[Federal Register Volume 69, Number 159 (Friday, October 8, 2004)]
[Notices]
[Pages 60397-60399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22699]


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FEDERAL TRADE COMMISSION

[File No. 031 0135]


White Sands Health Care System, 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 28, 2004.

ADDRESSES: Comments should refer to ``White Sands Health Care System, 
L.L.C., et al., File No. 031 0135,'' 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: Steve Vieux, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2306.

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 September 28, 2004), on the World Wide Web, at http://www.ftc.gov/os/2004/09/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. Written comments must be submitted 
on or before October 28, 2004. Comments should refer to ``White Sands 
Health Care System, L.L.C., et al., File No. 031 0135,'' 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. 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 http://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 the 
White Sands Health Care System, L.L.C., Alamogordo Physicians' 
Cooperative, Inc., Dacite, Inc., and James R. Laurenza. The agreement 
settles charges that these

[[Page 60398]]

parties violated Section 5 of the Federal Trade Commission Act, 15 
U.S.C. 45, by orchestrating and implementing agreements among the 
physician and certified registered nurse anesthetist (nurse 
anesthetist) members of White Sands to fix prices and other terms on 
which they 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 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 any respondent that said respondent violated the law or that the 
facts alleged in the Complaint (other than jurisdictional facts) are 
true.

The Complaint

    The allegations of the Complaint are summarized below.
    White Sands is a physician-hospital organization (PHO), consisting 
of Alamogordo Physicians, an independent practice association (IPA); 
Gerald Champion Regional Medical Center (Gerald Champion), the sole 
hospital in the Alamogordo area, which is located in south-central New 
Mexico; and 31 non-physician health care providers, including all five 
nurse anesthetists in the Alamogordo area. White Sands was organized in 
1996 to ``develop pricing policies and * * * negotiate and enter into 
Managed Care Contracts'' on behalf of its members.
    Alamogordo Physicians is composed of 45 physicians, representing 
84% percent of all physicians independently practicing (that is, those 
not employed by area hospitals) in and around the Alamogordo area. 
Dacite provides consulting and payor contracting services to White 
Sands. Mr. Laurenza is the founder and President of Dacite, and the 
General Manager and principal contract negotiator for White Sands.
    White Sands' members refuse to deal with health plans on an 
individual basis. Instead, Mr. Laurenza negotiates price and other 
contract terms with health plans that desire to contract with White 
Sands' members. Contract terms for physician services that Mr. Laurenza 
negotiates for White Sands are presented to the White Sands' Board of 
Managers for approval after acceptance by the Alamogordo Physicians' 
Board of Directors. Mr. Laurenza also negotiates contract provisions, 
including fees, on behalf of independently practicing non-physician 
health care providers, namely nurse anesthetists. Respondents have 
orchestrated collective agreements on fees and other terms of dealing 
with health plans, carried out collective negotiations with health 
plans, and orchestrated refusals to deal and threats to refuse to deal 
with health plans that resisted respondents' desired terms. Although 
White Sands purported to operate as a ``messenger model,''--that is, an 
arrangement that does not facilitate horizontal agreements on price--it 
engaged in various actions that demonstrated or orchestrated such 
agreements.\2\
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    \2\ Some arrangements can facilitate contracting between health 
care providers and payors without fostering an illegal agreement 
among competing physicians on fees or fee-related terms. One such 
approach, sometimes referred to as a ``messenger model'' 
arrangement, is 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, at 125. See http://www.ftc.gov/reports/hlth3s.htm#8.
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    Respondents have repeatedly succeeded in forcing numerous health 
plans to raise fees paid to White Sands' members, and thereby raised 
the cost of medical care in the Alamogordo area. They have been 
successful in ``leverag[ing] the collective power of the members in 
obtaining more favorable reimbursement rates than could be negotiated * 
* * individually.''
    White Sands engaged in no efficiency-enhancing integration 
sufficient to justify respondents' joint negotiation of fees. By 
orchestrating agreements among White Sands members to deal only on 
collectively-determined terms, and actual or threatened refusals to 
deal with health plans that would not meet those terms, respondents 
have violated Section 5 of the FTC Act.

