UPDATE ON ANTITRUST DIVISION HEALTH CARE
                     ENFORCEMENT ACTIVITIES
                   MARCH 1995 - FEBRUARY 1996
                                
                                
                                
                                
                                
                                
                           GAIL KURSH
                 CHIEF, HEALTH CARE TASK FORCE
                       ANTITRUST DIVISION
                   U.S. DEPARTMENT OF JUSTICE
                                
                                
                                
                                
                                
                                
                                
                                
                           BEFORE THE
                                
                                
              NATIONAL HEALTH LAWYERS ASSOCIATION
                                
                                
                                
                                
                         WASHINGTON, DC
                                
                       FEBRUARY 22, 1996
                                
            UPDATE ON ANTITRUST DIVISION HEALTH CARE
      ENFORCEMENT ACTIVITIES -- MARCH 1995 - FEBRUARY 1996
                                
I.    INTRODUCTION
                                
     During the past year, the Antitrust Division filed one criminal and three civil
non-merger health care cases, appealed a negative decision in the Dubuque
hospital merger case, and closed one HMO merger investigation contingent on
a restructuring of the deal.  We also issued twelve health care business review
                  letters (all positive).     

     The Antitrust Division remains committed to preserving competition and
protecting and maximizing consumer welfare in health care markets.  At the
same time, as health care markets evolve, the antitrust laws are flexible enough
to adjust and respond accordingly -- promoting behavior that increases
efficiencies and consumer benefits and discouraging behavior that impedes the
development or availability of competitive alternatives.

II.  MULTIPROVIDER NETWORKS

     This past year, the Division took its first enforcement actions against
multiprovider networks, in the form of PHOs (physician hospital organizations). 
While our 1994 Health Care Policy Statements did not provide a "safety zone"
for multiprovider activities, they did discuss, in Statement 9, the antitrust
principles that the agencies would apply in analyzing such activities.  Our
analysis of two such entities resulted in two separate civil cases -- one in Danbury,
Connecticut and one in St. Joseph, Missouri.  Both cases were filed on September
13, 1995.

     A.  Facts and Complaints

     *  In each case, a monopoly hospital had joined with a substantial number
     (in Danbury, virtually all) of the physicians in the market to form a PHO,
     set prices for health care services, and dictate contract terms and
     conditions to managed care payers.
     *  The PHOs established or negotiated fee-for-service schedules for the
     doctors and negotiated contracts with managed care payers on behalf of
     the hospital and competing physicians.  In Danbury, the hospital also
     decided to limit the size and mix of its medical staff to restrain competition
     among doctors and gain an advantage over its outpatient competitors.

     *  At no time did the competing physicians, in either case, integrate their
     practices or share substantial financial risk.

     *  The complaints charged that the defendants in each case entered into an
     agreement that unreasonably restrained price and other competition
     among physicians, depriving consumers and third-party payers of the
     benefits of free and open competition in violation of Section 1 of the
     Sherman Act.  

     *  The complaints further charged that the defendants forced managed
     care plans to negotiate through the PHOs and jointly negotiated fees on
     behalf of competing doctors.  In Danbury, defendants also pressured
     members of  the medical staff to perform a substantial percentage of the
     doctors' outpatient procedures at the hospital.  

     *  The complaints also alleged that these actions forestalled the continued
     development of managed care plans and caused higher prices for medical
     services in these communities.  In addition, the complaint in Danbury
     charged that the hospital unlawfully maintained its market power in
     general acute care inpatient services and gained an unfair advantage in
     markets for outpatient services in violation of Section 2 of the Sherman
     Act.

     B.  The Consent Decrees

     *  Proposed final judgments in both cases would prevent defendants from
     negotiating collectively for competing physicians, unless they are
     financially integrated, and would substantially limit the number of
     physicians in any relevant market controlling the negotiating organization. 
     
     *  The proposed Danbury judgment would also prevent Danbury Hospital
     from continuing to abuse its monopoly power.  Thus, the proposed
     judgments stop the unlawful conduct of the defendants and protect against
     its recurrence.

     *  The judgments also provide guidance to the defendants in setting up an
     organization or engaging in conduct that is unlikely to pose antitrust
     concerns.  For example, the defendants may negotiate collectively for
     competing physicians only where the physicians share substantial financial
     risk and membership or ownership is limited, where exclusive, to 20%, or
     where nonexclusive, to 30% of the physicians in any relevant physician
     market.  (In the St. Joseph's judgment, negotiating organizations must be
     non-exclusive).

