[Federal Register Volume 64, Number 58 (Friday, March 26, 1999)]
[Notices]
[Pages 14730-14733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7404]


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FEDERAL TRADE COMMISSION

[File No. 9810261]


North Lake Tahoe Medical Group, Inc.; 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 May 26, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:
Paul Nolan, FTC/H-3115, 600 Pennsylvania Avenue, NW., Washington, DC 
20580, (202) 326-2770 or Matthew Gold, San Francisco Regional Office, 
Federal Trade Commission, 901 Market Street, Suite 570, San Francisco, 
CA 94103, (415) 356-5276.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 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 March 22, 1999), on the World Wide Web, at ``http://www.ftc.gov/
os/actions97.htm.''. A paper copy can be obtained form the FTC Public 
Reference Room, Room H-130, 600 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 Sec. 4.9(b)(6)(ii) of the Commission's rules 
of practice (16 CFR 4.9(b)(6)(ii)).

North Lake Tahoe Medical Group, Inc.; 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 North Lake 
Tahoe Medical Group, Inc. (``Tahoe IPA''). The agreement settles 
charges by the Federal Trade Commission Tahoe IPA has violated Section 
5 of the Federal Trade Commission Act by: (1) Acting concertedly to 
delay the entry into the market of managed care; (2) engaging in 
collective negotiations over prices with payers; and (3) refusing to 
deal with Blue Shield of California (``Blue Shield'') when it did not 
comply with the Tahoe IPA's demands. 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 and 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, or 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 Tahoe IPA that the law has been violated as alleged in the 
complaint.

The Complaint

    Under the terms of the agreement, a proposed complaint will be 
issued by the Commission along with the proposed consent order. The 
allegations in the Commission complaint are summarized below.
    Tahoe IPA is a physician organization based in Truckee, California. 
All of the members of Tahoe IPA are physicians practicing in and around 
the Tahoe Basin, which includes the North Lake Tahoe and South Lake 
Tahoe areas. During the time period addressed by the allegations of the 
complaint, Tahoe members constituted at least 70% of all physicians 
practicing in the North and South Lake Tahoe areas.
    Tahoe IPA was formed in 1994 as a vehicle for its members to deal 
concertedly with the impending entry into North and South Lake Tahoe of 
managed care. Beginning in 1994, and continuing until at least 1998, 
when Tahoe IPA first learned that it was under investigation by the 
staff of the Commission, Tahoe IPA conspired to fix the prices and 
other terms under which its members dealt with third-party payers. 
Tahoe IPA also conspired to prevent or delay the entry into the North 
Lake and South Lake Tahoe areas of managed care. Tahoe IPA refused to 
participate, either individually or collectively, in HMO plans offered 
by Blue Shield, Hometown Health Plan, Foundation Health Plan, St. 
Mary's Health Plan, and other third-party payers attempting to do 
business in the Tahoe Basin. Tahoe IPA engaged in collective 
negotiations to fix price terms and other competitively significant 
terms with all payers seeking to enter the North and South Lake Tahoe 
areas. Tahoe IPA maintained an exclusivity clause in its ``Provider 
Participation Agreement,'' and encouraged its members to deal with 
third-party payers only through Tahoe IPA. Tahoe IPA sought to coerce 
payers into accepting the IPA fee schedules and minimum reimbursement 
rates. Tahoe IPA leaders stated that payers must accept the IPA's price 
terms if they want to contract with IPA members.
    In furtherance of its unlawful agreements, since 1996 Tahoe IPA 
attempted to coerce Blue Shield to raise its level of fee-for-service 
reimbursement to IPA physicians. Since November 1997, when it became 
clear the Blue Shield would not negotiate on the Tahoe IPA's terms, the 
IPA encouraged its physician members to departicipate from Blue 
Shield's preferred provider organization (``PPO''). In private and 
public statements, the Tahoe IPA reminded its members that it was 
acting as their agent with Blue Shield, and that the IPA would 
ultimately be successful in its negotiations with Blue Shield if the 
members continued to contract on a united front. Beginning as early as

[[Page 14731]]

January 1998, many of the physician members of Tahoe IPA submitted 
letters of termination to Blue Shield. Some of these members no longer 
contract with Blue Shield, and others have notified Blue Shield of 
their intent to terminate their contracts as of January 1, 1999.
    Tahoe IPA's members have not integrated their medical practices in 
any economically significant way, nor have they created any 
efficiencies that might justify this conduct. Tahoe IPA's actions have 
harmed consumers in the North and South Lake Tahoe areas by restraining 
competition among physicians, by fixing or increasing the prices that 
are paid for physician services, and by depriving third-party payers, 
their subscribers, and patients of the benefits of competition among 
physicians.

