[Federal Register Volume 64, Number 228 (Monday, November 29, 1999)]
[Notices]
[Pages 66647-66663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30832]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States of America and the State of Texas v. Aetna Inc. and 
The Prudential Insurance Company of America; Public Comments and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(c)-(h), the United States publishes below the comments received on 
the proposed final judgment in United States of America and the State 
of Texas v. Aetna Inc. and The Prudential Insurance Company of America, 
 Civil Action No. 3-99CV1398-H, filed in the United States District 
Court for the Northern District of Texas (Dallas Division), together 
with the United States' response to those comments.
    Copies of the comments and the response are available for 
inspection and copying at the U.S. Department of Justice, Antitrust 
Division, 325 7th Street, NW, Suite 400, Washington, DC 20530 
(telephone: (202) 616-5933), and at the Office of the Clerk of the 
United States District Court for the Northern District of Texas (Dallas 
Division). Copies of these materials may be obtained upon request and 
payment of a copying fee.
Constance K. Robinson,
Director of Operations.

Response of the United States to Public Comments

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act (the ``APPA''), 15 U.S.C. 16(b)-(h), the United States 
hereby responds to public comments received regarding the proposed 
Revised Final Judgment in this matter.
    The United States filed a civil antitrust Complaint under Section 
15 of the Clayton Act, 15 U.S.C. 25, on June 21, 1999, alleging that 
the proposed acquisition by Aetna Inc. (``Aetna'') of The Prudential 
Insurance Company of America's (``Prudential'') health insurance 
business would violate Section 7 of the Clayton Act (``Section 7''), 15 
U.S.C. 18. The State of Texas, by and through its Attorney General, 
joined the United States as co-plaintiff in this action. On August 4, 
1999, the United States and the State of Texas filed a proposed Revised 
Final Judgment, a Revised Hold Separate Stipulation and Order, and a 
Revised Competitive Impact Statement (``CIS'').
    The proposed Revised Final Judgment and CIS were published in the 
Federal Register on Wednesday, August 18, 1999 at 64 FR 44946 (1999). A 
summary of the terms of the proposed Revised Final Judgment and the CIS 
and directions for the submission of written comments were published in 
the Washington Post and the Dallas Morning News for seven consecutive 
days, from July 27 through August 2, 1999. The 60-period for comments 
expired on October 18, 1999.
    The United States received six comments on the proposed Revised 
Final Judgment. Two of the comments were submitted by individuals; one 
was submitted on behalf of a medical group and physician contracting 
organization; three were submitted on behalf of

[[Page 66648]]

professional medical associations. All six comments are addressed 
below.
    After careful consideration of the comments, copies of which are 
attached to this Response, the United States has concluded that the 
additional relief suggested by the comments is either not relevant to 
the violations investigated by the Department and alleged in the 
Complaint or unnecessary to remedy the harm caused by the proposed 
transaction. For that reason, once the comments and the Response have 
been published in the Federal Register pursuant to 15 U.S.C. 16(d), the 
United States will move this court for entry of the proposed Revised 
Final Judgment.

I. Background

    At the time the Complaint was filed, Aetna was (and remains) the 
largest health insurance company in the United States, providing health 
care benefits to approximately 15.8 million people in 50 states and the 
District of Columbia; Prudential was the ninth largest, providing 
health care benefits to approximately 4.9 million people in 28 states 
and the District of Columbia. Aetna and Prudential each offered a wide 
range of managed health insurance plans, including health maintenance 
organization (``HMO'') plans and point of service (``POS'') plans.
    As the Complaint alleges, Aetna and Prudential competed head-to-
head in the sale of HMO and HMO-based POS (``HMO-POS'') plans in 
Houston and Dallas, Texas; such competition benefited consumers by 
keeping prices low and quality high; and the proposed acquisition would 
end such competition and give Aetna sufficient market power to increase 
prices or reduce quality in the sale of HMO and HMO-POS plans in those 
geographic areas. The Complaint also alleges that the acquisition would 
enable Aetna to unduly depress physicians' reimbursement rates in 
Houston and Dallas, resulting in a reduction of quantity or a 
degradation in quality of physicians' services in those areas.
    With the Complaint, the parties also filed a proposed settlement 
that would permit Aetna to complete its acquisition of Prudential but 
would require the divestitures of certain assets sufficient to preserve 
competition in the sale of HMO and HMO-POS plans and the purchase of 
physicians' services in Houston and Dallas. This settlement was set 
forth in a proposed Final Judgment and Hold Separate Stipulation and 
Order. To further clarify certain aspects of the settlement, on August 
4, 1999, the parties jointly moved for entry of a proposed Revised 
Final Judgment and a Revised Hold Separate Stipulation Order.
    The proposed Revised Final Judgment requires Aetna to divest its 
interests in two previously acquired health plans serving the Houston 
and Dallas areas: the Houston-area commercial HMO and HMO-POS 
businesses of NYLCare Health Plans of the Gulf Coast, Inc. (``NYLCare-
Gulf Coast''), and the Dallas-area commercial HMO and HMO-POS 
businesses of NYLCare Health Plans of the Southwest, Inc. (``NYLCare--
Southwest''). The NYLCare entities were acquired by Aetna in 1998.
    On September 14, 1999, Aetna executed a definitive Stock Purchase 
Agreement with Health Care Service Corporation (``HCSC''), the parent 
of Blue Cross/Blue Shield of Illinois and Blue Cross/Blue Shield of 
Texas. HCSC proposed to buy all of NYLCare--Gulf Coast and NYLCare--
Southwest, excepting only the two entities' Medicare business, for a 
total purchase price of approximately $500 million. The United States 
and the State of Texas reviewed the proposed transaction to determine 
whether it satisfied the requirements of Section IV of the proposed 
Revised Final Judgment regarding the required divestitures. On October 
27, 1999, the United States notified Aetna and HCSC that, subject to 
the terms of the proposed Revised Final Judgment, it did not object to 
the sale.
    The Revised Hold Separate Stipulation and Order, entered by this 
Court on August 9, 1999, mandates that NYLCare-Gulf Coast and NYLCare-
Southwest function as independent, economically viable, ongoing 
business concerns and that competition be maintained prior to the 
divestitures. It requires Aetna to take steps immediately to preserve, 
maintain, and operate NYLCare-Gulf Coast and NYLCare-Southwest as 
independent competitors until the completion of the divestitures 
ordered by the proposed Revised Final Judgment, including holding 
NYLCare's management, sales, service, underwriting, administration, and 
operations entirely separate, distinct, and apart from those of Aetna. 
In addition, Aetna is obligated to cause NYLCare-Gulf Coast and 
NYLCare-Southwest to maintain contracts or agreements for coverage of 
approximately 260,000 commercially insured HMO and HMO-POS plan 
enrollees in the Houston area and approximately 167,000 in the Dallas 
area through the date of signing a definitive purchase and sale 
agreement for the divestiture of the two NYLCare entities. Until the 
plaintiffs, in their sole discretion, determined that NYLCare-Gulf 
Coast and NYLCare-Southwest could function as effective competitors, 
Aetna was prohibited from taking any action to consummate the proposed 
acquisition of Prudential. On July 27, 1999, the United States informed 
Aetna that its efforts to establish and hold separate NYLCare-Gulf 
Coast and NYLCare-Southwest as effective competitors were sufficient to 
satisfy Section III of the Revised Hold Separate Stipulation and Order, 
and that it could close on the purchase of Prudential.
    The United States, the State of Texas, and the defendants have 
stipulated that the proposed Revised Final Judgment may be entered 
after compliance with the APPA. Entry of the proposed Revised Final 
Judgment would terminate this action, except that the Court would 
retain jurisdiction to construe, modify, or enforce the provisions of 
the proposed Revised Final Judgment and to punish violations thereof.

II. Response to Public Comments

A. Overview
    The United States received six comments in response to the proposed 
Revised Final Judgment. The comments consist of a general concern with 
the transaction and any further consolidation in the HMO industry in 
the U.S. (see Subsec. B); a concern about the failure of the proposed 
Revised Final Judgment to address consolidation in the Georgia HMO 
industry (see Subsec. C); a request that the proposed Revised Final 
Judgment be amended to enjoin Aetna's use of certain contractual 
provisions as anticompetitive (see Subsec. D); and questions regarding 
the adequacy of the remedial provisions in the proposed Revised Final 
Judgment, in particular the propriety of requiring Aetna to divest its 
NYLCare assets rather than its Prudential assets in Dallas and Houston 
(see Subsecs. E and F). For the reasons stated in Subsection B-F, 
below, the United States believes that the comments provide no basis 
for determining that the proposed Revised Final Judgment is not in the 
public interest.
B. The Judgment Adequately Protects Competition Affected by the 
Proposed Merger and Should Not Address Prior Mergers
    Charlene L. Towers of Highland Beach, Florida, quoting a newspaper 
columnist, contends that the United States's approval of the 
transaction should be reconsidered because it furthers the on-going 
consolidation of the HMO industry. Ms. Towers assets that while as 
recently as a few years ago there were eighteen large HMO plans in

[[Page 66649]]

the U.S., only seven remain. Ms. Towers also suggests that the HMOs are 
now colluding on price and benefits and that consumer choice is 
suffering.
    Ms. Towers argues that because Aetna's acquisition of Prudential--
in conjunction with the other mergers and acquisitions in the past--
will result in fewer competitors, competition will be harmed. The 
number of competitors by itself, especially the number of competitors 
nationally, is a poor indicator of competitiveness. Indeed, Ms. Towers 
points to no specific market where she believes that the Aetna-
Prudential transaction will substantially lessen competition. Our 
investigation, which examined markets throughout the country, 
concluded--and the Complaint alleged--that Aetna's acquisition of 
Prudential would have substantial anticompetitive effects in the 
Houston and Dallas areas. The Complaint did not allege--nor did the 
investigation disclose--any evidence of collusion on price or product 
design. See United States v. Microsoft Corp., 56 F.3d 1448, 1459 (D.C. 
Cir. 1995) (declining to reach beyond the Complaint to evaluate claims 
that the government did not make or to inquire as to why they were not 
made). Moreover, the proposed Revised Final Judgment, requiring Aetna 
to divest itself of the two NYLCare entities in Houston and Dallas, 
will ensure the maintenance of competition in those areas, and is fully 
adequate to address the anticompetitive effects alleged in the 
Complaint. Indeed, since Prudential had only approximately 172,000 HMO-
POS enrollees in Houston and 171,000 in Dallas, while NYLCare covered 
260,000 HMO-POS enrollees in Houston and 167,000 in Dallas, the 
divestiture will not only effectively restore the Houston and Dallas 
markets to the status quo ante, but will result in the creation overall 
of a larger and stronger competitor than if Prudential had remained 
independent.\1\
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    \1\ In addition to the divestitures required by the proposed 
Revised Final Judgment, Aetna has decided to sell all the commercial 
HMO-POS enrollees of NYLCare-Gulf Coast and NYLCare-Southwest 
outside the Houston and Dallas areas, as well as approximately 
12,000 enrollees in Preferred Provider Organization (``PPO'') plans. 
In total, Aetna will be divesting approximately 526,000 enrollees.
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C. The Judgment Adequately Protects Competition Affected by the 
Proposed Merger and Should Not Address Potential Future Mergers
    The Medical Association of Georgia (``MAG'') objects to the 
proposed merger for two reasons. First, it believes that the 
acquisition of Prudential exacerbates Aetna's bargaining power and will 
give it the ability to impose ``onerous contract terms'' on 
physicians.\2\ Second, it alleges that the proposed future acquisition 
of Blue Cross/Blue Shield of Georgia (``Georgia Blue'') by WellPoint 
Health Networks, Inc. (``WellPoint'') will further reduce the number of 
significant competitors of HMO and HMO-POS plans in Georgia and, in 
conjunction with Aetna's acquisition of Prudential, produce 
substantial--but undefined--anticompetitive effects.
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    \2\ Specifically, MAG cites to Aetna's ``All Products'' clause 
(discussed in Subsec. D, below), along with contractual provisions 
that permit Aetna to determine ``medical necessity,'' to 
``unilaterally amend'' the contract, ``to compel'' physicians to 
participate in plans of other insurers, to impose ``unfair 
penalties'' on physicians, and to ``hold Aetna harmless.''
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    The United States investigated the likely effect of the proposed 
merger of Aetna and Prudential in those areas of the U.S. where Aetna 
and Prudential compete, including Georgia. The information obtained in 
the investigation led the United States to conclude that the merger was 
unlikely to have substantial anticompetitive effects in either the sale 
of HMO-POS products or the purchase of physician services in 
Georgia.\3\
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    \3\ While Aetna would control roughly 26% of the HMO-POS market 
in the Atlanta area after acquiring Prudential, the United States 
concluded that Aetna would continue to face significant competition 
from Kaiser, which also has approximately 26% of the market, United 
HealthCare, with approximately 19%, and Georgia Blue, with 
approximately 18%. In Macon, Georgia, the only other area of the 
state where Aetna will have a significant share of the HMO-POS 
market, Aetna's share will increase only minimally (by approximately 
4%) from the acquisition of Prudential, and will continue to be 
dwarfed by Georgia Blue, with 62% of the market.
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    The proposed acquisition of Georgia Blue by WellPoint, MAG's second 
concern, was not announced until after the parties reached agreement on 
the proposed Revised Final Judgment, and our review of the proposed 
transaction was on the basis of the market structures existing at the 
time. However, as MAG acknowledges, Wellpoint currently has only a 
minimal presence in Georgia (less than 2% of the HMO-POS market). Its 
acquisition of Georgia Blue is therefore unlikely to have a substantial 
anticompetitive effect or alter our analysis of the effects of the 
Aetna-Prudential transaction.\4\
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    \4\ MAG's concerns with Wellpoint's ``unparalleled focus on its 
managed care products'' and ``pattern of abusive [but unspecified] 
managed care practices,'' as well as with the fact that Georgia Blue 
``would no longer be a Georgia-based company, would no longer be 
owned primarily by Georgians and would have little if any allegiance 
to Georgians,'' are not related to this action and need not be 
addressed here.
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    In arguing that the proposed Revised Final Judgment is inadequate 
because it does not address the harm in Georgia from Aetna's 
acquisition of Prudential (or Wellpoint's acquisition of Georgia Blue), 
MAG is, in fact, requesting that the Court assess not the propriety of 
the relief in light of the allegations of the Complaint, but the 
propriety of the Complaint itself. This it may not do:

