[Federal Register Volume 67, Number 30 (Wednesday, February 13, 2002)]
[Notices]
[Pages 6745-6747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3396]


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DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 98-475 JJF]


Public Comments and Response on Proposed Final Judgment in United 
States v. Federation of Physicians and Dentists, Inc.

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States of America hereby publishes below the 
comment received on the proposed Final Judgment in United States v. 
Federation of Physicians and Dentists, Inc., Civil Action No. 98-475 
JJF, filed in the United States District Court for the District of 
Delaware, together with the United States' response to the comment.
    Copies of the comment and response are available for inspection in 
Room 215 of the U.S. Department of Justice, Antitrust Division, 325 7th 
Street, NW., Washington, DC 20530, Telephone: (202) 514-2481, and at 
the office of the Clerk of the United States District Court for the 
District of Delaware, Federal Building, Room 4209, 844 King Street, 
Wilmington, Delaware 19801. Copies of any of these materials may be 
obtained upon request and payment of a copying fee.

Constance K. Robinson,
Director of Operations and Merger Enforcement.

Comments of Jones, Day, Reavis & Pogue

    Jones, Day, Reavis & Pogue, pursuant to the Antitrust Procedures 
and Penalties Act, 15 U.S.C. 16(b)-(h) (the ``Tunney Act''), submits 
these comments on the Final Judgment proposed by the United States 
Department of Justice to settle charges that the Federation of 
Physicians and Dentists (the ``Federation'') violated the antitrust 
laws by coordinating an understanding among competing physicians to 
negotiate exclusively through the Federation.

Summary

    The proposed Final Judgment provides injunctive relief prohibiting 
unlawful collective negotiations by the Federation and its members, and 
contains a number of other provisions to protect payers that wish to 
negotiate with individual providers rather than dealing through the 
Federation. In one particular area, however, the proposed Final 
Judgment could be strengthened to provide additional protection.
    The provisions of the Final Judgment should prohibit retaliation 
against payers that decline to communicate with providers through the 
Federation. Such a restriction would prevent the Federation and its 
members from taking adverse actions against payers that choose not to 
deal with the Federation. Such adverse actions could prevent individual 
negotiations, thereby circumventing the Final Judgment's prohibition on 
exclusive negotiations through the Federation.

The Final Judgment Should Prohibit Retaliation Against Payers That 
Decline To Communicate With Providers Through the Federation

I. Background

    The Final Judgment settles charges that the Federation unlawfully 
coordinated an understanding among competing physicians to negotiate 
exclusively through the Federation. The illegal agreement among the 
Federation and its members was enforced through a concerted refusal by 
Federation members to deal with payers individually. These refusals to 
deal impaired the ability of payers to seek lower prices from 
Federation members.
    In carrying out the illegal agreement, the Federation and its 
members claimed that they were acting pursuant to the ``messenger 
model,'' a method of communicating with payers that does not entail an 
agreement among the competing providers who use the messenger. A 
concerted refusal to deal, however, is not a legitimate use of a 
messenger model. To the contrary, the messenger model was developed to 
avoid concerted action by competing providers. See United States 
Department of Justice and Federal Trade Commission Statements of 
Antitrust Enforcement Policy in Healthcare, 4 Trade Reg. Rep. (CCH) 
para.13,153 at 20,831 (Aug. 28, 1996). Thus, the Federation and its 
members improperly invoked the messenger model.

II. The Proposed Final Judgement

    The proposed Final Judgment prohibits the Federation and its 
members from entering into or facilitating an agreement among competing 
providers to deal with payers exclusively through the Federation. With 
respect to the use of a messenger model, the proposed Final Judgment 
expressly forbids the Federation and its members from requiring that a 
payer deal only with providers through the messenger (or other agent or 
representative of the providers) (Paragraph IV.A.2.), and requires the 
Federation, when acting as a messenger, to inform payers that they are 
free to decline to communicate with providers through the messenger 
(Paragraph IV.A.8.f.). Thus, the proposed Final Judgment directly 
prohibits the unlawful conduct engaged in by the Federation and its 
members.
    The protection afforded by the proposed Final Judgment appears, 
however, to be incomplete. If a payer declines to deal with the 
Federation, and chooses to deal with individual providers instead, the 
proposed Final Judgment does not directly prohibit retaliation against 
that payer. For example, the proposed Final Judgment does not expressly 
forbid the Federation from assisting a member to ``unilaterally'' 
terminate an existing contract with a payer that declines to deal 
through the Federation. If the Federation and individual providers are 
able to engage in such retaliation, the ability of payers to decline to 
deal through the Federation could provide to be illusory.

