[Federal Register Volume 69, Number 31 (Tuesday, February 17, 2004)]
[Notices]
[Pages 7485-7488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3375]


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FEDERAL TRADE COMMISSION

[Docket No. 9306]


California Pacific Medical Group, Inc.; 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 complaint 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 March 10, 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.

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FOR FURTHER INFORMATION CONTACT: Sylvia Kundig, John Wiegand, or Gwen 
Fanger, FTC Western Regional Office, 901 Market St., Suite 570, San 
Francisco, CA 94103. (415) 848-5100.

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 3.25(f), 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 February 9, 2004), on the World Wide Web, at ``http://www.ftc.gov/os/2004/02/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 
California Pacific Medical Group, Inc., dba Brown and Toland Medical 
Group (``Brown & Toland''). The agreement settles charges that Brown & 
Toland's preferred provider organization (``PPO'') physician network 
violated section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, 
by facilitating and implementing agreements among Brown & Toland 
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 Brown & Toland'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 Brown & Toland that it 
violated the law or that the facts alleged in the complaint (other than 
jurisdictional facts) are true.
    The Commission issued its complaint and notice of contemplated 
relief in this matter on July, 8, 2003, and the matter was assigned to 
the agency's Chief Administrative Law Judge, Stephen J. McGuire. During 
discovery, complaint counsel and counsel for respondent executed a 
proposed consent agreement. On December 30, 2003, this matter was 
withdrawn from litigation so that the Commission could consider the 
proposed consent agreement.

The Complaint

    As alleged in the Commission's complaint, Brown & Toland is a risk-
sharing independent practice association (``IPA'') in its contracts 
with health maintenance organizations (``HMOs'') to provide services to 
HMO enrollees who live or work in San Francisco, California. 
Approximately 1,500 physicians who provide physician services in San 
Francisco participate in, or have contracts with, Brown & Toland to 
provide services to the HMO enrollees under Brown & Toland's contracts 
with HMOs.
    Physicians often enter into contracts with payors that establish 
the terms and conditions, including fees and other competitively 
significant terms, for providing health care services to enrollees of 
payors. Payors may also develop and sell access to networks of 
physicians. Such payors include, but are not limited to, HMOs and PPOs. 
Physicians entering into such contracts often agree to reductions in 
their compensation to obtain access to additional patients made 
available by the payors' relationship with the enrollees. These 
contracts may reduce the payors' costs and permit them to lower medical 
care costs, including the price of health insurance and out-of-pocket 
medical care expenditures, for enrollees.
    Absent agreements among competing physician entities on the terms 
on which they will provide services to the enrollees of payors, 
competing physician entities decide unilaterally whether to enter into 
contracts with payors to provide services to the payor's enrollees, and 
what prices and other terms and conditions they will accept under such 
contracts.
    Physician entities often are paid for the services they provide to 
health plan enrollees either by contracting directly with a health plan 
or indirectly by participating in IPAs. Some physician entities 
participating in IPAs share the risk of financial loss with other 
participants if the total costs of services provided to health plan 
enrollees exceed anticipated levels (``risk-sharing IPA''). Physicians 
participating in a risk-sharing IPA also typically agree to follow 
guidelines relating to quality assurance, utilization review, and 
administrative efficiency.
    In order to be competitive in the San Francisco metropolitan area, 
a payor's health plan should include in its physician network a large 
number of primary care physicians and specialists who practice in San 
Francisco. A substantial number of the primary care physicians and 
specialists who practice in San Francisco are members of Brown & 
Toland.
    In 2001, Brown & Toland formed a PPO physician network to capture 
revenue from the PPO market segment. The Brown & Toland PPO network 
comprises approximately one-third of the Brown & Toland HMO physician 
members. These PPO network physicians do not share financial risk in 
connection with the provision of services to PPO patients. Rather, the 
Brown & Toland PPO network physicians provide services to PPO enrollees 
on a fee-for-service basis. To receive compensation for services, the 
PPO network physicians directly bill, and get paid by, the PPO enrollee 
or the PPO payor.

