[Federal Register Volume 69, Number 164 (Wednesday, August 25, 2004)]
[Notices]
[Pages 52274-52278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19444]


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FEDERAL TRADE COMMISSION

[Docket No. 9314]


Piedmont Health Alliance, Inc., 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 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 September 10, 2004.

ADDRESSES: Comments should refer to ``Piedmont Health Alliance, Inc., 
et al., Docket No. 9314,'' to facilitate the organization of comments. 
A comment filed in paper form should include this reference both in the 
text and on the envelope, and should be mailed or delivered to the 
following address: Federal Trade Commission/Office of the Secretary, 
Room H-159, 600 Pennsylvania Avenue, NW., Washington, DC 20580. 
Comments containing confidential material must be filed in paper form, 
as explained in the Supplementary Information section. The FTC is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions. Comments filed in electronic form 
(except comments containing any confidential material) should be sent 
to the following e-mail box: [email protected].

FOR FURTHER INFORMATION CONTACT: David Narrow, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2744.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 
3.25(f) 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 August 11, 2004), on the World Wide Web, at http://www.ftc.gov/os/2004/08/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. Written comments must be submitted 
on or before September 10, 2004. Comments should refer to ``Piedmont 
Health Alliance, Inc., et al., Docket No. 9314,'' to facilitate the 
organization of comments. A comment filed in paper form should include 
this reference both in the text and on the envelope, and should be 
mailed or delivered to the following address: Federal Trade Commission/
Office of the Secretary,

[[Page 52275]]

Room H-159, 600 Pennsylvania Avenue, NW., Washington, DC 20580. If the 
comment contains any material for which confidential treatment is 
requested, it must be filed in paper (rather than electronic) form, and 
the first page of the document must be clearly labeled 
``Confidential.'' \1\ The FTC is requesting that any comment filed in 
paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
filed in electronic form should be sent to the following e-mail box: 
[email protected].
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC Web site. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

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 
Piedmont Health Alliance, Inc. (``PHA''), and ten individual physicians 
who are named as Respondents (``Physician Respondents'') in the 
complaint issued by the Commission on December 22, 2003.\1\ The 
agreement settles charges that PHA and the ten Physician Respondents 
(together ``Respondents'') violated Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45, by orchestrating and facilitating 
agreements among PHA's physician members to fix prices and other terms 
on which the physicians would deal with health plans and other 
purchasers of physician services (``payors''), and to refuse to deal 
with payors except on collectively-determined terms. On July 2, 2004, 
the case was withdrawn from adjudication, so that the Commission could 
consider a proposed consent agreement and decision and order. 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 any comments and decide 
whether to withdraw from the agreement or make the proposed order 
final.
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    \1\ The ten Physician Respondents (all M.D.s) are: Peter H. 
Bradshaw, S. Andrews Deekens, Daniel C. Dillon, Sanford D. Guttler, 
David L. Harvey, John W. Kessel, A. Gregory Rosenfeld, James R. 
Thompson, Robert A. Yapundich, and William Lee Young III.
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    The purpose of this analysis is to facilitate comment on the 
proposed order. The analysis does not constitute an official 
interpretation of the agreement and proposed order and does not 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 Respondents that they violated the law or that the complaint's 
alleged facts--other than jurisdictional facts and facts admitted in 
the Respondents' answer to the complaint--are true.

