[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Notices]
[Pages 2832-2836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1497]



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[[Page 2833]]


FEDERAL TRADE COMMISSION

[File No. 951-0059]


RxCare of Tennessee, Inc; Consent Agreement With Analysis To Aid 
Public Comment

AGENCY: Federal Trade Commission.

ACTION: Consent Agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair acts and practices and unfair methods of competition, this 
consent agreement, accepted subject to final Commission approval, would 
bar the leading provider of pharmacy network services in Tennessee from 
having ``most favored nation'' clauses in its pharmacy participation 
agreements. The draft complaint accompanying the consent agreement 
alleges that RxCare's use of these clauses discourages the pharmacies 
from discounting and thereby limits price competition among the 
pharmacies in their dealings with pharmacy benefits managers and third-
party payers.

DATES: Comments must be received on or before March 29, 1996.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary 
Room 159, 6th St. and Pa Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:
Michael D. McNeely, Federal Trade Commission, S-3231, 6th and 
Pennsylvania Avenue, NW, Washington, DC 20580. (202) 326-2904.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the following 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 sixty (60) days. Public comment is invited. Such comments or 
views will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR 
4.9(b)(6)(ii)).

Agreement Containing Consent Order

    The Federal Trade Commission (``Commission''), having initiated an 
investigation of RxCare of Tennessee, Inc. (``RXCare''), and its 
parent, the Tennessee Pharmacists Association (``TPA''), and it now 
appearing that RXCare and TPA, hereinafter sometimes referred to as 
``proposed respondents,'' are willing to enter into an agreement 
containing an Order to remedy the alleged lessening of competition 
resulting from proposed respondents' practices and providing for other 
relief:
    It is hereby agreed by and between proposed respondents, by their 
duly authorized officers and attorneys, and counsel for the Commission 
that:
    1. Proposed respondent RxCare is a corporation organized, existing, 
and doing business under and by virtue of the laws of the State of 
Tennessee with its office and principal place of business located at 
1226 17th Avenue South, Nashville, Tennessee 37212.
    2. Proposed respondent TPA is an unincorporated trade association 
organized, existing, and doing business under and by virtue of the laws 
of the State of Tennessee with its office and principal place of 
business located at 226 Capitol Blvd., Suite 810, Nashville, Tennessee 
37219-1893.
    3. Proposed respondents admit all the jurisdictional facts set 
forth in the draft of complaint.
    4. Proposed respondents waive:
    a. Any further procedural steps;
    b. The requirement that the Commission's decision contain a 
statement of findings of fact and conclusions of law;
    c. All rights to seek judicial review or otherwise to challenge or 
contest the validity of the Order entered pursuant to this agreement; 
and
    d. Any claim under the Equal Access to Justice Act.
    5. This agreement shall not become part of the public record of the 
proceeding unless and until it is accepted by the Commission. If this 
agreement is accepted by the Commission it, together with the draft of 
complaint contemplated thereby, will be placed on the public record for 
a period of sixty (60) days and information in respect thereto publicly 
released. The Commission thereafter may either withdraw its acceptance 
of this agreement and so notify the proposed respondents, in which 
event it will take such action as it may consider appropriate, or issue 
and serve its complaint (in such form as the circumstances may require) 
and decision, in disposition of the proceeding.
    6. This agreement is for settlement purposes only and does not 
constitute an admission by proposed respondents that the law has been 
violated as alleged in the draft of complaint or that the facts as 
alleged in the draft complaint, other than jurisdictional facts, are 
true.
    7. This agreement contemplates that, if it is accepted by the 
Commission, and if such acceptance is not subsequently withdrawn by the 
Commission pursuant to the provisions of Sec. 2.34 of the Commission's 
rules, the Commission may, without further notice to the proposed 
respondents, (1) issue its complaint corresponding in form and 
substance with the draft of complaint and its decision containing the 
following Order in disposition of the proceeding, and (2) make 
information public with respect thereto. When so entered, the Order 
shall have the same force and effect and may be altered, modified or 
set aside in the same manner and within the same time provided by 
statute for other orders. The Order shall become final upon service. 
Delivery by the U.S. Postal Service of the complaint and decision 
containing the agreed-to Order to proposed respondents' addresses as 
stated in this agreement shall constitute service. Proposed respondents 
waive any right they may have to any other manner of service. The 
complaint may be used in construing the terms of the Order, and no 
agreement, understanding, representation, or interpretation not 
contained in the Order or the agreement may be used to vary or 
contradict the terms of the Order.
    8. Proposed respondents have read the draft of complaint and Order 
contemplated hereby. Proposed respondents understand that once the 
Order has been issued, they will be required to file one or more 
compliance reports showing that they have fully complied with the 
Order. Proposed respondents further understand that they may be liable 
for civil penalties in the amount provided by law for each violation of 
the Order after it becomes final.