    In part because of the constitutional questions that would be 
raised if courts were to subject the government's exercise of its 
prosecutorial discretion to non-deferential review, we have 
construed the public interest inquiry narrowly. The district court 
must examine the decree in light of the violations charged in the 
complaint and should withhold approval 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.''

Massachusettts School of Law at Andover, Inc. v. United States, 118 
F.3d 776, 783 9D.C. Cir. 1997) citing Microsoft, 56 F.3d at 1457-59, 
1462).
D. Additional Relief Regarding Certain Clauses in Physician Contracts 
Is Not Necessary
    The American Medical Association, joined by the Texas Medical 
Association and the Dallas and Harris County Medical Societies, 
submitted a comment generally supportive of the proposed revised Final 
Judgment but requesting that the relief be expanded to enjoin Aetna 
from enforcing for five years certain provisions in its contracts with 
participating physicians in Dallas and Houston, in particular its ``All 
Products'' and ``Practice Closure'' clauses.\5\ The Genesis Physician 
Group, Inc. and Genesis Physicians Practice Association (collectively 
``Genesis'') also submitted a comment requesting that Aetna's use of 
its ``All Products'' clause be prohibited for five years, and further 
expressing concern with Aetna's practice of reserving, in its contracts 
with physicians, ``the power unilaterally to amend * * * material terms 
of the contract without any requirement that Aetna notify physicians.'' 
The American Podiatric Medical Association, Inc. (``APMA'') also 
submitted a comment requesting that the proposed revised Final Judgment 
be modified to prevent Aetna's continued use of its ``All Products'' 
and ``Practice Closure'' clauses.\6\
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    \5\ The AMA and its co-signatories also expressed concern that 
the divestiture of the NYLCare assets be carefully monitored to 
ensure that the result is a viable competitor in the HMO market. 
This issue is addressed in Subsec. F, below.
    \6\ The APMA also expressed concern that the increasing 
concentration of managed care companies generally will diminish the 
availability of podiatric services for consumers and reduce the 
demand for podiatrists. Our investigation did not disclose any 
evidence that the transaction would diminish the availability or 
demand for podiatric services.

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[[Page 66650]]

    Aetna's ``All Products'' clause requires physicians to participate 
in all of Aetna's current and future health plans as a precondition to 
participating in any current Aetna health plan. Thus, a physician who 
serves on the provider panels of two different Aetna health plans 
(e.g., an Aetna PPO and an Aetna HMO) cannot terminate his or her 
participation in only one of those plans without giving up the revenue 
he or she earns from both. The ``All Products'' clause, as a result, 
enhances Aetna's bargaining power in its negotiations with physicians 
by ``significantly increas[ing] the volume of business that a physician 
would lose if he or she rejected [an Aetna contract demand].'' 
(Complaint, para.31.) Aetna's ``Practice Closure'' clause, on the other 
hand, hinders a physician who wishes to limit his or her dependence on 
Aetna by requiring that a physician accept Aetna's HMO patients if he 
or she is accepting HMO patients from other payers, i.e., a physician 
may not selectively close his or her practice to Aetna's HMO patients.
    As alleged in the Complaint, Aetna's proposed acquisition of 
Prudential would have further enhanced Aetna's bargaining leverage in 
its contract negotiations with Houston and Dallas physicians. The 
acquisition would have added to the substantial proportion of a 
physician's total patient revenue already at stake in a physician's 
negotiations with Aetna (i.e., all of that physician's Aetna and 
NYLCare business) a significant additional share of that physician's 
total patient revenue--his or her Prudential patients. In addition, the 
acquisition of Prudential would make it even more difficult for a 
Houston or Dallas physician to replace the lost revenue if he or she 
were to reject Aetna's contract demands. Post-transaction, Aetna 
(including NYLCare and Prudential) would account for a significantly 
larger share of all local health plan enrollees, thereby diminishing 
the pool of potential replacement patients.
    The United States believes that the proposed Revised Final Judgment 
fully addresses the concerns raised to the extent they are a product of 
the proposed transaction. It requires Aetna to divest its NYLCare 
businesses in Houston and Dallas as a pre-condition for acquiring 
Prudential and, as a result, physicians in those areas will have 
essentially the same proportion of their revenue at stake in future 
negotiations with Aetna as they did before the proposed transaction. 
Aetna's acquisition of Prudential will not increase its bargaining 
power vis-a-vis physicians in those areas.\7\
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    \7\ Similarly, the ``Practice Closure'' contract provision 
discussed by the American Medical Association, the Texas Medical 
Association and the Dallas and Harris County Medical Societies, MAG, 
and the APMA, the provision reserving for Aetna the right to 
unilaterally amend the provider contract, discussed by Genesis, and 
the various other provisions discussed by MAG, all involve 
contracting practices of Aetna which predate the transaction with 
Prudential. They are not the result of the proposed transaction, nor 
are they impacted significantly by the proposed Revised Final 
Judgment. They are clearly beyond the scope of the Complaint and 
thus beyond the scope of this proceeding.
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    The comments of the AMA, Genesis, and the APMA, however, were not 
limited to addressing the harm arising from this particular 
transaction. They also address the possible consequences of the ``All 
Products'' clause independent of any proposed transaction--in 
particular, its effect on physicians who currently derive a large share 
of their total patient revenue from an Aetna PPO health plan and who 
may be forced by the ``All Products'' clause to agree to participate in 
Aetna's HMO health plans.
    The Complaint in this action is clearly limited to redressing the 
anticompetitive effects of Aetna's proposed acquisition of Prudential. 
Aetna's ``All Products'' clause was considered only in the context of 
that transaction. The United States did not purport to investigate--or 
remedy through the proposed Revised Final Judgment--all possible 
anticompetitive behavior by Aetna, and the proposed Revised Final 
Judgment is to be evaluated in that context. See Massachusetts School 
of Law, 118 F.3d at 783 (the proper role in determining whether the 
public interest would be served is to assess the adequacy of the relief 
obtained in light of the case brought, not to determine the appropriate 
relief had a different case been brought).\8\
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    \8\ It is worth noting that nothing in the proposed Reviewed 
Final Judgment limits the ability of the United States or the State 
of Texas to look into Aetna's ``All Products'' clause or other 
contractual provisions in the future, nor does it restrict in any 
way the rights of private parties to pursue the full range of 
remedies available under the antitrust laws.
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E. The Plaintiff Is Not Required To Seek Alternative Relief That a 
Third Party Prefers
    Robert D. Gross, M.D., of Forth Worth, Texas, suggests there is a 
better remedy than requiring Aetna to divest its interests in NYLCare-
Gulf Coast and NYLCare-Southwest before being permitted to acquire 
Prudential. Dr. Gross believes that Prudential's organizations in the 
Houston and Dallas areas are of substantially higher quality than the 
former NYLCare organizations, and that Prudential had ``made an 
extraordinarily strong commitment to quality in the Dallas-Ft. Worth 
market.'' \9\ He suggests that it would be less disruptive to the 
health care markets and patient populations in those two areas if Aetna 
divested its Prudential assets rather than its NYLCare assets in those 
areas.\10\
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    \9\ Our investigation revealed that many other physicians as 
well as employers and health care consultants/brokers do not share 
this view.
    \10\ Dr. Gross is also concerned with NYLCare's viability as an 
effective competitor. That issue is addressed in Subsec. F, below.
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    The goal of the proposed Revised Final Judgment is to return the 
markets in the Houston and Dallas areas to the status quo ante. As 
discussed in Subsection B, above, the United States believes that the 
proposed remedy will do so. Indeed, it believes that the divestiture of 
NYLCare will result in an overall larger and stronger competitor than 
if Prudential had remained independent.11 Dr. Gross' 
suggestion that there is an alternative to the proposed Revised Final 
Judgment that he thinks would be preferable is not sufficient reason to 
reject the settlement negotiated in this case. See United States v. 
Microsoft Corp., 56 F.3d at 1460 (a court is not empowered to reject 
remedies agreed to in a consent decree merely because it believes other 
remedies are preferable).
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    \11\ As noted above, Prudential had approximately 172,000 
enrollees in Houston and 171,000 in Dallas in its HMO-POS plans. In 
contrast, Aetna is required to divest the approximately 260,000 HMO-
POS enrollees in Houston and 167,000 HMO-POS enrollees in Dallas 
covered by NYLCare. Since Aetna has also decided to divest NYLCare's 
HMO-POS enrollees outside the Dallas and Houston areas, as well as 
approximately 12,000 enrollees in Preferred Provider Organization 
(``PPO'') plans, it will be selling a total of approximately 526,000 
enrollees.
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F. The Judgment Adequately Protects the Viability and Independence of 
the NYLCare Businesses To Be Divested
    The American Medical Association along with the Texas Medical 
Association and the Dallas and Harris County Medical Societies also 
expressed concern about the viability of the NYLCare businesses in 
Houston and Dallas to be divested, and requested that the United States 
closely monitor this aspect of the divestiture.
    The proposed Revised Final Judgment and the Revised Hold Separate 
Agreement require Aetna to take ``all steps necessary to ensure that 
NYLCare-Gulf Coast and NYLCare-Southwest are

[[Page 66651]]

maintained and operated as independent, on-going, economically viable, 
and active competitors until completion of the divestitures ordered by 
this Revised Final Judgment * * *.'' (proposed Revised Final Judgment, 
Sec. IV H.) Those steps include, but are not be limited to, the 
appointment of experienced senior management and the creation of 
separate and independent sales, provider relations, patient management/
quality management, commercial operations, network operations, and 
underwriting organizations for the NYLCare entities. (Id.) Aetna is 
also required to provide specified transitional services, as well as 
such additional services requested by the management of NYLCare as may 
be necessary to ensure NYLCare's viability, including the funding of 
service quality guarantees. (Id.) Aetna is also required to fund an 
incentive pool of at least $500,000, which will be available to 
management of the NYLCare entities if they meet certain membership 
targets as of the closing date for the sale of the NYLCare entities. 
(Id.)
    In addition, the proposed Revised Final Judgment (and the Revised 
Hold Separate Stipulation and Order) obligate Aetna to ``cause NYLCare-
Gulf Coast and NYLCare-Southwest to maintain contracts or agreements 
for coverage of approximately two hundred sixty thousand (260,000) 
commercially insured HMO and HMO-based POS plan enrollees in Houston 
and contracts or agreements for coverage of approximately one hundred 
sixty seven thousand (167,000) commercially insured HMO and HMO-based 
POS plan enrollees in Dallas through the date of signing the definitive 
purchase and sale agreement(s) for the divestiture of the two NYLCare 
entities.'' (Id. Sec. IV B; Revised Hold Separate Stipulation and 
Agreement at Sec. III B.)
    The United States believes the procedures provided in the proposed 
Revised Final Judgment and the Revised Hold Separate Stipulation and 
Order are fully adequate to ensure that Aetna will divest its NYLCare 
businesses in Houston and Dallas as viable and independent competitors. 
No further additions or changes to the proposed Revised Final Judgment 
are necessary.

