[Federal Register Volume 68, Number 180 (Wednesday, September 17, 2003)]
[Notices]
[Pages 54456-54458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23755]


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FEDERAL TRADE COMMISSION

[File No. 011 0222]


South Georgia Health Partners, L.L.C., 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 October 9, 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: Steven Osnowitz, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2746.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  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 September 9, 2003), on the World Wide Web, at ``http://www.ftc.gov/os/2003/09/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 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, and agreement containing a proposed consent order with South 
Georgia Health Partners, L.L.C. (``SGHP''), five other physician-
hospital organizations (``PHOs''), and three independent practice 
associations (``IPAs''). The agreement settles charges that these nine 
respondents violated section 5 of the Federal Trade Commission Act, 15 
U.S.C. 45, by facilitating and implementing agreements among SGHP's 
members to fix prices and other terms of dealing with employers, health 
insurance firms, and other third-party payors (``payors'') for 
physician and hospital services, 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. 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

    According to the Commission compliant, SGHP is a for-profit PHO, 
the membership of which includes competing hospitals and competing 
physicians. All its members are located in a region of south Georgia. 
Through SGHP, the members bargain collectively for higher prices for 
hospital and physician services. SGHP consists of approximately 500 
physicians, as well as 15 hospitals with a total of over 2,200 staffed 
beds. With one exception, SGHP's member hospitals are the sole 
hospitals in each of the 15 counties where they are located. SGHP's 
member physicians constitute approximately 90% of all physicians who 
practice in the area.
    Five respondents--each itself a PHO (the ``Owner PHOs'')--own equal 
shares of SGHP: Health Alliance of the South, South Georgia PHO, 
Coastal Plains Health Alliance, Colquitt County PHO, and Satilla 
HealthNet. Each has equal representation on SGHP's Board of Directors. 
The three IPA respondents--Qualicare Physicians Association, South 
Georgia Physician Network, and Colquitt County Physicians--are the 
physician components of three of the owner PHOs. The complaint alleges 
that these eight respondents, with and through SGHP, agreed to fix 
physician and hospital prices.
    Physicians sometimes join IPAs, and physicians and hospitals 
sometimes form PHOs, to market jointly their health care services to 
payors or engage in other collective activities. Such organizations may 
not lawfully orchestrate agreements among their members on the prices 
to demand from payors, unless the members are integrated in a manner 
that creates significant efficiencies such as lower costs, and unless 
the price agreements are reasonably necessary to obtain those 
efficiencies. According to the compliant, neither SGHP, nor any other 
respondent, engaged in such integration so as to justify their price-
fixing activities.
    The complaint further alleges that, with respect to physician 
services,

[[Page 54457]]

SGHP required payors to meet a single, fixed price list applicable to 
all physician members. The prices that SGHP demanded are substantially 
higher than the physicians could have obtained by negotiating 
unilaterally. When payors approached them directly in efforts to engage 
in contract negotiations, SGHP's physician members repeatedly refused 
to deal unilaterally, and instructed the payors to negotiate with SGHP 
for collective contracting purposes.
    With respect to hospital services, the complaint alleges that SGHP 
orchestrated agreements among its hospital members not to discount from 
their respective list prices by an amount greater than 10%, and 
repeatedly refused payor requests during contract negotiations for 
larger discounts for specific SGHP member hospitals or combinations of 
member hospitals. SGHP successfully resisted payor attempts to contract 
separately with individual member hospitals. It also fostered 
agreements among its members to refuse payor requests for hospital 
services payable on the basis of a per diem (set charge per day for a 
particular inpatient service) or per case (set charge for a particular 
type of case, including ``diagnosis related groups'' or ``DRGs''). 
These are methods that can make pricing more certain and provide 
incentives for hospitals to use resources more efficiently.
    SGHP also allegedly orchestrated agreements among its member 
hospitals to participate only in SGHP's contract arrangements with 
payors. A hospital that wanted to deal with a payor outside of SGHP 
needed authorization from 75% of SGHP's board to do so. SGHP further 
required that, if the board authorized a member hospital to contract 
independently from SGHP, the hospital not discount from its list prices 
by more than 10%--unless the hospital provided that larger discount to 
every payor with which it was under contract through SGHP. This 
agreement created a substantial disincentive for any member hospital to 
deviate from the SGHP price agreement, because, by lowering prices to 
one payor, the hospital would have to do so for all payors that had 
contracts with the hospital.
    Eight of the nine respondents are for-profit entities. The other 
respondent, Satilla HealthNet, is a non-profit corporation, but one 
that engages in substantial activities that confer pecuniary benefits 
on its for-profit physician members. The Commission has jurisdiction, 
therefore, over all respondents.

