 
provision directly increased the costs of hospital services for 
other plans, businesses, and consumers and discouraged innovation in 
the design of health insurance plans and in the delivery of hospital 
services. The Consent Decree prohibits Medical Mutual from 
``adopting, maintaining, or enforcing in the Cleveland Region a Most 
Favorable Rates Requirement or any policy, practice, rule or 
contractual provision having the same purpose or effect.'' However, 
the Consent Decree fails to address another equally anticompetitive 
provision found in Medical Mutual's contracts for its SuperMed 
products.
    Medical Mutual's SuperMed products refer to a group of health 
insurance programs, including SuperMed Classic, a preferred provider 
organization; SuperMed Plus, a hospital and physician preferred 
provider organization; SuperMed Select, a hospital and physician 
point-of-service plan; and SuperMed HMO, a health maintenance 
organization. Under SuperMed, insureds are permitted to receive 
their care from a closed panel of physicians and hospitals offered 
by SuperMed.
    Since their creation in 1991, Medical Mutual SuperMed products 
have never been included in a Medical Mutual contract with UHC. 
Their absence from Medical Mutual's contracts with UHC is explained 
by an anticompetitive, exclusionary provision found in Medical 
Mutual's SuperMed contract with the Cleveland Clinic Foundation 
(``CCF''), UHC's primary competitor in the Cleveland region. UHC has 
been advised that the Medical Mutual/CCF SuperMed contract (the 
``Contract'') provides that the rates that CCF charges Medical 
Mutual will dramatically increase if Medical Mutual contracts for 
SuperMed insurance with UHC or UHC's affiliated hospital, University 
Hospitals Health System Bedford Medical Center (``Bedford''). \2\ 
UHC and Bedford are the only hospitals identified in the Contract as 
triggering this substantial monetary penalty.\3\ Medical Mutual has 
indicated to UHC that the extent of this rate increase would be so 
draconian that Medical Mutual will not consider contracting with UHC 
for SuperMed insurance until the Contract expires. The Contract has 
a fourteen-year term and was entered into only two or three years 
ago.
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    \2\ Review of the Contract is necessary for the Department of 
Justice to investigate Medical Mutual's anticompetitive contracting 
practices. Accordingly, the Contract should be reviewed by the 
Department of Justice and lodged in the public record to facilitate 
public comment.
    \3\ Bedford is located in Cuyahoga County and its primary 
competitor is Marymount Hospital, which is affiliated with CCF.
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    The Contract's provision targeting UHC (the ``Target 
provision'') has had the same effect as Medical Mutual's MFR 
provision. Both stymie competition in the Cleveland area, raise 
prices for competitors, businesses and consumers, and discourage 
product and pricing innovation in the delivery of hospital services. 
This provision automatically bars UHC's access to patients while 
inhibiting consumer choice. Patients enrolled in the SuperMed 
products cannot realistically make provider choices based on cost 
and quality of service because of the exorbitant financial penalties 
associated with using out-of-network services.
    As the Complaint in this action indicates, Medical Mutual is the 
largest commercial health insurer in the Cleveland area. It has over 
730,000 enrollees in the Cleveland area, constituting 36% of the 
commercially insured population, and is approximately twice the size 
of its closest competitor. As the Complaint also alleges, Medical 
Mutual accounts for approximately 25%-30% of commercial payments to 
Cleveland area hospitals, and nearly all of these hospitals depend 
on Medical Mutual for the largest share of their commercial 
business. Within the Medical Mutual lines of insurance, the

[[Page 2517]]

SuperMed products comprise the substantial majority of its health 
insurance business. Moreover, Medical Mutual's enrollment has been 
steadily increasing in market share among commercial insurers for 
the last five years. Medical Mutual's increasing domination of the 
commercial insurance market makes its refusal to deal with UHC for 
SuperMed products a growing concern for Cleveland area patients and 
businesses and for competition as a whole.
    The Target provision will have significantly negative financial 
effects in the Cleveland area marketplace. The two biggest, most 
diversified hospitals in the Cleveland area are UHC and CCF. Both 
hospitals offer a wide range of primary through tertiary inpatient 
and ambulatory services; both hospitals have over 1,000 beds and 
hundreds of physicians on staff; and both hospitals discharged 
approximately 40,000 patients last year. Meanwhile, the other 
secondary hospitals in the Cleveland area are not thriving or have 
become part of the CCF system. Mount Sinai Medical Center's 
financial problems have been reported in the press. Meridia 
Hillcrest Hospital, Fairview General Hospital and Metrohealth 
medical Center have all either merged with or become affiliated with 
CCF. It is not unrealistic to project that through acquisitions or 
attrition, the future of the Cleveland area market will devolve to 
the two largest competitors, UHC and CCF. Because of these economic 
realities, Cleveland area residents and businesses have a 
substantial interest in free and unfettered competition in order to 
ensure the long-term health of all competitors.
    In the years that the Contract has been in place, UHC has 
aggressively worked to counteract the effects of the Target 
provision by actively marketing its services, reconfiguring its 
finances, and focusing on other sectors of the population. However, 
these measures cannot sustain UHC in the long term. UHC increasingly 
has been meeting its operating expenses by relying on its endowment 
as opposed to its operating revenues.
    The purpose and effect of the Target provision is to alter UHC's 
patient mix in a way which seriously reduces UHC's operating 
revenue. Equally important, patient choice is being undermined by 
the anticompetitive agreement between Medical Mutual, the area's 
most prolific private health insurer, and CCF.

Conclusion

    The proposed Consent Decree purports to restore competition in 
the health insurance and hospital services markets in the Cleveland 
area. Although it takes a much needed and significant step in that 
direction, its failure to address the Target provision in the 
Medical Mutual/CCF SuperMed contract substantially undercuts the 
effectiveness of the Consent Decree in achieving its stated purpose. 
UHC urges the Department of Justice to expand the inquiry into 
Medical Mutual's anticompetitive practices and to rectify Medical 
Mutual's blatantly restrictive and unlawful agreement with CCF. 
Failure to do so will deprive consumers of choice of their health 
care providers, reduce competition in the Cleveland area and drive 
up UHC's costs of doing business.
        Very truly yours,
Charles E. Koob.
[FR Doc. 99-825 Filed 1-13-99; 8:45 am]
BILLING CODE 4410-11-M