Order

I
    It is ordered That the following definitions shall apply herein:
    A. ``RxCare'' means RxCare of Tennessee, Inc.; its predecessors, 
divisions, subsidiaries, affiliates, joint ventures, successors, and 
assigns; and all directors, officers, employees, agents, and 
representatives of the foregoing;
    B. ``TPA'' means the Tennessee Pharmacists Association; its 
predecessors, divisions, subsidiaries, affiliates, joint ventures, 
successors, and assigns; and all directors, officers, employees, 
agents, and representatives of the foregoing;
    C. ``Third-party payer'' means any person or entity that provides a 
program or plan pursuant to which such person or entity agrees to pay 
for prescriptions dispensed by pharmacies to individuals described in 
the plan or program as eligible for coverage (``coveraged 

[[Page 2834]]
persons'') and includes, but is not limited to, health insurance 
companies; prepaid hospital, medical, or other health service plans, 
such as Blue Cross and Blue Shield plans; health maintenance 
organizations; preferred provider organizations; and health benefits 
programs for government employees, retirees and dependents;
    D. ``Participation agreement'' means any existing or proposed 
agreement, oral or written, in which a third-party payer, prescription 
benefit manager (PBM), pharmacy service administrative organization 
(PSAO), or other firm agrees to reimburse a pharmacy firm for the 
dispensing of prescription drugs to covered persons, and the pharmacy 
firm agrees to accept such payment from the third-party payer, PMB, 
PSAO, or other firm for such prescriptions dispensed during the term of 
the agreement;
    E. ``Pharmacy firm'' means any partnership, sole proprietorship, 
corporation, or other entity that owns, controls or operates one or 
more pharmacies; and
    F. ``Most Favored Nations Clause'' or ``MFN'' means any agreement, 
understanding, or course of dealing between RxCare or TPA and any 
pharmacy firm under which, in the event the pharmacy firm accepts or 
agrees to accept from another third party payer, PBM, PSAO or other 
firm a lower reimbursement rate than the lowest RxCare reimbursement 
rate, the pharmacy firm must thereafter accept a reduction in its 
reimbursement rate for any or all RxCare contracts in which it 
participates. The term ``Most Favored Nations Clause'' includes, but is 
not limited to, any price protection clause, buyer protection clause, 
prudent buyer clause, consumer protection clause, meet or release 
clause, best price clause, or meeting competition clause.
II
    It is further ordered That RxCare and TPA shall forthwith cease and 
desist, directly or indirectly, from:
    A. Entering into, maintaining, or enforcing a Most Favored Nations 
Clause in any participation agreement with any pharmacy firm or by any 
other means or methods;
    B. Auditing any pharmacy firm for the purpose of enforcing a Most 
Favored Nations Clause; or
    C. Inducing, suggesting, urging, encouraging, or assisting any 
person or entity to take any action that if taken by RxCare or TPA 
would violate this order.
III
    It is further ordered That RxCare shall, within thirty (30) days 
after the date this Order becomes final:
    A. Remove all Most Favored Nations Clauses from its agreements with 
pharmacy firms;
    B. Distribute a copy of this Order, the attached Appendix, and the 
complaint to each pharmacy firm with which RxCare has a participation 
agreement; and
    C. Publish the Appendix to this Order in the RxCare Update and on 
the ``RxCare Network News'' page of the Tennessee Pharmacist, or any 
successor publication(s).
IV
    It is further ordered That, for the purpose of determining or 
securing compliance with this Order, RxCare and TPA each shall:
    A. Within sixty (60) days after the date this Order becomes final, 
submit to the Commission a verified written report setting forth in 
detail the manner and form in which they intend to comply, are 
complying, and have complied with this Order;
    B. One year (1) from the date this Order becomes final, annually 
for the next four (4) years on the anniversary of the date this Order 
becomes final, and at other times as the Commission may require, file a 
verified written report with the Commission setting forth in detail the 
manner and form in which they have complied and are complying with this 
Order. Respondents shall include in their compliance reports all 
written communications, internal memoranda, and reports and 
recommendations concerning compliance with this Order;
    C. For a period of ten (10) years after the date this Order becomes 
final, permit any duly authorized representative of the Commission:
    1. Access, during office hours and in the presence of counsel, to 
inspect and copy all books, ledgers, accounts, correspondence, 
memoranda and other records and documents in the possession or under 
the control of respondents relating to any matters contained in this 
Order; and
    2. Upon five days' notice to respondents and without restraint or 
interference from it, to interview officers, directors, or employees of 
respondents; and
    D. For a period of ten (10) years after the date this Order becomes 
final, notify the Commission at least thirty (30) days prior to any 
proposed change in TPA or RxCare such as dissolution, assignment, sale 
resulting in the emergence of a successor corporation, or the creation 
or dissolution of subsidiaries or any other change in the corporation 
that may affect compliance obligations arising out of the Order.
V
    It is further ordered That this Order shall terminate twenty (20) 
years from the date this Order becomes final.

