[Federal Register Volume 80, Number 203 (Wednesday, October 21, 2015)]
[Notices]
[Pages 63787-63790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26690]


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FEDERAL TRADE COMMISSION

[File No. 141 0025]


Keystone Orthopaedic Specialists, LLC and Orthopaedic Associates 
of Reading, Ltd.; 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 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 November 16, 2015.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/keyorthoconsentconsent online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``Keystone 
Orthopaedic Specialists, LLC.,--Consent Agreement; File No.141-0025'' 
on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/keyorthoconsentconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``Keystone Orthopaedic Specialists, LLC.,--Consent 
Agreement; File No.141-0025'' on your comment and on the envelope, and 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 
(Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Robert Canterman (202-326-2701), 
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing 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 October 15, 2015), on the World Wide Web, 
at http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before November 16, 
2015. Write ``Keystone Orthopaedic Specialists, LLC.,--Consent 
Agreement; File No.141-0025'' 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://

[[Page 63788]]

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 privileged or confidential,'' as discussed 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/keyorthoconsentconsent 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 ``Keystone Orthopaedic 
Specialists, LLC.,--Consent Agreement; File No.141-0025'' on your 
comment and on the envelope, and mail your comment to the following 
address: Federal Trade Commission, Office of the Secretary, 600 
Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, 
or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. 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 November 16, 2015. 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

I. Overview

    The Federal Trade Commission has accepted, subject to final 
approval, an Agreement Containing a Consent Order (``Consent 
Agreement'') with Keystone Orthopaedic Specialists, LLC (``Keystone''), 
and Orthopaedic Associates of Reading, Ltd. (``Orthopaedic 
Associates'') (together ``Respondents''). The Consent Agreement settles 
charges that Respondents violated Section 7 of the Clayton Act, as 
amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 
U.S.C. 45.
    The Consent Agreement 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 Consent Agreement and the comments 
received, and will decide whether it should withdraw from the Consent 
Agreement, modify it, or make it final.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement. The analysis is not intended to constitute an 
official interpretation of the Consent Agreement or to modify its terms 
in any way. Further, the Consent Agreement has been entered into for 
settlement purposes only and does not constitute an admission by 
Respondents that they violated the law or that the facts alleged in the 
Complaint (other than jurisdictional facts) are true.

II. Background and Market Structure

    Nineteen orthopedists affiliated with six independent orthopedic 
practices in Berks County, Pennsylvania, merged to form Keystone in 
January 2011 (the ``Merger''). One of those practices is Respondent 
Orthopaedic Associates, and the other five practices are Advanced 
Orthopaedics of Reading, Arthritis & Joint Replacement Center of 
Reading, P.C., Berkshire Orthopedic Associates, Inc., Commonwealth 
Orthopaedic Associates, Inc., and Reading Neck and Spine Center, P.C. 
(``Keystone Component Practices''). The Keystone Component Practices 
became divisions of Keystone after the Merger.
    Before the Merger, competition among orthopedists in Berks County 
was robust. At that time, 25 orthopedists in 11 independent practices 
competed to provide orthopedic physician services. The Merger 
substantially eliminated this competition by combining 19 out of 25, or 
76 percent, of the orthopedists practicing in Berks County into one 
practice. Only six other orthopedists remained as competitors. After 
the Merger, the Keystone orthopedists ceased to do business through 
their respective independent practices and began doing business 
exclusively through Keystone. Three years after the Merger, in 2014, 
six orthopedists left Keystone and resumed doing business as 
Orthopaedic Associates for business reasons independent of the 
Commission's investigation.

III. The Relevant Markets

    The relevant line of commerce in which to analyze the Merger's 
effects is the provision of orthopedic physician services. Orthopedic 
physician services include surgery and other services provided by 
physicians who specialize as orthopedists to treat injuries and 
diseases of the musculoskeletal system.
    The relevant geographic market in which to assess the competitive 
effects of the Merger is Berks County, Pennsylvania. Patients in Berks 
County generally do not leave the county to obtain orthopedic physician 
services, and health plans are unable to serve their members in Berks 
County without including Berks County orthopedists in their provider 
networks.

IV. Effects of the Merger

    Before the Merger, the Keystone Component Practices competed with 
each other, and health plans could form a network with some of the 
Keystone Component Practices. The Merger eliminated this competition 
and created

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a dominant orthopedic practice in Berks County. After the Merger, 
Keystone negotiated prices with health plans on behalf of all the 
previously competing Keystone Component Practices, and health plans 
could not offer a commercially marketable network that would appeal to 
Berks County residents without Keystone. Thus, Keystone gained 
substantial market power through the Merger, which it used to raise 
prices with most health plans with coverage in Berks County.

V. Entry

    Recruiting new orthopedists to Berks County is difficult, 
expensive, and time intensive. Neither entry by new practices nor 
expansion by the remaining practices following the Merger has been 
timely or sufficient to offset the actual anticompetitive harm from the 
Merger. Nor is future entry to be timely, likely, or sufficient to do 
so.

VI. Efficiencies

    The Merger has not produced merger-specific efficiencies sufficient 
to offset the actual anticompetitive harm from the Merger.

