Physicians Group, Inc., et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 931-0083]

Physicians Group, Inc., et al.; Proposed Consent Agreement With

Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

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

prohibit, among other things, the respondent, a Danville physicians'

group, and its seven board members from attempting to engage in an

agreement or agreeing with other physicians to negotiate or refuse to

negotiate with a third party payor. In addition, it would require

dissolution of the respondent within 120 days.

DATES: Comments must be received on or before July 10, 1995.

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:

Mark Horoschak or Rendell Davis, FTC/S-3115, Washington, DC 20580.

(202) 326-2756 or (202) 326-2894.

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)).

Before Federal Trade Commission

In the matter of Physicians Group, Inc., a corporation, Edwin J.

Harvie, Jr., M.D., Eric N. Davidson, M.D., Milton Greenberg, M.D.,

Noah F. Gibson, IV, M.D., William W. Henderson, IV, M.D., Douglas W.

Shiflett, M.D., and Lawrence G. Fehrenbaker, M.D., individually.

File No. 931 0083.

Agreement Containing Consent Order To Cease and Desist

The Federal Trade Commission having initiated an investigation of

certain acts and practices of the respondents named in the caption

hereof, hereinafter sometimes referred to as proposed respondents, and

it now appearing that the proposed respondents are willing to enter

into an agreement containing an order to cease and desist from the use

of the acts and practices being investigated,

It is hereby agreed by and between the proposed respondents and

counsel for respondent Physicians Group, Inc., and counsel for the

Federal Trade Commission that:

1. Proposed Respondent Physicians Group, Inc. is a nonstock

corporation organized, existing, and doing business under and by virtue

of the laws of the Commonwealth of Virginia, with its principal place

of business in Danville, Virginia. For purposes of this agreement and

order, its address is Physicians Group, Inc., c/o Dr. Edwin J. Harvie,

Jr., 101 Holbrook Street, Danville, Virginia 24541.

2. The individual respondents named in the caption above are the

members of the board of directors of proposed respondent Physicians

Group, Inc., are physicians licensed to practice medicine in the

Commonwealth of Virginia, and are engaged in the business of providing

physician services to patients for a fee in Pittsylvania County and

Danville, Virginia. Their respective business addresses are as follows:

Edwin J. Harvie, Jr., M.D., Internal Medicine Associates, Ltd., 101

Holbrook Street, Danville, Virginia 24541;

Eric N. Davidson, M.D., Piedmont Internal Medicine, Inc., 125 Executive

Drive, Suite H, Danville, Virginia 24541;

Milton Greenberg, M.D., 171 South Main Street, Danville, Virginia

24541;

Noah F. Gibson, IV, M.D., 181 North Main Street, Danville, Virginia

24541;

William W. Henderson, IV, M.D., Danville Pulmonary Clinic, Inc., 110

Exchange Street, Suite G, Danville, Virginia 24541;

Douglas W. Shiflett, M.D., Internal Medicine Associates, Ltd., 101

Holbrook Street, Danville, Virginia 24541; and

Lawrence G. Fehrenbaker, M.D., Danville Urologic Clinic, P.O. Box 1360,

Danville, Virginia 24543.

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 with respect thereto will

be 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 [[Page 25224]] an admission by proposed respondents that the

law has been violated as alleged in the draft of complaint here

attached, 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 proposed

respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint here attached and its decision

containing the following order to cease and desist in disposition of

the proceeding and (2) make information public in 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 order. 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 proposed 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 the order becomes final.

Order

I

It is ordered that, for purposes of this order, the following

definitions shall apply:

A. ``PGI'' means Physicians Group, Inc., its subsidiaries,

divisions, committees, and groups and affiliates controlled by PGI;

their directors, officers, representatives, agents, and employees; and

their successors and assigns.

B. ``Physician respondents'' means Edwin J. Harvie, Jr., M.D., Eric

N. Davidson, M.D., Milton Greenberg, M.D., Noah F. Gibson, IV, M.D.,

William W. Henderson, IV, M.D., Douglas W. Shiftlett, M.D., and

Lawrence G. Fehrenbaker, M.D.

C. ``Person'' refers to both natural persons and artificial

persons, including, but not limited to, corporations, unincorporated

entities, and governments.