The Complaint Allegations

    PHA, a for-profit corporation, is a physician-hospital organization 
(``PHO'') that includes physicians, hospitals, and other licensed 
health care providers in Alexander, Burke, Caldwell, and Catawba 
counties in western North Carolina (known as the ``Unifour'' area). PHA 
includes approximately 450 physicians, representing the substantial 
majority of physicians in the Unifour area, and three of the five 
Unifour area hospitals, including Frye Regional Medical Center 
(``Frye''), Caldwell Memorial Hospital (``Caldwell Memorial''), and 
Grace Hospital (``Grace'').\2\
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    \2\ The Commission previously issued a separate consent order 
related to this case against Frye and its parent corporation, Tenet 
Healthcare Corporation, both of which are for-profit corporations. 
In the Matter of Tenet Healthcare Corporation and Frye Regional 
Medical Center, Inc., Dkt. No. C-4106 (consent order issued January 
29, 2004).
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    In 1993, Frye's Chief Executive Officer (``CEO'') developed a plan 
for a PHO that would include Frye and the physicians practicing at 
Frye. He hired a consultant to survey the physicians regarding what 
they would expect from a PHO. The consultant reported that the 
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, along with eight physicians practicing at 
Frye, formed a steering committee responsible for establishing and 
organizing the PHO.
    PHA was established in 1994 to facilitate physician collective 
bargaining with payors and obtain more favorable fees and other terms 
than PHA's physician members could obtain by dealing individually with 
payors. PHA established a Contracts Committee to negotiate contracts 
with payors on behalf of PHA's physician members, subject to approval 
by PHA's Board of Directors. In 1996, PHA expanded to include Caldwell 
Memorial and Grace, both nonprofit hospitals, and their respective 
medical staffs.
    The Board manages and controls PHA. The Board has 14 physician 
directors elected by PHA's physician members, and six hospital 
directors--two representing each hospital member (but with only one 
vote per hospital member). 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 members. Since 1994, the Board 
voted to approve more than 50 contracts containing physician fee 
schedules that PHA collectively negotiated with payors.
    PHA hired actuaries and other consultants to develop physician fee 
schedules containing price terms that PHA demanded from payors as a 
condition of contracting with PHA for physician services. PHA generally 
negotiated single-signature contracts with payors for the services of 
all PHA's physician members, and committed to attempt to negotiate 
contracts with payors that included all PHA physician members. Payors 
that failed to accede to PHA on price and other contract terms were 
denied access to PHA's physician members for inclusion in the payors' 
provider networks. PHA's physician members agreed to participate in all 
PHA's payor contracts, to accept the prices for their services that PHA 
negotiated on their behalf, and to terminate any individual contracts 
they had with a payor once PHA entered into a contract with that payor. 
PHA's physician members also agreed not to deal individually or through 
any other organization with any payor with which PHA was attempting to 
negotiate, or had signed, a contract jointly on behalf of PHA's 
members.

[[Page 52276]]