The Proposed Consent Order

    The proposed Order is designed to remedy the illegal conduct 
charged in the Complaint and prevent its recurrence. It is similar to 
recent consent orders that the Commission has issued to settle charges 
that physician groups engaged in unlawful agreements to raise fees they 
receive from health plans. Unlike recent consent orders, however, this 
Order also settles charges that non-physician health care providers 
engaged in unlawful price agreements as well. The Order also includes 
temporary ``fencing-in'' relief to ensure that the alleged unlawful 
conduct by respondents does not continue.
    The proposed Order's specific provisions are as follows:
    Paragraph II.A prohibits respondents from entering into or 
facilitating any agreement between or among any health care providers: 
(1) To negotiate with payors on any health care provider'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 
the respondents.
    Other parts of Paragraph II reinforce these general prohibitions. 
Paragraph II.B prohibits the respondents from facilitating exchanges of 
information between health care providers concerning whether, or on 
what terms, to contract with a payor. Paragraph II.C bars attempts to 
engage in any action prohibited by Paragraph II.A or II.B, and 
Paragraph II.D proscribes inducing anyone to engage in any action 
prohibited by Paragraphs II.A through II.C.
    As in other Commission orders addressing health care providers' 
collective bargaining with health care purchasers, certain kinds of 
agreements are excluded from the general bar on joint negotiations. 
First, respondents would not be precluded from engaging in conduct that 
is reasonably necessary to form or participate in legitimate joint 
contracting arrangements among competing health care providers, whether 
a ``qualified risk-sharing joint arrangement'' or a ``qualified 
clinically-integrated joint arrangement.'' The arrangement, however, 
must not facilitate the refusal of, or restrict, participants from 
contracting with payors outside of the arrangement.
    As defined in the proposed Order, a ``qualified risk-sharing joint 
arrangement'' possesses two key characteristics. First, all 
participants must share substantial financial risk through the 
arrangement, such that the arrangement creates incentives for the 
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.
    A ``qualified clinically-integrated joint arrangement,'' on the 
other hand, need not involve any sharing of financial risk. Instead, as 
defined in the proposed Order, participants must participate in

[[Page 60399]]

active and ongoing programs to evaluate and modify their clinical 
practice patterns in order to control costs and ensure the quality of 
services provided, and the arrangement must create a high degree of 
interdependence and cooperation among participants. As with qualified 
risk-sharing arrangements, any agreement concerning price or other 
terms of dealing must be reasonably necessary to achieve the efficiency 
goals of the joint arrangement.
    Also, because the Order is intended to reach agreements among 
horizontal competitors, Paragraph II would not bar agreements that only 
involve health care providers who are part of the same medical group 
practice (defined in Paragraph I.E).
    Paragraph III, for a period of three years, bars Dacite and Mr. 
Laurenza from negotiating with any payor on behalf of White Sands, 
Alamogordo Physicians, or any White Sands or Alamogordo Physicians 
member; and from advising any White Sands or Alamogordo Physicians 
member to accept or reject any term, condition, or requirement of 
dealing with any payor. This temporary ``fencing-in'' relief is 
included to ensure that the alleged unlawful conduct by these 
respondents does not continue.
    Paragraph IV, for a period of three years, requires respondents to 
notify the Commission before entering into any arrangement to act as a 
messenger, or as an agent on behalf of any health care providers, with 
payors regarding contracts. Paragraph IV sets out the information 
necessary to make the notification complete.
    Paragraph V, which applies only to White Sands, requires White 
Sands to distribute the Complaint and Order to all health care 
providers who have participated in White Sands, and to payors that 
negotiated contracts with White Sands or indicated an interest in 
contracting with White Sands. Paragraph V.B requires White Sands, at 
any payor's request and without penalty, or within one year after the 
Order is made final, to terminate its current contracts. Paragraph V.C 
requires White Sands to distribute payor requests for contract 
termination to all health care providers who participate in White 
Sands, and, in the event that White Sands fails to comply with the 
requirements of Paragraph V due to dissolution or cessation of 
business, Alamogordo Physicians is required to do so.
    Paragraph VI requires Alamogordo Physicians to notify the 
Commission of any change in Alamogordo Physicians that may affect its 
compliance with the Order, such as dissolution. In the event that White 
Sands or Alamagordo Physicians fails to comply with the requirements of 
Paragraph V, or Alamogordo Physicians fails to comply with Paragraph 
VI, Paragraph VII would require Mr. Laurenza to do so.
    Paragraph VIII generally requires Dacite to distribute the 
Complaint and Order to health care providers who have participated in 
any group that has been represented by Dacite since January 1, 2003, 
and to each payor with which Dactite has dealt since January 1, 2003, 
for the purpose of contracting. In the event that Dacite fails to 
comply with the requirements of Paragraph VIII, Paragraph IX would 
require Mr. Laurenza to do so.
    Paragraphs V.E, V.F, VIII.C, VIII.D, X, and XI of the proposed 
Order impose various obligations on respondents to report or provide 
access to information to the Commission to facilitate monitoring 
respondents' compliance with the Order.
    The proposed Order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 04-22699 Filed 10-7-04; 8:45 am]
BILLING CODE 6750-01-P