The Proposed Consent Order

    The proposed consent order is designed to prevent the illegal 
concerted action alleged in the complaint, while allowing Tahoe to 
engage in legitimate joint conduct. Section II of the proposed order 
contains the core operative provisions. Section II.A prohibits Tahoe 
IPA from: (1) Engaging in collective negotiations on behalf of its 
members; (2) orchestrating concerted refusals to deal; (3) fixing 
prices, or any other terms, on which its members deal, and (4) 
restricting the ability of any physicians to deal with any payer or 
provider individually or through any arrangement outside of Tahoe IPA.
    Section II.B prohibits Tahoe IPA from exchanging or facilitating 
the exchange of information among physicians of information concerning 
the terms or conditions of reimbursement. Section II.C prohibits this 
Tahoe IPA from encouraging, advising or pressuring any person to engage 
in any action that would be prohibited if the person were subject to 
the order.
    Section II includes a proviso allowing Tahoe 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) any 
``qualified clinically integrated joint arrangement,'' provided Tahoe 
IPA complies with the order's prior notification requirements. For the 
purpose of the order, a ``qualified risk-sharing joint arrangement'' 
must satisfy three conditions. First, all physicians participating in 
the arrangement must share substantial financial risk from their 
participation in the arrangement. The order lists ways in which 
physicians might share financial risk, tracking the 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. Statements of Antitrust Enforcement Policy in Health Care, 
issued August 28, 1996, 4 Trade Reg. Rep. (CCH) para. 13,153. Second, 
any agreement on prices or terms of reimbursement entered into by the 
arrangement must be reasonably necessary to obtain significant 
efficiencies through the joint arrangement. Third, the arrangement must 
be non-exclusive, i.e., it must not restrict the ability, or facilitate 
the refusal, or physicians participating in the arrangement to deal 
with payers individually or through any other arrangement.
    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 to evaluate and modify their clinical practice 
patterns, 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 arrangement must be non-exclusive in light of Tahoe 
IPA's large share of the market.
    For a qualified clinically integrated joint arrangement to fall 
within the proviso, the Tahoe 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. This requirement will help 
guard against the recurrence of acts and practices that have restrained 
competition and consumer choice.
    Section II also contains a proviso that permits the Tahoe IPA to 
refuse to transmit information from payers or providers to less than 
all of its participating physicians. This proviso, however, does not 
permit the Tahoe IPA to require that payers or providers make offers to 
all participating physicians or to any particular physician.
    Section III of the proposed order requires the Tahoe IPA to 
terminate the participation in the Tahoe IPA of physicians who have 
terminated their participation, or have given notice of their intent to 
terminate their participation, in Blue Shield's PPO. this provision 
requires the Tahoe IPA to provide to Blue Shield the names and 
addresses of all of its participating physicians, and to request from 
Blue Shield the names of all participating physicians who either have 
terminated participation in Blue Shield, or have given notice of intent 
to terminate future participation in any Blue Shield health plan 
between January 1, 1998, and the date the agreement was signed. Within 
twenty days after Tahoe IPA has received from Blue Shield the names and 
addresses of the boycotting physicians, the Tahoe IPA must terminate 
their participation unless the physician either: (1) Attempts in good 
faith to reestablish participation in a Blue Shield health plan for a 
period of at least six months thereafter; or (2) rescinds in writing 
his or her notice of intent to terminate future participation in a Blue 
Shield health plan and continues to participate in a Blue Shield health 
plan for a period of at least six months thereafter.
    Section IV.A requires that Tahoe IPA notify its members and certain 
third parties, including certain third-party payers, about the order. 
Section IV.A also requires the IPA to revise its ``Provider 
Agreement,'' which contains a clause requiring members to contract 
exclusively through the Tahoe IPA, so that it complies with the order. 
Section IV.B requires the IPA to terminate any contracts with any 
payers that do not comply with Section II of the order, at the earlier 
of (1) the termination or renewal date of the contract; or (2) receipt 
of a written request from the payer to terminate the contract. Section 
IV.C requires that the IPA, for the next five years (1) distribute 
copies of the complaint and order to new members, and (2) publish 
annually to members a copy of the complaint and order.
    Sections V, VI, and VII consist of standard Commission reporting 
and compliance procedures, with the exception that Section V specifies 
some of the information Tahoe IPA must include in its annual compliance 
reports, including: (1) Information identifying each health plan that 
has contacted Tahoe IPA for the purpose of contracting for physician 
services, the terms of any contract the health plan was seeking with 
Tahoe IPA, and Tahoe IPA's response to the health plan; (2) information 
sufficient to describe the manner in which Tahoe IPA's members share 
financial risk in each ``qualified non-exclusive risk-sharing 
arrangement'' in which the Tahoe IPA participates; and (3) copies of 
the

