[Federal Register Volume 69, Number 1 (Friday, January 2, 2004)]
[Notices]
[Pages 84-86]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32268]


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FEDERAL TRADE COMMISSION

[File No. 021 0119]


Tenet Healthcare Corporation, 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 January 22, 2004.

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: David Narrow, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2549.

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 December 24, 2003), on the World Wide Web, at ``http://www.ftc.gov/os/2003/12/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.,

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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 Tenet 
Healthcare Corporation (``Tenet'') and Frye Regional Medical Center, 
Inc. (``Frye''). The agreement settles charges that Tenet and Frye 
(``Respondents'') violated Section 5 of the Federal Trade Commission 
Act, 15 U.S.C. 45, by directly facilitating the orchestration and 
implementation of agreements among the physician members of Piedmont 
Health Alliance, Inc. (``PHA'') to fix prices and other terms on which 
the physicians 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 its 
terms in any way. Further, the proposed consent order has been entered 
into for settlement purposes only and does not constitute an admission 
by Tenet or Frye that they violated the law or that the facts alleged 
in the complaint (other than jurisdictional facts) are true.

The Complaint Allegations

    Frye is a for-profit corporation that operates a 338-bed hospital 
in Hickory, North Carolina. Tenet is a for-profit corporation that owns 
or operates over 100 hospitals throughout the United States, including 
Frye. Frye was instrumental in the foundation and operation of PHA, a 
for-profit physician-hospital organization (``PHO''), operating in the 
western North Carolina area of Catawba, Burke, Caldwell, and Alexander 
Counties that is known as the ``Unifour'' area. PHA has as members 
approximately 450 physicians, or roughly 75% of the physicians in the 
Unifour area, and three of the five Unifour area hospitals, including 
Frye. A separate complaint has been issued against PHA and 10 of its 
physician leaders relating to their activities.
    In 1993, Frye's Chief Executive Officer (``CEO'') developed a plan 
to create a PHO that would include Frye and the physicians practicing 
at Frye. He hired a consultant to survey the Frye physicians regarding 
what they would expect from a PHO. The consultant reported that the 
Frye practicing physicians ``stated a need to form the group to 
negotiate with group clout and power'' and ``maintain their income'' in 
anticipation of the arrival of managed care organizations in the 
Unifour area. Frye's CEO and Chief Operating Officer (``COO''), along 
with eight physicians practicing at Frye, formed a steering committee, 
which was responsible for establishing and organizing the PHO.
    PHA was established in 1994 with the aim of facilitating collective 
bargaining by physicians with health plans in order to obtain more 
favorable fees and other terms than PHA's physician members could 
obtain through dealing individually with health plans. In early 1994, 
the PHA steering committee established the Contracts Committee to 
negotiate contracts with payors on behalf of PHA's physician members. 
Frye's Chief Financial Officer (``CFO'') and COO actively participated 
on the Contracts Committee, and were the PHA physicians' principal 
contract negotiators between 1994 and 1996. In 1996, PHA expanded to 
include Caldwell Memorial Hospital (``Caldwell Memorial'') and Grace 
Hospital (``Grace''), both nonprofit hospitals, and their respective 
medical staffs.
    PHA is managed and controlled by a Board of Directors made up of 14 
physician directors and six hospital directors, two representing each 
hospital member (but with only one vote per hospital member). Thus, 
Frye has two representatives on the PHA Board of Directors. Both a 
majority of PHA physician directors and two of the three voting 
hospital directors must approve each payor contract entered into on 
behalf of PHA's physician members. The PHA Board representatives voted 
on the approval of contracts containing physician fee schedules that 
PHA collectively negotiated with payors. Since 1994, PHA has negotiated 
and executed over 50 contracts with payors.
    The complaint alleges that with the assistance of Frye and Tenet, 
PHA has successfully coerced a number of health plans to pay 
artificially high prices to PHA physician members, and thereby raised 
the cost of medical care in the Unifour area. As a result of the 
challenged actions of Tenet and Frye, consumers in the Unifour area 
have been, and are, deprived of the benefits of competition among 
physicians. By facilitating agreements among PHA member physicians to 
deal only on collectively-determined terms, and through PHA's and its 
members' actual or threatened refusals to deal with health plans that 
would not meet those terms, Tenet and Frye have violated Section 5 of 
the FTC Act. The collective negotiation of fees and other competitively 
significant terms by PHA physician members with the assistance of Frye 
and Tenet has not been, and is not, reasonably necessary to achieving 
any efficiency-enhancing integration.

