[Federal Register Volume 67, Number 167 (Wednesday, August 28, 2002)]
[Notices]
[Pages 55262-55264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21971]


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FEDERAL TRADE COMMISSION

[File No. 011 0175]


R.T. Welter and Associates, Inc., 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 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: Jeffrey Brennan, FTC, 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. 721, 15 U.S.C. 46(f), and section 
2.34(f) 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 e-mail 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 R.T. 
Welter and Associates, Inc. (``RTWA''), R. Todd Welter, and the 
following medical group practices (hereinafter ``Respondent Practice 
Groups''): Cohen and Womack, M.D., P.C.; Consultants in Obstetrics and 
Gynecology, P.C.; Mid Town Obstetrics & Gynecology, P.C.; Mike High OB/
GYN Associates; P.C.; The OB-GYN Associates Professional Corporation; 
Rocky Mountain OB-GYN, P.C.; Westwide Women's Care, L.L.P.; and The 
Women's Health Group, P.C. Mr. Welter, RTWA and the Respondent Practice 
groups are collectively referred to as ``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 the obstetricians and gynecologists represented by Mr. 
Welter 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.
    Mr. Welter is a non-physician consultant who, through his company 
RTWA, organized approximately 88 physicians specializing in obstetrics 
and gynecology (``OB/GYNs'') into a concerted group for the purpose of

[[Page 55263]]

negotiating as a bloc with payors over contract terms. Respondents 
called their group ``Professionals in Women's Care'' (``PIWC''). About 
half of PIWC's physicians practice medicine through one of the eight 
Respondent Practice Groups, all but one of which are corporations (the 
other is a partnership), consisting of OB/GYNs practicing medicine. 
Except to the extent that competition has been restrained in the manner 
set forth in the proposed Complaint, the Respondent Practice Groups and 
other physicians who participated in PIWC compete with each other in 
the provision of OB/GYN services in the Denver, Colorado metropolitan 
area.
    PIWC came together in 1999 in response to a proposed contract that 
PacifiCare Health Systems of Colorado (``PacifiCare''), a payor doing 
business in the Denver area, offered to OB/GYNs in the region. The 
Respondent Practice Groups opposed the fees and other provisions 
contained in PacifiCare's offer, and convened a meeting among all of 
them to discuss strategies for resisting PacifiCare's terms and forcing 
it to offer a contract that was more lucrative for the physicians. The 
Respondent Practice Groups retained Mr. Welter to negotiate a different 
contract on their collective behalf with PacifiCare.
    PIWC became a vehicle for the OB/GYN to use their collective 
bargaining power to negotiate for higher fees and other, more 
advantageous terms in contracts with payors than they could have 
obtained by negotiating unilaterally. The Respondent Practice Groups 
formed a ``Steering Committee'' among themselves to determine contract 
strategy and give instruction and guidance to Mr. Welter in his 
dealings with payors over contract terms. Mr. Welter and the Respondent 
Practice Groups also recruited additional OB/GYNs into PIWC--bringing 
its total membership to more than 80 physicians.
    The PIWC physicians authorized Mr. Welter to advise PacifiCare that 
they rejected its latest contract offer. Mr. Welter told PacifiCare, 
among other things, that the physicians had joined together to secure 
higher fees, that they refused to sign a contract without those fees, 
and that the physicians would negotiate only through him. To be 
competitively marketable to employers and other purchasers in the 
Denver metropolitan area, a payor must include in its network of 
participating physicians a large number of OB/GYNs. Faced with the 
prospect of having no contracts with the OB/GYNs involved in PIWC, 
PacifiCare agreed to the terms that Mr. Welter and the PIWC physicians 
demanded.
    Mr. Welter and Respondent Practice Groups, through PIWC, exploited 
their collective bargaining strength in contract negotiations with 
several other payors as well. In some cases, at the urging of Mr. 
Welter, large numbers of PIWC physicians sent contract termination 
notices to payors that refused to negotiate with Mr. Welter or that 
resisted the fee increases he demanded on their behalf. Faced with the 
threat of a boycott and the inability to include this large group of 
OB/GYNs in their networks of participating physicians, these payors 
ultimately acceded to Mr. Welter's demands for the PIWC physicians. In 
these ways, the PIWC physicians received contract terms that were more 
economically advantageous to them than they could have obtained by 
negotiating individually rather than collectively. They also received 
fees that were higher than those that payors were paying to other OB/
GYNs in the Denver metropolitan area.
    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 describe 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. 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 bases on the messenger's opinion on the 
appropriateness, or lack thereof, of the offer.
    Mr. Welter purported to operate as a messenger, but, in practice, 
he did not do so. Rather, Mr. Welter used the information he gathered 
from the PIWC participants, including Respondent Practice Groups, to 
negotiate fees and other competitively significant terms on the PIWC 
participants' collective behalf. Mr. Welter, with the Steering 
Committee's concurrence, would not convey a contract offer to the group 
of PIWC physicians if he believed that the contract's terms were 
deficient.
    Mr. Welter and the Respondent Practice Groups solicited de facto 
exclusivity to increase PIWC's collective bargaining power with payors. 
They persuaded PIWC physicians to terminate affiliations with 
professional organizations such as independent practice associations 
and practice management groups to force payors that wanted contracts 
with the PIWC physicians to deal with Mr. Welter.
    Respondents' joint negotiation of fees and other competitively 
significant terms has not been reasonably related to any efficiency-
enhancing integration. PIWC participants did not accept any form of 
financial risk-sharing, through arrangements such as capitation or fee 
withholds, and they have not clinically integrated their practices to 
create sufficiently substantial potential efficiencies. Respondents' 
actions have restrained price and other forms of competition among the 
PIWC participants, caused fees for obstetrical and gynecological 
services to rise, and harmed consumers, including payors, 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 Paragraphs II. and III.
    Paragraph II. is intended to prevent the Respondents from 
participating in, or creating, future unlawful physician agreements.
    Paragraph II.A. prohibits RTWA, Mr. Welter, and Respondent Practice 
Groups 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 to deal with any payor only through an 
arrangement involving the Respondents.
    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

