U.S. v. Vision Service Plan; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

U.S. v. Vision Service Plan; Proposed Final Judgment and

Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. section 16(b) through (h), that a proposed

Final Judgment, a Stipulation, and a Competitive Impact Statement have

been filed with the United States District Court for the District of

Columbia in United States of America v. Vision Service Plan, Case No.

1:49CV02693.

The Complaint in the case alleges that Vision Service Plan (VSP)

entered into so-called ``most favored nation'' agreements with its

panel doctors in unreasonable restraint of trade, in violation of

section 1 of the Sherman Act, 15 U.S.C. 1, by effectively restricting

the willingness of panel doctors to discount fees for vision care

services and substantially reducing discounted fees for vision care

services.

The proposed Final Judgment eliminates VSP's most favored nation

clause and enjoins VSP from engaging in other actions that would limit

future discounting by its participating doctors.

Public comment on the proposed Final Judgment is invited within the

statutory 60-day comment period. Such comments and responses thereto

will be published in the Federal Register and filed with the Court.

Comments should be directed to Gail Kursh, Chief; Professions &

Intellectual Property Section, Department of Justice, Antitrust

Division; 600 E Street, NW., Room 9300; Washington, DC 20530

(telephone: (202) 307-5799).

Constance K. Robinson,

Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

United States of America, c/o Antitrust Division, Department of

Justice, 600 E Street, NW., Washington, DC 20530, Plaintiff, vs.

Vision Service Plan, 3333 Quality Drive, Ranch Cordova, CA 95670,

Defendant. Case Number 1:94CV02693. Judge: Thomas Penfield Jackson.

Deck Type: Antitrust. Date Stamp: 12/15/94.

Complaint

The United States of America, acting under the direction of the

Attorney General of the United States, brings this civil action to

obtain equitable and other relief against the defendant named herein,

and complains and alleges as follows:

I

Jurisdiction and Venue

1. This Complaint is filed by the United States under section 4 of

the Sherman Act, 15 U.S.C. 4, as amended, to prevent and restrain a

continuing violation by the Defendant of section 1 of the Sherman Act,

15 U.S.C. 1.

2. The Defendant transacts business and is found within the

District of Columbia, within the meaning of 15 U.S.C. 22.

II

Defendant

3. Vision Service Plan (``VSP''), is a California not-for-profit

corporation with its principal place of business in Rancho Cordova,

California. The Defendant offers vision care insurance plans. To obtain

services for covered patients, the Defendant enters into agreements

with member optometrists and ophthalmologists in private practice

(panel doctors), that govern their provision of vision care services to

VSP patients.

4. Whenever this Complaint refers to any corporation's act, deed,

or transaction, it means that such corporation engaged in the act,

deed, or transaction by or through its members, officers, directors,

agents, employees, or other representatives while they actively were

engaged in the management, direction, control, or transaction of its

business or affairs.

III

Concerted Action

5. Various firms and individuals, not named as defendants in this

Complaint, have participated with the Defendant in the violation

alleged in this Complaint, and have performed acts and made statements

in furtherance thereof.

IV

Trade and Commerce

6. At material times, the Defendant has engaged in the business of

underwriting or administering vision care insurance plans (``VSP

plans'') in 42 states (46 effective January 1, 1995) and the District

of Columbia. The Defendant obtains vision care services for persons

covered by VSP plans by establishing panels of contracting doctors, who

each sign and agree to comply with the Panel Doctor's Agreement with

VSP, which, among other things, governs payment for covered services

rendered to VSP patients. The Defendant contracts with approximately

17,000 panel doctors.

7. At material times, the Panel Doctor's Agreement between each

panel [[Page 5211]] doctor and the Defendant has contained a ``most

favored nation'' clause, characterized by VSP as a Fee Non-

Discrimination Clause, pursuant to which each panel doctor agrees:

(a) Not to charge fees to VSP that are any higher than those

charged to the doctor's non-VSP patients, nor those that the doctor

accepts from any other non-governmental group, group plan, or panel;

(b) If a published VSP fee schedule would cause payment in excess

of the doctor's usual and customary fee, to notify VSP and accept such

lower fee as is consistent with the doctor's usual and customary fees;

and

(c) If VSP determines that the doctor is charging fees to VSP that

are higher than those charged non-VSP patients, VSP shall reduce the

doctor's fees accordingly.

