[Federal Register Volume 65, Number 194 (Thursday, October 5, 2000)]
[Notices]
[Pages 59425-59428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25572]


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FEDERAL TRADE COMMISSION

[File No. 991 0103]


Alaska Healthcare Network, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION:  Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before October 20, 2000.

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

FOR FURTHER INFORMATION CONTACT: Richard Feinstein, FTC/S-3114, 600 
Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3688; or Paul 
J. Nolan, FTC/S-3118, 600 Pennsylvania Avenue, NW., Washington, DC 
20580, (202) 326-2770.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the 
Commission's Rules of Practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for September 20, 2000), on the World Wide Web, at ``http://
www.ftc.gov/os/2000/09/index.htm.'' A paper copy can be obtained from 
the FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, 
NW., Washington, DC 20580, either in person or by calling (202) 326-
3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii))

Analysis of Agreement Containing Consent Order To Aid Public 
Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement with the Alaska Healthcare Network, Inc. 
(``AHN'') containing a proposed consent order. The agreement settles 
charges that AHN violated

[[Page 59426]]

Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by 
facilitating or implementing agreements among its members to fix prices 
and other terms of dealing with payors, and to refuse to deal with 
payors except on collectively-determined terms. The proposed consent 
order has been placed on the public record for 30 days to receive 
comments from interested persons. Comments received during this period 
will become part of the public record. After 30 days, the Commission 
will review the agreement and the comments received, and will decide 
whether it should withdraw from the agreement or make the proposed 
order final.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. The analysis is not intended to constitute an official 
interpretation of the agreement and proposed order, or to modify in any 
way their terms. Further, the proposed consent order has been entered 
into for settlement purposes only and does not constitute an admission 
by AHN that it violated the law or that the facts alleged in the 
complaint (other than jurisdictional facts) are true.

The Complaint

    The allegations in the Commission' proposed complaint are 
summarized below.
    Respondent AHN is a non-profit corporation composed of more than 60 
percent of the physicians with active medical staff privileges at 
Fairbanks Memorial Hospital (the only private general acute care 
hospital in the Fairbanks area). AHN's members include almost half of 
the family and general practitioners, and from 70 to 100 percent of the 
internists, pediatricians, obstetrician-gynecologists, and general 
surgeons in full-time, year-round private practice in Fairbanks.
    AHN has served as a vehicle for its physician members to negotiate 
collectively with health plans. When AHN was formed, a wide range of 
health plans, including PPOs, HMOs, and government health care 
purchasing cooperatives, were seeking to contract with Fairbanks 
physicians. AHN members authorized AHN's Executive Director to bargain 
on their behalf over the terms and conditions under which individual 
physicians would deal with third-party payors. AHN emphasized to its 
members that--as a result of its size and its members' agreement to 
allow AHN to bargain on their behalf--AHN would be able to bargain from 
a position of strength and thus avert the competition among physicians 
that might otherwise be introduced into the Fairbanks area by managed 
care plans.
    From early 1997 through 1998, AHN negotiated price and other 
contract terms on behalf of its physician members with at least seven 
third-party payors. It used fee information collected from its member 
physicians to develop a fee schedule to use in contract negotiations. 
AHN told its members that its fee schedule represented members' usual 
fees, and that the fee schedule would be used to obtain a favorable 
level of reimbursement for area physicians. AHN's Board of Directors 
and Contracting Committee also adopted a model contract that required 
payors to use AHN's fee schedule and to delegate their credentialing, 
utilization review, and formulary management to AHN rather than 
operating their own programs.
    AHN purported to operate as a ``messenger model,'' under which an 
agent conveys payors' contract offers to individual physicians, who 
each make an independent decision whether to accept or reject each 
contract. In practice, however, AHN's Executive Director and 
Contracting Committee bargained with payors over payment and other 
terms, and refused to transmit contract offers to AHN members unless 
the payors agreed to AHN's terms.
    AHN functioned de facto as the exclusive representative of its 
members. Through statements in its newsletters, documents, and other 
media, AHN repeatedly advised members to deal with payors only through 
AHN in order to obtain better prices and other terms. Some payors who 
were seeking to enter the Fairbanks area attempted unsuccessfully to 
contract with individual physicians instead of dealing with AHN: 
physicians told the payors that AHN handled contracting for them and 
for other Fairbanks physicians. Payors believes that they could not go 
around AHN to contract individually with physicians in Fairbanks, and 
thus that they had no alternative but to reach agreement with AHN or 
give up their planned entry into Fairbanks. In several instances, 
payors approached individual physicians in mass mailings, requests for 
proposals, or phone calls, and received no responses. This was complete 
unprecedented and contradicted by payors' favorable responses to RFPs 
in other markets, including Anchorage, Alaska, and demonstrated the 
unwillingness of AHN and its members to deal with an entire category of 
payors.
    AHN reached agreement with one payor--NYLCare--in 1998, and 
transmitted a contract to individual AHN members for their approval. 
AHN's Executive Director told the members that the Contracting 
Committee had revised the NYLCare contract proposal in a way that was 
responsive to the common economic interest of all AHN members. AHN 
engaged six other third-party payors in protracted negotiations over 
price and non-price terms that often extended for more than a year with 
no resolution. AHN demanded that the payors use AHN's fee schedule and 
its model contract that required payors to delegate credentialing, 
quality assurance, and utilization review to AHN physicians. However, 
AHN had not implemented any utilization review, quality assurance, or 
credentialing systems, and it lacked the capacity to implement some or 
all of those services. AHN did not refer contract offers from any of 
these payors to its members. As a result of AHN's conduct, a wide range 
of third-party payors of physician services, including PPOs, HMOs, and 
employer health care purchasing cooperatives, were unable to secure 
physician contracts and thus were unable to do business in the 
Fairbanks area.
    AHN did not engage in any activity that might justify collective 
agreements on the prices its members would accept for their services. 
Its actions have restrained price and other competition among 
physicians in the Fairbanks area and thereby harmed consumers 
(including third-party payors, subscribers, and their employers) by 
increasing the prices for physician services, delaying the development 
of alternative health care financing and delivery systems, and limiting 
competition among health plans.

