[Federal Register Volume 67, Number 100 (Thursday, May 23, 2002)]
[Notices]
[Pages 36188-36190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12954]


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FEDERAL TRADE COMMISSION

[File No. 0110174]


Aurora Associated Primary Care Physicians, L.L.C., et al.; 
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 June 12, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed below.

FOR FURTHER INFORMATION CONTACT: Jeffrey Brennan, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-3688.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act. 38 Stat. 15 U.S.C. 46(f), and  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 May 13, 2002), on the World Wide Web, at ``http://www.ftc.gov/os/2002/05/index.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPrefect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following 
email box: [email protected]. Such comments will be considered 
by the Commission and will be available for inspection and copying at 
its principal office in accordance with  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 containing a proposed consent order with Aurora 
Associated Primary Care Physicians, L.L.C. (``AAPCP''), Richard A. 
Patt, M.D., Gary L. Gaede, M.D., and Marcia L. Brauchler 
(``Respondents''). The agreement settles charges that Respondents 
violated section 5 of the Federal Trade Commission Act. 15 U.S.C. 45, 
by facilitating and implementing agreements among AAPCP's members to 
fix prices and other terms of dealing with health insurance firms and 
other third-party payors (hereinafter, ``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 their 
terms in any way. Further, the proposed consent order has been entered 
into for settlement purposes only and does not constitute an admission 
by any Respondent that said Respondent violated the law or that the 
facts alleged in the complaint (other than jurisdictional facts) are 
true.

The Complaint

    The allegations in the Commission's proposed complaint are 
summarized below.
    AACP has approximately 45 primary care physicians in its 
membership. A board of managers operates AAPCP, and Dr. Patt is the 
board's chairman. Except to the extent that competition has been 
restrained as alleged in the proposed complaint, AAPCP's members 
compete with each other as internists, pediatricians, family 
physicians, or general practitioners, in offices located in the Aurora, 
Colorado, area. To be competitively marketable to employers and other 
purchasers in the Aurora areas, a payor's health insurance plan must 
include in its network of participating physician a large number of 
primary care physicians who practice in the Aurora area.
    The physicians formed AAPCP as a vehicle collectively to negotiate 
contracts with payors, and thereby to achieve contracts containing 
higher fees and other, more advantageous terms than the individual 
physicians could obtain unilaterally. AAPCP members authorized AAPCP to 
negotiate for this purpose. Members also agreed to accept ``non-risk'' 
contracts, which are contracts that do not involve sharing among 
physicians of financial risk,

[[Page 36189]]

through arrangements such as capitation or fee withholds. Further, 
before the entire organization could accept a proposed payor contract, 
AAPCP's board had to approve it.
    In or about May 2000, AAPCP retained Ms. Brauchler, a non-physician 
consultant, after she had made a board presentation showing how AAPCP 
could collect fee information from members and use that information to 
reach a consensus on an initial fee level to demand from payors on the 
collective membership's behalf.
    Sometimes a network of competing physicians uses an agent to convey 
to payors information obtained individually from the physicians about 
fees or other significant contract terms that they are willing to 
accept. The agent may also convey to the physicians all payor contract 
offers, which the physicians then unilaterally decide whether to accept 
or reject. Such a ``messenger model'' arrangement, which is described 
in the 1996 Statements of Antitrust Enforcement Policy in Health Care 
jointly issued by the Federal Trade Commission and U.S. Department of 
Justice (see http://www.ftc.gov/reports/hlth3s.htm.), can facilitate 
and minimize the costs involved in contracting between physicians and 
payors, without fostering an agreement among competing physicians on 
fees or fee-related terms.
    AAPCP purported to operate as a messenger, but, in practice, it did 
not do so. Rather, in 2000 and 2001, Dr. Patt and Ms. Brauchler, 
together with Dr. Gaede, who is an ex-officio member of the board, and 
other physicians designated by Respondent AAPCP, on behalf of 
Respondent AAPCP's members, used the information gathered from members 
to negotiate fees and other competitively significant terms 
collectively on behalf of AAPCP's members. Only if a payor offered a 
contract containing sufficiently high fees did Drs. Patt and Gaede and 
Ms. Brauchler recommend that the board approve the contract and that 
the members accept it. The Respondent's refused to recommend to the 
board, or convey to AAPCP's members, contract offers containing price 
and other terms that they deemed to be deficient. Instead, they 
demanded, and received, contract terms that were more economically 
advantageous, from the physicians' perspective, than the physicians 
themselves could have obtained by negotiating individually rather than 
collectively.
    AAPCP functioned as its members' de facto exclusive representative. 
Drs. Patt and Gaede and Ms. Brauchler told payors that AAPCP had the 
authority to negotiate and sign contracts on behalf of all of its 
members, and AAPCP's members themselves sent letters to payors, 
asserting that they would deal with payors only through AAPCP and not 
unilaterally. Respondents also successfully applied coercive tactics. 
For example, they advised AAPCP members to terminate, or threaten to 
terminate, their pre-existing, individual contracts with payors. Many 
AAPCP members complied, to pressure payors into offering a new contract 
to AAPCP that paid fees at or above the level that the physicians, 
through AAPCP, collectively demanded. The terminations and threats of 
termination left payors in the untenable position of having to pay 
higher fees to AAPCP members, or being denied such members' inclusion 
in the payors' respective provider networks. As a consequence of this 
conduct, AAPCP or its members contracted with various payors for fees 
that were higher than the fees such payors had agreed to pay other 
primary care physicians in the area.
    Respondents' joint negotiation of fees and other competitively 
significant terms has not been reasonably related to any efficiency-
enhancing integration. AAPCP members have not financially or clinically 
integrated their practices to create sufficiently substantial potential 
efficiencies. Respondents' actions have restrained price and other 
forms of competition among the members, caused fees for physician 
services to rise, and harmed consumers, including health plans, 
employers, and individual patients.