Appendix

[Date]

Announcement

    The Tennessee pharmacists Association (TPA) and RxCare of 
Tennessee, Inc. (RxCare), have entered into a consent agreement with 
the Federal Trade Commission. Pursuant to this consent agreement, 
the Commission issued a consent order on [Date] providing that 
RxCare and TPA may no longer enforce a most Favored Nations (MFN) 
clause in the RxCare network provider agreements. The MFN clause 
requires that if a participating pharmacy accepts a lower 
reimbursement rate than the lowest RxCare rate, the pharmacy shall 
accept its lower reimbursement rate for all RxCare contracts in 
which it participates. As a result of the consent order, RxCare will 
not require that pharmacies in its network that enter into any 
agreement at a lower reimbursement rate than the RxCare 
reimbursement rate shall accept such lower reimbursement rat for 
RxCare contracts.
    For more specific information, TPA or RxCare pharmacy network 
members should refer to the FTC consent order itself. TPA and RxCare 
will provide a copy of the consent order to each pharmacy firm with 
which RxCare has a participation agreement.
Baeteena Black,
Pharm. D., Executive Director, Tennessee Pharmacists Association.
Gary Cripps,
Pharm. D., Chairman and President, RxCare of Tennessee, Inc.

RxCare, 951 0059

Analysis of Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission has agreed to accept, subject to 
final approval, a proposed consent order settling charges that 
RxCare of Tennessee, Inc., and the Tennessee Pharmacists Association 
(TPA) violated Section 5 of the Federal Trade Commission Act.
    The proposed consent order has been placed on the public record 
for sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received and will decide whether it 
should withdraw from the agreement or make final the agreement's 
proposed order.
    The purpose of this analysis is to facilitate public comment on 
the proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order, nor to modify in 
any way their terms.
    The proposed consent order has been entered into for settlement 
purposes only and does not constitute an admission by RxCare or TPA 
that the law has been violated as alleged in the complaint.