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 proposed Revised 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 
Microsoft, 56 F.3d at 1461-62.
    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 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. 1981), 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 Revised 
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 
specific acquisition investigated--Aetna's purchase of certain health 
insurance-related assets from Prudential--is full remedied in the 
proposed Revised Final Judgment. The fact that Aetna may be acting in 
other ways detrimental to competition is simply not the issue here and 
can be addressed by means still available to the plaintiffs and others.

IV. Conclusion

    The United States has concluded that the proposed Revised Final 
Judgment reasonably, adequately, and appropriately addresses the harm 
alleged in the Complaint. As required by the APPA, the United States 
will publish the public comments and this response in the Federal 
Register. After such publication, the United States will move this 
court for entry of the proposed Revised Final Judgment.

    Dated: November 9, 1999.

        Respectfully submitted,
Paul J. O'Donnell,
John B. Arnett, Sr.,
Steven Brodsky,
Deborah A. Brown,
Claudia H. Dulmage,
Dionne C. Lomax,
Frederick S. Young,
Attorneys, U.S. Department of Justice, Antitrust Division, Health Care 
Task Force, 325 Seventh St. N.W., Suite 400, Washington, D.C. 20530, 
Tel: (202) 616-5933, Facsimile: (202) 514-1517.

                July 14, 1999.
Attn: Joel L. Klein
    Asst. Attorney General
Fax: 202-514-4371
Re: Aetna Inc. acquisition of Prudential Health Care
From: Charlene L. Toews
    1057 Boca Cove Lane
    Highland Beach, Florida 33487
Fax: 561-278-1306

    Dear Mr. Klein: Please find attached some quotes from Molly Ivans 
regarding the acquisition by Aetna Inc of Prudential Health Care--which 
I totally agree with. PLEASE reconsider your approval of this 
acquisition. The citizens of the United States are NOT being served by 
this approval.
    ``Late last month, the Justice Department, showing the 
spinelessness for which it is so noted in these matters, approved the 
merger of Aetna and Prudential. The merged company will provide health 
care for one in every eleven Americans, and that makes it big enough to 
downsize services, hike prices and force doctors to accept unreasonable 
contract provisions and reimbursement rates.''
    ``Just a few years ago there were 18 big HMO's; today there are 
seven.''
    ``All seven of the giants decided--independently of course--on the 
very same day last year to dump rural seniors on Medicare. They also 
decided, in perfect concert, to cut back on the prescription drug 
benefits and no co-pay policy that got the seniors into the HMO's in 
the first place.''
    ``And every one of the seven has substantially hiked premiums for 
all their patients this year. And just over a week ago, they announced 
they were dumping another 250,000 Medicare patients, as well as cutting 
benefits and raising premiums.''
    ``We were supposed to be able to keep HMO's in line by quitting 
ones that provided poor service or cost too much, but it hasn't worked 
out that way. Only 17 percent of employers offer workers a choice of 
plans. Everybody else is stuck with whatever the company chooses; and 
the company chooses by cost of premiums, not by quality of care. As USA 
Today recently noted, ``Even without consolidation in the industry, 
patient choice has been slowly but inexorably vanishing.''
    Mr. Klein, when are the people that ``we the people'' put in place 
to serve going to actually SERVE ``the people'' and put OUR best 
interests first?

[[Page 66652]]

    Sincerely,
Charlene L. Toews.

                October 18, 1999.
Gail Kursh, JD,
Chief, Professions and Intellectual Property Section, Health Care Task 
Force, Department of Justice, 600 E Street, NW, Room 9300, Washington, 
DC 20530.

Re: Proposed Acquisition of Prudential by Aetna
    Dear Ms. Kursh: Please accept this letter as the written comments 
of the Medical Association of Georgia on the proposed acquisition 
(hereinafter ``the Acquisition'') by Aetna, Inc. (hereinafter 
``Aetna'') of the Prudential Insurance Company of America's healthcare 
business (hereinafter ``Prudential'').
    The Medical Association of Georgia (``MAG'') is a non-profit, 
voluntary professional association of Georgia physicians. MAG was 
founded in 1849, is a part of the American Medical Association and is 
the largest physicians' association in Georgia. Presently, MAG has over 
8,000 members--more than 5,000 of whom are physicians actively 
practicing medicine in the State of Georgia.
    MAG was founded to promote the art and science of medicine and the 
improvement of public health. With these ends in mind. MAG actively 
works to advocate physician and patient positions in the United States 
Congress, the Georgia General Assembly, the courts of this State and 
the United States, as well as before a variety of state and federal 
regulatory agencies.
    The purpose of this letter is to formally OBJECT to the proposed 
acquisition of Prudential by Aetna. Our reasons for this objection are 
numerous and are presented in the following paragraphs. Additionally, 
we hereby adopt as our own as if stated herein, the positions and 
rationale proffered by the State of Texas in the civil lawsuit in which 
that sovereign state joined the United States of America, alleging that 
the acquisition would violate Section 7 of the Clayton Act and would be 
detrimental to patients and physicians throughout much of this country.

1. Two Primary Reasons MAG Opposes the Acquisition

A. Increased Market Strength Will Have Adverse Impact on Patient Care

    The primary basis for the Medical Association of Georgia's 
objection to the acquisition of Prudential by Aetna lies in the fact 
that Aetna has shown a propensity to impose onerous contract provisions 
that have the effect of adversely impacting the quality of care 
patients receive. Historically, physicians have played the role of 
patient advocate. In fact, it is the public policy of the State of 
Georgia that physicians are encouraged to advocate on behalf of the 
best interests of their patients.\1\ Unfortunately, physicians are 
unable to fully exercise this role in today's healthcare market.
---------------------------------------------------------------------------

    \1\ O.C.G.A. Sec. 33-20A-7(b). ``No healthcare provider may be 
penalized by a managed care plan for providing testimony, evidence, 
records, or any other assistance to an enrollee who is disputing a 
denial, in whole or in part, of a health care treatment or service 
or claim therefore.''
---------------------------------------------------------------------------

    In today's healthcare market, physicians have no bargaining power 
whatsoever when it comes to negotiating with health insurance plans 
regarding the obligations of the insurers, or those of the physicians, 
under the insurance plans. Given the current antitrust laws applicable 
to the contracting process between health insurers and physicians, 
physicians have no ability to collectively bargain on behalf of their 
patients or themselves. As such, they have no bargaining strength 
against the health insurers who are able to submit contracts to 
physicians virtually on a ``take it or leave it.'' basis. The 
Acquisition will only exacerbate that problem for Georgia physicians 
and patients as it will further empower Aetna to impose onerous 
contract provisions on physicians and other healthcare providers, 
eventually ``lead[ing] to a reduction in the quantity or a degradation 
in the quality of physician services'' provided to patients.\2\
---------------------------------------------------------------------------

    \2\ [See, Competitive impact Statement. U.S.A. and the State of 
Texas v. Aetna, Inc., Et al., USDC Northern District of Texas, CA 3-
99CV1398-H (1999)].
---------------------------------------------------------------------------

B. The Double Whammy Effect of the Aetna/Prudential Acquisition Plus 
the Georgia Blue/Wellpoint Merger

    The second major basis for the Medical Association of Georgia's 
objection to the Aetna/Prudential Acquisition is that is comes at the 
same time that Georgia is about to suffer the effects of a merger 
between the state's largest and oldest health insurer, Blue Cross/Blue 
Shield of Georgia (hereinafter ``Georgia Blue'') and Wellpoint Health 
Networks, Inc. The combination of Blue Cross/Blue Shield of Georgia and 
Wellpoint will place more than 32% of the Georgia health insurance 
market in the hands of one of the nation's largest publicly traded 
managed care insurance behemoths. The corporate entities that will 
follow the Aetna/Prudential acquisition and the Georgia Blue/Wellpoint 
merger will control nearly 60% of the HMO/POS markets in Georgia. The 
concurrence of these two transactions will dramatically reduce the 
competition among carriers and, therefore, the healthcare options 
available to all Georgians.

II. What Is There To Fear About an Enlarged Aetna?

    Given the monopsony position of some insurers in some locales (such 
as the position Aetna would enjoy in Georgia if the acquisition were 
approved), many plans use this ``unlevel playing field'' to issue 
contracts to physicians on a ``take it or take it'' basis. The 
physicians are not in a position to negotiate any of the terms of the 
contract. For example, physicians' objections to gag clauses usually go 
unheeded. Reimbursement rates may not be disclosed in some contracts, 
much less negotiated. Yet, because of the number of patients that they 
have under the dominant insurer's plans, they cannot afford--
financially or ethnically--to abandon their patients by rejecting the 
contract submitted to them by the insurer, regardless of how onerous 
some of the contents of the contract are. Their only option is to 
``take it.'' Stated differently, when a physician's revenue from a 
single insurer gets to a certain point, i.e., a certain percentage of 
the overall revenue, that physician is ``locked in'' to the plan and 
has no bargaining power whatsoever. At that point, the plan's contract 
becomes a contract of adhesion and the physician has no ability to 
negotiate for his or her patients' rights and no opportunity to reject 
the contract.
    Aetna has incorporated into their physician agreements many of the 
most onerous contract provisions popular among the managed care 
industry today. Some of the provisions that Aetna has used to control 
the quality and quantity of care that physicians provide to their 
patients include the following:

 Aetna's Infamous ``All Products'' Clause

    Perhaps the single worst contract provision used by Aetna is its 
often criticized ``all products'' clause. ``All products'' clauses 
provide that if a physician participates in any of the carrier's plans, 
he or she must participate and take patients covered under all of their 
plans, now and in the future. These clauses, like most of the 
provisions discussed below, are usually non-negotiable. They are 
objectionable for many reasons. Health plan products differ 
substantially in operation. A physician may feel comfortable 
participating in a PPO product, but may have very valid reasons for not 
wanting to participate in an HMO product,

[[Page 66653]]

which is a dramatically different product that requires physicians to 
assume certain risks. Those risks may not be viable for smaller 
practices with smaller patient bases because of practice size, patient 
mix or other valid actuarial and business concerns. Yet, these clauses 
require physicians to participate in products despite the existence of 
legitimate concerns.
    Moreover, imposing these clauses on physicians (especially as a 
unilateral amendment to an existing contract) may sever existing 
patient-physician relationships. This has been seen most vividly in 
Texas where Aetna US Healthcare enforced its ``all products'' clause 
and terminated a large physician group that refused to take new 
patients under one of the insurer's HMO products. This resulted in 
thousands of patients losing access to their physicians and, for many 
of them, having to change doctors in mid-treatment. An additional 
concern with ``all products'' clauses is that where plans have 
significant market share (such as the 58% share WellPoint/Georgia Blue 
and Aetna/Prudential would have in Georgia), the non-negotiable ``all 
products'' clauses will operate to further limit patient choice by 
facilitating a conscious push of patients into HMO products and away 
from other options.
    ``All products'' clauses also harm premium-payers. An insured who 
selects a PPO product, usually does so in order to have access to a 
more attractive panel of physicians and other healthcare providers. 
Typically, that insured has to pay for that privilege with a higher 
premium than the basic HMO member will pay. Yet, if a physician agrees 
to be an authorized provider under Aetna's PPO plan, and is subject to 
the ``all products'' clause contained therein, that physician has to 
take Aetna HMO patients, as well as PPO patients. So, the HMO member 
will have the same access to that doctor as the higher premium-paying 
PPO member. Thus, the PPO member paid the higher premium but got 
nothing for the higher cost. Is this fair to patients? Is this fair to 
employers who purchase health insurance for their employees?