    The Physician Respondents are PHA shareholders. All have been 
voting Board members and participated in Board decisions to approve or 
reject payor contracts containing fixed physician prices, authorize 
negotiations over the prices payors must pay for PHA physician 
services, authorize development of physician fee schedules for PHA's 
use in contracting with payors, terminate contracts between PHA and 
payors, and approve Contracts Committee recommendations concerning 
price and other payor contract terms. In addition to serving on the PHA 
Board, four Physician Respondents were members of the Contracts 
Committee, which more directly negotiated with payors over physician 
prices and other contract terms. The Physician Respondents and all PHA 
physician members are compensated for their professional medical 
services under fee schedules contained in PHA-negotiated contracts with 
payors.
    In 2001, PHA prospectively adopted a new contracting method that it 
called a ``modified messenger model.'' This contracting method did not 
affect existing contracts between PHA and payors or contracts in final 
stages of negotiation. Since 2001, PHA renewed or entered several payor 
contracts without using the ``messenger model.'' The complaint alleges 
that, in setting up the ``modified messenger model,'' PHA physician 
members reported to PHA the minimum price terms--i.e., standing offers 
or ``targets''--each would accept if offered by a payor. To help the 
physicians set their individual target fees, PHA provided each practice 
group with specific information about the fees that practice was 
receiving from several payors under existing PHA-negotiated payor 
contracts. PHA's physicians used these previously fixed prices in 
determining the prices to demand under contracts processed under PHA's 
new contracting method.
    PHA used this contracting method with two health plans: United 
HealthCare of North Carolina, Inc., and Cigna HealthCare of North 
Carolina, Inc. PHA negotiated with each health plan over the aggregate 
level of payments the health plan would pay for physician services--
stated as a percentage of Medicare's reimbursement for the same 
services. PHA also negotiated and agreed with United and Cigna on other 
price-related contract terms, such as periodic percentage increases in 
physician fee levels to occur at certain times. To compel the payor to 
accept PHA's terms, PHA confronted each payor with actual or threatened 
contract termination, and thus loss of its provider network, during the 
negotiation process. Once aggregate payment levels and terms were 
determined, PHA had its actuary develop fee schedules to be used under 
each contract. This determined how much each PHA physician would 
receive for specific medical procedures--in effect, dividing the 
``pie'' that was the negotiated aggregate reimbursement amount. Only 
after the payor agreed to both the aggregate payment level and the fee 
schedule did PHA determine which physician practices ``matched'' the 
payor's ``offer'' and thus would be included in the payor's provider 
network under the PHA contract.
    The complaint alleges that, as a result of Respondents' conduct, 
prices for physician services in the Unifour area were maintained at, 
or increased to, artificially high prices in the Unifour area, and 
consumers have been 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, PHA and the Physician Respondents are 
alleged to have violated Section 5 of the FTC Act. PHA's collective 
negotiation of fees and other competitively significant terms of 
dealing 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 prevent continuation or 
recurrence of the illegal conduct charged in the complaint, and to 
facilitate readjustment of the market for physician services in the 
relevant area to one where physicians competitively determine the 
prices they charge to payors for medical services--without PHA's 
involvement on the physicians' behalf. The proposed order prohibits PHA 
for a period of time from operating a ``messenger model'' or any other 
arrangement for physicians in their dealings with payors. Prompting 
this prohibition is, as the complaint alleges, PHA's previous use of a 
self-described ``messenger'' contracting mechanism that failed to 
eliminate collective price setting and negotiation with payors over 
physician fees. The prohibition should enable payors to deal with 
physician practices, and establish prices for physician services, 
without the risk of cartelization through PHA. Such a period, which 
likely will involve multiple contracting cycles between payors and 
physicians, will help assure that any price information that physicians 
later use in participating in any messenger arrangement will reflect 
competitive price levels, rather than collectively negotiated prices--
as allegedly was the case in PHA's ``modified messenger model.''
    The proposed order allows Respondents to engage in various forms of 
legitimate conduct that do not improperly impair competition and that 
will not interfere with effective remedial relief through the proposed 
order. For example, the proposed order does not prohibit the Physician 
Respondents from participating in any legitimate financially integrated 
or clinically integrated joint arrangements with other physicians. PHA 
also is not prohibited from participating in arrangements that involve 
solely hospital services, or certain activities involving physician 
services, as specified in the proposed order. The proposed order also 
permits PHA to undertake activities necessary to operate certain 
programs, such as its information technology and medical management 
programs, that have procompetitive potential and do not involve 
physicians' fees or other contracting terms between physicians and 
payors. Other parts of the proposed order are similar to orders that 
the Commission has issued to settle charges relating to allegedly 
unlawful agreements to eliminate physician competition and raise the 
prices of physician services.
    The proposed order's specific provisions are as follows:
    The core prohibitions are contained in Paragraphs II, III, V, and 
VII. Paragraph II.A prohibits PHA and the Physician Respondents from 
entering into, participating in, 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 an arrangement involving PHA. Other parts of Paragraph II 
reinforce these general prohibitions. Paragraph II.B prohibits the 
Respondents from facilitating exchanges of information between or among 
physicians concerning whether, or on what terms, including price terms, 
they are willing 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 else to 
engage in any action prohibited by Paragraphs II.A through II.C.

