[Federal Register Volume 68, Number 118 (Thursday, June 19, 2003)]
[Notices]
[Pages 36795-36797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15499]


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FEDERAL TRADE COMMISSION

[File No. 011 0197]


SPA Health Organization, d/b/a/ Southwest Physician Associates; 
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 July 8, 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: Barbara Anthony or Michael Bloom, FTC, 
Northeast Regional Office, One Bowling Green, Suite 318, New York, N.Y. 
10004, (212) 607-2829.

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 June 9, 2003), on the World Wide Web, at ``http://www.ftc.gov/os/
2003/06/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 
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 SPA 
Health Organization, doing business as Southwest Physician Associates 
(``Respondent'' or ``SPA''). The agreement settles charges that 
Respondent violated Section 5 of the Federal Trade Commission Act, 15 
U.S.C. Sec.  45, by facilitating and implementing agreements among SPA 
members on price and other competitively significant terms; refusing to 
deal with payors except on collectively agreed-upon terms; and 
negotiating fees and other competitively significant terms in payor 
contracts and refusing to submit to members payor offers that do not 
conform to Respondent'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 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 Respondent that it 
violated the law or that the facts alleged in the complaint (other than 
jurisdictional facts) are true. The allegations in the Commission's 
proposed complaint are summarized below.

The Complaint

    Respondent SPA is a nonprofit corporation that contracts with 
third-party payors for the provision of medical services on behalf of 
its approximately 1,000 participating physicians. Respondent is 
organized and operated to further the pecuniary interests of those 
physicians, who are licensed to practice medicine in the State of Texas 
and who are engaged in the business of providing medical services to 
patients in the eastern part of the Dallas-Fort Worth metropolitan area 
(hereinafter ``Dallas area'').
    Physicians often contract with third-party payors, such as 
insurance companies and preferred provider organizations. The contracts 
typically establish the price and other terms under which the 
physicians will render services to the payors' subscribers. Contracting 
physicians often agree to accept lower-than-customary compensation from 
these third-party payors to gain access to additional patients through 
the payor. Thus, these contracts may reduce payor costs, and may result 
in lower medical care costs to the payor's subscribers.
    Absent agreements among competing physicians, each competing 
physician decides for himself or herself whether, and on what price and 
other terms, the physician will contract with third-party payors to 
provide medical services to the payors' subscribers. To be 
competitively marketable in the Dallas area, a payor must include in 
its physician network a large number of

[[Page 36796]]

primary care physicians (``PCPs'') and specialists who practice in the 
Dallas area. Many of the PCPs and specialists who practice in the 
Dallas area are members of SPA. Accordingly, many payors concluded that 
they could not establish a viable physician network in areas in which 
SPA physicians are concentrated, without including a large number of 
SPA physicians in that network.
    Respondent actively bargained with third-party payors, often 
proposing and counter-proposing fee schedules to be applied, among 
other terms. To maintain its bargaining power, SPA has discouraged its 
participating physicians from entering into unilateral agreements with 
third-party payors, and it has communicated to its participating 
physicians SPA's determinations that specific fees and other contract 
terms offered by third-party payors may be inadequate. Many of SPA's 
participating physicians have been unwilling to negotiate with third-
party payors apart from SPA, and have communicated that fact to third-
party payors seeking to resist SPA's collective demands.
    Sometimes a network of competing physicians uses an agent to convey 
to payors information, obtained from each of its participating 
physicians individually, about fees and other significant contract 
terms that the physicians are willing to accept. In other instances, 
the agent may convey all payor contract offers to network physicians, 
with each physician then unilaterally deciding whether to accept or 
reject each offer. These ``messenger model'' arrangements, which are 
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 without fostering 
agreements among competing physicians on fees and other competitively 
sensitive terms. Such agreements are likely, however, if the messenger 
negotiates fees and other competitively significant terms on behalf of 
the participating physicians, or facilitates 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 of the acceptability or appropriateness of the offer.
    Rather than acting simply as a ``messenger,'' Respondent 
facilitated and implemented agreements among its members on price and 
other competitively significant contract terms. It actively sought 
higher prices for its members and often did not convey to its 
participating physicians third-party payor offers that SPA deemed 
deficient, including offers that provided for fees that did not satisfy 
SPA's Board of Directors. SPA instead demanded, and often received, 
more favorable fee and other contract terms--terms that third-party 
payors would not have offered to SPA's participating physicians had 
those physicians engaged in unilateral, rather than collective, 
negotiations with the payors. Only after the third-party payor acceded 
to fee and other contract terms acceptable to SPA, would SPA convey the 
payor's proposed contract to SPA's participating physicians for their 
consideration.
    Since July of 1999, SPA and its members have entered only into fee-
for-service agreements with payors, pursuant to which SPA and its 
members did not undertake financial risk-sharing. Further, SPA members 
have not integrated their practices to create significant potential 
efficiencies. Respondent's joint negotiation of fees and other 
competitively significant terms has not been, and is not, reasonably 
related to any efficiency-enhancing integration. Instead, the 
Respondent's 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's members were unreasonably restrained; 
prices for physician services were increased; and health plans, 
employers, and individual consumers were deprived of the benefits of 
competition among physicians. Thus, Respondent's conduct has harmed 
patients and other purchasers of medical services by restricting choice 
of physicians and increasing the prices 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 
Respondent and member-physicians to engage in legitimate joint conduct.
    Paragraph II.A prohibits Respondent from entering into or 
facilitating agreements among physicians: (1) To negotiate on behalf of 
any physician 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 
physicians deal, or are willing to deal, with any payor; and (4) not to 
deal individually with any payor or through any arrangement other than 
SPA.
    Paragraph II.B prohibits Respondent from exchanging or facilitating 
the transfer of information among physicians concerning any physician's 
willingness to deal with a payor, or the terms or conditions, including 
price terms, on which the physician is willing to deal.
    Paragraph II.C prohibits Respondent from attempting to engage in 
any action prohibited by Paragraph II.A or II.B. Paragraph II.D 
prohibits Respondent 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 Respondent 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 physicians 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 physicians 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,'' an arrangement 
must also satisfy two conditions. First, all participants must join in 
active and ongoing programs to evaluate and modify their clinical 
practice patterns, creating a high degree of interdependence and 
cooperation among physicians 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.
    As explained previously, the order would bar SPA from encouraging 
or facilitating agreements among or on behalf of otherwise competing 
physicians as to the terms under which the physicians would provide 
medical services. SPA's negotiating with a third-party payor of 
contract terms applicable