 Aetna's Ability To Determine What Is ``Medically Necessary''

    Among the other more egregious contract provisions found in many 
managed care contracts, especially Aetna's, is the provision that 
authorizes the health plan to make the determination as to what is 
``medically necessary'' for a patient. Testifying in support of managed 
care reform before a subcommittee of the United States House of 
Representatives in 1996 and again before a Georgia State Senate 
committee just this past March, Dr. Linda Peeno, M.D., a former medical 
executive for several managed care companies across the country, stated 
that ``the definition of `medical necessity' is the `smart bomb' of 
managed care.'' She explained that managed care companies can appear to 
offer all sorts of options and decision-making power to their insureds 
and providers but as long as they retain control over the definition of 
what is, and what is not, medically necessary, they have unfettered 
control over what medical treatment they will pay for on behalf of 
their insureds, despite the fact that the insured has paid to have the 
service covered by their plan.
    Many insurance plan contracts in existence today, including most 
Aetna contracts, allow the insurer to supersede a treating physician's 
determination regarding the necessity of medical services without any 
consideration whatsoever of that physician's judgment or the patient's 
true needs. Aetna accomplishes this by retaining for itself the 
unfettered discretion to determine what they will, and what they will 
not, pay for--all under the guise of the service not being, ``medically 
necessary.'' For example, Aetna's contract with physicians provides as 
follows:
    1.1  Provision of Covered Services * * * It is understood and 
agreed that Company, or when applicable, the Payor, shall have final 
authority to determine whether any services provided by Provider were 
Covered Services * * *
    12.4  Covered Services. Those Medically Necessary Services which a 
Member is entitled to receive under the terms and conditions of the 
Plan.
    12.7  Medically Necessary Services. * * * Health care services that 
are appropriate and consistent with the diagnosis in accordance with 
accepted medical standards and which are likely are result in 
demonstratable [sic] medical benefits, and which are the least costly 
of alternative supplies or levels of service which can be safely and 
efficiently provided to the patient.

 Hold Harmless Clauses

    Aetna has unfairly shifted the legal liability associated with its 
policies to physicians through hold harmless clauses, clauses limiting 
their liability and clauses shortening the applicable statue of 
limitations. Aetna has insulated itself from liability by inserting 
hold harmless clauses in its contracts with physicians in blatant 
disregard of statutory prohibitions contained in some state's laws. 
Certainly, health plans should not be allowed to shift their own legal 
liabilities onto the physician while simultaneously deciding how and 
under what circumstances physicians can provide care. That is exactly 
what Aetna does when they have the right to decide what is, and what is 
not, ``medically necessary.'' Is there any reason to believe that Aetna 
will adhere to Georgia's newly enacted statutory prohibition against 
hold harmless clauses.\31\
---------------------------------------------------------------------------

    \3\ See O.C.G.A. Sec. 51-1-48(b).
---------------------------------------------------------------------------

 Clauses Which Allow Aetna To Amend Unilaterally the Contract 
Without the Physician's Consent and Sometimes Knowledge

    Another onerous provision found in managed care plan contracts 
today is the clause that allows a plan to amend the contract entirely 
on its own and exclusively within its unfettered discretion. While 
traditionally such clauses have been utilized by insures to alter very 
minor features of an insurance contract--e.g., changing the address 
where claim forms are to be sent, changing the payment dates, and other 
elements of a clerical nature--managed care plans have more recently 
been using these unilateral amendments to make major changes in the 
fundamental, core obligations of the parties which constitute the very 
essence of the contractual agreement between the insurer and the 
physicians. These fundamental obligations include the nature of the 
services that the physicians are to provide under the contract, the 
physician services that are to be paid for and the method by which 
reimbursements are to be calculated.
    Moreover, the unilateral changes being made today by insurance 
plans, including those of Aetna, involve not only fees, but also 
utilization review/case management policies, which, in essence, dictate 
whether and under what circumstances patients are able to obtain 
medically necessary services.

 Requirements That Force Physicians To Participate in Other 
Insurers' Plans About Which the Physicians Know Noting

    In light of the fact that physicians have no bargaining power 
whosoever with respect to contracting with health insurers about the 
contents of their plans, fairness certainly seems to require that the 
physicians at least be allowed to know with which plans they are 
contracting. Aetna's contracts have provisions that retain for Aetna 
the right to require that their physicians also

[[Page 66654]]

participate with a network of plan ``affiliates'' or otherwise 
participate in other insurers' plans. Under such contractual 
provisions, physicians are not permitted to review the additional 
contracts to know or understand their terms and conditions. Physicians 
are not authorized to accept or reject these other insurers' contracts. 
When patients who are insured under the affiliate plans come to the 
physician's office for treatment, the physician must provide covered 
medical treatment to the patient and can only expect to be paid at the 
same discounted rates Aetna has imposed upon them in their contract. 
Further, physicians are required to accept payment not from Aetna, but 
from the ``affiliate'' insurer. If the affiliate insurer does not pay 
the physician, the only remedy is to seek payment from the patient. 
Moreover, when the physician treats the insured patient under the 
affiliate plan, the physician must follow that plan's definition of 
what is medically necessary.

 Provisions Which Impose Unfair Penalties Upon Physicians

    Aetna, like many managed care health plans, reserves the right to 
punish physicians who do not follow certain plan rules and regulations. 
These contractual ``punishments'' often bear no relationship to alleged 
wrongdoing, run the potential of jeopardizing quality care, and are of 
questionable legality. Under the Aetna contract, if a physician fails 
to obtain appropriate prior authorization, he or she shall have their 
reimbursement reduced for all medical services provided to all patients 
that they treat after notification by Aetna. This provision is often 
referred to as a `'contamination'' clause--the theory being that if one 
patient goes out of plan, a physician's payment for all patients will 
be ``contaminated,'' i.e., reduced
    Sometimes physicians do not comply with utilization review 
requirements (such as prior approval rules) because they are not in a 
patient's best interest. Sometimes the noncompliance is inadvertent. In 
many cases, there was no mistake at all. Given the proliferation of 
managed care throughout Georgia and given the fact that physicians 
contract with numerous health plans, all with different procedures and 
requirements, billing for medical services has become cumbersome, 
complex and confusing. This scenario has placed an incredible burden on 
physicians (and their office staffs). So, it is understandable that 
some physicians' offices may fail on an isolated occasion to meet each 
and every billing, utilization review, or other procedure imposed by 
each and every one of the myriad health plans with which they have 
contracted. Healthcare insurance company acquisitions and mergers that 
further empower insurers to impose sanctions against physicians in this 
manner should not be allowed to occur. This type of disproportionate 
punishment provision should not be tolerated.
    Further, penalizing physicians for failing to comply with a plan's 
utilization review program in order to advocate for medically necessary 
treatment or care is contrary to Georgia law. Is there any reason to 
believe that Aetna will abide by this newly enacted provision of 
Georgia law? Other managed care companies have continued to enforce 
such provisions against physicians in direct violation of some states' 
laws. Is this what Georgia patients and physicians deserve?
    The Georgia General Assembly has spoken unequivocally (and nearly 
unanimously) on this point. With the passage of O.C.G.A. Sec. 33-30A-
7(b), the legislature made it clear that it is the public policy of the 
State of Georgia that a physician should be allowed, in fact 
encouraged, to advocate for medically appropriate health care for his 
or her patients. If Aetna is allowed to violate state law by penalizing 
physicians for such advocacy, as other companies have done (e.g., the 
way Wellpoint Health Networks, Inc. has done in violation of California 
law), then such important patient advocacy will be severely chilled and 
could result in a dangerous threat to patient care in Georgia.

III. The Double Whammy Effect Of Aetna/Prudential and Georgia Blue/
Wellpoint

    The second major reason for our objecting to the Acquisition is the 
fact that it comes at the same time that Georgia's largest and oldest 
health insurer, Blue Cross/Blue Shield of Georgia, is merging with 
WellPoint Health Networks, Inc., one of the nation's largest publicly 
traded managed care insurance behemoths. The combination of Blue Cross/
Blue Shield of Georgia and WellPoint Health will control more than 32% 
of the health insurance market in Georgia [1.8 million persons]. The 
consequences of having one of the largest managed care networks in the 
country, which is not Georgia-based, take over one-third of the Georgia 
healthcare insurance market would be troubling enough for Georgia 
patients, Georgia physicians and other healthcare providers interested 
in providing the best quality of healthcare to their patients. However, 
the ill effects of that merger will be compounded by the fact that it 
will occur at the same time that Aetna and Prudential, the third and 
fourth largest health insurers in Georgia are dissolved into one. The 
concurrence of these two transactions will dramatically reduce the 
competition among carriers and, therefore, the healthcare options 
available to all Georgians. It will directly affect nearly 59% of the 
HMO/POS market in Georgia and more than 52% of that same market in the 
Metropolitan Atlanta area.\4\ Because of the unfair market share that 
the two resulting insurance carriers will have, however, the effects 
will be hard felt throughout the entire state's health insurance 
market. The following market share chart shows how these two 
consolidating transactions will affect the health insurance market 
share landscape in Georgia.
---------------------------------------------------------------------------

    \4\ All statistics are based on information contained in the 
latest update of Harkey & Associates' 1999 report on managed care 
insurers operating in Georgia.

                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                  Market share
                                                                                                  affected by
                                                                             Market share for    combination of
                                       Market share as    Market share as       Aetna/Prud         Aetna/Prud
           HMO/POS market              of 07/01/99 for    of 07/01/99 for     following the     acquisition and
                                          Aetna Inc.         Prudential        acquisition      merger of BC/BS
                                                                                                   of GA with
                                                                                                   WellPoint
----------------------------------------------------------------------------------------------------------------
Market Share for all of Georgia.....              10.08              15.95              26.03              58.62
Market Share for Metropolitan                      9.35              18.13              27.48              52.34
 Atlanta Area.......................
----------------------------------------------------------------------------------------------------------------


[[Page 66655]]

    The merger of Georgia Blue with WellPoint would increase 
WellPoint's market share in Georgia from less than 2% of the market 
[100,000 persons insured currently under Wellpoint's subsidiary, 
UNICARE] to nearly 32% of the private health insurance market [1.8 
million persons]. While the market share increase for Georgia Blue 
following the merger would appear to be fairly minimal, the dynamics of 
having one of the largest managed care networks in the country, which 
is California-based, take over one-third of the Georgia market will be 
extremely consequential for Georgia insureds and Georgia physicians and 
other healthcare providers interested in providing the best quality of 
healthcare to their patients.
    The merger between Georgia Blue and WellPoint is worrisome in 
several respects. First, Georgia Blue would no longer be a Georgia-
based company, would no longer be owned primarily by Georgians and 
would have little, if any, allegiance to Georgians. The influence and 
presence of California-based WellPoint, as a dominant managed care 
player, would be significant. WellPoint would immediately assume a 
dominant position in the Georgia health care insurance market. With 
this advantage, WellPoint would be expected to rapidly increase its 
market share in Georgia.
    Furthermore, considering WellPoint's unparalleled focus on its 
managed care products and its dominant power in the managed care 
industry, it is reasonable to expect that the managed care portion of 
Georgia Blue will grow at an even faster rate in Georgia than it 
otherwise would have and with a concomitant decrease in their attention 
to the traditional indemnity market needs of Georgians. Patients will 
be faced with a marketplace that is less competitive and that offers 
far less choice.
    If the merger is approved, Georgia Blue, in a period of less than 5 
years, will have transformed from a Georgia-based, not-for-profit 
insurer that was loyal to its insured patients and that was accountable 
to the people and State of Georgia, into an indivisible piece of one of 
the nation's largest publicly traded managed care behemoths.
    While the corporate entity that would follow the merger of Georgia 
Blue and WellPoint would not be an illegal monopoly in Georgia, it most 
certainly would constitute a monopsony with significant market share 
dominance. Given WellPoint's history of using abusive tactics in 
California and the significant market share that they would acquire 
from Georgia Blue, the merger between the two can only spell trouble 
for Georgia patients and their health care providers. The combination 
of market share dominance and a pattern of abusive managed care 
practices could be a lethal dose of bad medicine for Georgians.
    Although the Medical Association of Georgia and its members 
acknowledge that managed care is here to stay, the amount of abuse that 
is already present in the managed care industry--even in Georgia--
presents a significant concern. Thus, it is our obligation, by whatever 
means are appropriate, to raise the issues and concerns of our members 
and their patients whenever quality care is threatened by the managed 
care industry. We strongly feel that allowing the state's third and 
fourth largest healthcare insurers to merge at the same time the 
state's largest healthcare insurer is being taken over by one of the 
nation's largest managed care companies certainly constitutes just such 
a threat to Georgia patients.

