[Federal Register Volume 68, Number 231 (Tuesday, December 2, 2003)]
[Notices]
[Pages 67447-67449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29921]


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FEDERAL TRADE COMMISSION

[File No. 031 0001]


Memorial Hermann Health Network Providers; 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 December 24, 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: Alan Loughnan or Barbara Anthony, FTC 
Northeast Regional Office, One Bowling Green, Suite 318, New York, NY 
10004. (212) 607-2809.

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 November 25, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/11/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 
Memorial Hermann Health Network Providers (``Respondent'' or 
``MHHNP''). 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 MHHNP members on price 
and other competitively significant terms; refusing to deal with payors 
except on collectively agreed-upon terms; and negotiating uniform 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 MHHNP is a nonprofit corporation that contracts with 
third-party payors for the provision of medical services on behalf of 
its approximately 3,000 participating physicians. MHHNP 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 Houston metropolitan area (hereinafter ``Houston area'').
    Physicians often contract with third-party payors, such as 
insurance companies and preferred provider organizations. The contracts 
typically

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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 him 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 Houston area, a payor must include in 
its physician network a large number of primary care physicians (PCPs) 
and specialists who practice in the Houston area. Many of the PCPs and 
specialists who practice in the Houston area are members of MHHNP. 
Accordingly, many payors concluded that they could not establish a 
viable physician network in areas in which MHHNP physicians are 
concentrated without including a large number of MHHNP physicians in 
that network.
    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 and minimize the 
costs of providing medical care, without fostering agreements among 
competing physicians on fees and other competitively sensitive terms. 
The messenger may not, consistent with the competitive model, negotiate 
fees and other competitively significant terms on behalf of the 
participating physicians, nor facilitate the physicians' coordinated 
responses to contract offers, for example, by 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,'' MHHNP engaged in 
collective negotiations on its members behalf with third party payors. 
MHHNP's improper collective negotiations included actively bargaining 
with third-party payors by proposing and counter-proposing fee 
schedules (among other terms), gathering fee information from its 
members and using that information to negotiate prices, refusing to 
messenger proposals it deemed unacceptable on price and other terms, 
and, to maintain its bargaining power, on occasion discouraging its 
participating physicians from entering into unilateral agreements with 
third-party payors. For example, MHHNP periodically polled its 
physician members, asking each to disclose the minimum fee that he or 
she would accept in return for providing medical services pursuant to 
future MHHNP-payor agreements. MHHNP would then calculate minimum 
acceptable fees for use in payor negotiations, based in part on the 
information received from physician members concerning their future 
pricing intentions, and would often begin discussions regarding a 
possible contract for physician services by informing the payor of 
these minimum fees, and stating that it would not enter into or 
otherwise forward to its physician members any payor offer that did not 
satisfy those fee minimums.
    In the course of its collective price negotiations with payors, 
MHHNP in fact often did not convey to its physician members payor 
offers that provided for fees that did not satisfy MHHNP's Board of 
Directors. MHHNP instead demanded, and often received, more favorable 
fee and other contract terms--terms that third-party payors would not 
have offered to MHHNP'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 MHHNP, would MHHNP convey the payor's 
proposed contract to MHHNP's participating physicians for their 
consideration. For example, in one instance MHHNP refused a payor's 
request to messenger an offer MHHNP's Board deemed unacceptable. 
Instead, MHHNP notified its members that it had rejected the offer 
because it was below the minimum acceptable fee level previously set 
pursuant to physician member surveys, and then ``polled'' its members 
to determine whether or not they agreed with the Board's decision to 
reject the offer. A majority of physician members voted to agree with 
the Board's decision, and MHHNP then again rejected the payor's offer 
and explicitly refused to forward the offer to any of its physician 
members. Subsequently, the payor increased its proposed fees to the 
MHHNP fee minimums, and MHHNP then entered into a contract with the 
payor and messengered the agreement to its physician members, affording 
them the option to participate (or not) in the payor's offer.
    Since the end of 2000, MHHNP and its members have entered only into 
fee-for-service agreements with payors, pursuant to which MHHNP and its 
members did not undertake financial risk-sharing. Further, MHHNP 
members have not integrated their practices to create significant 
potential efficiencies. MHHNP's joint negotiation of fees and other 
competitively significant terms has not been, and is not, reasonably 
related to any efficiency-enhancing integration. Instead, MHHNP's acts 
and practices have restrained trade unreasonably and hindered 
competition in the provision of physician services in the Houston area 
in the following ways, among others: price and other forms of 
competition among MHHNP'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, MHHNP's conduct has harmed patients and other 
purchasers of medical services by restricting choice of providers and 
increasing the price 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 its members 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 
MHHNP.
    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

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from encouraging, pressuring, inducing, 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,'' or that solely involves physicians in the same medical 
group practice.
    Paragraph III requires MHHNP, for a period of three years after the 
order becomes final, to notify the Commission at least 60 days prior to 
entering into any arrangement under which MHHNP will act as a messenger 
or agent on behalf of physicians with payors regarding contracts. This 
provision will allow the Commission to review any future MHHNP policy 
or practice that MHHNP plans to implement with payors before such a 
policy or practice is implemented with respect to any particular payor.
    Paragraphs IV.A and IV. B require MHHNP to distribute the complaint 
and order to its members, payors with which it previously contracted, 
and specified others. Paragraph IV.C requires MHHNP to terminate, 
without penalty, any 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 IV.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 IV. D requires MHHNP to distribute copies of the 
Complaint and Order to incoming MHHNP members, payors that contract 
with MHHNP for the provision of physician services, and incoming MHHNP 
officers, directors, and employees. Further, Paragraph V requires MHHNP 
to file periodic reports with the Commission detailing how MHHNP has 
complied with the Order. Paragraph VII 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. 03-29921 Filed 12-1-03; 8:45 am]
BILLING CODE 6750-01-P