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    In addition to the lack of financial risk sharing by the PPO 
network physicians, the Brown & Toland PPO network lacks any 
significant degree of clinical integration. To the extent that the 
Brown & Toland physicians may have achieved clinical efficiencies 
regarding the provision of services under Brown & Toland's risk-sharing 
contracts, Brown & Toland has no ongoing mechanism to ensure that those 
potential efficiencies are replicated in services provided by its PPO 
network. Brown & Toland does not monitor practice patterns and quality 
of care, or enforce utilization standards regarding services provided 
by its PPO network. Brown & Toland's PPO network physicians are 
required to abide by the utilization management guidelines established 
by payors, not by the guidelines in Brown & Toland's risk-sharing 
contracts. Brown & Toland also negotiates fees for its PPO network 
physicians that are different from the fee schedules Brown & Toland 
employs for its risk-sharing contracts.
    Brown & Toland formed the PPO network to promote, among other 
things, the collective economic interests of the PPO network physicians 
by increasing their negotiating leverage with health plans. In 
connection with the formation of its PPO network, Brown & Toland 
organized meetings among its physician members to agree upon the 
financial and other competitively significant contractual terms the 
physicians would like Brown & Toland to achieve for them.
    Brown & Toland presented physicians with a choice of two fee 
schedules when it solicited physicians to join the PPO network. Brown & 
Toland informed the physicians that by choosing one of the Brown & 
Toland fee schedules, the physician would be agreeing to be a PPO 
network physician for fees at or above the specified rate. Both Brown & 
Toland fee schedules generally represented a significant increase over 
the rates that physicians were currently receiving for services 
provided to PPO enrollees.
    Once physicians joined the Brown & Toland PPO network and chose a 
fee schedule, Brown & Toland then began negotiating contracts with 
health plans on behalf of its PPO physicians. Brown & Toland presented 
the collective rates to the health plans. To further the contracting 
efforts, Brown & Toland's PPO network physicians agreed with Brown & 
Toland to refuse to contract individually, or through an agent, with 
any payor with which Brown & Toland was negotiating. Under the provider 
agreement that Brown & Toland's PPO network physicians signed, the 
physicians also were prohibited from contracting with any payor for 
less than the Brown & Toland fee schedule that the physician chose.
    Brown & Toland directed the physicians in its PPO network to cancel 
individual contracts the physicians may have had with the health plan 
when it believed the negotiations were proceeding unfavorably. Most of 
the PPO network physicians, when directed, did in fact terminate 
individual contracts. The purpose of the collective terminations was to 
increase Brown & Toland's negotiating leverage to obtain higher fees 
and other favorable competitively significant terms for physician 
services.
    Brown & Toland also attempted to devise a strategy where Brown & 
Toland and another San Francisco IPA would not compete on price or 
other elements or terms of competition. Brown & Toland contacted this 
IPA when it learned that the IPA was simultaneously negotiating with at 
least one payor for rates that were lower than Brown & Toland's PPO 
rates.
    The complaint alleges that as a consequence of Brown & Toland's 
conduct, payors agreed, among other things, to compensate Brown & 
Toland PPO network physicians at a higher rate than they would have 
compensated them absent the conduct. Accordingly, Brown & Toland's acts 
and practices have restrained trade unreasonably and hindered 
competition in the provision of physician services in San Francisco, 
California, in the following ways, among others: price and other forms 
of competition among Brown & Toland's PPO network physicians were 
unreasonably restrained; prices for physician services increased; and 
health plans, employers, and consumers were deprived of the benefits of 
competition in the purchase of physician services.
    Further, the complaint alleges that Brown & Toland's joint 
negotiations on price and other competitively significant terms for PPO 
contracts were not reasonably necessary to achieve potential clinical 
efficiencies for Brown & Toland's PPO network, nor to achieve or to 
maintain any clinical efficiencies which Brown & Toland's PPO network 
members may have realized as a consequence of participating in Brown & 
Toland's risk-sharing HMO products.
    Thus, Brown & Toland's conduct has harmed patients and other 
purchasers of medical services by increasing the price of physician 
services.