Conclusion

    In summary, Aetna, through the use of numerous onerous contract 
provisions, already constitutes a threat to quality care in Georgia and 
elsewhere. Allowing it to consume an even larger segment of the 
healthcare insurance market will only further empower Aetna to drive 
the delivery of healthcare in any direction that its financial 
incentives may dictate, regardless of the needs of patients. Aetna has 
shown in many ways (E.g., by its unrepentant use of its definition of 
``medical necessity''), that its primary, if not singular, emphasis is 
in producing returns for its shareholders' investments--all to the 
detriment of their insureds and without regard for same. The larger 
they are allowed to become, the greater their dominance over the 
healthcare market will be and the less physicians and other healthcare 
providers will be able to determine what care patients can receive.
    The concurrence of this Acquisition at the same time that Georgia's 
largest healthcare insurer and its tremendous market share are being 
turned over to one of the nation's largest managed care companies can 
only spell trouble for Georgia patients and physicians. Together, the 
two resulting corporate giants will control more than 58% of the 
Georgia HMO/POS markets. With that combined ability, the two insurers 
will dictate what care is provided throughout all of Georgia and they 
will lower the standard of healthcare services to that which is ``the 
least costly,'' just as Aetna says in its definition of ``medically 
necessary.'' Is this really the single criterion that should control 
the quality and quantity of healthcare that will be made available in 
Georgia or anywhere else in the United States? The Medical Association 
of Georgia arduously submits that it should not be.
    Accordingly, and for the many reasons articulated above, the 
Medical Association of Georgia and its 8,000 Georgia physicians 
respectfully request that the proposed acquisition by Aetna of 
Prudential Insurance Company's healthcare insurance business be 
disapproved.
    Thank you for your consideration in this matter that is of great 
importance to all Georgians.
Sincerely,
David A. Cook,
General Counsel.
William T. Clark,
Associate General Counsel.

                September 7, 1999.
Gail Kursh, JD,
Chief, Professions and Intellectual Property Section, Health Care Task 
Force, Department of Justice, 600 E. Street, NW, Room 9300, Washington, 
DC 20530.

Re: Comments of the American Medical Association, Texas Medical 
Association, Dallas County Medical Society, and Harris County (Houston) 
Medical Society to the Proposed Revised Final Judgment pending in 
United States v. Aetna, Inc., Civil Action no. 3-99CV 1398-H

    Dear Ms. Kursh: The American Medical Association (AMA), along with 
the Texas Medical Association (TMA), the Dallas County Medical Society, 
and the Harris County (Houston) Medical Society (collectively, ``the 
Texas medical societies'') submit these comments regarding the proposed 
consent decree (``consent decree'') entered into by the United States 
Department of Justice, the Texas Attorney General (collectively, ``the 
Government''), and Aetna/U.S. Healthcare (``Aetna'') and Prudential 
Insurance Company of America (``Prudential'') in a complaint and final 
judgment submitted to the United States District Court for the Northern 
District of Texas on June 22, 1999.
    Our organizations submit these comments in order to state to the 
Government our desire for a fair and balanced healthcare marketplace, 
including access by patients to the physicians our organizations 
represent. Our organizations have a first-hand familiarity will 
marketplace realities and the potential impact of this proposed merger 
on physicians and patients. During the course of the investigation of 
this proposed merger,

[[Page 66656]]

the AMA and the Texas medical societies have worked in partnership to 
respond to requests from the United States Department of Justice (DOJ) 
for information on the impact of this merger on physicians and patients 
in the Dallas and Houston area.
    The AMA is a not-for-profit association of approximately 275,000 
physicians in all areas of specialization throughout the United States 
and is the largest medical society in the United States. The Texas 
Medical Association (TMA) is a not-for-profit association of 36,000 
physicians and medical students practicing in all areas of 
specialization in the State of Texas. TMA represents more than 83% of 
all licensed physicians in Texas. The Harris County Medical Society 
represents 8500 physicians, 80% of all physicians practicing in all 
areas of specialization in Harris County. The Dallas County Medical 
Society represents 6000 physicians practicing in Dallas County, 80% of 
all physicians practicing in all areas of specialization in the county. 
The foundation of all our organizations is the promotion of the science 
and art of medicine (including quality of care) and the betterment of 
public health. We also advocate on behalf of our physicians and their 
patients at all levels of state and federal government and in the 
private sector.
    The underlying focus of our joint effort is our commitment to the 
preservation of quality medical care and the patient-physician 
relationship. The AMA and the Texas medical societies believe that in a 
well-balanced marketplace, patients and physicians will have the best 
opportunity to make informed decisions as to the appropriateness of 
care.
    We are filing these comments because we believe there is a strong 
factual basis for the action taken by the Government to require Aetna 
to divest its NYLCare business in the Houston and Dallas markets. 
However, we also believe the consent decree should be broadened to 
address Aetna/U.S. Healthcare's contracting practices that directly 
impact and lessen competition in the Dallas and Houston marketplaces. 
Moreover, we are concerned that the Government continue to closely 
oversee the divestiture of NYLCare to ensure that there is a viable 
competitive alternative for patients and physicians in Dallas and 
Houston.
    We also fully support the Government's allegations that the merger 
of Aetna and Prudential, if unchallenged, would lead to violations of 
the antitrust law because (1) it would substantially lessen competition 
in the fully-funded Health Maintenance Organization (HMO) and HMO Point 
of Service (POS) markets in Dallas and Houston resulting in increased 
price or decreased quality, thereby increasing prices for or decreasing 
the quality of services; and (2) it would result in consolidation over 
purchasing of physician services in Dallas and Houston, giving Aetna 
the ability to depress physicians' reimbursement rates, and allow Aetna 
to dictate all terms and conditions in its contracts, which is likely 
to result in a reduction in the quality or degradation in the quality 
of those services.

I. The AMA and the Texas medical societies believe that there is a 
strong factual basis for the Government's findings regarding the 
anticompetitive impact of the proposed merger in the Dallas and Houston 
HMO and HMO Point of Service markets

    The AMA and the Texas medical societies believe there is a strong 
factual basis for the allegations that in the Houston and Dallas 
markets, the HMO and HMO-POS plans are an appropriate relevant product 
market and that an unchallenged merger would result in a reduction in 
competition in the sale of HMO and HMO-POS plans in Dallas and Houston. 
This is a significant shift from a number of litigated cases where the 
courts refused to recognize a separate market for HMO products and 
instead defined the relevant product market as all health care plans. A 
more flexible case-by-case approach that evaluates the actual dynamics 
of an individual marketplace is necessary to assure that a given 
marketplace remains competitive in a time of rapid market 
consolidation.

II. The AMA and the Texas medical societies support the Government's 
findings regarding the anticompetitive impact of the merger in the 
market for the purchase of physician services in Dallas and Houston and 
the potential impact on quality and/or quantity of care

    The AMA and the Texas medical societies agree that the Government 
correctly identified the relevance of and the anticompetitive impact of 
Aetna's post-merger purchasing power over physician services in Dallas 
and Houston. There is a strong factual basis for the Government's 
allegations that physician services constitute a relevant product 
market within which to assess the likely effects of the proposed 
acquisition of Prudential by Aetna.
    There is a strong factual basis to support the Government's 
contention that without divestiture. Aetna's consolidated purchasing 
power over physicians' services will enable the merged entity to unduly 
reduce the rates paid for those services. This will likely lead to a 
reduction in quantity and/or degradation in quality of physician 
services. The Government's recognition of the unique aspects of 
physician services (compares to other tangible services) that make it 
very difficult for physicians to replace lost business quickly are 
consistent with our experience of market realities.
    Consistent with that, the Government correctly alleges that the 
contract terms a physician can negotiate with a health plan depend on 
the physician's ability to terminate his or her contract if the company 
demands unfavorable terms. In other words, if a physician cannot ``walk 
away'' from a contract, he or she has no ability to reject unfavorable 
terms--including those with clear patient care implications.
    We believe there is a strong factual basis for the Government's 
allegation that in the Dallas and Houston markets, physicians' limited 
ability to encourage patient switching and consequent inability to 
reject Aetna's contracts post-merger will result in a violation of the 
Section 7 of the Clayton Act by giving Aetna the ability to reduce 
physician reimbursement rates, which will have a negative impact on the 
quality and/or quantity of physicians services.
    In response to requests from the Department of Justice relating to 
the investigation of this proposed merger, the Texas Medical 
Association (TMA) developed a physician practice cost model that 
simulates the effects of the loss or termination of a family practice 
physician's managed care contract. Based on this model, should a 
physician terminate a managed care contract that accounts for 20 
percent of total practice revenue, the physician would experience a 
loss of approximately $40,000 of net medical income. Where a plan 
accounts for a significant percentage of a physician's practice 
revenue, the prospect of severe financial repercussions greatly 
reduces--if not eliminates--the physician's ability to walk away from 
an unreasonable contract with that plan.
    At the request of the Department of Justice (DOJ), the Harris 
County (Houston) and Dallas County Medical Societies went further and 
performed a survey to collect practice revenue data to determine the 
actual impact of the merger at the practice level. The results of the 
survey showed the impact would create tremendous market imbalance. 
Before the proposed acquisition of Prudential, 62% of Dallas County 
physicians limited their exposure to the combined Aetna/NYLCare entity 
to

[[Page 66657]]

under 20% of total practice revenue. However, after the acquisition, if 
NYLCare were not spun off, only 43% of Dallas physicians would be able 
to limit their exposure to the merged Aetna/Prudential entity to under 
20% of total practice revenue.
    In Houston, the results are more dramatic. Prior to Aetna's 
acquisition of NYLCare, 91% of Houston physicians were able to limit 
contract exposure to Aetna to under 20%. Subsequent to Aetna's 
acquisition of NYLCare and Prudential and without the spin-off of 
NYLCare, only 27% of Houston physicians could still limit exposure to 
the Aetna entity to under 20%.
    Given the substantial financial damage to a physicians' practice 
that would result from declining an Aetna contract in these 
circumstances, it is reasonable to conclude that the 57% of Dallas 
physicians and 73% of Houston physicians with 20% or more practice 
revenues dependent on the merged Aetna/Prudential entity could not walk 
away from the Aetna contract.