The Proposed Consent Order

    The proposed order is designed to prevent recurrence of these 
illegal concerted actions, while allowing Respondents to engage in 
legitimate conduct that does not impair competition. The proposed 
order's core prohibitions are contained in Paragraph II and III.
    Paragraph II is intended to prevent the Respondents from 
participating in, or creating, future unlawful physician agreements.
    Paragraph II.A prohibits, AAPCP, Drs. Patt and Gaede, and Ms. 
Brauchler from entering into or facilitating any agreement between or 
among any physicians: (1) To negotiate with payors on any physician's 
behalf; (2) to deal, not to deal, or threaten not to deal with payors; 
(3) on what terms to deal with any payor; or (4) not to deal 
individually with any payor, or not to deal with any payor through an 
arrangement other than AAPCP.
    Paragraph II.B prohibits these Respondents from facilitating 
exchanges of information between physicians concerning whether, or on 
what terms, to contract with a payor. Paragraph II.C prohibits them 
from attempting to engage in any action prohibited by Paragraph II.A or 
II.B. Paragraph II.D prohibits them from inducing anyone to engage in 
any action prohibited by Paragraphs II.A through II.C.
    Paragraph II also contains three provisos intended to clarify 
certain types of agreements that Paragraph II does not prohibit. The 
first proviso applies to Ms. Brauchler, the second to Drs. Patt and 
Gaede, and the third to AAPCP. Each provides that nothing in Paragraph 
II prohibits the applicable Respondent from engaging in conduct that is 
reasonably necessary to form, participate in, or act in furtherance of, 
a ``qualified risk-sharing joint arrangement'' or a ``qualified 
clinically-integrated joint arrangement.'' The proviso applies to AAPCP 
only if the physicians who participate in the arrangement are available 
to enter into payor contracts outside the arrangement, i.e., the 
arrangement is not exclusive.
    As defined in the proposed order, a ``qualified risk-sharing joint 
arrangement'' must satisfy two conditions. First, all physician 
participants must share substantial financial risk through the 
arrangement and thereby create incentives for the physician 
participants jointly to control costs and improve quality by managing 
the provision of services. Second, any agreement concerning 
reimbursement or other terms or conditions of dealing must be 
reasonably necessary to obtain significant efficiencies through the 
joint arrangement. The definition of financial risk-sharing tracks the 
discussion of that term contained in the Health Care Statements.
    As defined in the proposed order, a ``qualified clinically-
integrated joint arrangement'' also must satisfy two conditions. First, 
all physician participants must participate in active and ongoing 
programs to evaluate and modify their clinical practice patterns, 
creating a high degree of interdependence and cooperation among 
physicians, in order to control costs and ensure the quality of 
services provided. Second, any agreement concerning reimbursement or 
other terms or conditions of dealing must be reasonably necessary to 
obtain significant efficiencies through the joint arrangement. This 
definition also reflects the analysis contained in the Health Care 
Statements.
    Paragraph II's provisos, as they apply to Drs. Patt and Gaede and 
Ms. Brauchler, also provide that Paragraph II

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does not prohibit them from facilitating an agreement solely between 
physicians who are part of the same medical group practice. The 
proposed order defines such a practice as a bona fide, integrated firm 
in which physicians practice medicine together as partners, 
shareholders, owners, members, or employees, or in which only one 
physician practices medicine.
    Paragraph III prohibits Ms. Brauchler, for a period of three years, 
from negotiating with any payor on behalf of any current or past member 
of AAPCP, and from advising any current or past member of AAPCP to 
accept or reject any term, condition, or requirement of dealing with 
any payor.
    Ms. Brauchler is not prohibited from performing legitimate 
``messenger'' services, including with respect to AAPCP. As noted 
above, a properly constituted messenger can efficiently facilitate the 
establishment of physician-payor contracts and avoid fostering unlawful 
agreements among the participating physicians. As set forth in the 
proposed complaint, however, while Ms. Brauchler purported to operate 
as a legitimate messenger, in practice she fostered anticompetitive 
physician agreements by negotiating directly with payors for higher 
fees on behalf of AAPCP's entire membership, and by advising AAPCP's 
members collectively to reject various payor offers and to engage in 
concerted refusals to deal. For this reason, Paragraph III is a 
necessary and appropriate supplement to Paragraph II's provisions. 
Under the proposed order, Ms. Brauchler may serve as AAPCP's messenger, 
but, pursuant to Paragraph III, may not negotiate for or advise any 
AAPCP member with respect to payor contracts.
    Paragraph IV.C requires AAPCP to terminate, without penalty at any 
payor's request, current contracts with payors with respect to 
providing physician services. This provision is intended to eliminate 
the effects of Respondents' anticompetitive concerted actions. The 
remaining provisions of Paragraph IV and Paragraphs V through VIII of 
the proposed order impose obligations on Respondents with respect to 
distributing the proposed complaint and order to AAPCP's members and to 
other specified persons, and reporting information to the Commission.
    The proposed order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 02-12954 Filed 5-22-02; 8:45 am]
BILLING CODE 6750-01-M