     *  Substantial financial risk may be achieved through capitation or other
     incentives to achieve cost-containment goals, such as withholding a
     percentage of fees due, to be distributed only if certain cost containment
     goals are met.

     *  The defendants may also market a financially integrated managed care
     plan with a larger physician panel than that comprising just owners or
     members by subcontracting with additional physicians, provided the plan
     bears risk for those subcontracting physicians.

     *  Also, the judgments allow defendants to use an agent or "messenger" to
     facilitate the transfer of information between individual physicians and
     purchasers of physician services.   While the terms of this provision
     essentially follow the Policy Statements' description of a messenger model,
     they expand upon the Policy Statements' descriptions of the type of activity
     in which a messenger may engage without violating the antitrust laws.

     *  Finally the judgments prohibit the hospitals from conditioning the
     provision of its inpatient hospital services on contracting with, or utilizing
          various plans, programs, or services in which the hospital has 
     an ownership interest.  The Danbury judgment further prohibits Danbury
     Hospital from continuing to abuse its control over admitting privileges with
     the purpose of reducing competition with the hospital in any line of
     business, including managed care, outpatient surgery or radiology, and
     physician services.

III.      MOST FAVORED NATION CASES

     Last year, the Division brought several cases challenging the use of
  most-favored-nation clauses (MFNs) in insurance company contracts with providers. 
These clauses require that if a provider offers a more favorable rate or deeper
discount to any payer than he or she gives to the payer using the MFN clause in
its contract, the same rate must be offered to the MFN payer.  Since these clauses
tend to be used by payers for whom providers are doing a large volume of
business, they can discourage providers from dropping their rates for any other
payers because of the significant reduction in income this will engender from the
MFN payer.  In 1994, the Division brought actions against Arizona Delta Dental
and Vision Service Plan, ending in consent decrees enjoining further use of MFN
clauses.  In 1995, we brought an action against a similar plan in Oregon --
Oregon Dental Service.

     * Oregon Dental Service ("ODS") contracts with businesses, governmental
     agencies, and others to provide prepaid dental care coverage to their
     employees.  More than 90% of the licensed dentists in Oregon contract
     with ODS, and payments from ODS represent significant portions of these
     dentists' income.

     *  ODS adopted and enforced an MFN clause in its contracts with dentists. 
     This caused significant numbers of dentists to refuse to discount their fees
     and prevented other dental insurance plans from attracting sufficient
     dentists to compete with ODS.  As a result, some plans left the market, and
     others had their ability to attract and serve patient groups severely
     restricted.  
     *  ODS paid the fees set by each of its provider dentists up to a maximum
     amount for each procedure (set at the 90th percentile of the fees of all ODS
     dentists for that procedure).  When a dentist submitted a fee schedule in
     which fees were below the ODS maximum, ODS informed the dentist of the
     maximum fee amounts so the dentist could raise fees to that level.  This had
     the effect of stabilizing fees at the maximum level.

     *  On April 10, 1995, the Division filed a civil antitrust case against ODS
     to stop its use of MFN clauses and its dissemination of information about
     maximum allowable fees for dental procedures.

     *  The court entered a consent decree on July 14, 1995.  It enjoins ODS
     from maintaining, adopting, or enforcing an MFN clause or similar
     provision in its contracts with dentists, from taking any other action to
     influence any dentist to refrain from offering discount fees or participating
     in any dental plan, and from disclosing the maximum allowable or
     acceptable fees for any dental procedure.

IV.  MERGERS

     The Division continues carefully to analyze mergers in the health care field
to determine whether proposed mergers threaten to lessen competition in any
properly defined relevant market.  During the past year, the Division investigated
over nine hospital mergers and three mergers involving HMOs or other health
care plans.  We also have looked closely at a number of physician practice
consolidations.  

     Two significant enforcement efforts this year in the health care merger
area concerned United Healthcare's acquisition of MetraHealth and the appeal
of the Dubuque Hospital merger decision.

     A.   United Healthcare Purchase of MetraHealth Companies

     On September 19, 1995, the Division announced that it would close its
investigation of United Healthcare's $1.65 billion purchase of MetraHealth
Companies if the parties completed plans to sell MetraHealth's HMO serving the
greater St. Louis metropolitan area.