III. The AMA and the Texas medical societies believe that additional 
relief is needed to guard against Aetna's ability to exercise 
anticompetitive power in the purchase of physician services in Dallas 
and Houston

    The AMA and the Texas medical societies believe that the proposed 
divestiture is an appropriate first step to ward off the 
anticompetitive impact of the proposed merger in the combined HMO and 
HMO-POS market. However, we do not believe that the remedy adequately 
guards against Aetna's ability to exercise anticompetitive power in its 
purchase of physician services in the relevant geographic markets.
    This is because Aetna's contracts include provisions that operate 
to ``lock-in'' physicians making it extremely difficult if not 
impossible to walk away from an Aetna contract that is disadvantageous 
to them or to their patients. The continuing threat that these 
provisions will enable Aetna to exert monopsonistic power in spite of 
the divestiture warrants modification of the Revised Final Judgment to 
include further relief.
    The ``all products'' policy is the first and most obvious of these 
provisions. Under this ``take-it-or-leave-it'' policy, Aetna requires a 
physician to participate in all of Aetna's current and future health 
plans as a condition of participating to any current Aetna plan. Aetna 
has publicly stated that this provision is non-negotiable.
    The consent decree recognizes the anticompetitive nature of this 
policy by noting that in Dallas and Houston, the policy ``significantly 
increases the volume of business that a physician would lose if he or 
she rejected (an Aetna Contract). Terminating the provider relationship 
thus would mean that a physician not only would lose his or her own 
patients who participate in the plan, but also access to other patients 
in that plan.'' Although the ``all products'' policy played a 
significant role in the Government's finding that the merger would 
result in an antitrust violation in the market for purchase of 
physician services, it is not addressed in the Revised Final Judgment.
    Based on market realities, the AMA and Texas medical societies 
believe that the ``all products'' policy enhances Aetna's market power, 
operates to ``lock-in'' physicians to Aetna contracts, and therefore 
raises serious anticompetitive concerns in the Dallas and Houston 
markets for purchase of physician services. The ``all products'' policy 
enhances Aetna's market power by ensuring that physicians are funneled 
through the HMO product to have access to Aetna's patient populations 
within other products such as a PPO.
    From a physician's perspective, Aetna's HMO product therefore 
serves as a ``gateway'' to Aetna's patient populations enrolled in 
other products. The provision ensures that Aetna becomes a sizable 
percentage of a physician's business even if a physician wishes to 
participate in only one of Aetna's products for legitimate business 
reasons (such as lack of access to information systems needed to manage 
risk contracts) or quality of care concerns. The ``all products'' 
policy seriously undercuts the ability of Houston and Dallas physicians 
to walk away from an Aetna contract, a key concern set forth in the 
Complaint.
    Moreover, Aetna's ability to force this provision on Dallas and 
Houston physicians is further evidence of its anticompetitive market 
share. The substantial differences between HMO and PPO products from 
the Physicians' standpoint are poorly understood by most Americans. 
However, it is critical to understand this difference in order to fully 
grasp the pernicious nature of Aetna's ``all products'' policy, 
particularly as it would operate in Dallas and Houston.
    A shorthand explanation is that under an HMO contract, physicians 
are compensated in a variety of ways. While many are paid using a 
substantially discounted fee schedule, some are paid on a ``capitated'' 
basis which means that the financial risk of insuring HMO members is 
passed from the insurer--in this case Aetna--to the treating physician. 
While risk-bearing by physicians in some settings may result in the 
provision of cost-effective quality medical care, managing insurance 
risk is a highly complex task that involves equally complex actuarial 
assumptions that are generally undertaken by large entities.
    Entering into risk contracts is inadvisable for physicians without, 
among other things, (1) Access to the underlying acturial data on which 
the capitaton rate is based, (2) data to match costs related to 
patients with reimbursement received from them under a capitated 
contract; and (3) a large enough patient base to ``spread the risk.'' 
It is indisputable that entering into an HMO risk contract without a 
careful evaluation can have severe financial repercussions for a 
physician's practice, and potentially adversely impact the care that a 
physician can provide his or her patients.
    Our organizations (as well as many other organizations) have 
developed educational information to assist physicians in deciding 
whether entering into an HMO risk contract is advisable for their 
practice and in evaluating capitation rates. Attached are Capitation: 
The Physician's Guide: (American Medical Association 1997) and The Law 
of Managed Care, Chapter 5, ``Risk Contracting'' (Texas Medical 
Association, 1997) which provide a more in-depth discussion of the many 
variables that physicians must consider.
    Moreover, in 1997, the AMA Council on Ethical and Judicial Affairs 
(CEJA) issued a report on Financial Incentives and the Practice of 
Medicine (attached) which has been adopted by the AMA House of 
Delegates and Incorporated into the AMA Code of Ethics (see especially 
Section E-8.051, ``The Ethical Implications of Capitation,'' adopted 
June 1997) (attached). The Code of Medical Ethics unambiguously states 
that physicians have an ethical obligation to ``evaluate a health 
plan's capitation payments prior to contracting with the plan to assure 
that the quality of patient care is not threatened by inadequate 
rates.'' It also recommends, for example, that financial incentives be 
applied across broad physician groups so that an individual physician's 
incentive to inappropriately limit care is minimized.
    The Aetna ``all products'' policy prohibits physicians from making 
any of these necessary evaluations. Instead, they are forced to blindly 
accept risk contracts (without even knowing what they are accepting as 
capitated risk) that they may be ill-equipped to manage. There is no 
opportunity for any type of

[[Page 66658]]

evaluation. Any physician who wishes to participate in any Aetna 
contract--including a PPO contract which does not involve sharing 
financial risk--must accept HMO risk contracts under terms set 
unilaterally by Aetna (which may be changed by Aetna unilaterally) with 
absolutely no opportunity to make the critical analysis outlined in the 
above-referenced document. Even worse, physicians' must agree to 
participate in future products--which may subject physicians to higher 
levels of insurance risk--under whatever conditions Aetna sets. Any 
reasonable attorney, business consultant, or ethicist would advise a 
client against agreeing to this type of blind risk-sharing contract, 
particularly a solo or small group practice for whom this kind of 
arrangement is even riskier.
    In addition, another aspect of the Aetna contract works in concert 
with the ``all products'' policy to further ``lock-in'' the physician 
and significantly undercuts, if not eliminates any real ability of 
physicians to withdraw from an Aetna contract. This provision states 
that:
     ``To prevent discrimination against Company or its Members 
for such time as Provider declines to accept new Members as patients, 
Provider shall not accept as new patients additional members from any 
other health maintenance organization.''
    This bar on closing a practice to new Aetna patients prevents a 
physician from being able to ameliorate the harsh effects of any Aetna 
policy by accepting patients in other plans or being available to see 
patients covered by a new entrant. Under this provision, a physician 
has no ability to limit exposure or reduce exposure to Aetna by 
increasing his or her participation level with another plan. It 
undercuts the ability of physicians to manage their ``book of 
business'' and thus establish an effective balance between revenue 
sources. This further exacerbates their dependence on Aetna.\1\
---------------------------------------------------------------------------

    \1\ Another aspect of Aetna's business conduct recently brought 
to the attention of the AMA is worth noting in this respect. At 
least in some parts of the country (if not nationally) Aetna is 
requiring physicians groups and independent practice associations to 
enter into a two-tiered contract. The group of IPA must agree to 
secure individual contracts between Aetna and each individual 
physician member of the group or network that will bind the 
individual physician to Aetna if there is a termination between 
Aetna and the group or IPA. We believe that this practice is 
designed to defeat any leverage physicians have gained by forming 
legitimate groups and networks, and also in part due to the highly 
publicized contract disputes Aetna has encountered over the ``all 
products'' policies in at least three states--including Texas--with 
IPAs. When linked with the ``two tiered'' contracting approach, the 
all products policy becomes even more onerous because, as noted, it 
is much more difficult for a solo or small group practice to take on 
risk or capitated contracts for under any circumstances for obvious 
actuarial reason, particularly when Aetna requires the group to do 
so without ever stating the price it is willing to pay for risk or 
capitated contracts.
---------------------------------------------------------------------------

    Because the divestiture does not limit Aetna's ability to impose 
both of these contract provisions on physicians, the Final Judgment 
does not provide a sufficient remedy to the monopsonistic power that 
Aetna will wield in the Dallas and Houston markets for physicians post-
merger. To better address the anticompetitive effects of these contract 
provisions, the AMA and the Texas medical societies propose that the 
Government modify the Final Judgment to enjoin the use or enforcement 
of these provisions in any Aetna physician contract with a physician 
practicing in the Dallas and Houston markets for a period of five years 
following the proposed divestiture. This remedy is addressed toward the 
type of future injury to competition that Section 2 of the Clayton Act 
is designed to prevent.
    An injunction would preserve a physician's ability to terminate or 
credibly threaten to terminate his or her relationship with Aetna if 
Aetna should seek to reduce the prices it pays to physicians in a 
manner likely to lead to a reduction in the quantity or a degradation 
in the quality of physician services in those geographic markets. The 
injunctive relief that the AMA and the Texas medical societies propose 
is consistent with prior injunctions that courts have issued to prevent 
enforcement of contract provisions in unlawful restraint of trade or to 
prevent the maintenance of a monopoly. See, e.g., Cass Student 
Advertising Inc. v. National Educational Advertising Services, Inc. 537 
F. 2d 282 (7th Cir. 1976) (affirming injunction that prohibited 
defendant from enforcing a provision in its contracts that gave the 
defendant exclusive rights to represent college newspapers in student 
advertising).
    It should also be noted that the ``all-products'' and ``practice-
closure'' provisions also serve as substantial barriers to entry in 
light of Aetna's still significant position in the Dallas and Houston 
health care markets. The provision of managed care in a particular 
market is heavily dependent on maintaining a quality physician network. 
To justify the expense of developing and maintaining the network, there 
must be potential for competitors to generate some critical level of 
market penetration.
    By using the ``all-products'' policy and barring participating 
physicians from reducing the amount of Aetna business in favor of 
another plan, Aetna's market share is self-perpetuating, and these 
policies operate to bar the entry of other plans in the Dallas and 
Houston markets. It is simply too difficult to put together the 
requisite provider network to compete in this situation. In the future, 
this may enable Aetna to extract monopoly prices or reduce quality of 
care to the detriment of consumers.

IV. It is critical that the Government closely monitor the divestiture 
of NYLCare.

    The AMA and the Texas medical societies have serious concerns about 
the potential viability of a divested NYLCare entry. Prior to the 
divestiture agreement, Aetna representatives had informed us that they 
were well underway in their efforts to fully integrate NYLCare's Texas 
operations into their primary organization. It is our understanding 
that they had substantially dismantled NYLCare's separate 
administration, data processing, and claims processing and payment 
functions.
    Although the Hold Separate Provisions require Aetna to recreate 
separate administrative, sales, provider relations, quality management, 
operations and underwriting departments for the NYLCare entity, the 
magnitude of this task is such that it would be very difficult to 
complete within the time frame specified in the Revised Final Judgment. 
Furthermore, Aetna will be subject to serious conflicts of interest in 
regard to its efforts to reassign appropriate staff and resources to 
NYLCare.
    It will be extremely difficult for the Government to determine 
whether the recreated administration and operations will function 
effectively enough to preserve NYLCare's viability as a market 
competitor. Because of the inherent conflict of interest, the plans' 
assurances in that regard might not be sufficient evidence. We urge the 
Government to require NYLCare to demonstrate its viability over some 
reasonable period of time before it allows Aetna to consolidate the 
merger with Prudential.
    We support the Government's action in the Revised Final Judgment to 
define the number of covered lives that must be divested with the 
NYLCare business. We are concerned, however, about what appears from 
Texas Department of Insurance figures to be a 10% decline in NYLCare 
covered lives in the Houston Market since the fourth quarter of 1998. A 
decline of this size is material and could be a signal of some ongoing 
deterioration of NYLCare's market position. Such deterioration could

[[Page 66659]]

signal the beginning of an ongoing decline in market position caused by 
Aetna's actions prior to the divestiture agreement.
    If that is the case, the ongoing loss of market share might 
continue into the fall reenrollment period, in spite of any current 
reparative actions undertaken by the new NYLCare administration. For 
example, we do not know to what extent Aetna may have already (prior to 
the divestiture agreement) encouraged providers and customers to sign 
agreements with Aetna in lieu of their former agreements with NYLCare. 
We urge the Government to monitor NYLCare's covered lives through the 
fall enrollment period in order to assure that the divested NYLCare 
business will include the requisite number of covered lives in the 
Houston market.
    We consider the viability of NYLCare's provider network to be 
essential to NYLCare's overall viability as a competitor in the Houston 
and Dallas markets. We urge the Government to closely monitor this 
aspect of the divestiture because of many unknown factors relating to 
the current Aetna/NYLCare provider network. If the divestiture is to be 
meaningful, the provider networks that were previously in place for 
NYLCare business will need to be preserved or, if necessary, re-
assembled.
    We support the Government's requirements that a buyer for the 
NYLCare business must be capable of competing effectively and be 
substantially independent of Aetna. We would further advocate that the 
buyer be capable of assuming all support services for NYLCare, so that 
the divested entity would not be dependent on Aetna for critical 
operations. For example, the Revised Final Judgment allows Aetna to 
continue to provide ``support services'' to NYLCare until the 
divestiture, including software and computer operations support. To the 
extent that NYLCare continues to rely on Aetna for crucial business 
functions such as processing, pricing, and paying claims, it will not 
function as a separate entity and will not b e capable of standing 
alone as a viable entity. Any potential buyer should be capable of 
providing NYLCare with these support services without reliance on 
Aetna. Furthermore, a buyer should be required to have the demonstrated 
ability to comply with all state laws including those concerning 
reserves and timely claims payment, and offer a credible plan to 
continue to comply after absorbing the NYLCare business.
    We would advocate that the Government carefully monitor the NYLCare 
divestiture process in order to assure that the divested plan has a 
viable administration and operating structure, and that it maintains 
its provider networks and customer base. Until the new NYLCare 
administration and operations have been shown to be effective and 
independent, acquisition of Prudential should not be allowed to 
proceed. We also suggest that the Final Judgment give this Court the 
power to evaluate the effectiveness of the divestiture one year from 
its conclusion.