[[Page 52277]]

    As in other Commission orders addressing health care providers' 
alleged collective bargaining with payors, certain kinds of potentially 
procompetitive agreements are excluded from the general prohibition on 
joint negotiations. The Physician Respondents are not prohibited from 
engaging in conduct that involves only physicians in their own group 
practice, or that is reasonably necessary to form or participate in a 
``qualified risk-sharing joint arrangement'' or a ``qualified 
clinically-integrated joint arrangement,'' as these terms are defined 
and have been used in prior Commission orders. Beginning no sooner than 
thirty (30) months after the proposed order becomes final, PHA may 
engage in conduct that is reasonably necessary to form or participate 
in such joint arrangements, subject to certain size and other 
limitations.
    The size limitations for these allowable arrangements correspond to 
the safety zones for physician network joint ventures that are set 
forth in the joint Department of Justice and Federal Trade Commission 
Statements of Antitrust Enforcement Policy in Health Care,\3\ and 
provide for different sizes depending on whether physicians' 
participation in the joint venture is exclusive or non-exclusive.\4\ 
These size restrictions are intended to assure that any such joint 
arrangements involving PHA--which, as presently constituted, includes 
approximately three-fourths of the area's physicians--do not obtain or 
exercise substantial market power by involving an unduly large number 
of area physicians.\5\ The size restrictions apply only to physician 
network joint ventures undertaken by PHA. The proposed order does not 
affect any joint ventures undertaken by area physicians outside of PHA, 
or restrict the Physician Respondents or any other PHA physician 
members from participating in qualified risk-sharing or clinically-
integrated joint arrangements outside of PHA that are larger than those 
that PHA is allowed to undertake.
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    \3\ U.S. Department of Justice and the Federal Trade Commission, 
Statements of Antitrust Enforcement Policy in Health Care at 
Statement 8, Part A (August 1996) (safety zones for physician 
network joint ventures) (available at http://www.ftc.gov/reports/hlth3s.htm).
    \4\ Permissible joint ventures by PHA, where the physicians 
participate in the arrangement on a non-exclusive basis, are 
generally limited to having no more than 30% of the physicians in 
any medical specialty practicing either in Catawba County or in the 
Unifour area. Permissible joint ventures by PHA, where the 
physicians participate in the arrangement on an exclusive basis, are 
generally limited to having no more than 20% of the physicians in 
any medical specialty practicing either in Catawba County or in the 
Unifour area. Catawba County contains the substantial majority of 
PHA's physician members, and is where most of the Unifour area's 
large employers, and the largest concentration of the area's 
population, are located. Applying the percentage limitations to both 
areas--Catawba County and the Unifour--avoids the possibility that a 
joint arrangement by PHA could have a higher percentage of Catawba 
County physicians, while still meeting the allowable percentage 
limitations for the Unifour as a whole. Despite the general size 
limitations, in either exclusive or non-exclusive arrangements, PHA 
is permitted to have non-exclusive participation by physicians in 
medical specialties where the limited number of such local 
specialists otherwise would not permit their participation within 
the proposed order's percentage limitations.
    \5\ The safety zones in the Statements of Antitrust Enforcement 
Policy in Health Care do not establish upper size limits on lawful 
arrangements, but restricting PHA to size limits is appropriate in 
light of the complaint's allegations of PHA's unlawful conduct and 