The Proposed Consent Order

    The proposed consent order is designed to remedy the illegal 
conduct charged in the complaint and prevent its recurrence, while 
allowing Tenet and Frye to engage in legitimate conduct that does not 
impair competition. For example, other than the limitation in Paragraph 
IV regarding acting as an agent or messenger, the proposed order does 
not prohibit involvement in vertical arrangements between Frye or Tenet 
and physicians that do not involve illegal horizontal agreements among 
physicians. The proposed order is similar to recent orders that the 
Commission has issued to settle charges relating to unlawful agreements 
to raise physician prices.
    The proposed order's specific provisions are as follows:
    The order's core prohibitions are contained in Paragraphs II, III, 
and IV. Paragraph II.A prohibits Tenet and Frye from entering into or 
facilitating any agreement between or among any physicians practicing 
in the Unifour area: (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 PHA.
    Other parts of Paragraph II reinforce these general prohibitions. 
Paragraph II.B prohibits the Respondents from facilitating exchanges of 
information

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between or among 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 Respondents from inducing anyone to engage in any action 
prohibited by Paragraphs II.A through II.C.
    As in other orders addressing health care providers' collective 
bargaining with payors, certain kinds of agreements are excluded from 
the general bar on joint negotiations. First, Tenet and Frye would not 
be barred from activities solely involving their employed physicians. 
Second, Tenet and Frye are not precluded from engaging in conduct that 
is reasonably necessary to form or participate in legitimate joint 
contracting arrangements among competing hospitals and physicians, 
whether a ``qualified risk-sharing joint arrangement'' or a ``qualified 
clinically-integrated joint arrangement.'' However, such arrangements 
must not restrict the ability, or facilitate the refusal, of the 
arrangements' physician members to deal with payors on an individual 
basis or through any other arrangement. As discussed below in 
connection with Paragraph V, Tenet and Frye are required to notify the 
Commission about such an arrangement prior to negotiating on behalf of 
the arrangement's members or before those 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 and 
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 conditions 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 and 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 requires Tenet to assure that no physician practicing 
in a medical group practice owned or controlled in any manner by Tenet 
or Frye submits claims for payment pursuant to a preexisting contract 
between PHA and any payor, where such claims are for services provided 
at any time 90 or more days after the date the order becomes final. 
However, the order permits these physicians to continue to submit 
claims for services pursuant to certain PHA contracts listed in 
Confidential Appendix A. The purpose of Paragraph III is to prevent 
Tenet and Frye employed or contracted physicians from continuing to 
receive the benefit of the unlawfully fixed prices under PHA's 
contracts with payors.
    Paragraph IV prohibits Tenet and Frye, for four years, from 
directly or indirectly entering into any arrangements with any 
physicians practicing in the Unifour area under which Tenet or Frye 
would act as an agent or messenger for those physicians regarding 
contracting or terms of dealing with payors. An exception is made for 
those physicians employed by Tenet or Frye.
    In the event that Frye or Tenet forms a qualified risk-sharing 
joint arrangement or a qualified clinically-integrated joint 
arrangement, Paragraph V requires the Respondents, for five years, to 
notify the Commission at least 60 days prior to initially contacting, 
negotiating, or entering into agreements with payors concerning the 
arrangement. This notice is not required for arrangements in which all 
the physician participants are employed by Frye or Tenet. Notification 
is not required for subsequent negotiations or agreements with payors 
pursuant to any arrangement for which notice was already given under 
Paragraph V. Paragraph V.B sets out the information necessary to make 
the notification complete. Paragraph V.C establishes the Commission's 
right to obtain additional information regarding the arrangement.
    Paragraph VI.A prohibits Tenet and Frye from challenging or 
interfering with the termination, required by any Commission order, of 
any contract between PHA and any payor, pursuant to which Frye is 
reimbursed for hospital, physician, or other healthcare services. This 
provision helps to ensure the effectiveness of any future Commission 
order against PHA.
    Paragraph VI.B requires Tenet to distribute the order and 
complaint, within 30 days after the order becomes final, to each 
officer who is at the level of senior vice-president or higher, each 
member of the board of directors, and each Tenet regional director of 
managed care; to the CEO, the CFO, and each person having primary 
responsibility for managed care contracting of each hospital, other 
than Frye, owned or controlled by Tenet; and to each officer, each 
member of the board of directors, and each person having primary 
responsibility for managed care contracting for Frye.
    Paragraph VI.C requires Tenet to distribute the complaint and 
order, within 30 days after the order becomes final, to every payor 
with which Frye has been in contact since January 1, 1994, regarding 
the provision of hospital or physician services.
    Paragraph VI.E.3 requires Tenet to cooperate with Commission staff 
in any litigation, or other action taken by the Commission, against PHA 
and any of its member physicians.
    The remaining provisions of Paragraph VI, and Paragraphs VII 
through IX, of the proposed order impose obligations on Tenet (or Frye, 
if it is no longer owned or controlled by Tenet), with respect to 
distributing the proposed complaint and order to payors that contract 
with Frye and to other specified persons, and the reporting of certain 
information to the Commission.
    The proposed order will expire in 20 years.

    By direction of the Commission.
C. Landis Plummer,
Acting Secretary.
[FR Doc. 03-32268 Filed 12-31-03; 8:45 am]
BILLING CODE 6750-01-P