V. Conclusion

    The Proposed Consent Decree and Proposed Revised Final Judgment 
take a significant and needed step towards addressing the 
anticompetitive impact of the proposed acquisition of Prudential Health 
Insurance by Aetna/U.S. Healthcare. However, failure to address the 
contracting practices that play a key role in the alleged violations of 
the antitrust laws will undercut the effectiveness of the Consent 
Decree. Moreover, a commitment by the Government to carefully monitor 
the divestiture of NYLCare is also essential to achieving the purposes 
of the proposed settlement.

    Sincerely,
Thomas R. Reardon, MD,
President, American Medical Association.
Gordon Green, MD,
President, Dallas County Medical Society.
Alan C. Baum, MD,
President, Texas Medical Association.
Carlos R. Hamilton, Jr., MD,
President, Harris County Medical Society.

                September 21, 1999.
Steve Brodsky,
Antitrust Division, Department of Justice, 950 Pennsylvania Ave, NW, 
Suite 3101, Washington, D.C. 20530.

Re: AetnaUS Healthcare/Prudential Merger.

    Dear Mr. Brodsky: This letter is written on behalf of Genesis 
Physicians Group, Inc. and Genesis Physicians Practice Association 
(collectively, ``Genesis'') and is a supplement to our earlier letters 
on the above matter. GPG believes that some of the current contracting 
activities related to the merger of AetnaUS Healthcare (``Aetna'') and 
Prudential HealthCare (``Prudential'') are anti-competitive and hopes 
that the information presented below will be helpful to you in your 
review of these post-merger activities.

Physician Office Practice

    Earlier submissions to the Department of Justice have suggested 
that, once a payor becomes 20% of a physician's practice, the physician 
is unable to resist the unfair pressures of that payor. This is known 
as the ``lock-in'' percentage for physicians and, for primary care 
physicians (``PCPs''), Genesis believes that this figure is correct. As 
for specialist physicians (``SPCs''), Genesis believes that the ``lock-
in'' figure is more like 10% because of the different referral patterns 
between PCPs and SPCs, particularly in the HMO contracts which Aetna 
has stated is its growth product. This lock-in percentage is important 
because, when it is reached, physicians are not able to resist the 
unfair contracting and operational activities of Aetna, some of which 
are described below.

Aetna/Prudential Contracting Activities

    It is important to note that Prudential is requesting all 
physicians to sign individual contracts, even if they are in a group 
practice. This request is clearly aimed at isolating individual 
physicians from their lawfully constituted groups and utilizing the 
unequal bargaining power of a large insuror against an individual 
physician. Thus, as Genesis predicted, the size of Aetna/Prudential has 
led to coercive marketing and contracting activities. Although Aetna 
and Prudential are offering different contracts to physicians, the 
terms are very coercive and both result in threats to patient care. 
Genesis will summarize only two of those terms in this submission, i.e. 
the all products clause and the unilateral right to change the basic 
terms of the contract.

All Products Clause

    This is the clause that requires physicians to participate in all 
products of Aetna in order to participate in any Aetna product. Because 
the contracts that Aetna is presenting to physicians contain a 
provision for unilateral imposition of a capitation (``risk'') 
reimbursement methodology, physicians may be forced into operational 
and financial constraints that will adversely affect patient care. 
Capitation payments shift the cost and administrative risk to the 
physician, generally with a lower reimbursement to the physicians. 
Under ``risk'' products, physicians have higher overhead costs because 
of the increased medical management and other administrative burdens by 
the payors. Increased physician overhead is, for example, due to more 
detailed medical management protocols, longer waiting times for payor 
pre-certification and referral procedures and more personnel to handle 
the increased administrative burden. Common sense dictates that 
physicians would not want to sign a contract that gives such unilateral 
rights to Aetna.

[[Page 66660]]

Coupled with the lack of full disclosure about the financial risks of 
capitation payment methodology, it is clear that the ``all products'' 
clause is a deceptive practice that could adversely affect patients, as 
well as physicians.
    Aetna has libelled physicians by stating that their opposition to 
this clause is based on a desire to avoid treating poor patients that 
Aetna claims is the primary user of HMOs. Aetna has no evidence that 
Dallas-area physicians discriminate on the basis of HMO participation 
nor that only poor people use HMO products. The truth is that the all 
products clause (with its imposition of capitation reimbursement 
methdology) is a mechanism to shift costs and risks to the physicians 
without proper disclosure of the material aspects of the ``risk'' 
products offered by Aetna. Such cost and risk shifting is done to 
enhance shareholder value, not patient care.

Unilateral Right To Change Contract Terms

    Under its proposed contract with physicians, Aetna has the power 
unilaterally to amend certain material terms of the contract without 
any requirement that Aetna notify physicians. In addition, the contract 
lacks a price term, which in a contract for services is an essential 
term. The power to unilaterally amend has major potential impact on 
patients. By reserving the right to unilaterally amend all terms, 
including clinical protocols, the contract gives Aetna very real power 
to impose barriers to care and to decrease medical expenses, especially 
if it is under financial pressure to meet shareholder expectations. 
These barriers can result in delays and denial of care to patients.

Aetna's National Focus on HMO Growth

    Aetna has stated publicly that its growth will be in HMO contracts 
and that it is actively pursuing this aspect of their business. With 
this product's added burdens of onerous medical management, random 
reimbursement changes and other interference in the patient/physician 
relationship, the 20% lock-in threshold becomes even more important. 
Physicians believe that there must be a balance between insuror's rules 
and regulations and the objective decisions made by a physician for 
his/her patient's best interest. At the 20% level, that becomes 
problematic from the standpoint of the physician being able to say no 
to an onerous contract.
    Aetna seeks to use its market position to require physicians who 
may wish to participate in a PPO product, to participate in an HMO--a 
substantially different product. This pressure occurs despite the fact 
that the physician may have ethical, operational or clinical objections 
to capitated HMO plans, and even if the practice is not in a position 
to accept the substantial amount of insurance risk involved in such HMO 
products.

Conclusion

    The pressure on employers to offer HMO plans means more pressure on 
primary care physicians since they are a necessary element of any 
successful HMO strategy by Aetna. Because of the current method of 
financing premiums, either through Medicare or employer payments, there 
is a limit to the physicians' ability to influence payors and patients. 
Thus, patients--the true consumer of health care--have very little 
control over choice of plan. Physicians have an ethical and legal 
obligation to their patients and the clinical decisions made in the 
course of the patient-physician relationship, not the insurer/insured 
relationship. Consequently, physicians will always play a critical role 
as patient advocate in an increasingly financially-driven health care 
system. This role can be easily undermined when a physician has no 
leverage in the face of an antagonistic and monopsonistic health plan.
    Because Aetna has exhibited such anti-patient and anti-physician 
behavior, it is obvious that their market power in selected markets 
will lead to increased use of their anti-competitive contractual 
provisions. Genesis requests that the Department of Justice prohibit 
the use of the ``all products'' clause for 5 years and to require more 
balanced contractual provisions, all in an effort to protect patients, 
physicians and employers, particularly small business owners, from the 
power of Aetna.
      Sincerely,
J. Scott Chase.

                October 8, 1999.
Gail Kursh,
Chief, Health Care Task Force, Antitrust Division, U.S. Department of 
Justice, 325 Seventh Street, N.W., Suite 400, Washington, D.C. 20530.

Re: Comment of the American Podiatric Medical Association to the 
Proposed Revised Final Judgment in United States, et al. v. Aetna, 
Inc., et al. (No. 3-99 CV 1398-H).

    Dear Ms. Kursh: This comment is being submitted by the American 
Podiatric Medical Association (APMA), the oldest and largest 
association representing podiatrists in the United States. These 
comments are submitted regarding the proposed Revised Final Judgment 
entered into by the plaintiffs, the United States of America and the 
State of Texas, and the defendants, Aetna, Inc. and The Prudential 
Insurance Company of America. Notification of the 60-day comment period 
regarding the consent decree and Revised Final Judgment was published 
in the Federal Register on August 18, 1999.
    Podiatric medicine is the profession of the health sciences 
concerned with the diagnosis and treatment of conditions affecting the 
human foot and ankle. The podiatric medical education is based upon 
accepted principles of allopathic medicine. Podiatrists may employ both 
surgical and non-surgical modalities in the treatment of the ailments 
of the human foot and ankle. Since the late 1960s, foot and ankle 
services provided by doctors of podiatric medicine have been covered by 
Medicare. Podiatrists are recognized as physicians by Medicare and 
under many state licensure acts.\1\
---------------------------------------------------------------------------

    \1\ Unless otherwise made plain by the context, the term 
``podiatrist'' and ``physician'' are used interchangeably.
---------------------------------------------------------------------------

    The APMA is a non-profit organization representing over 10,000 
licensed doctors of podiatric medicine in the United States; this 
number represents more than 80% of those licensed to practice podiatry. 
There are component state organizations for each of the 50 states, 
District of Columbia and Puerto Rico, and for those podiatrists 
employed by the federal government. The APMA is in a unique position in 
the field of podiatry to comment upon the subject matter of this 
litigation.
    The general concern raised by the APMA is that a concentration of 
market power by insurance companies in general, and in this case by 
Aetna through its acquisition of The Prudential Life Insurance Company, 
is harmful to the provision of quality podiatric medical care. Patient 
care and the welfare of the patient is paramount in the practice of 
podiatry, as in other health care professions. The corporate interests 
of Aetna, in its accountability to its shareholders, is not necessarily 
compatible with the provision of the highest quality of care and the 
broadest availability of services to the public-at-large. The 
concentration of too much economic power in any one market reduces, 
rather than enhances, health care options and may lead to distortions 
to, and even interference in, the physician/patient relationship. The 
APMA has serious concerns when third parties, whose interests may not 
coincide with that of the patient, are

[[Page 66661]]

making financial decisions which ultimately impact on the availability 
and quality of care.
    In addition, podiatrists are often confronted with other problems 
which are exacerbated when there is a concentration of power in the 
hands of third-party payors. As noted above, there are more than 10,000 
podiatrists who are members of the APMA throughout the United States. 
By way of comparison, there are over 14,000 allopathic physicians 
practicing in Harris County and Dallas County alone; there are 145 
podiatrists in the Houston area and 128 podiatrists in the Dallas area. 
Because of the relatively small number of podiatrists, as compared with 
the allopathic/osteopathic physicians, podiatrists have had the added 
burden of fighting for access to managed health care plans. The concern 
among podiatrists is that a concentration of power would restrict 
rather than enhance the ability of podiatrists to provide quality, 
cost-effective care to its patients within managed care plans. When HMO 
and HMO-POS plans prevent podiatrists from participating in their 
programs, it limits the choices of the patient in the health care 
market with the potential of harm to the patient's well-being and care. 
It is for those reasons that the APMA, on behalf of its members, files 
these comments with the Department of Justice.