8. At material times, in all or parts of many states in which the

Defendant does business, it has contracted with a relatively high

percentage of optometrists in private practice. In all or parts of many

states in which the Defendant does business, payments from the

Defendant have constituted a significant portion of most panel doctors'

revenue from the provision of vision care services to patients having

some form of vision care insurance coverage.

9. Vision care insurance plans seeking to market their plans to

employers and other potential patient groups, in competition with the

Defendant, need to attract or retain at competitive prices a

geographically varied panel comprising a substantial number of

qualified optometrists. After the Defendant began actively enforcing

the most favored nation clause in its Panel Doctor's Agreement, in all

or parts of many states in which the Defendant does business, many of

its panel doctors refused to discount their fees to competing vision

care insurance plans or to uninsured patients because VSP's most

favored nation clause would have required them similarly to lower all

of their charges to the Defendant. Because many of the Defendant's

panel doctors receive a substantial portion of their professional

income from serving VSP patients, the costs to the doctors of having to

lower the fees they charge VSP would have been too great. Consequently,

the Defendant's most favored nation clause has, in effect, caused many

of its panel doctors to charge all of their other patients and other

vision care insurance plans, in competition with VSP, fees as high as

or higher than those charged to VSP.

10. In all or parts of many states in which the Defendant does

business, the Defendant's most favored nation clause has caused large

numbers of panel doctors, who otherwise would have discounted their

fees to participate in competing vision care insurance plans, to drop

out of such plans or to refuse to join such plans. The Defendant's most

favored nation clause also has caused a large number of panel doctors,

who do contract with vision care insurance plans competing with VSP, to

insist, as a condition of continuing such participation, that the plans

increase their payments to the levels paid by VSP.

11. Because in all or parts of many states in which the Defendant

does business, a relatively large percentage of optometrists in private

practice are VSP panel doctors, and because revenue from serving the

patients covered by VSP plans is a significant portion of many of those

panel doctors' professional income, among other reasons, the

Defendant's most favored nation clause has resulted in many competing

vision care insurance plans being unable to attract or retain

sufficient numbers of panel doctors to serve their members at fee

levels below those paid by VSP. In all or parts of many states in which

the Defendant does business, the Defendant's most favored nation clause

has substantially restricted many competing plans' ability to attract

and serve groups of patients on competitive terms.

12. Many corporate employers remit across state lines not

insubstantial premium payments to the Defendant for underwriting or

administering vision care insurance for their employees.

13. Many corporate employers that remit premiums to the Defendant

are businesses that sell products and services in interstate commerce,

and the premium levels paid by such businesses affect the prices of the

products and services they sell.

14. At material times, the Defendant has used interstate banking

facilities and purchased not insubstantial quantities of goods and

services across state lines, for use in providing vision care insurance

coverage or vision care services to patients.

15. The activities of the Defendant that are the subject of this

Complaint have been within the flow of, and have substantially

affected, interstate trade and commerce.

V

Violation Alleged

16. Beginning at a time unknown to the Plaintiffs and continuing

through at least November, 1994, in all or parts of many states in

which Defendant does business, the Defendant entered into agreements

with its panel doctors in unreasonable restraint of interstate trade

and commerce in violation of section 1 of the Sherman Act, 15 U.S.C. 1.

This offense is likely to recur unless the relief hereinafter sought is

granted.

17. For the purpose of forming and effectuating these agreements,

the Defendant did the following things, among others:

(a) Required panel doctors to agree to the most favored nation

clause in the VSP Panel Doctor Agreement, with the effect of

restricting the willingness of panel doctors to discount fees for

vision care services and substantially reducing discounted fees for

vision care services;

(b) Enforced the most favored nation clause in the VSP Panel Doctor

agreement; and

(c) Coerced many panel doctors into dropping out of, or charging

higher fees to, vision care insurance plans that attempt to compete

with the Defendant.

