[Federal Register Volume 77, Number 166 (Monday, August 27, 2012)]
[Notices]
[Pages 51801-51804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20955]


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FEDERAL TRADE COMMISSION

[File No. 101 0079]


Cooperativa de Farmacias Puertorriquenas; Analysis of Agreement 
Containing Consent Order 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 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 20, 2012.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Coopharma, File No. 
101 0079'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/coopharmaconsentument, by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Randall Marks (202-326-2571), FTC,

[[Page 51802]]

Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

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 the 
Commission 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 August 21, 2012), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. 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.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before September 20, 
2012. Write ``Coopharma, File No. 101 0079'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/coopharmaconsentument by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``Coopharma, File No. 101 
0079'' on your comment and on the envelope, and mail or deliver it to 
the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before September 20, 2012. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission'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 
Cooperativa de Farmacias Puertorrique[ntilde]as (``Coopharma'' or 
``Respondent''). The agreement settles charges that Coopharma violated 
Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 
45, by negotiating, entering into, and implementing agreements among 
its member pharmacy owners to fix the prices on which they contract 
with third-party payers in Puerto Rico.
    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 consent order final.
    The purpose of this analysis is to facilitate public comment on the 
proposed consent order. The analysis is not intended to constitute an 
official interpretation of the agreement and proposed consent 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 Respondent that it violated the law or that 
the facts alleged in the proposed complaint (other than jurisdictional 
facts) are true.

The Proposed Complaint

    Coopharma is a not-for-profit corporation organized and doing 
business as a cooperative under the laws of Puerto Rico. Coopharma 
consists of approximately 300 pharmacy owners who own roughly 360 
community pharmacies in Puerto Rico. Coopharma members control at least 
a third of the pharmacies in Puerto Rico and the organization has a 
particularly strong presence on the western side of the main island.
    Coopharma was established with the principal purpose of negotiating 
on behalf of its members and entering into single-signature ``master 
contracts'' with payers that bind all Coopharma pharmacies. The 
proposed complaint alleges that Coopharma members negotiated 
collectively through Coopharma to obtain higher reimbursement rates 
than its members were receiving in their individual contracts with 
payers, including pharmacy benefits managers and insurers.
    The proposed complaint alleges that Coopharma's member pharmacies 
restrained competition by jointly negotiating and entering into 
agreements with third-party payers.

[[Page 51803]]

Coopharma achieved this result by encouraging its members: (1) To 
refuse to deal with third-party payers except through Coopharma; and 
(2) to threaten termination, or actually terminate, contracts with 
payers that refused to deal with Coopharma on the terms it demanded.
    Coopharma collectively negotiated reimbursement rates with more 
than ten payers and has reached agreements on behalf of its members 
with seven of them. The mere threat of Coopharma members' collective 
action led two additional payers to pay higher rates. The proposed 
complaint alleges that Coopharma's actions caused payers to pay higher 
reimbursement rates to Coopharma members, and that this price increase 
ultimately may be passed along to consumers in the form of higher 
premium payments, diminished service, or reduced coverage. As a result, 
Coopharma's actions caused substantial harm to the consumers of Puerto 
Rico. Coopharma's conduct was unrelated to any efficiency-enhancing 
integration among its members.