I. The Complaint of the Department of Justice and the State of Texas is 
Justified Regarding the Potential Anti-Competitive Effects of the 
Merger of the Aetna and Prudential HMO and HMO-POS Plans

    The concerns of the Antitrust Division of the U.S. Department of 
Justice and the State of Texas were well-founded regarding the anti-
competitive effects of the proposed merger. As alleged by the 
Department of Justice and the State of Texas, the proposed transaction 
is part of a clear trend towards the increasing consolidation among 
health insurance companies. Managed care companies are clearly engaged 
in a separate market from fee-for-service-based plans. While all facets 
of the health care industry are concerned regarding rising health care 
costs, managed care programs (such as HMOs), which place limits on 
treatment options, restrict access to out-of-network providers, and use 
primary physicians as gatekeepers, are in a greater position to affect 
the physician/patient relationship. The concern that the insurance 
companies are making decisions that may interfere in the course of 
treatment and the management of patient care is real. Any aggregation 
of power which would reduce the competition among HMO and HMO-POS plans 
or consolidate the purchasing power of a managed care plan over 
podiatric services, would be inimical to the well-being of the patient 
consumer and, ultimately, contrary to the provision of the lowest, 
cost-effective provision of health care services to the public.
    The Justice Department complaint amply demonstrates the economic 
power that Aetna would acquire in the Houston and Dallas markets if 
corrective action were not taken. In Houston, Aetna presently has 44% 
and Prudential has 19% of the HMO and HMO-POS enrollees. After the 
merger, without divestiture, almost two-thirds of the enrollees in the 
Houston metropolitan area would be enrolled under the Aetna HMO-
controlled plans. In Dallas, while not as large, the numbers are 
nonetheless quite substantial. The combination of Aetna's current 26% 
of the HMO and HMO-POS enrollees with the 16% now controlled by 
Prudential totals 42% in the Dallas metropolitan area. These numbers, 
in and of themselves, represent significant market penetration by one 
insurer.
    The experience of podiatrists in the Houston and Dallas area, as 
well as elsewhere, indicate that the concerns regarding a potential 
reduction in the quantity or in the degradation in the quality of 
physician services provided to patients are genuine. Due to a number of 
factors, most health insurance is provided to consumers by employers. 
In an effort to reduce costs, as more and more employers move to 
managed care programs, podiatrists are finding that their patients are 
not able to maintain their relationships with their chosen podiatrists 
because of the limitations in the managed care plans. As the number of 
fee-for-service programs shrink, there is not a readily available pool 
of other patients waiting to fill the slots of those patients who have 
been restricted in their access to podiatrists.
    Further, as will be discussed more fully later, the experiences of 
podiatrists are that the managed care programs, where they utilize 
podiatric services, engage closed panels to perform such services. 
Fewer and fewer podiatrists are performing more and more services. The 
natural effect is to ultimately reduce the availability of podiatric 
services to the public-at-large. This is the very degradation in both 
the quantity and quality of services which the Justice Department was 
rightly concerned. The divestitures of NYLCare, and the maintenance of 
a separate plan until NYLCare is sold, is clearly warranted in the 
Houston and Dallas markets.

II. The Concentration of Economic Power in the Hands of a Few Managed 
Care Companies Creates the Potential for Greater Exclusion of 
Podiatrists in the Health Care Market Place

    One of the principal concerns of podiatrists throughout the 
country, as well as in the affected markets in this case, is the 
propensity of managed care organizations to prohibit access to 
podiatrists or to offer podiatric services through such a small number 
of podiatrists that it acts as a barrier to the participation of 
podiatrists in the HMO and HMO-POS markets.
    Large scale participation of podiatrists on hospital staffs is a 
relatively recent phenomenon, having principally occurred since the 
1960s within the United States. With the development of managed care 
programs, podiatrists have found that in a number of plans, again 
particularly initially, podiatric services were not included within the 
benefits offered by the plans. With the passage of time, podiatric 
participation in managed health care plans, including HMOs and HMO-POS 
plans, has increased. Nonetheless, there are numbers of plans which do 
not include podiatric services or so limit the number of podiatrists 
included in the panel as to effectively foreclose large numbers of 
podiatrists from participating in the managed care plans.
    The APMA undertook a nationwide survey of its members to determine 
what participation barriers exist in the managed care market. The most 
recent data available, from the 1993 survey, provided that 60% of those 
podiatric physicians who responded indicated that major HMO and PPO 
organizations had prevented, limited, or attempted to prevent or limit, 
them from participating in such plans. Aetna, U.S. Health Care, and 
Prudential were all prominently mentioned in the survey. Of those who 
responded, 73% found that there were closed panels of podiatrists (a 
small number of podiatrists who could exclusively handle the foot care 
needs under the plan) or that the plans were closed to podiatrists 
entirely. In a 1998 survey, of those podiatrists who reported that 
there net income decreased from the prior year, 44.7% indicated it was 
because of the impact on managed care.
    To the extent that there is a concentration of ownership and 
operation of these managed care plans in any one area, such as in 
Dallas or Houston, it necessarily follows that the number of options 
available to consumers (either employers or individual patients) will 
be limited. The more limited the options within the

[[Page 66662]]

HMO and HMO-POS plans, such limitations may lead to a further reduction 
in the number of podiatrists participating in such plans.
    While podiatrists provide many services which may be classified as 
primary care, podiatrists frequently receive referrals because of the 
specialist nature that they provide for the treatment of the human 
foot. Many general practitioners, whether allopathic or osteopathic, 
make referrals to podiatrists to handle specific foot ailments which 
require certain treatment (including surgeries) that the general 
practitioner believes in the best interest of a patient should be 
treated by a specialist. To the extent that an HMO neither permits 
podiatric participation or so limits the number of podiatrists on its 
panel, such limitation reduces the availability of podiatric services 
and may prevent the referring physician from making the referral to the 
podiatrist best-suited to handle the particular condition.
    Again, it is for these reasons that the APMA believes that 
divestiture, as set forth in the Revised Final Judgment, and for the 
purpose of maintaining competition, is the minimum condition to be 
imposed in order to permit the merger to proceed.

III. Anti-Competitive Provisions of the Aetna Contracts, Which Operate 
to Lock in Physicians and Reduce the Ability of Physicians to Provide 
Quality Health Care Should Be Purged

    While highlighted by the U.S. Department of Justice and the State 
of Texas in their complaint, the proposed remedy of divestiture does 
nothing as it relates to certain onerous contract provisions 
incorporated in the Aetna contracts. The APMA joins the American 
Medical Association and others in urging that these provisions be 
stricken as a further condition of approval for the merger.
    Certain of Aetna's contract provisions have the effect of binding a 
physician, whether or not a podiatrist, to the Aetna plans, whether or 
not such continued participation is in the physician's best interest. 
Aetna includes an ``all products'' policy which requires that if you 
are a member of one plan you must participate in all of Aetna's plans. 
In the Dallas and Houston area, Aetna does permit podiatric 
participation in its plans. Like other physicians, once a podiatrist is 
included in the plan, the podiatrist must participate in all of the 
Aetna plans.
    The result of this is that in a number of the Aetna plans, there 
are circumstances and conditions which make the provision of care 
unprofitable and there are certain requirements which arguably 
interfere in the physician/patient relationship. Without this all-
products policy, podiatrists might choose not to treat patients under 
such circumstances. However, because that policy is in place, 
podiatrists are required to provide services at times for less than 
cost and to go through procedures which may not necessarily be in the 
best interest of the patient. A provision such as the all-products 
policy is not in the best interest of the consumer or the physician, 
particularly if the Aetna line of business represents a very 
significant portion of the podiatrist's practice.
    Further, while a relatively innocuous anti-discrimination provision 
is included in the contract, its effects is likewise to restrict 
choices by podiatrists. The anti-discrimination provision provides that 
if a physician declines to accept new Aetna patients under the HMO or 
HMO-POS plans, that podiatrist ``shall not'' accept as new patients 
additional members from any other health maintenance organization. That 
is, regardless of the unprofitability or the concerns that a provider 
may have as it relates to the strictures on treatment as imposed by 
certain plans, if the podiatrist refuses to accept any new Aetna 
enrollees, podiatrists cannot provide services to members of any other 
HMOs. In conjunction with the ``all products'' policy, once a 
podiatrist is in the plan, if that podiatrist desires to treat 
participants of any other HMO program, that podiatrist must always be 
willing to accept participants under any Aetna HMO or HMO-POS program.
    These ``lock-in'' provisions do nothing to enhance quality of care 
or to enhance or to further the physician/patient relationship. There 
effect is to virtually eliminate any of the bargaining power that 
providers, whether or not podiatrists, need when dealing with these 
plans. In addition to the requirement of divestiture, the Justice 
Department should require that these clauses be stricken from the Aetna 
contracts.

IV. Conclusion

    The Revised Final Judgment, with the requirements of the 
maintenance of the NYL-HMO and HMO-POS plans with the specified number 
of enrollees, addresses the anti-competitive impact posed by the 
original Aetna/Prudential merger. It is requested that the clauses 
highlighted above be deleted as well in order to further reduce the 
anti-competitive effect of this merger.

    Sincerely,
Ronald S. Lepow, DPW,
President, American Podiatric Medical Association.
Glenn B. Gastwirth, DPM,
Executive Director, American Podiatric Medical Association.

                June 25, 1999.
Ms. Gail Kursh,
Chief, Healthcare Task Force, Antitrust Division, U.S. Department of 
Justice, 325 Seventh Street, NW--Suite 400, Washington, DC 20530.

Re: Proposed consent decree allowing acquisition of Prudential 
Healthcare by Aetna in the Dallas-Fort Worth market.

    Dear Ms. Kursh: I wish to express my disappointment in and 
opposition to the proposed consent decree requiring Aetna to divest 
NYLCare in the Dallas-Fort Worth and Houston markets.
    As you are aware, NYLCare has already been absorbed by Aetna. As is 
usually the case when Aetna absorbs another company, all of the best 
management staff within the absorbed organization, such as NYLCare, are 
not kept with the new entity. This destroys all of the previous 
relationship that the absorbed entity had established in the 
marketplace and replaces them with less desirable Aetna relationships. 
This has led to contract terminations and disruption of care for 
countless NYLCare members, both in terms of their access to physicians 
and in terms of their access to hospitals.
    On the other hand, it just so happens that Prudential Healthcare 
has made an extraordinarily strong commitment to quality in the Dallas-
Fort Worth market. The medical director and associate medical directors 
of the Dallas-Forth Worth Prudential operation represents the ``who's 
who'' among medical directors in our region. They are individuals of 
the highest ethical and professional caliber. Their approach to 
managing care runs counter to Aetna's previous track record.
    It makes no sense to dissemble a high quality operation which is 
serving its members well and then have Aetna divest a now disemboweled 
shell of a former HMO devoid of its experienced leadership. There is no 
rational basis for allowing Aetna to take over another HMO and give up 
one that has already taken over. The membership in question is 
approximately the same and Aetna should be allowed to retain its 
ownership of NYLCare in Dallas-Fort Worth and should be prohibited from 
absorbing Prudential Healthcare in this market.
    In many consent decrees organized by your division it is not 
uncommon for

[[Page 66663]]

corporations to take over another corporation and then be required to 
sell that corporations holdings in only specific markets. It is my 
premise that the Department of Justice would be serving the healthcare 
needs of the patient population in the Dallas-Fort Worth market in a 
much better way and with much less disruption by simply allowing Aetna 
to continue business as it has been with NYLCare and require them to 
divest the Dallas-Forth Worth Prudential Healthcare portion of their 
new acquisition with the requirement that they make no changes in its 
management or business prior to sale.
    In my view, this would create a much more level playing field and 
provide for significantly improved quality and continuity of care for 
managed care patients in the Dallas-Fort Worth market.
    Your consideration of these comments is appreciated.
    With best regards,
      Sincerely yours,
Robert D. Gross, MD

Certificate of Service

    I hereby certify that on this 9th day of November, 1999, I caused a 
copy of the Response of the United States to Public Comments to be 
served on counsel for all parties by U.S. First Class Mail, at the 
following addresses:

Mark Tobey, Esq.
Assistant Attorney General, Chief, Antitrust Section, State Bar No. 
20082960, Office of the Attorney General, P.O. Box 12548, Austin, Texas 
78711-2548.
Robert E. Bloch, Esq.,
Mayer, Brown & Platt, 1909 K Street, N.W., Washington, DC 20006.
Michael L. Weiner, Esq.,
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, 
NY 10022.
Paul J. O'Donnell.

[FR Doc. 99-30832 Filed 11-26-99; 8:45 am]
BILLING CODE 4410-11-M