The Proposed Consent Order

    The proposed order is designed to prevent recurrence of the illegal 
concerted actions alleged in the complaint, while allowing AHN and its 
members to engage in legitimate joint conduct. The core prohibitions of 
the proposed order are contained in Paragraph II. Paragraph II.A 
prohibits AHN from entering into or facilitating any agreement: (1) To 
negotiate on behalf of any physicians with any payor or provider; (2) 
to deal or refuse to deal with any payor or provider; (3) regarding any 
term on which any physicians deal, or are willing to deal, with any 
payor or provider; or (4) to restrict the ability of any physician to 
deal with any payor or provider on an individual basis or through any 
other arrangement.
    Paragraph II.B prohibits AHN from exchanging or facilitating the 
exchange of information among Fairbanks area physicians concerning: (1) 
Negotiation

[[Page 59427]]

with any payor or provider regarding reimbursement terms; or (2) any 
physician's intentions or decisions with respect to any dealings with 
any payor or provider. Paragraph II.C prohibits AHN from encouraging, 
advising, or pressuring any person, other than the government, to 
engage in any action that would be prohibited if the person were 
subject to the order.
    Paragraph II contains two provisos. The first proviso permits 
respondent to engage in conduct that is approved and supervised by the 
State of Alaska, so long as that conduct is exempt from liability under 
the federal antitrust laws under the state action doctrine. That 
doctrine protects private conduct that is both: (1) In accordance with 
a clearly articulated and affirmatively expressed state policy to 
supplant competition; and (2) actively supervised by the state itself. 
See, e.g., FTC v. Ticor Title Insurance Co., 504 U.S. 621 (1992); 
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 
U.S. 97, 105 (1980).
    The second proviso in Paragraph II allows AHN to engage in conduct 
(including collectively determining reimbursement and other terms of 
contracts) that is reasonably necessary to operate any ``qualified 
risk-sharing joint arrangement'' or ``qualified clinically-integrated 
joint arrangement,'' provided respondent complies with the prior 
notification requirements set forth in Paragraph VI of the order. The 
prior notification mechanism will allow the Commission to evaluate a 
specific proposed arrangement and assess its likely competitive impact.
    As defined in the order, a ``qualified risk-sharing joint 
arrangement'' must satisfy three conditions. First, all physician 
participants must share substantial financial risk through the 
arrangement. The definition of financial risk-sharing tracks the 
discussion of that term contained in the 1996 FTC/DOJ Statements of 
Antitrust Enforcement Policy in Health Care. Second, any agreement on 
prices or terms of reimbursement must be reasonably necessary to obtain 
significant efficiencies through the joint arrangement. Third, the 
arrangement must be non-exclusive--that is, it must not restrict the 
ability, or facilitate the refusal, of participating physicians to deal 
with payors individually or through any other network or venture.
    A ``qualified clinically-integrated joint arrangement'' is one in 
which the physicians undertake cooperative activities to achieve 
efficiencies in the delivery of clinical services, without necessarily 
sharing substantial financial risk. This definition also reflects the 
analysis contained in the 1996 FTC/DOJ Statements of Antitrust 
Enforcement Policy in Health Care. Participating physicians must 
establish a high degree of interdependence and cooperation through 
their use of programs to evaluate and modify their clinical practice 
patterns, in order to control costs and assure the quality of physician 
services provided. In addition, the arrangement must be non-exclusive, 
and any agreement on prices or terms of reimbursement must be 
reasonably necessary to obtaining significant efficiencies through the 
arrangement.
    The proposed order also imposes a structural remedy for a period of 
five years. Although the Commission has not routinely imposed 
structural relief on physician groups in previous cases, such relief is 
not unprecedented. See e.g., Home Oxygen and Medical Equipment Co., 118 
