[Federal Register Volume 65, Number 78 (Friday, April 21, 2000)]
[Notices]
[Pages 21441-21443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10009]


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FEDERAL TRADE COMMISSION

[File No. 981 0124]


Texas Surgeons, P.A., 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 May 15, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Feinstein or Alan Friedman, 
FTC/S-3115, 600 Pennsylvania Ave., NW., Washington, DC 20580. (202) 
326-3688 or 326-2742.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 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 April 13, 2000), on the World Wide Web, at ``http://www.ftc.gov/
ftc/formal.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW., 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comment or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Agreement Containing Consent Order to Aid Public 
Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement to a proposed consent order by the Texas 
Surgeons, P.A. (``Texas Surgeons IPA'') and six medical practice groups 
comprised of Texas Surgeons IPA members--Austin Surgeons, P.L.L.C.; 
Austin Surgical Clinic Association, P.A.; Bruce McDonald & Associates, 
P.L.L.C.; Capital Surgeons Group, P.L.L.C.; Central Texas Surgical 
Associates, P.A.; and Surgical Associates of Austin, P.A. The agreement 
settles charges by the Federal Trade Commission that the Texas Surgeons 
IPA and the six medical practice groups (the ``respondents'') violated 
section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by fixing 
prices and other terms of dealing with third-party payers; collectively 
refusing to deal with third-party payers or threatening to do so; and 
agreeing to deal with third-party payers only on collectively 
determined terms. The proposed consent order has been placed on the 
public record for thirty (30) days for reception of comments by 
interested persons. Comments received during this period will become 
part of the public record. After thirty (30) days, the Commission will 
review the agreement and the comments received, and will decide whether 
it should withdraw from the agreement or make it and 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 in any 
way their terms. Further, the proposed consent order has been entered 
into for settlement purposes only and does not constitute an admission 
by any respondent that the law has been violated as alleged in the 
complaint.

The Complaint

    Under the terms of the agreement, a complaint will be issued by the 
Commission along with the proposed consent order. The allegations in 
the Commission's proposed complaint are summarized below.
    Respondent Texas Surgeons IPA is an association of general surgeons 
who practice in the Austin, Texas area. Members of the Texas Surgeons 
IPA are, and at all times relevant to the complaint have been, the 
majority of general surgeon private practitioners serving the adult 
population in the Austin area.
    Nearly all of the members of the Texas Surgeons IPA belong to one 
of six general surgery practice groups, which are also respondents in 
this matter. At all times relevant to the complaint, the Texas Surgeons 
IPA has been governed by a board of directors composed of 
representatives from each of the respondent medical practice groups.
    The Texas Surgeons IPA has served as a vehicle for the six 
respondent medical practice groups (and the few solo practitioner 
members) to engage in actual or threatened concerted refusals to deal, 
and to negotiate collectively, in order to obtain higher prices from 
Blue Cross Blue Shield of Texas (``Blue Cross'') and United HealthCare 
of Texas (``United''). The six respondent medical practice groups 
actively furthered the unlawful conduct through their collective 
control of the Texas Surgeons IPA board of directors, and through their 
direct participation in collective fee negotiations between United and 
the Texas Surgeons IPA.
    In April 1997, Blue Cross changed its reimbursement system from one 
based on historical charges to one based on a

[[Page 21442]]