D. ``Payor'' means any person that purchases, reimburses for, or

otherwise pays for all or part of the health care services for itself

or for any other person--including, but not limited to, health

insurance companies; preferred provider organizations; prepaid

hospital, medical, or other health service plans; health maintenance

organizations; government health benefits programs; employers or other

persons providing or administering self-insured health benefits

programs; and patients who purchase health care for themselves.

E. ``Reimbursement'' means any and all cash or non-cash

compensation or other benefits received for the rendering of physician

services.

F. ``Cost containment'' means methods used by payors to lower

health care costs, including, but not limited to, procedures under

which payors review utilization by participating physicians to

determine whether a physician service is covered by insurance and

whether such service is appropriate, and procedures under which payors

deal with physicians who provide services that are determined not to be

appropriate.

G. ``Integrated joint venture'' means a joint arrangement to

provide health care services in which all physicians participating in

the venture who would otherwise be competitors (1) pool their capital

to finance the venture, by themselves or together with others, and (2)

share a substantial risk of loss from their participation in the

venture.

H. ``Professional business entity'' means professional corporation,

professional partnership, and professional limited liability company.

II

It is further ordered that PGI and each physician respondent,

directly or indirectly, or through any corporate or other device, in

connection with the provision of physician services in or affecting

commerce, as ``commerce'' is defined in the Federal Trade Commission

Act, forthwith shall cease and desist from:

A. Entering into, attempting to enter into, organizing, attempting

to organize, implementing, attempting to implement, continuing,

attempting to continue, facilitating, attempting to facilitate,

ratifying, or attempting to ratify any combination, conspiracy,

agreement, or understanding, with or among any physician(s) to:

1. Negotiate, deal, or refuse to deal with a payor, or

2. Determine any terms, conditions, or requirements upon which

physicians deal with a payor, including, but not limited to, terms of

reimbursement or of cost containment; and

B. Encouraging, advising, pressuring, inducing, or attempting to

induce any physician to:

1. Refuse to deal with a payor, or

2. Deal with a payor on terms collectively determined by

physicians, including such terms as terms of reimbursement or terms of

cost containment.

Provided that, nothing in this order shall prevent physicians who

practice together as partners or employees in the same professional

business entity from collectively determining the fees to be charged

for services rendered by that professional business entity or from

collectively determining other terms on which that professional

business entity deals with payors.

Further provided that, nothing in this order shall prevent

physicians who participate in the same integrated joint venture from

collectively determining the fees to be charged for services rendered

by that integrated joint venture or from collectively determining other

terms on which that integrated joint venture deals with payors.

Further provided that, nothing in this order shall prevent the

exercise of rights permitted under the First Amendment to the United

States Constitution to petition any federal or state government

executive agency or legislative body concerning legislation, rules, or

procedures, or to participate in any federal or state administrative or

judicial proceeding.

Further provided that, nothing in this order shall prevent

physicians from participating at the request of a payor in utilization

review activities organized and controlled by the payor insofar as such

participation continues only at the sufferance of the payor.

III

It is further ordered that PGI shall:

A. Within ten (10) days after the date on which this order becomes

final, cease and desist all business and all other activities of any

nature whatsoever, except those activities that are required in order

to comply with the terms of this order or that are necessary to effect

a winding up of PGI's affairs and its dissolution; [[Page 25225]]

B. Within sixty (60) days after the date on which this order

becomes final, and prior to the dissolution provided for in Paragraph

III.C. below, distribute by first-class mail a copy of this order and

the accompanying complaint to each past and present member of PGI and

to each payor who, at any time since February 18, 1986, has

communicated any desire, willingness, or interest in contracting for

physician services with PGI or with any of the physician respondents;

and

C. Dissolve itself within one hundred twenty (120) days after the

date on which this order becomes final.

IV

It is further ordered that each physician respondent shall:

A. Within thirty (30) days after the date this order becomes final,

prepare a list of the names, addresses, and telephone numbers of all

payors who, at any time since February 18, 1986, have communicated any

desire, willingness, or interest in contracting with him for physician

services, and deliver a copy of that list to PGI; and

B. Take all action necessary to effect dissolution of PGI as

required by this order.