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Description of Complaint

    The complaint prepared by the Commission for issuance along with 
the proposed order alleges the following:
    TPA is the largest association of pharmacists in Tennessee. 
Among TPA's goals is to ``define and promote appropriate 
compensation to pharmacists for patient care.'' TPA owns RxCare.
    RxCare is a pharmacy network, i.e., a group of pharmacies that 
offer their services to pharmacy benefit managers (PBMs) and to 
third-party payers (such as managed care plans, insurers, and 
employers who pay for prescription drugs provided as part of 
employee health benefit plans). Third-party payers pay for about 
half of all prescriptions in Tennessee.
    The complaint further alleges that RxCare is the leading 
pharmacy network in Tennessee, providing PBM and/or network services 
to managed care plans and PMBs accounting for approximately 2.4 
million residents of Tennessee, who represent more than half of 
Tennessee citizens with third-party pharmacy benefits. Because the 
RxCare network is the largest source of third-party business for 
Tennessee pharmacies, there is a strong incentive for those 
pharmacies to participate in the RxCare network. The RxCare network 
includes approximately 95% of Tennessee pharmacies.
    According to the Commission's complaint, RxCare's agreements 
with the pharmacies in its provider network include a ``most favored 
nation'' or ``MFN'' clause. This clause requires that if a network 
pharmacy accepts a reimbursement rate lower than its RxCare 
reimbursement rate, the pharmacy shall accept the lower 
reimbursement rate for all RxCare business. Each pharmacy in the 
RxCare network agrees to this clause as a condition of remaining 
within the network and RxCare enforces this clause against 
pharmacies that have accepted lower reimbursement rates from other 
payers. In addition, RxCare has discouraged pharmacies from 
participating in rival networks seeking to offer prices below the 
RxCare reimbursement level. RxCare did so by urging pharmacies to 
refrain from such participation and by warning that acceptance of 
such rates could trigger the MFN clause.
    The complaint further alleges that, because RxCare represents 
such a large portion of their business, most Tennessee pharmacies 
would incur an unacceptable revenue loss if violating the MFN clause 
caused them to accept reduced reimbursement rates on all of their 
RxCare business. Thus, the MFN clause has provided a mechanism to 
diminish significantly the incentives of RxCare network pharmacies 
to discount their rates to third-party payers seeking to offer 
network services with lower reimbursement rates. The MFN clause has 
also enabled the pharmacies to assure each other that they will not 
compete by selectively discounting their rates. Further, the 
complaint alleges that third-party payers in states other than 
Tennessee frequently offer reimbursement rates below the RxCare 
reimbursement rate and that the MFN clause has caused payers to pay 
higher rates in Tennessee than in other states.
    The complaint alleges that RxCare's adoption and enforcement of 
the MFN clause has injured consumers by restricting price 
competition among pharmacies in Tennessee, effectively establishing 
the RxCare network rate as a price floor for most Tennessee 
pharmacies and inhibiting the entry of lower-priced pharmacy 
networks.
    There are judicial decisions upholding the use of MFN clauses 
against antitrust challenges. See, e.g., Blue Cross and Blue Shield 
United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 
1995); Ocean State Physicians Health Plan, Inc. v. Blue Cross and 
Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), cert. 
denied, 494 U.S. 1027 (1990). The Commission notes that these cases 
rest on facts that differ significantly from those giving rise to 
this enforcement action. Cf. Marshfield, 65 F.3d at 1415 (``Perhaps 
* * * these clauses are misused to anticompetitive ends in some 
cases; but there is no evidence of that in this case''). In 
particular, the conduct challenged in the present enforcement action 
involved a combination of competing sellers using its market power 
to stabilize prices.
    In Ocean State, the First Circuit Court of Appeals rejected a 
rival HMO's claim that Blue Cross and Blue Shield of Rhode Island 
violated Section 2 of the Sherman Act by requiring its participating 
physicians to adhere to a MFN clause. The court concluded that the 
MFN clause was not unreasonably exclusionary, despite the finding 
that Blue Cross possessed market power. Ocean State, 883 F.2d at 
1110. The court in Ocean State reasoned that a health insurer's 
unilateral decisions about what it will pay providers do not violate 
the Sherman Act and stated that Blue Cross, ``like any buyer of 
goods or services,'' may lawfully ``bargain with its providers for 
the best price it can get.'' Id. at 1111.
    In Marshfield, defendant Marshfield Clinic (a multi-specialty 
medical group practice) required independent physicians contracting 
with its subsidiary HMO to adhere to a MFN clause. The Seventh 
Circuit Court of Appeals, in holding that the Clinic's use of the 
MFN clause did not violate Section 1 of the Sherman Act, appears to 
have focused on the Clinic's role as a purchaser of physician 
services and found no evidence to warrant the conclusion that the 
MFN clause was used as a device to stabilize prices. 65 F.3d at 1415 
(MFN clauses ``are standard devices by which buyers try to bargain 
for low prices * * *. The Clinic did this to minimize the cost of 
physicians to it * * *.''). In addition, the court concluded that 
the Clinic's HMO lacked market power, finding that less than 50 
percent of physicians in the market were HMO providers and that the 
HMO did not represent enough of each physician's business to impede 
selective discounting. Id. at 1411 (``The 900 independent 
contractors derive only a small fraction of their income from these 
[Marshfield] contracts'').
    In the present case, however, the Commission found reason to 
believe that a group of competing sellers exercised market power 
through use of an MFN clause, and that the evidence, analyzed under 
a full rule-of-reason inquiry, demonstrated that the RxCare MFN 
clause, on balance, has harmed consumers. In particular, the 
Commission found reason to believe that:
    The MFN clause, in conjunction with the high percentage of 
Tennessee pharmacies' participation in the RxCare network and the 
substantial amount of third-party business arising from 
participation in that network, has made it possible for RxCare to 
exercise market power. Under these conditions, the MFN clause 
effectively created a price floor by discouraging discounting. In 
addition, RxCare sought to use the MFN clause to stabilize prices. 
For example, RxCare sought to persuade payers to increase their 
reimbursement rates to the RxCare level. The evidence, as a whole, 
was sufficient to demonstrate that the anticompetitive effects of 
the MFN clause outweighed any potential efficiencies.