the resulting anticompetitive effects. The size limits for qualified 
joint arrangements in the proposed order apply for 10 years after 
the order becomes final, rather than for the 20 years that apply to 
Paragraph II's general prohibitions.
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    Paragraph IV requires PHA to notify the Commission about such 
arrangements prior to negotiating on behalf of the arrangement's 
members or before those members jointly discuss any terms of dealing 
with a payor. Neither PHA nor the Physician Respondents are precluded 
from engaging in conduct that is necessary to continue PHA's 
preexisting ``bonus plan'' contracts with certain self-insured 
employers, which appear to involve the sharing of some financial risk 
among PHA's physician members. This exception does not necessarily mean 
that the bonus plan contracts are qualified joint arrangements as 
defined in the proposed order.
    As defined in the proposed order, a ``qualified risk-sharing joint 
arrangement'' must satisfy two conditions. All physician and hospital 
participants must share substantial financial risk through the 
arrangement and thereby create incentives for the physician and/or 
hospital participants jointly to control costs and improve quality by 
managing the provision of services. Also, any agreement concerning 
price 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. 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, to control costs and ensure the 
quality of services provided. Also, any agreement concerning price or 
other terms or conditions of dealing must be reasonably necessary to 
obtain significant efficiencies through the joint arrangement.
    In the event that PHA forms a qualified risk-sharing joint 
arrangement or a qualified clinically-integrated joint arrangement, 
Paragraph IV of the proposed order requires PHA, 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. Notification is not required for subsequent contacts, 
negotiations, or agreements with payors pursuant to any arrangement for 
which notice was already given under Paragraph IV. Paragraph IV sets 
out the information necessary to make the notification complete, and 
also provides the Commission with the right to obtain additional 
information regarding the arrangement before PHA enters into the 
arrangement.
    Paragraph III of the proposed order prohibits PHA from preparing, 
maintaining, or participating in the preparation of any fee schedule 
regarding physician services. This requirement is a response to PHA's 
alleged history, as set forth in the complaint, of having agents and 
consultants prepare fee schedules and using the fee schedules in 
negotiations with payors.
    Paragraph III also prohibits PHA from collecting or maintaining 
information about price and other terms under which physicians deal, or 
are willing to deal, with payors. This addresses PHA's alleged 
practices in collecting and using such information as part of its so-
called ``modified messenger model.'' Paragraph III excepts from these 
prohibitions activities necessary to maintain preexisting bonus plan 
contracts or to form or operate a qualified joint arrangement permitted 
under Paragraph II. Paragraph III also excepts actions necessary for, 
and undertaken solely for the purpose of, entering messenger 
arrangements as permitted in Paragraph V (discussed below) or 
implementing information technology services (for practice management 
and electronic medical records software for physician practices, or for 
medical management services provided to payors). Implementing 
information technology services, which involves activities that PHA 
already has begun, may have significant potential for efficiency and 
quality enhancement for medical services, and itself does not appear to 
present a significant risk of being used in anticompetitive ways, 
particularly in light of the proposed order's other provisions.

