[Federal Register Volume 68, Number 91 (Monday, May 12, 2003)]
[Notices]
[Pages 25374-25376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11721]


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FEDERAL TRADE COMMISSION

[File No. 031 0002]


Carlsbad Physician Association, 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 May 30, 2003.

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 in the 
SUPPLEMENTARY INFORMATION section.

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 
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 2, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/05/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, WordPerfect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following

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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 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 the 
Carlsbad Physician Association (CPA), its executive director, and seven 
physicians. The agreement settles charges that these parties violated 
section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by 
orchestrating and implementing agreements among members of CPA to fix 
prices and other terms on which they would deal with health plans, and 
to refuse to deal with such purchasers 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 Allegations

    CPA was organized in 1998-1999 to be a vehicle for competing 
physicians to bargain collectively with health plans, in order to 
obtain ``favorable reimbursement'' for its members. Its 38 physician 
members represent 76 percent of all physicians and 83 percent of the 
primary care physicians practicing in the Carlsbad area, which is 
located in southeastern New Mexico.
    CPA members have refused to deal with health plans on an individual 
basis. Instead, CPA's executive director (Glen Moore), its five-member 
Board of Directors, and a ``Contract Committee'' consisting of Board 
members and additional physician members of CPA negotiate with health 
plans that desire to contract with CPA members. Each of the named 
physician respondents is or has been a member of CPA's Board of 
Directors and Contract Committee and actively participated in 
negotiations with payors.
    Contracts that the CPA leadership negotiates are presented to the 
general membership, and members vote on whether CPA should accept the 
contract. The Board signs contracts that a majority of CPA members vote 
to accept. In accordance with this model, respondents have orchestrated 
collective agreements on fees and other terms of dealing with health 
plans, have carried out collective negotiations with several health 
plans, and have orchestrated refusals to deal and threats to refuse to 
deal with health plans that resisted respondents' desired terms. 
Although CPA purported to operate as a ``messenger''--that is, an 
arrangement that does not facilitate horizontal agreements on price--it 
engaged in various actions that reflected or orchestrated such 
agreements.\1\
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    \1\ An appropriate ``messenger model'' arrangement that 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, 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.
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    Since its inception, CPA has operated solely to exert the 
collective bargaining power of its members. It engages in no activities 
or functions other than health plan contracting. Further, in connection 
with health plan contracting, its members do not engage in any 
cooperative activities to benefit consumers.
    Respondents have succeeded in forcing numerous health plans to 
raise fees paid to CPA members, and thereby raised the cost of medical 
care in the Carlsbad area. As a result of the challenged actions of 
respondents, CPA members receive the highest fees for physician 
services in New Mexico. By orchestrating agreements among CPA members 
to deal only on collectively-determined terms, together with actual or 
threatened refusals to deal with health plans that would not meet those 
terms, respondents have violated section 5 of the FTC Act.

The Proposed Consent Order

    The proposed order is designed to remedy the illegal conduct 
charged in the complaint and prevent its recurrence. It is similar to 
many previous consent orders that the Commission has issued to settle 
charges that physician groups engaged in unlawful agreements to raise 
fees they receive from health plans, with two exceptions. First, in 
addition to the core prohibitions, the proposed order in this matter 
requires that CPA dissolve itself. Such structural relief is not 
routinely imposed, but has been used in physician price-fixing consent 
orders in the past when circumstances warrant.\2\ Here, the 
organization is alleged to have had no function other than unlawful 
collective bargaining activities. Second, the order includes temporary 
``fencing-in'' relief to ensure that the alleged unlawful conduct does 
not continue through other means. Thus, for three years, it bars the 
respondents from acting as a messenger or agent in health plan 
contracting and limits the ability of the individual physician 
respondents to use the same agent in connection with health plan 
contracting.
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    \2\ See Obstetrics and Gynecology Medical Corporation of Napa 
Valley, Docket No. C-4048 (May 14, 2002); Physician Group, Inc. 120 
F.T.C. 567 (1995); Southbank IPA, Inc. 114 F.T.C. 783 (1991).
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    The proposed order's specific provisions are as follows:
    Paragraph II.A prohibits the respondents 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.
    Other parts of Paragraph II reinforce these general prohibitions. 
Paragraph II.B prohibits the respondents from facilitating exchanges of 
information among physicians concerning whether, or on what terms, to 
contract with a payor. Paragraph II.C bars attempts to engage in any 
action prohibited by Paragraph II.A or II.B. Paragraph II.D proscribes 
inducing anyone to engage in any action prohibited by Paragraphs II.A 
through II.C.
    Paragraph II.E contains certain additional, ``fencing-in'' relief, 
which is imposed for three years. Under this provision, respondents may 
not, in connection with physician health plan contracting, either (1) 
act as an agent for any physicians; or (2) use an agent who represents 
any other physician with respect to such contracting. Such relief, 
designed to assure that respondents do not seek to use other 
arrangements to continue the challenged conduct, is warranted in light 
of complaint charges that respondents engaged in overt price-fixing 
behavior and respondents'

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assertion that their conduct was legitimate ``messengering'' of health 
plan contract offers. The prohibition on using the same agent as any 
other physician in connection with health plan contracting would not 
apply where respondents are obtaining bona fide legal services (that 
is, activities undertaken by an attorney that constitute the practice 
of law as defined by New Mexico law).
    As in other orders addressing providers' collective bargaining with 
health care purchasers, certain kinds of agreements are excluded from 
the general bar on joint negotiations.
    First, respondents would not be precluded from engaging in conduct 
that is reasonably necessary to form or participate in legitimate joint 
contracting arrangements among competing physicians, whether 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'' possesses two key characteristics. First, all physician 
participants must share substantial financial risk through the 
arrangement, such that the arrangement creates incentives for the 
participants 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.
    A ``qualified clinically-integrated joint arrangement,'' on the 
other hand, need not involve any sharing of financial risk. Instead, as 
defined in the proposed order, physician participants must participate 
in active and ongoing programs to evaluate and modify their clinical 
practice patterns in order to control costs and ensure the quality of 
services provided, and the arrangement must create a high degree of 
interdependence and cooperation among physicians. As with qualified 
risk-sharing arrangements, any agreement concerning price or other 
terms of dealing must be reasonably necessary to achieve the efficiency 
goals of the joint arrangement.
    Second, because the order is intended to reach agreements among 
horizontal competitors, Paragraph II would not bar agreements that only 
involve physicians who are part of the same medical group practice 
(defined in Paragraph I.E).
    Paragraph III, which applies only to CPA, provides for the 
dissolution of the organization following the expiration or termination 
of all payor contracts, and in the interim requires that CPA cease all 
activities except those necessary to comply with the order and the 
winding down of its affairs. Further, Paragraph III.B requires CPA to 
distribute the complaint and order to all physicians who have 
participated in CPA, to payors that negotiated contracts with CPA or 
indicated an interest in contracting, and to the Carlsbad Medical 
Center. Paragraph III.C requires CPA, at any payor's request and 
without penalty, to terminate its current contracts with respect to 
providing physician services.
    In the event that CPA fails to comply with the requirement to send 
out the notices set forth in Paragraph III.B, Paragraph IV requires Mr. 
Moore to do so.
    Paragraphs V through IX of the proposed order impose various 
obligations on respondents to report or provide access to information 
to the Commission to facilitate monitoring respondents' compliance with 
the order.
    The proposed order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-11721 Filed 5-9-03; 8:45 am]
BILLING CODE 6750-01-P