[[Page 6746]]

III. Proposed Language Modifying the Final Judgment

    The gap in coverage identified above could easily be remedied with 
one small change to the Final Judgment. The following language, which 
would be inserted as a new Subparagraph 9 in Paragraph IV.A., would 
prevent the Federation from orchestrating provider retaliation against 
payers that declined to deal though the Federation. The Federation 
would be prohibited from:

encouraging, facilitating, assisting, or participating in the 
termination of any existing contract or in any other action adverse 
to any payer after that payer has declined to communicate with a 
physician through defendant.

    Thus, any adverse action taken by the Federation after a payer 
declines to deal with providers collectively would be presumed to be in 
furtherance of an unlawful agreement. With this language, attempts to 
circumvent the prohibitions of the Final Judgment by retaliating 
against payers that declined to deal with the Federation would be 
prohibited.

Conclusion

    The proposed Final Judgment imposes strict requirements to prevent 
the Federation and its members from engaging in the unlawful behavior 
that prompted this litigation, and provides significant protections for 
payers that do not wish to engage in collective negotiations with 
competing physicians. With the additional language outlined above, the 
Federation and its members will not be able to retaliate against such 
payers, and the protection afforded by the Final Judgment will be 
enhanced.

    Dated: January 18, 2002.

    Respectfully submitted,
    Jones, Day, Reavis & Pogue

Toby G. Singer,

Jones, Day, Reavis & Pogue, 51 Louisiana Avenue, NW., Washington, DC 
20001-2113, Telephone: (202) 879-939.

United States Response to Public Comments

    Pursuant to Section 2 of the Antitrust Procedures and Penalties Act 
(the ``APPA''), 15 U.S.C. 16(b)-(h), the United States responds to 
public comments received regarding the proposed Final Judgment 
submitted for entry in this civil antitrust proceeding.

I. Procedural History

    On August 12, 1998, the United States filed a civil antitrust 
Complaint alleging that defendant, Federation of Physicians and 
Dentists, Inc. (``the Federation''), restrained competition in the sale 
of orthopedic surgical services, in violation of Section 1 of the 
Sherman Act, 15 U.S.C. 1. The Complaint alleges that the Federation, in 
coordination with certain of its members--nearly all private practice 
orthopedic surgeons located in Delaware--organized and became the hub 
of a conspiracy to oppose and prevent reductions in payments for 
orthopedic services by Blue Cross and Blue Shield of Delaware (``Blue 
Cross'').
    On October 22, 2001, the United States filed a proposed Final 
Judgment (D.I. 228) and a Stipulation (D.I. 226) signed by both it and 
defendant, agreeing to entry of the Final Judgment following compliance 
with the APPA. Pursuant to the APPA, the Stipulation, proposed Final 
Judgment, and Competitive Impact Statement (``CIS'') (D.I. 227) were 
published in the Federal Register on November 20, 2001, at 66 FR 
58,163-69 (2001). A summary of the terms of the proposed Final Judgment 
and CIS were published for seven consecutive days in the Washington 
Post from October 25 through October 31, 2001, and in The News Journal 
from November 15 through November 21, 2001. Pursuant to 15 U.S.C. 
16(b)-(d), the 60-day period for public comments on the proposed Final 
Judgment began on November 21, 2001 and expired on January 22, 2002. 
During that period, one comment was received.