The Proposed Consent Order

    The proposed consent order is designed to prevent the continuance 
and recurrence of the illegal concerted actions alleged in the 
complaint while allowing Brown & Toland and its members to engage in 
legitimate joint conduct.
    Paragraph II.A prohibits Brown & Toland 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, condition, or 
requirement upon which any physician deals, or is willing to deal, with 
any payor, including, but not limited to, price terms; or (4) not to 
deal individually with any payor, or not to deal with any payor through 
any arrangement other than Brown & Toland.
    Paragraph II.B prohibits Brown & Toland 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 physicians is willing 
to deal.
    Paragraph II.C prohibits Brown & Toland from attempting to engage 
in any action prohibited by paragraph II.A or II.B. Paragraph II.D 
prohibits Brown & Toland from encouraging, suggesting, advising, 
pressuring, inducing, or attempting to induce any person to engage in 
any action that would be prohibited by paragraphs II.A-II.C.
    Paragraph II contains a proviso that allows Brown & Toland 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.'' Paragraph II 
concludes with a provision that Brown & Toland has the burden of proof 
to demonstrate that the conduct that would otherwise be prohibited is 
reasonably necessary to the qualified joint arrangement.
    Paragraph III requires Brown & Toland, for a period of five years 
after the order becomes final, to notify the Commission at least sixty 
days prior to entering into any arrangement with physicians under which 
Brown & Toland would act as a messenger or agent on behalf of any 
physicians for any qualified risk-sharing joint arrangement with payors 
regarding contracts or the terms of dealing with the physicians and 
payors. This provision will allow the Commission to review any future 
Brown & Toland policy or practice that Brown & Toland plans to 
implement with payors before it implements such a policy or practice 
with respect to any particular payor.
    Paragraph IV requires Brown & Toland, for a period of five years 
after the order becomes final, to notify the

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Commission prior to negotiating or entering into any agreement relating 
to price or other terms of dealing with any payor on behalf of any 
physician in a Brown & Toland qualified clinically-integrated joint 
arrangement. Under this provision, Brown & Toland may be required to 
submit various types of information relevant to an assessment of 
whether the arrangement is likely to be anticompetitive.
    Paragraph V.A requires Brown & Toland to distribute copies of the 
complaint and order to its past and present members, its officers, 
directors, managers, and employees who had any responsibility regarding 
Brown & Toland's PPO network, and all payors with whom it has been in 
contact, since January 1, 2001, regarding contracting for the provision 
of physician services, other than those under which it is paid a 
capitated (per member per month) rate by the payor.
    Paragraph V.B requires Brown & Toland to terminate, without 
penalty, any payor contracts that it had entered into during the 
collusive period, at any such payor's request. This provision intends 
to eliminate the effects of Brown & Toland's joint, price setting 
behavior. Paragraph V.C requires Brown & Toland to send a copy of any 
payor's request for termination to each physician who participates in 
Brown & Toland, except for those physicians who participate only in 
contracts under which Brown & Toland is paid a capitated (per member 
per month) rate by the payor.
    Paragraphs V.D-V.F require Brown & Toland, for a period of five 
years after the order becomes final, to make the existence of the 
complaint and order known through several methods. Brown & Toland must 
distribute copies of the complaint and order to each physician who 
subsequently begins participating in Brown & Toland, each payor who 
subsequently contacts Brown & Toland regarding the provision of 
physicians services, except for those contacts regarding contracts 
under which Brown & Toland is paid a capitated (per member per month) 
rate by the payor, and each person who subsequently becomes an officer, 
director, manager, or employee of Brown & Toland with any 
responsibility regarding a PPO network. Brown & Toland must also 
maintain copies of the complaint and order on its website for five 
years after the order becomes final and publish, for five years after 
the order becomes final, copies of the complaint and order in each 
annual report.
    The remaining provisions of the proposed order impose reporting and 
compliance-related requirements. Paragraph VI requires Brown & Toland 
to file periodic reports with the Commission detailing how it has 
complied with the order. Paragraph VII authorizes Commission staff to 
obtain access to Brown & Toland's records and officers, directors, or 
employees for the purpose of determining or securing compliance with 
the order. Paragraph VIII mandates that the order shall terminate 
twenty years from the date it becomes final.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-3375 Filed 2-13-04; 8:45 am]
BILLING CODE 6750-01-P