[[Page 14732]]

minutes of Tahoe IPA's annual meetings.
    Finally, Section VIII of the proposed order contains a twenty year 
``sunset'' provision under which the terms of the order terminate 
twenty years after the date of issuance.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Chairman Robert Pitofsky and Commissioners Sheila F. 
Anthony and Mozelle W. Thompson

[North Lake Tahoe Medical Group, Inc., File No. 981-0261]

    The Commission has published a proposed complaint alleging that 
North Lake Tahoe Medical Group (``Tahoe IPA'') violated section 5 of 
the Federal Trade Commission Act, 15 U.S.C. 45, by orchestrating an 
illegal group boycott among its member physicians who refused to deal 
with Blue Shield of California (``Blue Shield''). Because the actions 
of Tahoe IPA went beyond a mere refusal to contract and were, instead, 
part of a larger agreement to impede the growth of managed care health 
plans, we believe that the proposed order, including the remedial 
provisions contained in Section III, prescribes appropriate relief to 
restore competition and remedy the harm caused by Tahoe IPA's illegal 
activities.
    Having reached an impasse in its efforts to raise the reimbursement 
rate paid by Blue Shield to its members, Tahoe IPA requested that its 
members withdraw from Blue Shield's health plan. Twenty-four doctors 
either withdrew, or announced their intention to withdraw, following 
Tahoe IPA's request. By engaging in an illegal group boycott directed 
at Blue Shield, Tahoe IPA and its members attempted to impair the 
growth and effectiveness of health insurance plans in the relevant 
market.
    The proposed order is designed to restore competition lost as a 
result of the boycott. Section II.A of the order would prohibit Tahoe 
IPA from negotiating on behalf of its members with any payer or 
provider for physician services. Section II.A also would prohibit Tahoe 
IPA from orchestrating refusals to deal among its members with payers, 
fixing prices or any other terms on which its members deal with 
physicians, and preventing physicians from dealing with any payer or 
provider individually or through arrangements outside of Tahoe IPA. 
Section III of the proposed order further requires that Tahoe IPA 
terminate member physicians for a period of six months who refused to 
deal with Blue Shield as part of the illegal boycott led by Tahoe IPA. 
Section III permits Tahoe IPA to retain these members if they either 
(1) attempt in good faith to re-join Blue Shield's network for six 
months, or (2) rescind their refusals to deal and participate in the 
Blue Shield plan for at least six months.
    The Commission is unanimous in its belief that the relief set forth 
in Section II is necessary to restore competition in the relevant 
market. However, Commissioner Swindle dissents from Section III of the 
order and contends that Tahoe IPA's members will have sufficient 
independent incentives to negotiate or contract with Blue Shield 
without Section III of the proposed order. The facts tell a different 
story.
    Since the proposed order was reached with Tahoe IPA, 20 of its 
member physicians have agreed to re-join the Blue Shield provider 
network or to enter negotiations over terms under which they might re-
join. Only four members of Tahoe IPA have refused to enter negotiations 
with Blue Shield. There is every reason to believe that the doctors 
have re-joined the Blue Shield network in part because of the pending 
order, and may have been more reluctant to do so in the absence of 
Section III.
    Accordingly, given the conduct alleged in the complaint and its 
anticompetitive effects, we respectfully disagree with Commissioner 
Swindle. Section III of the proposed order is a modest, but 
appropriate, step to reverse the harm caused by Tahoe's illegal 
conduct. With a large percentage of area doctors withdrawing from its 
plan through an illegal boycott, Blue Shield no longer offered adequate 
services to its members. Provisions of the cease and desist order other 
than Section III prohibit further action to effectuate an agreement to 
boycott. But where the action has already succeeded, as it did here, 
something more is needed to restore competition that was eliminated 
through the anticompetitive conduct alleged in the complaint. 
Insufficient relief in this case could increase the likelihood of 
similar conduct arising in other markets. Moreover, the relief in 
Section III is limited to a six-month time period, and is narrowly 
tailored to meet the direct purpose of the proposed order by covering 
only the period when negotiations were occurring for the 1999 coverage 
year. Tahoe IPA is primarily responsible for the boycott, and it is 
therefore appropriate that Tahoe IPA take steps to make clear to its 
own membership that they must make a unilateral decision whether to 
continue to deal with Blue Shield.
    In cases where illegal conduct has caused serious harm, the remedy 
should aim to undo the damage when reasonably possible. The objective 
of the proposed order in this case is to restore competition that has 
been lost through the illegal activities of Tahoe IPA and its members. 
Section III of the proposed order is an appropriate limited measure 
designed to accomplish this traditional antitrust remedial objective. 
It ensures that Tahoe IAP will allow its members to act in a manner 
consistent with their independent incentives, not in a fashion that 
allows the effects of an antitrust violation to persist.