II. Summary of the Complaint's Factual Allegations

    The defendant Federation is a labor organization with its 
headquarters in Tallahassee, Florida. The Federation has traditionally 
acted, in employment contract negotiations, as a collective bargaining 
agent under federal and state labor laws for physicians who are 
employees of public hospitals or other health care entities. For 
several years, however, the federation has recruited economically 
independent physicians in private practice in several states to 
encourage these independent physicians to use the Federation in 
negotiating their fees and other terms in their contracts with health 
care insurers.
    The Federation and its Delaware orthopedic surgeon members 
allegedly conspired to restrain competition in the sale of orthopedic 
surgical services in various areas of Delaware. This alleged conspiracy 
developed in the fall of 1996 when the Federation began recruiting 
orthopedic surgeons in Delaware, touting itself as a vehicle for 
increasing their bargaining leverage with insurers in fee negotiations. 
During 1997, the Federation succeeded in recruiting nearly all of the 
orthopedic surgeons in private practice in Delaware.
    In August 1997, Blue Cross notified all of its network physicians, 
including orthopedic physicians, of a planned fee reduction. By this 
action, Blue Cross sought to set the fees for Delaware orthopedic 
surgeons at levels closer to those paid to orthopedic surgeons in 
nearby ares, such as metropolitan Philadelphia. To resist Blue Cross's 
proposed fee reductions, the Federation and its orthopedic-surgeon 
members allegedly reached an understanding that Federation members 
would negotiates fees with Blue Cross solely through the Federation's 
executive director, John ``Jack'' Seddon.
    The purpose of the Federation's and its members' alleged agreement 
was to force Blue Cross to rescind the proposed fee reduction for 
orthopedic surgeons and to inhibit Blue Cross effort to contract with 
those surgeons at reduced fees. In some cases, Blue Cross subscribers 
who needed to receive orthopedic services either paid higher prices to 
receive care from their former physicians as non-participating 
providers or had to forego or delay receiving such care.

III. Response to Public Comment

    The only comment received (copy attached) recognizes that the 
decree contains ``strict requirements'' to prevent a reoccurrence of 
the challenged conduct and provides ``significant protection'' for 
payers that prefer not to engage in collective contractual negotiations 
with competing physicians. Comment at 4. Nevertheless, the comment 
argues that in ``one particular area'' the decree ``could be 
strengthened to provide additional protection.'' Id. at 1. 
Specifically, the comment asserts that the proposed Final Judgment does 
not expressly forbid the Federation from ``orchestrating provider 
retaliation'' or ``assisting a member to `unilaterally' terminate an 
existing contract with a payer that declines to deal through the 
Federation.'' Id. at 3. The comment, therefore, proposes adding a 
provision that prohibits retaliation against payers that decline to 
communicate with provides through the Federation.\1\
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    \1\ The comment suggests inserting a new subparagraph 9 in 
section IV(A), prohibiting the Federal from: encouraging, 
facilitating, assisting, or participating, in the termination of any 
existing contract or in any other action adverse to any payer after 
that payer has declined to communicate with a physician through 
defendant.
    Comment at 3.
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    The comment's proposed addition is unnecessary because the proposed 
Final Judgment already prohibits such activity. The proposed Final 
Judgment contains a prophylactic measure to preclude the Federation 
from influencing individual members' contractual decisions. Section 
IV(A)(4)

[[Page 6747]]

enjoins the Federation from directly or indirectly ``making any 
recommendation to competing physicians about any actual or proposed 
payer contract or contract term or whether to accept or reject any such 
payer contract or contract term.'' Moreover, Section IV(A)(2) of the 
proposed Final Judgment enjoins the Federation from directly or 
indirectly ``participating in, encouraging, or facilitating any 
agreement or understanding between competing physicians to deal with 
any payer exclusively through a messenger rather than individually or 
through other channels.'' Consequently, any Federal recommendation that 
competing providers' concerted termination of their contracts in 
retaliation against payers' declination to communicate with them 
through the Federation would violate the proposed Final Judgment.
    These injunctive provisions prevent the Federation from engaging in 
the sort of conduct addressed by the comment: retaliation against 
payers that refuse to deal with the Federation. Therefore, the proposed 
modification is not necessary to provide an effective and appropriate 
remedy for the antitrust violation alleged in the complaint.

IV. Conclusion

    The United States has concluded that the proposed Final Judgment 
reasonably and appropriately addresses the harm alleged in the 
Complaint. Therefore, following publication of this response to 
comments, pursuant to the APPA, and submission of the United States' 
certification of compliance with the APPA, the United States intends to 
request entry of the proposed Final Judgment once the Court determines 
that entry is in the public interest.

    Dated: January 31, 2002.

    Respectfully submitted,

Steven Kramer,
Richard S. Martin,
Scott Scheele,
Adam J. Falk,

Attorneys, Antitrust Division, Department of Justice, 325 Seventh St 
NW., Ste. 400, Washington, DC 20530, Tel: (202) 307-0997, Fax: (202) 
514-1517.
Virginia Gibson-Mason,

Assistant U.S. Attorney, Chief, Civil Division, 1201 Market Street, 
Suite 1100, Wilmington, DE 19801, (302) 573-6277.

[FR Doc. 02-3396 Filed 2-12-02; 8:45 am]
BILLING CODE 4410-11-M