     *  United Healthcare is one of the nation's largest and most experienced
     operators of, inter alia, HMOs, point of service plans, and PPOs. 
     MetraHealth is a joint-venture company formed by Metropolitan Life and
     the Travelers Insurance Companies to combine their health care
     businesses.  Although mostly indemnity, MetraHealth also offers managed
     health care plans.

     *  Our investigation to determine the probability of anticompetitive effects
     ultimately focused on HMOs in the St. Louis area.   

     *   The State of Missouri also investigated and issued an order requiring
     the divestiture of MetraHealth's St. Louis subsidiary to an approved 
     purchaser within a short period, with a hold-separate order until a buyer
     is found.  That order and the contemplated spin-off resolved our concerns,
     and thus we agreed to close our investigation if the spin-off occurs.

     B.   Dubuque Hospitals Merger

     *  On June 10, 1994, the Antitrust Division filed a complaint challenging
     the merger of the only two general acute-care hospitals in Dubuque, Iowa
     (Mercy Health Center and Finley Hospital).  

     *  The complaint alleged this was a merger to monopoly that would result
     in higher prices and lower quality for hospital services.  Although the
     hospitals alleged that the merger would permit substantial efficiencies, we
     concluded that the loss of competition from the merger would dwarf any
     possible short-term cost savings that could be achieved only through the
     merger.

     *  The case went to trial in September, 1994.  Among the issues in dispute
     were:  product market; rural hospital competition; geographic market and
     competitive harm; likelihood of new entry; and efficiencies, non-profit
     status/community-board, and procompetitive intent defenses.  Every issue
     was resolved in the government's favor, except geographic market.  And,
     on that basis, the court entered final judgment in favor of the hospitals.
     *  Specifically, the court found that the government's case rested too
     heavily on past conditions and failed to utilize a dynamic approach to
     antitrust analysis.  While it agreed with us that rural hospitals near
     Dubuque were not adequate substitutes for basic acute care services and
     thus would be unable to prevent the merged hospital from acting in an
     anticompetitive manner, it concluded that several regional hospitals 70 to
     100 miles away were viable substitutes for acute care services and thus
     were in a relevant geographic market with the Dubuque hospitals.

     *  On December 19, 1995, the government filed a protective notice of
     appeal (i.e., the appeal being subject to the approval of the Solicitor
     General), and defendants filed their notice of cross-appeal, which we have
     moved to dismiss.

V.   CRIMINAL ENFORCEMENT

     In the first criminal antitrust case filed in the health care area since our
cases against pharmaceutical companies, U.S. v. Bolar Pharmaceutical, in 1992,
and Tucson dentists, U.S. v. Alston, in 1990, a Texas trade association of
optometrists was charged by information with fixing prices for eye examinations
in central Texas on December 15, 1995.  

     *  The Lake Country Optometric Society was charged with participating
     in a conspiracy between November, 1992, and February, 1994, to suppress
     and eliminate competition in the provision of optometric services to
     patients in central Texas.

     *  The information charged that the defendant and unnamed 
     co-conspirators met to discuss the prices being charged for eye exams,
     agreed to raise the prices charged and adhere to the new prices, and then
     monitored and enforced compliance with the price agreement.  

     *  The maximum penalty for a corporation convicted of a Sherman Act
     violation occurring after November 16, 1990, is the greatest of $10 million,
     twice the gross pecuniary gain the corporation derived from the offense, or
     twice the gross pecuniary loss caused to the victims of the crime.
VI.  BUSINESS REVIEWS

     During 1995, the Division issued twelve business review letters in the 
health care area.

     *  Five business review letters involved provider-controlled networks,
     including primary and specialist physicians in the Memphis area,
     dermatologists in South Carolina, podiatrists in Georgia,  and
     dermatologists in southern Florida.  The Division issued favorable business
     review letters for all of the provider networks. 

     *  Two letters involved manufacturing and distributing of prosthetics and
     orthotics.

     *  Two letters involved nursing homes, one a statewide network of nursing
     homes, another a nationwide referral service and data base for such
     facilities.

     *  One letter involved the marketing by an insurance company of its
     internally-developed health care fraud detection procedures.
     
     *  One letter involved a group of cancer research institutions aggregating
     data from clinical trials in order to show that clinical trials are cost-
     effective alternatives to traditional treatment.

     *  One letter involved the formation of a group of independent clinical
     laboratories to compete with large national labs in California.

     A summary of all health care business reviews issued since
September, 1993, is attached.  We continue to assess our own internal procedures
for handling business review requests, with an eye to making our process as
efficient, effective, and responsive as possible.  
     




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