Description of the Proposed Consent Order

    The proposed order would prohibit RxCare and TPA from entering 
into, maintaining, or enforcing any MFN clause, including auditing 
any pharmacy for the purpose of enforcing an MFN clause.
    The proposed order would require RxCare to remove all MFN 
clauses from its contracts with pharmacies, to distribute the order 
and accompanying complaint to network pharmacies, and publish the 
order and related documents. The order would also require RxCare and 
TPA to file compliance reports, retain certain documents, and notify 
the Commission of certain changes in its corporate structure.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in RxCare of 
Tennessee, Inc., File No. 951-0059

    I join in the Commission's decision to accept for public comment 
a consent order requiring the Tennessee Pharmacists Association 
(``TPA''), a trade association of pharmacists, and its affiliated 
provider of pharmacy network services, RxCare of Tennessee, Inc., to 
eliminate the most favored nation clause from its provider network 
contracts. I write separately to emphasize that this order does not 
call into question the general lawfulness of most favored nation 
clauses.\1\ Although most favored nation clauses usually raise no 
competitive concerns, in this case, the clause was used in 
furtherance of a horizontal agreement to stabilize the reimbursement 
rates for retail pharmacy services, as alleged in paragraph eight of 
the complaint.

    \1\ Although this point, among others, is made in the Analysis 
To Aid Public Comment, I express no opinion on that analysis, which 
by its own terms ``is not intended to constitute an official 
interpretation'' of the Commission's action.
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Statement of Commissioner Christine A. Varney in the Matter of RxCare, 
File No. 951-0059

    RxCare, a pharmacy network established and owned by the 
Tennessee Pharmacists Association, contracts with health plans to 
provide prescription drugs to the plans' subscribers. I have voted 
to issue the complaint and accept the consent order in this matter 
because I agree that the most favored nations clause, in this case, 
may have 

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lessened competition. But, in doing so, I want to emphasize that joint 
ventures by retail pharmacists can be precompetitive by injecting 
new competition into the market for pharmacy benefit management 
services.\2\ I believe many of RxCare's programs can be 
procompetitive. The matter before the FTC concerns only one aspect 
of RxCare's pharmacy benefit management programs--its imposition of 
a most favored nations clause. By working on an expedited basis, 
staff has been able to identify this concern quickly and, by working 
closely with RxCare, has resolved it in a mutually agreeable 
fashion.

    \2\ See Prepared Remarks of Christine A. Varney, ``Responses to 
the Managed Care Revolution: A Competition Policy Perspective,'' 
Conference of the National Ass'n of Retail Druggists, March 27, 
1995.
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[FR Doc. 96-1497 Filed 1-28-96; 8:45 am]
BILLING CODE 6750-01-M