F.T.C. 661 (1994) (pulmonologists prohibited for ten years from 
acquiring ownership interest in any entity that provides home oxygen 
delivery services if more than 25 percent of the pulmonologists in the 
area would be affiliated with the entity), and Physicians Group, Inc., 
120 F.T.C. 567 (1995) (physician organization ordered to dissolve). The 
Commission will continue to consider the option of structural remedies 
in these cases when necessary to achieve effective relief.
    Paragraph III.A requires that if AHN operates a qualified risk-
sharing or clinically-integrated joint arrangement, its participating 
physicians must constitute no more than 30 percent of Fairbanks 
physicians in any of the key medical specialties of family practice and 
general internal medicine, obstetrics and/or gynecology, pediatrics, 
general surgery, and orthopedic surgery. Paragraph III.B of the 
proposed order further requires that, when offering the services of its 
physicians through any other arrangement, AHN's participating 
physicians constitute no more than 50 percent of Fairbanks physicians 
in any of those specialties. Paragraph III.B permits participation by a 
greater percentage of physicians because it is intended to apply to 
arrangements in which there is no agreement among AHN participating 
physicians on price or other competitively significant terms, including 
messenger model arrangements.
    Paragraph III contains two provisos. The first proviso permits AHN 
to include as a participating physician any single physician or any one 
pre-existing physician practice group, without regard to the percentage 
limitations. The single physician exception allows AHN to exceed the 
percentage limitations in instances where there may be only a few 
physicians in a designated medical speciality; and the one pre-existing 
practice group exception allows AHN to exceed the percentage 
limitations where the alternative would be to require an integrated 
practice group to downsize. The second proviso permits AHN to exceed 
the percentage limitations to the extent that the excess arises from 
certain changes in the marketplace. As a result of these provisos, once 
AHN is operating in conformity with percentage limitations contained in 
the order, it will not be required to reduce its physician membership 
because of (1) the addition of a physician (who was not already in 
practice in Fairbanks) to a member practice group, or (2) a reduction 
in the total number of physicians in a particular specialty (and thus 
in the denominator used in calculating the percentage of physicians in 
a specialty who can be AHN members) as a result of physician exit from 
the market.
    The structural relief in this case is necessary to prevent 
continuing tacit collusion among AHN members. Fairbanks is an isolated 
community with a relatively small number of physicians, a high 
proportion of whom are AHN members. According to the allegations of the 
complaint, these doctors have demonstrated an unwillingness to 
participate in health plans independently of AHN. In these 
circumstances, there is a significant risk of continuing tacit 
collusion among AHN members that cannot adequately be addressed by an 
order limited to prohibiting certain specified conduct (i.e., AHN 
members might be able to coordinate their refusals to deal with payors 
without engaging in overt acts of collusion). Moreover, since AHN 
purported to operate as a messenger model, but in fact actively 
negotiated price and nonprice terms on behalf of its physician members, 
an order limited to conduct remedies would have required detailed 
provisions governing AHN's future operation as a messenger. The 
structural relief, by contrast, will permit AHN, subject to the five-
year size limits, to carry on its activities as it finds most effective 
without detailed oversight by the Commission, so long as the core 
prohibitions of Paragraph II are respected.
    The structural relief contained in the order responds to the 
particular facts of this case, and is intended to interrupt the chain 
of effects flowing from the conduct alleged in the complaint and to 
permit time for new market structures and relationships to develop 
among Fairbanks physicians and between the physicians and health plans. 
The presence of this provision in the