18. These agreements had the following effects, among others, in

all or parts of many states in which the Defendant does business:

(a) Price competition among vision care insurance plans has been

unreasonably restrained because many competing vision care insurance

plans have been unable to obtain or retain a sufficient number of

optometrists to provide services to their members at competitive prices

because panel doctors have withdrawn from, refused to participate in,

or insisted on higher fees from vision care insurance plans that seek

to pay them less than the Defendant;

(b) Prices for the provision of vision care services to non-VSP

patients and plans in competition with the Defendant have been raised

because many VSP panel doctors have opted not to discount their fees to

competing vision care insurance plans or to uninsured patients; and

(c) Consumers of vision care services have been deprived of the

benefits of free and open competition.

VI

Prayer

Wherefore, the Plaintiff prays:

1. That the Court adjudge and decree that the Defendant entered

into unlawful agreements in unreasonable restraint of interstate trade

and commerce in violation of section 1 of the Sherman Act, 15 U.S.C. 1.

2. That the Defendant, its members, officers, directors, agents,

employees, and successors and all other persons acting or claiming to

act on its behalf be enjoined, restrained and prohibited for

[[Page 5212]] a period of five years from, in any manner, directly or

indirectly, continuing, maintaining, or renewing these agreements, or

from engaging in any other combination, conspiracy, agreement,

understanding, plan, program, or other arrangement having the same

effect as the alleged violation.

3. That the United States have such other relief as the nature of

the case may require and the Court may deem just and proper.

Dated: December 15, 1994.

For Plaintiff:

Anne K. Bingaman,

Assistant Attorney General.

Robert E. Litan,

Deputy Assistant Attorney General.

Mark C. Schechter,

Deputy Director, Office of Operations.

Gail Kursh, D.C. Bar #293118,

Chief, Professions and Intellectual Property Section.

David C. Jordan, D.C. Bar #914093,

Ass't Chief, Professions and Intellectual Property Section, Antitrust

Division, Department of Justice.

Steven Kramer,

Richard S. Martin,

Attorneys, Antitrust Division, U.S. Dept. of Justice, 600 E Street,

NW., Room 9420, Washington, DC 20530, (202) 307-0997.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, vs. Vision Service Plan,

Defendant. Civil Action No. 942693.

Stipulation

It is stipulated by and between the undersigned parties, by their

respective attorneys, that:

1. The Court has jurisdiction over the subject matter of this

action and over each of the parties hereto, and venue of this action is

proper in the Eastern District of California;

2. The parties consent that a Final Judgment in the form hereto

attached may be filed and entered by the Court, upon the motion of any

party or upon the Court's own motion, at any time after compliance with

the requirements of the Antitrust Procedures and Penalties Act (15

U.S.C. 16), and without further notice to any party or other

proceedings, provided that plaintiff has not withdrawn its consent,

which it may do at any time before the entry of the proposed Final

Judgment by serving notice thereof on defendant and by filing that

notice with the Court; and

3. Defendant agrees to be bound by the provisions of the proposed

Final Judgment pending its approval by the Court. If plaintiff

withdraws its consent, or if the proposed Final Judgment is not entered

pursuant to the terms of the Stipulation, this Stipulation shall be of

no effect whatsoever, and the making of this Stipulation shall be

without prejudice to any party in this or in any other proceeding.

4. Defendant agrees to send, within 15 days of the filing of the

proposed Final Judgment, a copy of the attached letter, which has been

approved by the Antitrust Division, by first-class mail to every VSP

Panel Doctor participating at any time since January 1, 1993.

5. Defendant agrees to provide to plaintiff a certificate of

compliance with the preceding paragraph within 20 days of the filing of

the proposed Final Judgment.

For Plaintiff:

Anne K. Bingaman,

Assistant Attorney General.

Robert E. Litan,

Deputy Assistant Attorney General.

Mark C. Schechter,

Deputy Director, Office of Operations.

Gail Kursh, D.C. Bar #293118,

Chief.

David C. Jordan, D.C. Bar #914093,

Ass't. Chief, Professions and Intellectual Property Section, Antitrust

Division, Department of Justice.