Negotiations With CVS-Caremark

    As a specific example of Coopharma's misconduct, the proposed 
complaint alleges that CVS-Caremark (``Caremark''), a pharmacy benefits 
manager operating in Puerto Rico, was forced to rescind a rate cut and 
to enter into a master contract at a higher rate because of the 
collective action of Coopharma members.
    In 2008, Caremark notified pharmacies throughout the country that 
it was reducing reimbursement on its Medicare Part D contracts. 
Coopharma mobilized its members to collectively resist that rate 
change. Coopharma provided its members with a form letter, which many 
sent, rejecting the new Medicare Part D contracts and telling Caremark 
to negotiate rates through Coopharma. Coopharma then informed Caremark 
that its members would not accept Caremark's reimbursement offer and 
demanded higher rates. Coopharma also informed certain Caremark clients 
that Caremark was threatening to terminate pharmacies that did not 
accept Caremark's rate change. This pressure led Caremark to rescind 
the Part D rate change for the pharmacies that sent letters rejecting 
the change.
    Coopharma continued to pressure Caremark to enter into a master 
contract on all lines of business, including Medicare Part D. Coopharma 
used the same basic tactics to accomplish this goal, by: (1) Demanding 
that Caremark negotiate exclusively through Coopharma; (2) threatening 
that its members would terminate their Caremark contracts; and (3) 
contacting Caremark's clients. Indeed, Coopharma took the matter public 
by placing a newspaper advertisement stating that negotiations with 
Caremark had failed and that, as of May 28, 2009, ``we will not 
continue providing services'' to Caremark patients.
    In August 2009, Caremark agreed to replace Coopharma's members' 
individual contracts with a master contract with Coopharma. The 
proposed complaint alleges that Caremark's price concessions cost it 
approximately $640,000 in 2009 alone.

Other Coercive Conduct

    In addition, the proposed complaint alleges that in at least two 
instances, the mere threat of collective terminations benefitted 
individual Coopharma pharmacies at a cost of millions of dollars to 
third-party payers. Coopharma pharmacies obtained higher reimbursement 
rates from third-party payers Medco and Medicare Mucho Mas even though 
negotiations with Coopharma did not result in a master contract. During 
its negotiations with Medco, Coopharma threatened to pull all Coopharma 
pharmacies out of Medco's network. In an attempt to prevent such a 
disruption of its network, Medco raised the reimbursement rates it paid 
to individual Coopharma pharmacies, a concession that cost Medco and 
its clients over $2 million between 2007 and 2011. Medicare Mucho Mas, 
a large Medicare Advantage payer, also feared that Coopharma could 
cause a similar disruption in its pharmacy network. As a result, 
Medicare Mucho Mas' pharmacy benefits manager offered a higher 
reimbursement rate to Coopharma pharmacies.
    Finally, the proposed complaint alleges that Coopharma attempted to 
use collective action to resist a reimbursement rate reduction by 
health insurer Humana. Coopharma attempted to coerce Humana into 
maintaining its reimbursement rates by threatening termination of the 
individual contracts and pressuring it into entering into a master 
contract. When Humana asserted that Coopharma lacked the legal 
authority to terminate its members' contracts, Coopharma encouraged its 
members to terminate their contracts individually.

Coopharma Cannot Qualify for State Action Immunity

    The proposed complaint alleges that Coopharma's anticompetitive 
conduct cannot be shielded by the state action doctrine. The state 
action doctrine provides that states are not subject to federal 
antitrust liability, and that by extension certain subordinate state 
entities and private parties exercising state-granted powers may be 
immunized as well.\2\ Private parties claiming the protection of this 
immunity must meet two elements. First, private parties must 
demonstrate that the challenged conduct was undertaken pursuant to a 
clearly articulated state policy to displace competition with 
regulation. Second, private parties must show that the challenged 
conduct has been actively supervised by the state.\3\ The proposed 
complaint alleges that neither requirement is satisfied here.
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    \2\ See, e.g., Parker v. Brown, 317 U.S. 341 (1943).
    \3\ California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 
Inc., 445 U.S. 97, 105 (1980).
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    Puerto Rico has not clearly articulated a policy to replace 
competition with the challenged conduct. Law 203 regulates ``collective 
bargaining'' between providers of health care services, including 
pharmacies, on the one hand, and payers, on the other.\4\ However, Law 
203 limits collective bargaining to situations where the providers 
obtain a certificate verifying that they constitute less than 20 
percent of providers in a particular area, do not engage in boycotts, 
submit to mandatory arbitration in the case of an impasse, and comply 
with certain other requirements.\5\ Coopharma has not-- and cannot--
satisfy these requirements.\6\
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    \4\ 26 L.P.R.A. Sec.  3101, et seq.
    \5\ E.g., 26 L.P.R.A. Sec. Sec.  31.040; 31.050; 31.060.
    \6\ The Commission is aware that Law 239, which regulates 
cooperatives generally, declared that cooperatives ``shall not be 
considered conspiracies or cartels to restrict business.'' 5 
L.P.R.A. Sec.  4516 (Law 239, Sec.  20.5). The Commission and the 
Puerto Rico Department of Justice interpret Law 203 (which was 
passed after Law 239) to supersede Law 239. At the very least, Law 
203 imposes additional requirements on health care cooperatives, 
which Coopharma cannot meet.
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    The proposed complaint also alleges that Puerto Rico has not 
actively supervised Coopharma's conduct because no Puerto Rican 
official has exercised the power to review, approve, or disapprove 
either the rates in Coopharma's contracts with payers or the coercive 
collective action it used to obtain them.\7\ Under Law 203, Coopharma 
has neither sought to comply with nor satisfied any of the law's 
requirements. Even under Law 239, the Puerto Rico agency charged with 
the general regulation of cooperatives, the Corporacion para la 
Supervision y Seguro de Cooperativas

