[Federal Register Volume 67, Number 167 (Wednesday, August 28, 2002)]
[Notices]
[Pages 55258-55260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21969]


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FEDERAL TRADE COMMISSION

[File No. 011 0196]


System Health Providers; 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 September 19, 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: Barbara Anthony or Michael Bloom, FTC, 
Northeast Regional Office, One Bowling Green, Suite 318, New York, 
N.Y., 10004. (212) 607-2828 or (212) 607-2801.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 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 August 20, 2002), on the World Wide Web, at ``http://www.ftc.gov/os/2002/08/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, WordPerfect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following 
e-mail 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 Section 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 Genesis 
Physicians Group, Inc. (``GPG'') and System Health Providers, Inc. 
(``SHP'') (``Respondents''). The agreement settles charges that 
Respondents violated section 5 of the Federal Trade Commission Act, 15 
U.S.C. 34, by facilitating and implementing agreements among GPG 
members on price and other competitively significant terms; refusing to 
deal with payors except on collectively agreed-upon terms; and 
negotiating uniform fees and other competitively significant terms in 
payor contracts and refusing to submit to members payor offers that do 
not conform to Respondent SHP's standards for contracts. 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 comments 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.
    Respondent GPG has approximately 1,250 members, almost all of whom 
are physicians licensed to practice medicine in the State of Texas and 
engaged in the business of providing professional services to patients 
in the eastern part of the Dallas-Fort Worth metropolitan area 
(``Dallas area'').
    Respondent SHP is a management services organization, the voting 
stock of which is wholly owned by GPG.
    Physicians often contract with health insurance firms and other 
third-party payors, such as preferred provider organizations. Such 
contracts typically establish the terms and conditions, including price 
terms, under which the physicians will render services to the payors' 
subscribers. Physicians entering into such contracts typically 
establish the terms and conditions, including price terms, under which 
the physicians will render services to the payors' subscribers. 
Physicians entering into such contracts often agree to lower 
compensation in order to obtain access to additional patients made 
available by the payors' relationship with insureds. These contracts 
may reduce payor costs and enable payors to lower the price of 
insurance, and thereby result in lower medical care costs for 
subscribers to the payors' health insurance plans.
    Absent agreements among competing physicians on the terms, 
including price, on which they will provide services to subscribers or 
enrollees in health care plans offered or provided by third-party 
payors, competing physicians decide individually whether to enter into 
contracts with third-party payors to provide services to their 
subscribers or enrollees, and what prices they will accept pursuant to 
such contracts.
    In order to be competitively marketable in the Dallas area, a 
payor's health insurance plan must include in its physician network a 
large number of primary care physicians (PCPs) and specialists who 
practice in the Dallas area. Many of the PCPs and specialists

[[Page 55259]]

who practice in the Dallas area are members of GPG. In particular, GPG 
members include a large number of PCPs and specialists located near and 
associated with the two highly-regarded hospitals comprising the 
Presbyterian Health System. Accordingly, many payors concluded that 
they could not establish a viable physician network, particularly in 
areas in which GPG physicians are concentrated, without including a 
large number of GPG physicians in that network.
    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 the physicians are 
willing to accept. The agent also may convey all payor contract offers 
to the physicians, 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 contracting between physicians and payors 
and minimize the cost involved, without fostering an agreement among 
competing physicians on fees or fee-related terms. Such a messenger may 
not, however, consistent with a competitive model, negotiate fees and 
other competitively significant terms on behalf of the participating 
physicians, or facilitate the physicians' coordinated responses to 
contract offers by, for example, electing not to convey a payor's offer 
to the physicians based on the messenger's opinion on the 
appropriateness, or lack thereof, of the offer.
    Rather than acting simply as a ``messenger,'' SHP actively 
bargained with payors, often proposing and counter-proposing fee 
schedules to be applied, among other terms. To maintain its bargaining 
power, SHP discouraged GPG members from entering into unilateral 
agreements with payors. SHP communicated to GPG members the bargaining 
advantage gained by negotiating with payors collectively through SHP, 
in general, and SHP's determinations that specific fees and other 
contract terms being offered by payors were ``not comparable to market 
standards'' or otherwise were inadequate. Many GPG members have been 
unwilling to negotiate with payors apart from SHP, and communicated 
that fact to payors seeking to resist SHP's collectively demands.
    SHP had a practice--inconsistent with a messenger model 
arrangement--of not conveying to GPG members payor offers that SHP 
deemed deficient, including offers that provide for fees that do not 
satisfy criteria adopted by SHP's Contracting Committee, which was 
comprised of 21 GPG members. SHP instead demanded, and often received, 
more favorable fee and other contract terms--terms that payors would 
not have offered to GPG's members had those members engaged in 
unilateral, rather than collective, negotiations with the payors. Only 
after the payor acceded to fee and other contract terms acceptable to 
SHP, would SHP convey the payor's proposed contract to GPG members for 
the consideration.
    SHP refused to convey payors' proposed fee and other contract terms 
to GPG members even where the payor explicitly has requested that it do 
so. SHP's discouraging of physicians' contracting directly with payors 
and its unwillingness to convey payors' proposed contracts to GPG 
members unless and until those offers satisfy SHP's criteria have 
rendered it less likely and more costly for payors to establish 
competitive physician networks in the Dallas area without first coming 
to terms with SHP. As a result, payors often have offered or acceded to 
SHP demands for supracompetitive fees for all GPG members.
    Since July of 1999, GPG, its members, and SHP have entered only 
into fee-for-service agreements with payors, pursuant to which GPG, its 
members, and SHP did not undertake financial risk-sharing. Further, GPG 
members have not integrated their practices to create significant 
potential efficiencies. Respondents' joint negotiation of fees and 
other competitively significant terms has not been, and is not, 
reasonably related to any efficiency-enhancing integration. Instead, 
the Respondents' acts and practices have restrained trade unreasonably 
and hindered competition in the provision of physician services in the 
Dallas area in the following ways, among others: prices and other forms 
of competition among Respondent GPG's members were unreasonably 
restrained; prices for physician services were increased; and 
competition in the purchase of physician services was restrained to the 
detriment of health plans, employers, and individual consumers. Thus, 
Respondents' conduct has harmed patients and other purchasers of 
medical services by restricting choice of providers and increasing the 
price of medical services.