[[Page 36797]]

only to SPA's own proposed performance ordinarily would not encourage 
or facilitate an agreement among its participating physicians as to the 
terms under which the physicians would provide medical services. 
Therefore, a SPA-payor negotiation of terms applicable only to SPA's 
own proposed performance ordinarily would not be affected by the order. 
SPA's conduct in such a negotiation may not, however, encourage, 
facilitate, or conceal an agreement by or on behalf of participating 
physicians as to the terms upon which they would provide medical 
services. Thus, for example, the order would not ordinarily preclude 
SPA's negotiating with third-party payors as to whether, and on what 
terms, SPA itself would engage in delegated credentialing of physicians 
on behalf of the payor, undertake specified contract administration 
activities, maintain specified insurance coverages, or indemnify the 
payor.
    Similarly, the order ordinarily would not affect SPA's 
communicating to its participating physicians accurate, factual, and 
objective analyses of proposed third-party payor contract terms, so 
long as such communication does not encourage, facilitate or conceal a 
prohibited agreement. SPA may not, however, do so in a manner that 
directly or by implication suggests that physicians should or should 
not accept the contract offers or particular terms thereof upon which 
they would provide medical services. Further, the order ordinarily 
would not preclude SPA's sharing with a third-party payor SPA's 
objective analysis of the proposed contract terms prior to 
communicating that analysis to its participating physicians, provided 
that SPA informs the payor that SPA will promptly messenger the 
contract proposal to its participating physicians upon the payor's 
request, that SPA promptly complies with each such request, and that 
any such communications by SPA to the payor do not directly or by 
implication encourage, facilitate, or conceal a prohibited agreement.
    Paragraphs III.A and III.B require SPA to distribute the complaint 
and order to its members, payors with which it previously contracted, 
and specified others. Paragraph III.C requires SPA 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 Respondent's joint price setting. 
Paragraph III.C 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.
    The remaining provisions of the proposed order impose complaint and 
order distribution, reporting, and other compliance-related provisions. 
For example, Paragraph III.D requires SPA to distribute copies of the 
complaint and order to incoming SPA physicians, payors that contract 
with SPA for the provision of physician services, and incoming SPA 
officers, directors, and employees. Further, Paragraph III.F requires 
SPA to file periodic reports with the Commission detailing how SPA has 
complied with the order. Paragraph V. authorizes Commission staff to 
obtain access to Respondent's 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. 03-15499 Filed 6-18-03; 8:45 am]
BILLING CODE 6750-01-P