For Defendant:

John J. Miles,

D.C. Bar #364054, Ober, Kaler, Grimes & Shriver, Fifth Floor, 1401

Floor, 1401 H Street, NW., Washington, DC 20005-2202, (202) 326-5008.

Steven Kramer,

Richard S. Martin,

Attorneys, Antitrust Division, U.S. Dept. of Justice, 600 E Street,

NW., Room 9420, BICN Bldg. Washington, DC 20530, (202) 307-0997.

Barclay L. Westerfeld,

General Counsel, Vision Service Plan, 3333 Quality Drive, Rancho

Cordova, CA 95670, (916) 851-5000.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, vs. Vision Service Plan,

Defendant. Civil Action No. 94 2693.

Final Judgment

Plaintiff, United States of America, filed its Complaint on

December 15, 1994. Plaintiff and Defendant, by their respective

attorneys, have consented to the entry of this Final Judgment without

trial or adjudication of any issue of fact or law. This Final Judgment

shall not be evidence against or an admission by any party about any

issue of fact or law or that any violation of law has occurred.

Therefore, before the taking of any testimony and without trial or

adjudication of any issue of fact or law herein, and upon consent of

the parties, it is hereby

Ordered, Adjudged, and Decreed, as follows:

I

Jurisdiction

This Court has jurisdiction over the subject matter of this action

and over each of the parties consenting hereto. The Complaint states a

claim upon which relief may be granted against the Defendant under

section 1 of the Sherman Act, 15 U.S.C. 1.

II

Definitions

As used herein, the term:

(A) ``Defendant'' or ``VSP'' means Vision Service Plan;

(B) ``Panel Doctor's Agreement'' means the VSP Panel Member

Agreement by which Defendant contracts with optometrists or

ophthalmologists, including all amendments and additions, in effect at

any time since January 1, 1992, and during the term of this Final

Judgment;

(C) ``Most Favored Nation Clause'' means:

(1) The clause characterized as a Fee Non-Discrimination Clause in

paragraph 6 of the VSP Panel Doctor's Agreement, pursuant to which each

VSP member doctor agrees:

(a) Not to charge fees to VSP that are any higher than those

charged to the doctor's non-VSP patients, nor those that the doctor

accepts from any other non-governmental group, group plan, or panel;

(b) If a published VSP fee schedule would cause payment in excess

of the doctor's usual and customary fee, to notify VSP and accept such

lower fee as is consistent with the doctor's usual and customary fees;

and

(c) If VSP determines that the doctor is charging fees to VSP that

are higher than those charged non-VSP patients, VSP shall reduce the

doctor's fees accordingly; or

(2) Any other existing or future clause in the VSP Panel Doctor's

Agreement, VSP policy, or VSP practice having the same purpose or

effect, in whole or in part.

(D) ``Non-VSP patients'' means patients who are not members of a

plan insured or administered by VSP.

(E) ``Non-VSP plan'' means any plan (other than VSP) responsible

for all or part of any expense for vision care services, provided to

plan members, pursuant to contractual terms with providers of vision

services limiting the fees that providers collect for serving the

plan's members. [[Page 5213]]

(F) ``Modal fee'' means the fee charged most frequently during a

calendar year by a VSP panel doctor for each service rendered to non-

VSP patients and for each service rendered to VSP patients that is not

covered by a plan insured or administered by VSP. For example, if in

1993, a VSP panel doctor performed a total of 12 eye examinations on

non-VSP patients and charged 3 of those patients $40, 5 of those

patients $50, and 4 of those patients $60 for the eye examination, the

doctor's modal fee for eye examinations provided to non-VSP patients

would be $50.

(G) ``Median fee'' means, considering all fees charged in a

calendar year for each service rendered to non-VSP patients and for

each service rendered to VSP patients that is not covered by a plan

insured or administered by VSP, the fee below and above which there are

an equal number of fees (or, if there are an overall equal number of

fees under consideration, the fee that is the arithmetic mean of the

tow middle fees.)