[[Page 52278]]

    Paragraph V of the proposed order prohibits PHA from acting as an 
agent for physicians, or from entering into any type of messenger 
arrangement between physicians and payors, for thirty (30) months after 
the proposed order becomes final. It also prohibits PHA from entering 
into any type of messenger arrangement, other than acting as a simple 
transmitter of offers and responses between payors and individual 
physician practices, for an additional twenty-four (24) months--i.e., 
until fifty-four (54) months after the proposed order becomes final.\6\
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    \6\ The time periods for these prohibitions are based on the 
requirement in Paragraph VII.D of the proposed order that all of 
PHA's contracts, with the identified exceptions, be terminated no 
later than six (6) months after the date the order becomes final.
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    The first ``cooling off'' period--of 30 months--eliminates PHA 
involvement between physicians and payors, to facilitate payors' 
ability to deal directly with individual physician practices and 
increase physicians' incentive to deal directly with payors (or deal 
through other arrangements that do not have PHA's alleged history of 
fostering anticompetitive agreements). The second, 24-month-long 
prohibition on all but strictly limited-in-form messenger 
arrangements--i.e., the prohibition on arrangements that might involve, 
for example, PHA's collection and maintenance of price and other 
information on physicians' terms of dealing--is intended to permit PHA 
to re-enter the physician contracting business, but with additional 
safeguards against recurrence of the abuses, under the guise of 
``modified messenger model,'' that the complaint alleges. Should PHA 
ultimately engage in a standing offer or similar messenger arrangement, 
the physician services market will have had at least four and one-half 
years to restore--with little or no PHA involvement--the competitive 
balance allegedly lost due to the conduct charged in the complaint.
    Paragraph VI of the proposed order requires PHA to provide the 
Commission with prior notice before entering into any messenger 
arrangement permitted by Paragraph V of the proposed order.
    Paragraph VII requires PHA to distribute the complaint and order, 
within 30 days after the order becomes final: to every hospital, 
physician, or other provider that participates in PHA; to each officer, 
director, manager, and employee of PHA; and to each payor with which 
PHA has had any contact since January 1, 1997, but with which PHA does 
not currently have a contract. For a period of five years after the 
order becomes final, PHA also must distribute a copy of the order and 
complaint to new members and officials of PHA, and any new payors with 
which it commences doing business.
    With regard to payors with which PHA currently has a contract for 
the provision of physician services, Paragraph VII of the proposed 
order contains provisions concerning the termination of the contracts, 
which, according to the complaint, embody price-fixed physician fees. 
Paragraph VII.A requires PHA to provide the payors with which it has a 
contract with a copy of the order and complaint, as well as a 
notification letter apprising the payors of certain contract 
termination rights regarding their contracts with PHA. For payors that 
have preexisting ``bonus plan'' contracts with PHA, which are listed in 
Confidential Appendix A to the proposed order, the notification letter 
informs the payors that they may terminate their existing contracts 
with PHA, upon written request, without any penalty or charge. With 
regard to payors holding contracts with PHA, other than the payors with 
bonus plan contracts, the notification letter likewise informs the 
payors that they may terminate their contracts without penalty, upon 
providing written request. However, the letter also apprises payors 
with non-bonus-plan contracts that, if they do not voluntarily 
terminate their contracts within six months after the order becomes 
final (or the contract does not reach its scheduled termination date by 
that time), then the contract will terminate as of six months after the 
order becomes final. With regard to certain employers that have 
preexisting, non-bonus-plan direct contracts with PHA, and which are 
identified in Confidential Appendix B of the proposed order, in order 
to help minimize any possible disruption to their health benefits 
programs, Paragraph V of the proposed order permits PHA to serve as a 
simple messenger for any subsequent contract offers by these payors to 
PHA's physician members.
    Termination of the contracts between PHA and payors for the 
provision of physician services is required to eliminate the payment to 
PHA's physician members of what the complaint alleges are collectively 
negotiated, price-fixed fee levels. The provision allowing payors six 
months during which they may request voluntary termination of their 
contracts with PHA is intended to provide them with flexibility and 
facilitate their making alternative arrangements to provide the 
services now provided through their contracts with PHA.
    The mandatory termination date also obviates the risk that any 
payor would face competitive disadvantage by voluntarily terminating a 
PHA contract--and not have a physician network in place--before rival 
payors have terminated their contracts. Establishing a mandatory 
termination date provides an incentive for all payors to act promptly 
to make alternative arrangements for a physician network before the 
termination date, makes clear to PHA's physician members that they 
promptly must begin to deal directly (or outside of PHA) with the 
payors if they wish to continue being in the payors' networks, and 
eliminates the possible disincentive for a payor to be the first to 
voluntarily terminate its contract with PHA because it would be the 
first payor in the market not to have a contracted network of 
physicians.
    Paragraph VII also requires PHA, for five years, annually to 
publish a copy of the order and complaint in a report or newsletter 
sent to its participating providers, and file certain compliance 
reports with the Commission. Paragraphs VIII, IX, and X provide for 
various compliance reports and notifications by PHA and the Physician 
Respondents. Paragraph XI obligates the Respondents to cooperate in 
certain ways with any Commission inquiry into their compliance with the 
order.
    The proposed order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-19444 Filed 8-24-04; 8:45 am]
BILLING CODE 6750-01-P