Statement of Commissioner Orson Swindle Concurring in Part and 
Dissenting in Part

[Tahoe Health System, Inc., File No. 981-0261]

    The Commission has accepted a consent agreement in this matter that 
includes a novel remedy I do not support. North Lake Tahoe Medical 
Group, Inc. (``Tahoe IPA''), the respondent, engaged in negotiations on 
behalf of its member physicians to obtain from third-party payers 
prices that were discounted no more than 10 percent below their usual 
fees. Blue Shield, a third-party payer, refused to accede to Tahoe 
IPA's demands, leading Tahoe IPA to successfully encourage many of its 
members no longer to participate as physicians for Blue Shield. Other 
third-party payers that were considering offering HMO products in the 
Lake Tahoe area responded to Tahoe IPA's demands by deciding not to 
enter.
    I agree that there is reason to believe that Tahoe IPA's conduct 
violated Section 5 of the FTC Act. To remedy these violations, 
Paragraph II of the proposed consent order contains typical provisions 
that would prohibit Tahoe IPA from entering into any agreement to (1) 
negotiate on behalf of physicians with any payer or provider for 
physician services, or (2) refuse to deal with any payer or provider. I 
support the relief in Paragraph II because it is necessary to prevent 
Tahoe IPA from engaging in unlawful conduct that is identical or 
similar to that alleged in the proposed complaint. Both the 
Commission's complaint and the relief prescribed by Paragraph II make 
it clear to Tahoe IPA's members that they must make unilateral 
decisions as to whether to deal with Blue Shield.
    The proposed consent order, however, also contains a novel--and 
questionable--remedy, Paragraph III requires that Tahoe IPA terminate 
the membership of all physicians who refused to deal (or who gave 
notice of their intent to refuse to deal) with Blue Shield as a result 
of Tahoe IPA's encouragement. Tahoe IPA, however,

[[Page 14733]]

would not have to terminate: (1) physicians who refused to deal but 
attempt in good faith to reparticipate in Blue Shield for six months, 
and (2) physicians who rescind their notices of refusal to deal and 
continue to participate in Blue Shield for at least six months.
    I do not believe that Paragraph III is needed. Prior to the refusal 
to deal with Blue Shield alleged in the complaint, the Tahoe IPA 
physicians who participated in Blue Shield had their own sufficient 
market incentives to participate. With the cessation of the refusal to 
deal and the prohibition in Paragraph II on future refusals to deal, 
these market incentives should revive. With the return of these 
incentives, the Tahoe IPA physicians who refused to deal presumably 
would choose once again to participate in Blue Shield even without the 
burdens imposed by Paragraph III.\1\
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    \1\ Twenty physicians have agreed to reparticipate in Blue 
Shield, while four have not. All this demonstrates is that 
physicians have reparticipated in Blue Shield while Paragraph III is 
in effect. It does not establish that Paragraph III was a cause of 
this reparticipation, or that market incentives would not have 
caused the physicians to reparticipate in the absence of Paragraph 
III.
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    The majority believes that government action beyond these market 
incentives is needed to make this market work better in the future. I 
disagree. Because Tahoe IPA physicians on their own have sufficient to 
return to Blue Shield, there is no reason to add a layer of government 
intervention intended to achieve the same result.
    I dissent as to Paragraph III of the proposed consent order.

[FR Doc. 99-7404 Filed 3-25-99; 8:45 am]
BILLING CODE 6750-01-M