[Federal Register Volume 68, Number 141 (Wednesday, July 23, 2003)]
[Notices]
[Pages 43515-43517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18743]


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FEDERAL TRADE COMMISSION

[File No. 021 0017]


The Maine Health Alliance, 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 August 18, 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) 
326-2701.

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 July 18, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/07/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

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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 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 Sec.  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 
Maine Health Alliance and its Executive Director, William R. Diggins. 
The Alliance is an organization consisting of over 325 physicians and 
11 hospitals in northeastern Maine. 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 physician 
members and among hospital members of the Alliance to fix prices and 
other terms of dealing for physician and hospital services with health 
insurance firms and other third-party payors, and to refuse to deal 
with these payors except on collectively determined terms. These price-
fixing agreements and concerted refusals to deal among otherwise 
competing physicians and among otherwise competing hospitals, in turn, 
have kept the price of health care in northeastern Maine above the 
level that would have prevailed absent the illegal conduct. 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 the respondents that they violated the law or that the facts alleged 
in the complaint (other than jurisdictional facts) are true.

The Complaint Allegations

    The Alliance was formed in 1995 by the vast majority of physicians 
and hospitals in five counties in northeastern Maine to negotiate payor 
contracts that contained ``higher compensation'' and more 
``advantageous'' contract terms than the physicians and hospitals could 
obtain by dealing individually with payors. More than 85% of the 
physicians on staff at Alliance member hospitals are Alliance members, 
as are eleven of the sixteen hospitals in the five-county area. The 
physician and hospital members designated the Alliance as their 
negotiating agent to contract with payors, and authorized the Alliance 
to enter into, on their behalf, payor contracts.
    Although the Alliance is a nonprofit corporation, and its member 
hospitals are tax-exempt organizations, a substantial majority of its 
physician members are for-profit entities. These for-profit physicians 
play a significant role in the governance of the Alliance and receive 
pecuniary benefits as a result of their participation. Participating 
physicians select 11 of the 22 members of the Alliance's Board of 
Directors and thus exercise substantial authority over the policies and 
actions of the Alliance. The participating physicians are therefore 
``members'' of the Alliance within the meaning of Section 4 of the FTC 
Act, which grants the Commission jurisdiction over nonprofit 
organizations that carry on business for the profit of their members. 
Because the Alliance engages in substantial activities that confer 
pecuniary benefits on these for-profit members, its activities engaged 
in on behalf of the physician and hospital members fall within the 
Commission's jurisdiction.
    Alliance physician and hospital members have refused to contract 
with payors on an individual basis. Instead, the Alliance's Board of 
Directors authorized Mr. Diggins to act as a principal negotiating 
agent with payors on behalf of the collective membership of the 
Alliance. Mr. Diggins was instrumental in forming the Alliance, 
coordinating the membership's collective bargaining activity, and 
negotiating payor contracts on behalf of the collective membership.
    As guidance for Mr. Diggins, the Board, in conjunction with its 
Contracts Committee, compiled written ``Contracting Guidelines and 
Parameters,'' setting forth price-related and other competitively 
significant terms that the Alliance required in order to contract with 
payors. Mr. Diggins reported the details of negotiations with payors to 
the Board and the Contracts Committee. Based on the recommendations of 
Mr. Diggins, and the Contracts Committee, the Board decided whether to 
accept or reject contracts with payors on behalf of the Alliance's 
physician and hospital members.
    The Alliance and Mr. Diggins negotiated higher reimbursement for 
Alliance physician and hospital members, and more advantageous contract 
language, than the physicians and hospitals could have achieved through 
individual contracts with payors. Despite a written Alliance policy 
allowing members to contract independently of the Alliance, in fact the 
Alliance and Mr. Diggins encouraged the physician and hospital members 
to contract only through the Alliance, in order to maintain the 
Alliance's leverage over payors. Mr. Diggins provided Alliance 
physician and hospital members with a model letter for them to use to 
notify payors that they refused to negotiate individually, and that the 
Alliance would negotiate on their behalf. In response to payors' 
requests to contract directly with Alliance physician and hospital 
members, the members directed payors to the Alliance for contracting.
    The Alliance's and Mr. Diggins' joint negotiation of fees and other 
competitively significant terms has not been reasonably related to any 
efficiency-enhancing integration. Although the Alliance has developed 
some clinical programs limited primarily to hospital members, none of 
the Alliance's clinical activities create any significant degree of 
interdependence among the physician or hospital participants, nor do 
the activities create sufficiently substantial potential efficiencies.
    By orchestrating agreements among Alliance physician members, and 
hospital members, to deal only on collectively-determined terms, 
together with refusals to deal with payors 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 prevent recurrence of the illegal 
conduct charged in the complaint, while allowing respondents to engage 
in