[[Page 59428]]

proposed order does not suggest that other physician networks whose 
membership exceeds the percentage limitations are likely to have 
anticompetitive effects. The provision is limited to five years in 
order to give AHN the greatest possible freedom to respond to changing 
market conditions thereafter, once the effects of the challenged 
conduct have dissipated.
    The remaining provisions of the proposed order impose obligations 
on AHN with respect to distributing the order and complaint to its 
members and other specified persons and reporting information to the 
Commission. The order terminates twenty years after the date it issues.

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

Separate Statement of Commissioners Orson Swindle and Thomas B. 
Leary in Alaska Healthcare Network, Inc., File No. 991 0103

    Although we have voted to accept the consent agreement in this 
matter because we believe the conduct remedy is justified, we also 
believe that one component of the relief prescribed by the proposed 
order--namely, the inclusion of a form of ``structural'' remedy to help 
cure the effects of respondent AHN's allegedly unlawful conduct--is 
inappropriate in this particular case.
    If AHN elects to function as a negotiator or merely as a 
``messenger,'' then Paragraph III of the proposed order will for five 
years impose, respectively, either a 30 percent or a 50 percent ``cap'' 
on the number of Fairbanks physicians in each of five ``relevant 
physician markets'' who may participate in AHN. Although we believe 
that limits on a physician group's ``market shares'' in particular 
specialties can be appropriate fencing-in relief for the type of 
conduct involved in this case, we are not persuaded that this provision 
will operate in a rational and predictable way in a market as small as 
Fairbanks. This concern is exacerbated by the first proviso to 
Paragraph III, which allows respondent to ``grandfather'' in ``any one 
pre-existing practice group''--no matter how large--and thus to 
perpetuate a structure inconsistent with the goals of that paragraph.
    The imposition of such structural relief in a setting like 
Fairbanks results in anomalies that would not arise in a larger urban 
area. For example, one of the five ``relevant physician markets'' 
affected by the order (pediatrics) has only seven practitioners, and 
five are in a grandfathered group; another ``market'' (ob/gyn) has only 
ten practitioners, six of whom are in a grandfathered group. We can 
certainly understand the desire to refrain from forcing the breakup of 
a presumably efficient practice group, but this proviso makes the 
percentage caps ineffective for those specialties. On the other hand, 
the order itself potentially inhibits the formation of similarly 
efficient practice groups in the specialties where the caps are 
effective.
    Some form of structural relief might well be warranted in future 
cases in which the efficacy of a purely ``conduct'' (i.e., ``cease-and-
desist'') order is in doubt. A formerly collusive group's compliance 
with the dictates of a conduct order (through the cessation of overtly 
conspiratorial behavior) does not necessarily spell the end of tacit 
coordination in the future. In a market with different characteristics 
from those involved in this case, some type of percentage cap on 
network membership could go a long way to bolster competition through 
the creation of one or more competing networks. In this market, 
however, we question whether the remedy makes sense.
    We hope that the public comment period on this consent agreement 
will yield some illuminating advice from the bar, the medical 
community, and the public at large, both with respect to the general 
appropriations of structural measures in ``conduct'' cases and with 
regard to whether such measures make sense in a thinly populated market 
such as Fairbanks.

[FR Doc. 00-25572 Filed 10-4-00; 8:45 am]
BILLING CODE 6750-01-M