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October 18, 2002 

VIA FEDERAL EXPRESS 

Donald Clark 

Secretary, Federal Trade Commission 

600 Pennsylvania Avenue, N.W. 

Room H177 

Martin J. Thompson 

Direct Dial: (714) 371-2530 

E-mail: mthompson@manatt.com 

Client-Matter: 24698-030 

Washington, D.C. 20580 -------_j 

Re: Staff Advisory Letter Request 

Dear Mr. Clark: 

This request for a staff advisory letter is submitted on behalf of six county medical 

societies located in adjacent counties in or near the San Francisco Bay area of Northern 

Califomia.1 These societies propose to create a messenger-model physician network, tentatively 

named Bay Area Preferred Providers ("BAPP"). This request is submitted pursuant to 16 CFR 

§ 1.1 and with reference to the August, 1996 Statements of Antitrust Enforcement Policy in 

Healthcare, Statement No.8. 

BACKGROUND 

Numerous physician networks seeking to serve portions of Northern California have 

failed during recent years. 

2 These were typically delegated model IP As accepting capitation, and 

discovering too late that their costs exceeded their revenues. As a result of the disappearance of 

these IP As from the market, portions of Northern California appear to be underserved by 

physician networks adequate to offer sufficient contracting opportunities for physicians seeking 

to participate in managed care arrangements. 

The sponsors ofBAPP have concluded that a messenger-model network with geographic 

coverage co-extensive with the seven counties represented by the sponsors (possibly adding 

Santa Clara as well) may create efficiencies for the payors that access the market through this 

network and may create contracting opportunities for physicians who choose to participate. 

1 Alameda-Contra Costa, San Mateo, San Francisco, Sonoma, Napa and Solano. 

2 See Exhibit A, attached. 

650 Town Center Drive, Suite 1250, Costa Mesa, California 92626 Telephone: 714.371.2500 Fax: 714.371.2550 

Los Angeles I Mexico City I Monterrey I Orange County 1 Palo Alto 1 Sacramento 1 Washington, D.C. 

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STRUCTURE AND OPERATION 

The sponsors propose to organize BAPP as a California nonprofit mutual benefit 

corporation. Each sponsor will elect two directors and physician participation in BAPP will be 

entirely non-exclusive. The physician members of each sponsoring society will be invited to 

participate, and participating physicians will be required to provide funding for BAPP through 

application fees and periodic assessments as necessary to cover costs. BAPP will credential its 

participating physicians consistent with standards established by the National Committee on 

Quality Assurance, saving payors and providers the cost and time inherent in re-credentialing. 

BAPP will function as a traditional messenger-model network. It will employ an 

individual who will serve as an agent or "messenger". This person will not be permitted to 

attempt to negotiate or otherwise influence pricing of services. BAPP will solicit minimum 

acceptable reimbursement levels from individual physicians or fully-merged physician groups. 

BAPP will develop a fee schedule depicting numbers of physicians offering to contract at 

different pricing levels. BAPP will maintain the confidentiality of this information with respect 

to the participating providers, and communicate the information to payors. BAPP will be 

authorized to bind participating providers to contracts at or above their minimum acceptable 

rates. 

BAPP will communicate to the participating providers each payor offer. Contracts will 

be administered by BAPP only when 50% or more of the participating providers accept offers 

from a given payor. With the consent of the payor in question, BAPP members will be given the 

opportunity to opt in to BAPP contracts that they initially rejected. Where less than 50% of the 

participating providers accept the offer of a given payor, BAPP will distribute the proposed 

contract to all BAPP providers, allowing the payor to seek to negotiate arrangements with 

individual providers or groups independently ofBAPP. 

Information may be communicated by BAPP to participating providers about a given 

contract when requested, but any such information will be limited to objective information about 

specific contract terms. BAPP will make no recommendations encouraging or discouraging 

participating providers from accepting the terms of a given contract. 

ANTICIPATED PARTICIPATION 

Attached as Exhibit B is a chart setting forth the number of active practicing physicians 

within each of the counties covered by the BAPP sponsors, the number of actively practicing 

physicians who are members of each such sponsor, and the number of physicians currently 

expected to participate in BAPP from each such county. The anticipated level of participation is 

derived from internal polling by each of the sponsors, and does not represent a firm commitment 

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to participate by those responding affirmatively, nor a firm commitment not to participate by 

those responding in the negative. It is, however, believed to be a reasonably reliable prediction 

of the level of participation. Although membership in each of the sponsoring societies is open to 

all physicians practicing within the county in question, the chart also indicates that total 

participation in county medical societies is generally not high, particularly in the larger counties. 

The sponsoring societies have concluded that there are no geographic regions within their 

respective counties and no medical specialties that have disproportionately high representation or 

are likely to achieve participation rates significantly different from the county as a whole. 

CONCLUSION 

The sponsors ofBAPP are aware that the messenger model does not lend itselfto 

placement within the antitmst safety zone set forth in Statement No. 8 of the Statements of 

Antitrust Enforcement Policy in Healthcare. Nevertheless, they believe that a review of the 

market conditions as described above (which they believe are readily verifiable) and the business 

plan for BAPP as it currently exists, leads to the conclusion that BAPP has the potential to create 

a valuable addition to the healthcare market place in the greater San Francisco Bay area. The 

sponsors are also aware that their status as county medical societies may cause some level of 

concern over the possible influence which they may have over the participating physicians. The 

sponsors submit, however, that the business plan for BAPP as described herein creates 

reasonable protection against any material anti-competitive risk. 

The sponsors request a staff advisory letter, to confirm that staff perceives no inherent 

violation of the Federal Trade Commission Act in the structure, sponsorship or operations of 

BAPP as described above. 

Sincerely, 

Martin 

~/~ J. Thompson 

cc: Health Care Division 

MJT:laj 

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