The Proposed Consent Order

    The proposed consent order is designed to prevent recurrence of the 
illegal concerted actions alleged in the complaint while allowing 
Respondents and Member-Providers to engage in legitimate joint conduct.
    Paragraph II. A prohibits Respondents from entering into or 
facilitating agreements among providers: (1) to negotiate on behalf of 
any provider with any payor; (2) to deal, refuse to deal, or threaten 
to refuse to deal with any payor; (3) regarding any term upon which any 
providers deal, or are willing to deal, with any payor; and (4) not to 
deal individually with any payor or through any arrangement other than 
SHP or GPG. Use of the term ``Provider'' in the proposed order, rather 
than the narrower term ``physician,'' reflects SHP's inclusion of non-
physician providers of ancillary medical services in its contracting 
arrangements.
    Paragraph II.B prohibits Respondents from exchanging or 
facilitating the transfer of information among Providers concerning any 
Provider's willingness to deal with a payor, or the terms or 
conditions, including price terms, on which the Provider is willing to 
deal.
    Paragraph II.C prohibits Respondents from attempting to engage in 
any action prohibited by Paragraph II.A or II.B. Paragraph II.D 
prohibits Respondents from encouraging, pressuring, or attempting to 
induce any person to engage in any action that would be prohibited by 
Paragraphs II.A through II.C.
    Paragraph II contains a proviso that allows Respondents to engage 
in conduct that is reasonably necessary to the formation or operation 
of a ``qualified risk-sharing joint arrangement'' or a ``qualified 
clinically-integrated joint arrangement,'' so long as the arrangement 
does not restrict the ability, or facilitate the refusal, of 
participating providers to deal with payors on an individual basis or 
through any other arrangement. To be a ``qualified risk-sharing joint 
arrangement,'' an arrangement must satisfy two conditions. First, all 
participating Providers must share substantial financial risk through 
the arrangement and thereby create incentives for the 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. To be a 
``qualified clinically-integrated joint arrangement,''

[[Page 55260]]

an arrangement must satisfy two other conditions. First, all 
participants must join in active an ongoing programs to evaluate and 
modify their clinical practice patterns, creating a high degree of 
interdependence and cooperation among Providers 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. Both definitions reflect the analyses contained in 
the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health 
Care.
    Paragraphs III.A and III.B require SHP to distribute the complaint 
and order to its members, payors with which it previously contracted, 
and specified others. Paragraph III.C requires SHP to terminate, 
without penalty, payor contracts that it had entered into during the 
collusive period, at any such payor's request. This provision is 
intended to eliminate the effects of Respondents' joint price-setting. 
Paragraph III also contains a proviso to preserve payor contract 
provisions defining post-termination obligations relating to continuity 
of care during a previously begun course of treatment. This proviso was 
implicit in the ``termination upon request'' provision of the recent 
Commission Order in Physicians Integrated Services of Denver. To avoid 
any risk of confusion among affected persons and the public-at-large, 
the proviso is made explicit here.
    The remaining provisions of the proposed order impose complaint and 
order distribution, reporting, and other compliance-related provisions. 
For example, Paragraph III.D requires SHP to distribute copies of the 
Complaint and Order to incoming SHP Providers, payors that contract 
with SHP or GPG for the provision of Provider services, and incoming 
SHP and GPG officers, directors, and employees. Further, Paragraph 
III.F requires SHP to file periodic reports with the Commission 
detailing how SHP have complied with the Order. Paragraph V. authorizes 
Commission staff to obtain access to Respondents' records and officers, 
directors, and employees for the purpose of determining or securing 
compliance with the Order.
    The proposed order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 02-21969 Filed 8-27-02; 8:45 am]
BILLING CODE 6750-01-M