Resource Based Relative Value Scale, similar to the system used by the 
federal government in its Medicare program. The effect of this change 
was to increase rates paid to primary care physicians, and to reduce 
rates to all physician specialists, including general surgeons. Soon 
thereafter, respondents, through the Texas Surgeons IPA, began 
collectively negotiating higher rates.
    Despite multiple attempts by Blue Cross to negotiate individually 
with the six respondent medical practice groups, those groups insisted 
on negotiating only through the Texas Surgeons IPA. In September 1997, 
the Texas Surgeons IPA sent Blue Cross a package of identically worded 
contract termination notices for each general surgeon member of the 
Texas Surgeons IPA, with a cover letter stating that the termination 
notices were due to Blue Cross's ``unacceptable'' rate reductions. In 
November 1997, the Texas Surgeons IPA asked Blue Cross to waive its 
right to bring a private antitrust action regarding the Texas Surgeons 
IPA's rate negotiations with Blue Cross, but Blue Cross refused to sign 
the waiver. In December 1997, 26 members of the Texas Surgeons IPA, 
dissatisfied with Blue Cross's payment offers, collectively effected 
their resignations from Blue Cross, and jointly announced that action 
in a prominent advertisement in Austin's major daily newspaper.
    In early 1998, Blue Cross experienced difficulty in securing the 
services of a general surgeon for an emergency room patient. At about 
the same time, two more general surgeons resigned from Blue Cross. 
These two general surgeons had been advised by one of the respondent 
medical practice groups that their inclusion in an arrangement with 
that practice group regarding back-up surgical coverage would end if 
they continued to deal with Blue Cross.
    After these events, Blue Cross concluded that it needed to reach a 
rate agreement with the respondents as soon as possible to avoid 
inadequate general surgery coverage for Blue Cross subscribers in the 
Austin area. The collective rate agreement between the six respondent 
medical practice groups and Blue Cross that resulted in early 1998 
increased Blue Cross general surgery rates nearly 30% above the April 
1997 levels.
    Respondents began collective price negotiations with United soon 
after it announced fee reductions for general surgeons and other 
physicians in October 1997. The new fees went into effect on January 1, 
1998 for surgical procedures not usually performed by general surgeons, 
but comparable proposed fee reductions for general surgeons never went 
into effect. Instead, respondents caused general surgery fees for 
United's various plans to increase at least 12% to 40% above the fees 
that United announced in October 1997.
    In early November 1997, United received a written notice from the 
Texas Surgeons IPA that all of its members would be terminating their 
contracts with United effective January 1, 1998 due to the proposed fee 
reductions for 1998. The Texas Surgeons IPA indicated its desire to 
collectively negotiate higher fees and rejected United's request to 
negotiate with the six respondent medical practice groups on an 
individual basis. United explored the possibility of creating a panel 
of general surgeons that did not include general surgeons from the six 
respondent medical practice groups, but it concluded that such a panel 
would not provide adequate general surgery coverage and that it had no 
realistic alternative to beginning collective fee negotiations with the 
Texas Surgeons IPA.
    Prior to the start of a collective fee negotiation session in 
November 1997, the Texas Surgeons IPA required United to sign a waiver 
of its right to bring a private antitrust action against the Texas 
Surgeons IPA or its members stemming from those fee negotiations. At 
that collective fee negotiation session, respondents demanded and 
received an agreement from United to pay higher fees in 1998 and 1999, 
as described above. Representatives from the six respondent medical 
practice groups assembled together and collectively participated in 
this collective fee negotiation session through frequent telephone and 
fax contact with the Texas Surgeons IPA's lead negotiator.
    The Texas Surgeons IPA did not engage in any activity that might 
justify collective agreements on the prices they would accept for their 
services. Respondents' actions have restrained competition among 
general surgeons in the Austin area and thereby have harmed, or tended 
to harm, consumers (including third-party payers, subscribers, and 
their employers) by:
    <bullet> Depriving consumers of the benefits of competition;
    <bullet> Increasing by over one million dollars the amount that 
Blue Cross, United, their individual subscribers, and employers 
(including the State of Texas Employees Retirement System and other 
self-insured employers that utilize Blue Cross or United physician 
network) paid for the services of surgeons during the period from 
January 1, 1998 to December 31, 1999;
    <bullet> Fixing the payments or co-payments that individual 
patients, their employers, and third-party payers make for the services 
of surgeons;
    <bullet> Fixing the terms and conditions upon which general 
surgeons would deal with third-party payers; and
    <bullet> Raising the prices that individuals and employers pay for 
health plan coverage offered by third-party payers.

The Proposed Consent Order

    The proposed order is designed to prevent recurrence of the illegal 
concerted actions alleged in the complaint, while allowing respondents 
to engage in legitimate joint conduct. The Commission notes that in 
1999, some time after the investigation of this matter began, the State 
of Texas enacted legislation that permits the State Attorney General to 
approve, under certain conditions, joint negotiations between health 
plans and groups of competing physicians. Texas Senate Bill 1468, 76th 
Leg., R.S. ch., 1586 (1999). That conduct that gave rise to the 
investigation and consent agreement predated enactment of the law, and 
thus was not approved under its terms. Moreover, the conduct described 
in the complaint would not necessarily have met the conditions for 
approval set forth in the Act.
    Enactment of the statute does not eliminate the need for an order 
in this matter. The statute permits only collective negotiations that 
are approved by the Attorney General, imposes conditions under which 
that approval may be granted, and by its terms expires on September 1, 
2003. As is discussed below, the Commission's order does not prohibit 
future conduct that is approved and supervised by the State of Texas 
pursuant to its statute and protected from federal antitrust liability 
under the state action doctrine. It is necessary and appropriate, 
however, to provide a remedy against future conduct by the respondents 
that is not approved and supervised by the State of Texas.
    The core operative provisions of the proposed order are contained 
in Section II. Section II.A prohibits respondents from entering into or 
facilitating any agreement: (1) To negotiate physician services on 
behalf of any physicians with any payer or provider; (2) to deal, 
refuse to deal, or threaten to refuse to deal with any payer or 
provider; (3) regarding any term on which any physicians deal, or are 
willing to deal, with any payer or provider; (4) to restrict the 
ability, or facilitate the refusal, of any physician to deal with any 
payer or provider on an individual basis or through any other 
arrangement; or (5) to convey to any payer or provider, through any 
Austin area physician, any information concerning