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legitimate conduct that does not impair competition.
    The proposed order's specific provisions are as follows:
    The proposed order's core prohibitions are contained in Paragraphs 
II, III, and V. Paragraph II is intended to prevent the Respondents 
from participating in, or creating, future unlawful agreements for 
physician services. Paragraph II.A prohibits the Alliance and Mr. 
Diggins 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 the 
Alliance.
    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 III is intended to prevent the Respondents from 
participating in, or creating, future unlawful agreements for hospital 
services. Paragraphs III.A through D are identical to Paragraphs II.A 
through D, except that they apply to the Alliance's or Mr. Diggins' 
actions regarding the provision of hospital, rather than physician, 
services. This matter is the Commission's first law enforcement action 
charging an organization with price-fixing and other anticompetitive 
collusive conduct in the market for hospital services, in violation of 
section 5 of the FTC Act. Thus, unlike previous orders involving 
collective bargaining with health plans, this order bars agreements 
relating to both physicians and hospitals.
    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. 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 or competing hospitals, 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 
or all hospital 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, all 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.
    In the event that the Alliance forms a qualified risk-sharing joint 
arrangement or a qualified clinically-integrated joint arrangement, 
Paragraph IV requires the Alliance to notify the Commission at least 60 
days prior to negotiating or entering into agreements with payors, or 
discussing price or related terms among the participants of the 
arrangement. Notification is not required for negotiations or 
agreements with subsequent payors pursuant to any arrangement for which 
notice was given under Paragraph IV. Paragraph IV.B sets out the 
information necessary to make the notification complete. Paragraph IV.C 
establishes the Commission's right to obtain additional information 
regarding the arrangement.
    Paragraph V prohibits Mr. Diggins, for three years, from 
negotiating with any payor on behalf of any Alliance physician or 
hospital member, and from advising any Alliance physician or hospital 
member to accept or reject any term, condition, or requirement of 
dealing with any payor. Mr. Diggins, however, is permitted to form, 
participate in, or take any action in furtherance of a qualified risk-
sharing joint arrangement or qualified clinically-integrated joint 
arrangement on behalf of the Alliance.
    Paragraph VI.A requires the Alliance to distribute the complaint 
and order to all physicians and hospitals who have participated in the 
Alliance, and to payors that contract with the Alliance. Paragraph VI.B 
requires the Alliance, at any payor's request and without penalty, to 
terminate its current contracts with respect to providing physician 
services. If a payor does request termination, Paragraph VI.B requires 
the Alliance to terminate the contract on its earliest termination or 
renewal date. Paragraph VI.B also provides that a contract may extend 
up to one year beyond the termination or renewal date if the payor 
affirms the contract in writing and the Alliance does not exercise its 
right to terminate the contract.
    Paragraph VII.A requires Mr. Diggins to distribute the complaint 
and order to physician and hospital groups he represents in contracting 
with payors, and to payors with which he has dealt in contracting while 
representing any physician or hospital groups.
    Paragraphs VII.B 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. 03-18743 Filed 7-22-03; 8:45 am]
BILLING CODE 6750-01-P