[[Page 55264]]

engage in any action prohibited by Paragraph II.A. through II.C.
    Paragraph II. also contains two provisos intended to clarify 
certain types of agreements that Paragraph II. does not prohibit. The 
first proviso applies to RTWA and Mr. Welter, and the second to the 
Respondent Practice Groups. 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.''
    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 also provide that Paragraph II. does not 
prohibit the Respondents 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 RTWA and Mr. Welter, for a period of three 
years, from negotiating with any payor on behalf of any PIWC physician, 
and from advising any PIWC physician to accept or reject any term, 
condition, or requirement of dealing with any payor.
    Mr. Welter is not prohibited from performing legitimate 
``messenger'' services, including with respect to PIWC physicians. 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 Mr. Welter 
purported to operate as a legitimate messenger, in practice he fostered 
anticompetitive physician agreements by negotiating directly with 
payors for higher fees on behalf of all PIWC participants, and by 
advising the PIWC participants 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, Mr. Welter may serve as a 
messenger for PIWC physicians, but, pursuant to Paragraph III., may not 
negotiate for or advise any PIWC physician with respect to payor 
contracts.
    Paragraphs IV.A. and IV.B. require RTWA to distribute the complaint 
and order to all physicians who participated in PIWC and to the payors 
that negotiated contracts with RTWA or Mr. Welter on behalf of any 
Respondent Practice Group. Paragraph VI.A. requires Respondent Practice 
Groups to terminate, without penalty, at any payor's request, current 
contracts, with respect to providing physician services, negotiated by 
Mr. Welter with payors. This provision is intended to eliminate the 
effects of Respondents' anticompetitive concerted actions.
    The remaining provisions of Paragraphs IV. through VIII. of the 
proposed order impose obligations on Respondents with respect to 
distributing the proposed complaint and order to various persons and 
reporting information to the Commission. For example, Paragraph IV.C. 
and V.A. require RTWA and Mr. Welter, respectively, to distribute 
copies of the complaint and order to the physicians on whose behalf 
they negotiate payor contracts, and to those payors. Paragraphs IV.E., 
V.B., and VI.B require the Respondents to file periodic reports with 
the Commission detailing how the Respondents have complied with the 
order. Paragraph VIII. authorizes Commission staff to obtain access to 
Respondents' records and officers, directors, partners, 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. 02-21971 Filed 8-27-02; 8:45 am]
BILLING CODE 6750-01-M