The Proposed Consent Order

    The proposed order is designed to remedy the illegal conduct 
charged in the complaint and prevent its recurrence, while allowing 
respondents to engage in legitimate conduct that does not impair 
competition. It is similar to many previous consent orders that the 
Commission has issued to settle charges relating to unlawful agreements 
to raise prices. The proposed order applies to both hospital and 
physician services.
    The proposed order's specific provisions are as follows:
    The proposed order's core prohibitions are contained in Paragraphs 
II and III. Paragraph II.A prohibits 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, refuse to 
deal, or threaten to refuse a deal with payors; (3) on what terms to 
deal with any payor, or (4) not to deal individually with any payor, or 
not to deal with any proper through arrangement other than respondents.
    Paragraph II.B prohibit respondents from facilitating exchanges of 
information between physicians concerning whether, or on what terms, to 
contract with a payor. Paragraph II.C bans 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 engage in any action 
prohibited by Paragraph II.A through II.C.
    Paragraph II also contains a proviso intended to clarify certain 
types of agreements that Paragraph II does not prohibit, except as to 
SGHP. It provides that nothing in Paragraph II prohibits the Owner PHO 
and IPA respondents from engaging in conduct that is reasonably 
necessary to form, participate in, or act in furtherance of, a 
``qualified risk-sharing joint arrangements'' or a ``qualified 
clinically-integrated joint arrangements.'' Such arrangements must not 
include another Owner PHO or IPA, and they must not be exclusive. As 
discussed below in connection with Paragraph IV, each respondent is 
required to notify the FTC about such an an arrangement before 
negotiating on behalf of its members or before its members jointly 
discuss any terms of dealing with a payor.
    As defined in the proposed order, a ``qualified risk-sharing joint 
arrangement'' must satisfy two conditions. First, all physician or 
hospital participants must share substantial financial risk through the 
arrangement and thereby create incentives for the physician or hospital 
participants jointly to control costs and improve quality by managing 
the provision of services. Second, any agreement concerning 
reimbursement or other terms or condictions of dealing must be 
reasonably necessary to obtain significant efficiencies through the 
joint arrangement.
    As defined in the proposed order, a ``qualified clinically-
integrated joint arrangement'' also must satisfy two conditions. First, 
all physician or hospital 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 and/or hospitals, 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.
    Paragraph III is substantially identical to Paragraph II, except 
that it applies to the provision of hospital, rather than physician, 
services.
    Paragraph IV requires an Owner PHO or IPA respondent that has 
formed a qualified risk-sharing joint arrangement or a qualified 
clinically-integrated joint arrangement 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. Paragraph IV.B sets out the information necessary to 
make the notification complete. Paragraph IV.C establishes the 
Commission's right to obtain additional regarding the arrangement.
    Paragraphs V.A., V.B, and V.C set out the requirement that SGHP or 
Owner PHO respondents send the Order, the Complaint, and a letter of 
notice to each payor with which SGHP or an Owner PHO has been in 
contact since January 1, 1995. This notice provision, set out in 
Appendix A, will inform payors that any contract with SGHP may be 
terminated at the payor's written request, per Paragraph V.B. Absent 
such written request, however, Paragraph V.B. provides that all such 
contracts will terminate upon their termination or renewal date. This 
provision is intended to eliminate the effects of respondents' 
anticompetitive concerted actions.
    The remaining provisions of Paragraph V and Paragraphs VI through 
VIII of the proposed order impose obligations on respondents with 
respect to distributing the proposed complaint and order to SGHP's 
members and to other specified persons, and reporting information to 
the Commission.

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    The proposed order will expire in 20 years.

    By direction of the Commission, Commissioner Harbour not 
participating.
Donald S. Clark,
Secretary.
[FR Doc. 03-23755 Filed 9-16-03; 8:45 am]
BILLING CODE 6750-01-M