V

It is further ordered that PGI shall:

A. Within ninety (90) days after the date on which this order

becomes final, and prior to the dissolution provided for in Paragraph

III.C. above, file with the Commission a verified written report

demonstrating how it has complied and is complying with this order; and

B. Notify the Commission at least thirty (30) days prior to any

proposed change in PGI, such as change of address, assignment, sale

resulting in the emergence of a successor, or any other change in PGI

that may affect compliance obligations arising out of this order.

VI

It is further ordered that each physician respondent shall:

A. Within sixty (60) days after the date this order becomes final,

every sixty (60) days thereafter in which PGI is not dissolved, and

within the thirty (30) days following dissolution of PGI, file with the

Commission a verified written report setting forth in detail the manner

and form in which he intends to comply, is complying, and has complied

with this order, including, but not limited to, a full description of

his efforts to comply with Paragraph IV.B. above;

B. Beginning on January 15, 1996, and continuing annually for three

(3) years, on each succeeding January 15, through and including January

15, 1999, and at such other times as the Commission or its staff may by

written notice require, file with the Commission a verified written

report setting forth in detail the manner and form in which he has

complied with the order; and

C. For ten (10) years, notify the Commission at least thirty (30)

days prior to any proposed change in his address or in his medical

practice, such as dissolution, assignment, sale resulting in the

emergence of a successor, or any other change in his medical practice

that may affect compliance obligations arising out of this order.

VII

It is further ordered that, for the purpose of determining or

securing compliance with this order and subject to any recognizable

privilege, PGI and each physician respondent shall permit any duly

authorized representative of the Commission:

A. Access, during office hours and in the presence of counsel, to

inspect and copy all books, ledgers, accounts, correspondence,

memoranda, calendars, and other records and documents in the possession

or under the control of PGI or a physician respondent relating to any

matters contained in this order;

B. Upon five business days' notice to PGI and without restraint or

interference from it, to interview the officers, directors, or

employees of PGI; and

C. Upon five business days' notice to a physician respondent and

without restraint or interference from him, to interview the physician

respondent or the employees of the physician respondent.

VIII

It is further ordered that this order shall terminate twenty (20)

years from the date of issuance.

Physicians Group, Inc., Analysis of Proposed Consent Order to Aid

Public Comment

The Federal Trade Commission has accepted, subject to final

approval, the agreement to a proposed consent order from Physicians

Group, Inc. (``PGI'') and from the seven members of the board of

directors of PGI (``PGI Directors''). The agreement settles charges by

the Federal Trade Commission that PGI and the PGI Directors restrained

competition among physicians practicing in the area of Danville,

Virginia, by, among other things, combining or conspiring to fix the

terms under which they would deal with third-party payors, including

(1) terms of reimbursement and (2) the terms by which third-party

payors attempt to contain health care costs.

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

agreement. The analysis is not intended to constitute an official

interpretation of either the proposed complaint or the proposed consent

order or to modify their terms in any way.

The Complaint

Under the terms of the agreement, a proposed complaint would be

issued by the Commission along with the proposed consent order. The

proposed complaint alleges that PGI is a nonstock corporation with its

principal place of business in Danville, Virginia, and that all the

members of respondent PGI, including the PGI Directors, are physicians

practicing in Pittsylvania County and Danville, Virginia.

The proposed complaint further alleges that, beginning in 1986, PGI

and the PGI Directors conspired with each other and with other PGI

members to (1) prevent or delay the entry into Pittsylvania County and

Danville, Virginia, of third-party payors, (2) deal concertedly with

third-party payors, and (3) resist the cost containment measures of

third-party payors. In 1988 and 1989, PGI Directors conspired to fix

the rate of reimbursement they were willing to accept from the Virginia

Health Network, a managed care organization. As a result, the Virginia

Health Network was not able to establish a network of health care

providers in Pittsylvania County and Danville, Virginia. In 1992 and

1993, PGI and the PGI Directors conspired to fix the terms and

conditions of cost containment they were willing to accept from the Key

Advantage Plan, a managed care insurance plan for employees of the

Commonwealth of Virginia. As a result, the Commonwealth of Virginia was

not able until 1994 to fully implement the Key Advantage Plan in

Pittsylvania County and Danville, Virginia. In addition, PGI and the

PGI Directors conspired to refuse to deal with, and to fix the terms

and conditions of dealing with, other third-party payors attempting to

do business in Pittsylvania County and Danville,

Virgina. [[Page 25226]]