VII. The Decision and Order

    The proposed Decision and Order (``Order'') is designed to maintain 
competition in the relevant market, including by prohibiting future 
anticompetitive consolidation, and by allowing health plans to cancel 
and renegotiate the contracts they entered with Keystone after the 
Merger was consummated.
    In evaluating the remedies in the proposed Order, it is important 
to note that market conditions have changed since the 2011 Merger. 
Market concentration levels are lower now than after the Merger was 
consummated in 2011 due to orthopedists leaving Keystone. Most 
significantly, for reasons independent of and pre-dating the 
Commission's investigation, six orthopedists separated from Keystone in 
2014 and resumed doing business separately and independently as 
Orthopaedic Associates. Following the separation, Orthopaedic 
Associates has become a major player in the market with eight 
orthopedists. Keystone, in contrast, currently has 11 orthopedists, 
down from 19 when the Merger was consummated.
    Had Orthopaedic Associates remained a part of Keystone, the 
Commission likely would have sought divestiture. As it is, the unique 
circumstance of Orthopaedic Associates' separation from Keystone for 
business reasons pre-dating the Commission's investigation resulted in 
structural changes that factored into the Commission's decision not to 
pursue further structural relief. But a recombination of the two groups 
could raise serious antitrust concern. Therefore, the proposed Order is 
designed to maintain competition in the relevant market by, among other 
things, preserving the Orthopaedic Associates' separation, and by 
allowing health plans to avail themselves of current market conditions 
by renegotiating existing Keystone contracts. Orthopaedic Associates is 
a named Respondent because its orthopedists helped form Keystone and 
benefitted from Keystone's post-merger price increases. Moreover, 
putting Orthopaedic Associates under Order is necessary to obtain 
appropriate relief, as discussed below.
    Paragraph II of the proposed Order preserves Orthopaedic 
Associates' separation by requiring Keystone and Orthopaedic Associates 
to obtain prior approval from the Commission before acquiring any 
interest in each other.
    Paragraph III requires Keystone and Orthopaedic Associates to 
obtain prior approval from the Commission before either practice may 
acquire another orthopedic practice located in Berks County. Keystone 
and Orthopaedic Associates also must obtain prior approval before 
entering into any employment, membership, or other agreement of 
affiliation with an orthopedist who during the prior year provided 
services in Berks County.
    The proposed Order also prohibits Keystone and Orthopaedic 
Associates from engaging in illegal concerted activity apart from 
merging or acquiring other practices in Berks County. Under the 
Horizontal Merger Guidelines, mergers may harm competition where a 
``market shows signs of vulnerability to coordinated conduct.'' In this 
case, the Commission is concerned that the effects of this consummated 
merger could linger because of the close ties developed between 
Keystone and Orthopaedic Associates. Keystone and the orthopedists 
affiliated with Orthopaedic Associates jointly negotiated with payors 
and shared price information for over three years before the 
Orthopaedic Associates orthopedists left Keystone. Therefore, Paragraph 
IV includes provisions prohibiting certain joint activity among 
competing orthopedists who are members of or employed by Keystone or 
Orthopaedic Associates in order to limit the risk of coordination.
    Paragraph IV.A prohibits Keystone and Orthopaedic Associates from 
jointly negotiating or refusing to deal with payors, and from engaging 
in this conduct with other orthopedists in Berks County. Paragraph IV.B 
prohibits Keystone and Orthopaedic Associates from facilitating 
exchanges of information among orthopedists concerning whether, and on 
what terms, to contract with a payor. Paragraph IV.C bars attempts to 
engage in any action prohibited by Paragraphs IV.A or IV.B. Paragraph 
IV.D proscribes inducing anyone to engage in any action prohibited by 
Paragraphs IV.A through IV.C.
    Certain kinds of agreements that do not raise antitrust concerns 
are excluded from the general bar on joint negotiations. Paragraph IV 
does not preclude Keystone or Orthopaedic Associates from engaging in 
conduct that is reasonably necessary to form or participate in 
``qualified risk-sharing'' or ``qualified clinically-integrated'' joint 
arrangements, as defined in the Order. Paragraph V requires Keystone 
and Orthopaedic Associates to notify the Commission before initiating 
certain contacts regarding contracts with payors pursuant to these 
joint arrangements. Paragraph V also sets out the information necessary 
to satisfy the notification requirement.
    Paragraph VI imposes other notification obligations on Keystone and 
Orthopaedic Associates and requires the termination of certain 
contracts that were entered into after the Merger. Paragraphs VI.A and 
VI.B require Keystone and Orthopaedic Associates to distribute the 
Complaint and Order to their respective orthopedist members and 
personnel identified in the Order, and to each payor that they have a 
record of having been in contact with since January 1, 2010.
    Paragraph VI.C requires Keystone and Orthopaedic Associates to 
terminate, without penalty, any existing contracts with payors for the 
provision of orthopedic physician services at the earlier of a written 
request from a payor to terminate or the earliest termination or 
renewal date under the contract. Paragraph VI.C also allows a payor to 
extend a contract beyond the termination or renewal date for a period 
of no longer than one year from the date the order becomes final to 
allow payors sufficient time to renegotiate contracts with Keystone and 
Orthopaedic Associates. The contract termination requirement allows 
payors to avail themselves of current conditions in renegotiating 
contracts, where Keystone is no longer the dominant provider. Paragraph 
VI.D requires Keystone and Orthopaedic Associates to distribute payor 
requests for contract termination to their respective orthopedist 
members. Paragraph VI.E requires Keystone and Orthopaedic Associates to 
provide new

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orthopedists, payors, and various personnel not previously receiving a 
copy, a copy of the Order and the Complaint.
    Paragraphs VII, VIII, and IX impose various obligations on Keystone 
and Orthopaedic Associates to report or provide access to information 
to the Commission to facilitate the monitoring of compliance with the 
Order. Finally, Paragraph X provides that the Order will expire in 10 
years from the date it is issued.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2015-26690 Filed 10-20-15; 8:45 am]
BILLING CODE 6750-01-P