[[Page 21443]]

actual or potential dealings by any physician with any payer or 
provider.
    The fifth provision listed above (section II.A.5 of the proposed 
order) ensures that communications between any respondent and any payer 
within a ``messenger model'' arrangement be conveyed by a neutral third 
party (someone other than a physician with an active practice in the 
Austin area). In a messenger model arrangement, physicians individually 
convey and receive, through a third party, information, offers, and 
responses from and to payers or providers. See Statements of Antitrust 
Enforcement Policy in Health Care. Issued jointly by the Federal Trade 
Commission and the U.S. Department of Justice (August 28, 1996) at 43-
52, 89-92, 125-27, 138-40, 4 Trade Reg. Rep. (CCH) para. 13,153. In 
addition, section V.A.2 of the order ensures that any respondent 
intending to use a messenger model arrangement provide prior 
notification to the Commission.
    Section II.B prohibits respondents from exchanging, transferring, 
or facilitating the exchange or transfer of information among Austin 
area physicians concerning: (1) Negotiation with any payer or provider 
regarding reimbursement terms; or (2) actual or contemplated intentions 
or decisions with respect to any terms, dealings or refusals to deal 
with any payer or provider. Section II.C prohibits respondents from 
encouraging, advising, or pressuring any person, other than the 
government, to engage in any action that would be prohibited if the 
person were subject to the order.
    Section II contains three provisos. The first permits each 
respondent medical practice group to participate in arrangements for 
the provision of physician services that are limited to physicians from 
the same medical practice group. The second proviso, as noted above, 
permits respondents to engage in conduct that is approved and 
supervised by the State of Texas, so long as that conduct is protected 
from liability under the federal antitrust laws pursuant to the state 
action doctrine. The state action doctrine protects from federal 
antitrust liability any private conduct that is both: (1) in accordance 
with a clearly articulated and affirmatively expressed state policy to 
supplant competition; and (2) actively supervised by the state itself. 
See, e.g., FTC v. Ticor Title Insurance Co., 504 U.S. 621 (1992); 
California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 
U.S. 97, 105 (1980).
    The third proviso allows respondents to engage in conduct 
(including collectively determining reimbursement and other terms of 
contracts with payers) that is reasonably necessary to operate any 
``qualified risk-sharing joint arrangement'' or ``qualified clinically-
integrated joint arrangement,'' provided respondents comply with the 
prior notification requirements set forth in section V of the order. 
The prior notification mechanism will allow the Commission to evaluate 
a specific proposed arrangement and assess its likely competitive 
impact. This requirement will help guard against any recurrence of acts 
and practices that have restrained competition and injured consumers.
    As defined in the order, a ``qualified risk-sharing joint 
arrangement'' must satisfy three conditions. First, all physicians 
participating in the arrangement must share substantial financial risk 
from their participation in the arrangement. The definition illustrates 
ways in which physicians might share financial risk, tracking the types 
of financial risk-sharing set forth in the 1996 FTC/DOJ Statements of 
Antitrust Enforcement Policy in Health Care. Second, any agreement on 
prices or terms of reimbursement entered into by the arrangement must 
be reasonably necessary to obtain significant efficiencies through the 
joint arrangement. Third, the arrangement must be non-exclusive--i.e., 
it must not restrict the ability, or facilitate the refusal, of 
physicians participating in the arrangement to deal with payers 
individually or through any other arrangement.
    A ``qualified clinically-integrated joint arrangement'' pertains to 
arrangements in which the physicians undertake cooperative activities 
to achieve efficiencies in the delivery of clinical services, without 
necessarily sharing substantial financial risk. As with risk-sharing 
arrangements, the definition of clinically integrated joint 
arrangements reflects the analysis contained in the 1996 FTC/DOJ 
Statements of Antitrust Enforcement Policy in Health Care. According to 
the order's definition, the participating physicians must have a high 
degree of interdependence and cooperation through their use of programs 
to evaluate and modify their clinical practice patterns, in order to 
control costs and assure the quality of physician services provided 
through the arrangement. In addition, as with risk-sharing 
arrangements, the arrangement must be non-exclusive and any agreement 
on prices or terms of reimbursement entered into by the arrangement 
must be reasonably necessary to obtain significant efficiencies through 
the joint arrangement.
    Sections III.A and III.B require respondents to distribute the 
order and complaint to its members and other specified persons, 
including payers. Sections III.C and III.D require that each 
respondent, for the next five years: (2) Distribute copies of the order 
and complaint to new members and other specified persons; (2) publish 
annually to members and owners a copy of the order and complaint; and 
(3) brief members and owners annually on the meaning and requirements 
of the order and the antitrust laws.
    Sections IV and VI consist of standard Commission reporting and 
compliance procedures. Section IV specifies that Texas Surgeons IPA 
must include in its annual reports information identifying each payer 
or provider that has communicated with Texas Surgeons IPA concerning a 
possible contract for physician services, the proposed terms of any 
such contract, and Texas Surgeons IPA's response to the payer or 
provider.
    Finally, section VII of the proposed order contains a twenty year 
``sunset'' provision under which the order terminates twenty years 
after the date the order was issued.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-10009 Filed 4-20-00; 8:45 am]
BILLING CODE 6750-01-M