The proposed complaint alleges that this conduct had the following

purpose, tendency, and capacity to result in the following effects:

A. Restraining competition among physicians in Pittsylvania County

and Danville, Virginia;

B. Depriving consumers in Pittsylvania County and Danville,

Virginia, of the benefits of competition among physicians;

C. Fixing or increasing the prices that are paid for physician

services in Pittsylvania County and Danville, Virginia;

D. Fixing the terms and conditions upon which physicians in

Pittsylvania County and Danville, Virginia, would deal with third-party

payors, including, but not limited to, terms and conditions of cost

containment, and thereby raising the price to consumers of insurance

coverage issued by third-party payors; and

E. Depriving consumers in Pittsylvania County and Danville,

Virginia, of the benefits of managed care.

Finally, the proposed complaint alleges that the above actions of

PGI and the PGI Directors constitute unfair methods of competition, in

violation of section 5 of the Federal Trade Commission Act, 15 U.S.C.

45.

The Proposed Consent Order

The proposed consent order would prohibit PGI and the PGI Directors

from engaging in, or attempting to engage in, any combination,

conspiracy, agreement, or understanding, with or among any physician(s)

to negotiate, deal, or refuse to deal with a payor, or to determine any

terms, conditions, or requirements upon which physicians deal with a

payor, including, but not limited to, terms of reimbursement or of cost

containment.

The proposed consent order would also prohibit PGI and the PGI

Directors from encouraging, advising, pressuring, inducing, or

attempting to induce any physician to (1) refuse to deal with a payor,

or (2) deal with a payor on terms collectively determined by

physicians, including such terms as terms of reimbursement or terms of

cost containment.

The proposed consent order specifically permits the following:

1. Physicians who practice together as partners or employees in the

same professional business entity collectively determining the fees to

be charged for services rendered by that professional business entity,

or collectively determining other terms on which that professional

business entity deals with payors. (For purposes of this consent order,

``professional business entity'' means professional corporation,

professional partnership, and professional limited liability company.)

2. Physicians who participate in the same integrated joint venture

collectively determining the fees to be charged for services rendered

by that integrated joint venture or collectively determining other

terms on which that integrated joint venture deals with payors. (For

purposes of the proposed consent order, ``integrated joint venture''

means a joint arrangement to provide health care services in which all

physicians participating in the venture who would otherwise be

competitors (1) pool their capital to finance the venture, by

themselves or together with others, and (2) share a substantial risk of

loss from their participation in the venture.)

3. The exercise of rights permitted under the First Amendment to

the United States Constitution to petition any federal or state

government executive agency or legislative body concerning legislation,

rules, or procedures, or to participate in any federal or state

administrative or judicial proceeding.

4. Physicians participating at the request of a payor in

utilization review activities organized and controlled by the payor

insofar as such participation continues only at the sufferance of the

payor.

The proposed consent order would require PGI to dissolve itself

within 120 days after the date on which the proposed order becomes

final. PGI Directors are to take all actions necessary to effect

dissolution of PGI as required by the proposed consent order.

The proposed consent order would also require PGI to distribute

copies of the proposed complaint and proposed order to past and present

members of PGI and each payor who, at any time since February 18, 1986,

has communicated any desire, willingness, or interest in contracting

for physician services with PGI or with any of the PGI Directors. Each

of the PGI Directors is to deliver to PGI a list of payors from whom he

has received such a communication.

The order would require PGI and the PGI Directors to (1) file

compliance reports with the Commission, (2) notify the Commission of

certain proposed changes in PGI or the PGI Directors that may affect

their compliance with the order, and (3) permit representatives of the

Commission to have access to documents in the possession or under the

control of PGI or the PGI Directors relating to any matters contained

in the order and to interview the officers, directors, or employees of

PGI and the employees of the PGI Directors.

The proposed consent order would terminate 20 years after the date

it is issued.

PGI and the PGI Directors agreed to the proposed consent order for

settlement purposes only, and their agreement to the order does not

constitute an admission by them that the law has been violated as

alleged in the proposed complaint.

Donald S. Clark,

Secretary.

[FR Doc. 95-11553 Filed 5-10-95; 8:45 am]

BILLING CODE 6750-01-M