[Federal Register Volume 70, Number 45 (Wednesday, March 9, 2005)]
[Notices]
[Pages 11675-11677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4594]


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FEDERAL TRADE COMMISSION

[File No. 041 0099]


Preferred Health Services, 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 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 March 30, 2005.

ADDRESSES: Comments should refer to ``Preferred Health Services, Inc., 
File No. 041 0099,'' 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 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 March 2, 2005), on the World Wide Web, at http://www.ftc.gov/os/2005/03/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 March 30, 2005. Comments should refer to ``Preferred 
Health Services, Inc., File No. 041 0099,'' 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

[[Page 11676]]

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 
Preferred Health Services, Inc. (Preferred Health). The agreement 
settles charges that Preferred Health violated section 5 of the Federal 
Trade Commission Act, 15 U.S.C. 45, by orchestrating and implementing 
agreements among members of Preferred Health 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 Preferred Health that it 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.
    Preferred Health is a physician-hospital organization consisting of 
over 100 physicians and Oconee Memorial Hospital. Preferred Health does 
business in the Seneca, South Carolina, area, which is located in 
northwestern South Carolina. Preferred Health acts as a ``contracting 
representative'' for its physician members in negotiations with health 
plans, and a ``collective bargaining unit for the negotiation of 
managed care contracts.''
    Preferred Health's physician members account for approximately 70% 
of the physicians independently practicing (that is, those not employed 
by area hospitals) in and around the Seneca area. To be marketable in 
the Seneca area, a health plan must have access to a large number of 
physicians who are members of Preferred Health.
    Although Preferred Health purports to operate as a ``messenger 
model'' \2\--that is, an arrangement that does not facilitate 
horizontal agreements on price--it orchestrated such price agreements. 
In contract negotiations with payors, Preferred Health uses a physician 
fee schedule created by its Executive Director and approved by its 
Board of Directors. Preferred Health's membership agreement 
automatically binds physician members to contracts using the Preferred 
Health fee schedule. Whenever a health plan rejects the Preferred 
Health fee schedule, Preferred Health's Executive Director negotiates, 
under the Board's direction, a contract with a ``comparable'' fee 
schedule. The Executive Director transmits these contracts to the 
Board, and then to the physician members if the Board approves it. If a 
contract contains a Board-approved ``comparable'' fee schedule, 
physician members have 30 days to reject the contract. The only 
recourse available to a physician member who rejects a contract with a 
``comparable'' fee schedule is to terminate his or her membership in 
Preferred Health.
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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#9.
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    Preferred Health has orchestrated collective agreements on fees and 
other terms of dealing with health plans, carried out collective 
negotiations with health plans, fostered refusals to deal, and 
threatened to refuse to deal with health plans that resisted 
Respondent's desired terms. Respondent succeeded in forcing numerous 
health plans to raise the fees paid to Preferred Health physician 
members, and thereby raised the cost of medical care in the Seneca 
area. Preferred Health engaged in no efficiency-enhancing integration 
sufficient to justify joint negotiation of fees. By the acts set forth 
in the Complaint, Respondent 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.
    The proposed order's specific provisions are as follows:
    Paragraph II.A prohibits Respondent from entering into 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 the 
Respondent.
    Other parts of Paragraph II reinforce these general prohibitions. 
Paragraph II.B prohibits the Respondent from facilitating exchanges of 
information between physicians 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 Respondent from inducing anyone to engage in any action 
prohibited by Paragraphs II.A through II.C.
    Paragraph II.E contains certain additional ``fencing-in'' relief, 
which is imposed for three years. Under this provision, Preferred 
Health may not, in connection with physician health plan contracting, 
either (1) act as an agent for any physicians; or (2) use an agent with 
respect to contracting. Such relief, designed to assure that Preferred 
Health does not seek to use other arrangements to continue the 
challenged conduct, is warranted in light of the complaint charges that 
Preferred Health engaged in overt price-fixing behavior, and its 
assertion that its conduct was legitimate ``messengering'' of health 
plan contract offers.
    As in other Commission orders addressing providers' collective 
bargaining with health care purchasers, certain kinds of agreements are 
excluded from the general bar on joint negotiations. Respondent would 
not be precluded from engaging in conduct that is reasonably necessary 
to form or participate in legitimate joint contracting arrangements 
among competing physicians in a ``qualified risk-sharing joint 
arrangement'' or a ``qualified clinically-integrated joint 
arrangement.'' The arrangement, however, must not facilitate the 
refusal

[[Page 11677]]

of, or restrict, physicians in 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 physician 
participants must share substantial financial risk through the 
arrangement, such that the arrangement creates incentives for the 
physician 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, physician participants must participate 
in 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 physicians. 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.
    Paragraph III, for three years, requires Preferred Health to notify 
the Commission before participating in contracting with health plans on 
behalf of a qualified risk-sharing joint arrangement or qualified 
clinically-integrated joint arrangement. Paragraph III sets out the 
information necessary to make the notification complete.
    Paragraph IV, for three years after the bar on messengering ends, 
requires Preferred Health to notify the Commission before entering into 
any arrangement to act as a messenger, or as an agent on behalf of any 
physicians, with payors regarding contracts. Paragraph IV also sets out 
the information necessary to make the notification complete.
    Paragraph V requires Preferred Health to distribute the complaint 
and order to all physicians who have participated in Preferred Health, 
and to payors that negotiated contracts with Preferred Health or 
indicated an interest in contracting with Preferred Health. Paragraph 
V.C requires Preferred Health, at any payor's request and without 
penalty, or within one year after the Order is made final, to terminate 
its current contracts with respect to providing physician services. 
Paragraph V.D requires Preferred Health to distribute payor requests 
for contract termination to all physicians who participate in Preferred 
Health. Paragraph V.E.1.b requires Preferred Health to distribute the 
complaint and order to any payors that negotiate contracts with 
Preferred Health in the next three years.
    Paragraphs VI and VII of the proposed order impose various 
obligations on Respondent to report or provide access to information to 
the Commission to facilitate monitoring Respondent's compliance with 
the order.
    The proposed order will expire in 20 years.

    By direction of the Commission, Chairman Majoras not 
participating.
Donald S. Clark,
Secretary.
[FR Doc. 05-4594 Filed 3-8-05; 8:45 am]
BILLING CODE 6750-01-P