[[Page 51804]]

de Puerto Rico (``COSSEC''), has no process in place for reviewing 
cooperatives' negotiations with payers or for approving or disapproving 
prices and other terms that result from such negotiations.
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    \7\ Cf. Patrick v. Burget, 486 U.S. 94, 101 (1988) (``The active 
supervision prong of the Midcal test requires that state officials 
have and exercise power to review particular anticompetitive acts of 
private parties and disapprove those that fail to accord with state 
policy.'').
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The Proposed Consent Order

    The proposed consent order is designed to prevent the continuance 
and recurrence of the illegal conduct alleged in the proposed 
complaint, while allowing Coopharma to engage in legitimate joint 
conduct.
    Paragraph II prevents Coopharma from continuing the challenged 
conduct. Paragraph II.A prohibits Respondent from entering into or 
facilitating agreements between or among any pharmacies: (1) To 
negotiate on behalf of any pharmacy with any payer; (2) to refuse to 
deal or threaten to refuse to deal with any payer; (3) to include any 
term, condition, or requirement upon which any pharmacy deals, or is 
willing to deal, with any payer, but not limited to, price terms; or 
(4) not to deal individually with any payer, or not to deal with any 
payer other than through Respondent.
    The other parts of Paragraph II reinforce these general 
prohibitions. Paragraph II.B prohibits Respondent from facilitating 
exchanges of information between pharmacies concerning whether, and on 
what terms, to contract with a payer. Paragraph II.C bars attempts to 
engage in any action prohibited by Paragraph II.A or II.B, and 
Paragraph II.D proscribes encouraging, suggesting, advising, 
pressuring, inducing, or attempting to induce any person to engage in 
any action that would be prohibited by Paragraphs II.A through II.C.
    Paragraph III is designed to prevent the challenged conduct from 
reoccurring. Paragraph III.A requires Coopharma to send a copy of the 
complaint and consent order to its members, its management and staff, 
and any payers with whom Coopharma has contracted at any time since 
January 1, 2008. Paragraph III.B allows for contract termination if a 
payer voluntarily submits a request to Coopharma to terminate its 
contract. Pursuant to such a request, Paragraph III.B requires 
Coopharma to terminate, without penalty, any pre-existing payer 
contracts. Upon receiving such request, Paragraph III.C requires that 
Coopharma notify in writing each pharmacy that provides services 
through that contract to be terminated. Paragraph III.D requires 
Coopharma, for three years, to distribute a copy of the complaint and 
consent order to new members, officers, directors, and employees, and 
to payers who begin contracting with Coopharma and to post them on its 
Web site.
    Paragraphs IV, V, and VI impose various obligations on Coopharma to 
report or to provide access to information to the Commission to 
facilitate its compliance with the consent order. Finally, Paragraph 
VII provides that the proposed consent order will expire 20 years from 
the date it is issued.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2012-20955 Filed 8-24-12; 8:45 am]
BILLING CODE 6750-01-P