III

Applicability

This Final Judgment applies to:

(A) The Defendant and to its successors and assigns, and to all

other persons (including VSP panel doctors) in active concert or

participation with any of them, who have received actual notice of the

Final Judgment by personal service or otherwise; and

(B) The Most Favored Nation Clause, as defined in Section II(C) of

this Final Judgment, but to no other clause of the VSP Panel Doctor's

Agreement, VSP policy, or VSP practice.

IV

Prohibited Conduct

Except as permitted in Section V, Defendant is enjoined and

restrained from:

(A) Maintaining, adopting, or enforcing a Most Favored Nation

Clause in any VSP Panel Doctor's Agreement, corporate bylaws, policies,

rules, regulations, or by any other means or methods;

(B) Maintaining, adopting, or enforcing any policy or practice

linking payments made by VSP to any VSP panel doctor to fees charged by

the doctor to any non-VSP patient or any non-VSP plan;

(C) Differentiating VSP's payments to, or other treatment of, any

VSP panel doctor because the doctor charges any fee lower than that

charged by the doctor to VSP, to any non-VSP patient or to any non-VSP

plan;

(D) Taking any action to discourage any VSP panel doctor from

participating in any non-VSP plan or from offering or charging any fee

lower than that paid to the doctor by VSP to any non-VSP patient or any

non-VSP plan;

(E) Monitoring or auditing the fees any VSP panel doctor charges

any non-VSP patient or any non-VSP plan; and

(F) Communicating in any fashion with any VSP panel doctor

regarding the doctor's participation in any non-VSP plan or regarding

the doctor's fees charged to any non-VSP patient or to any non-VSP

plan.

V

Permitted Activities

Despite any prohibition contained in Section IV of this Final

Judgment,

(A) For the purpose of calculating payments to be made to its panel

doctors, defendant may request annually that a VSP panel doctor report

sufficient information--provided such information is requested

uniformly from all panel doctors within a meaningful geographic area

comprising zip codes--from which Defendant is able to calculate either

the doctor's modal or median fee, for each applicable service, provided

by the doctor during the preceding calendar year;

(B) Defendant may calculate the fees that it pays to a VSP panel

doctor for services rendered to VSP patients based on either the panel

doctor's modal or median fees, provided that Defendant employs a

uniform method of calculation at least within each meaningful

geographic area, comprising zip codes, in which it does business;

(C) Only for the purposes of verifying whether the information

reported by a VSP panel doctor, pursuant to Section V(A), is accurate

or of investigating a VSP panel doctor's suspected excessive billing to

VSP, upon reasonable belief that the reported fees may be inaccurate or

excessive, and subject to the reasonable convenience of the VSP panel

doctor, Defendant may audit the VSP panel doctor's charges to non-VSP

patients;

(D) Consistently with Sections IV(C) and (D), Defendant may devise

and utilize a fee system for doctors who apply for VSP panel membership

after the date of this Final Judgment that is different from the system

used to compensate current panel doctors, and that system may be based

on the average fees VSP pays in a meaningful geographic area comprising

zip codes;

(E) Consistently with Sections IV(C) and (D), Defendant may elect

to maintain current fees for panel doctors at their existing levels and

may base any future fee increases on the Consumer Price Index, VSP`s

own financial growth, or any other meaningful economic indicator; and

(F) Consistently with Sections IV(C) and (D), Defendant may impose

penalties on panel doctors who have misrepresented their fees or the

frequency with which they charge those fees.

VI

Nullification

The Most Favored Nation Clause shall be null and void and Defendant

shall impose no further obligation arising from it on any VSP panel

doctor. Within 60 days of entry of this Final Judgment, Defendant shall

disseminate to each present VSP panel doctor an addendum to the Panel

Doctor's Agreement, nullifying the Most Favored Nation Clause, and

Defendant shall eliminate the Most Favored Nation Clause from all Panel

Doctor's Agreements entered into after entry of this Final Judgment.

VII

Complance Measures

The Defendant shall:

(A) Distribute, within 60 days of the entry of this Final Judgment,

a copy of this Final Judgment to: (1) All VSP officers and directors;

(2) VSP employees who have any responsibility for approving,

disapproving, monitoring, recommending, or implementing any provisions

in agreements with VSP panel doctors; and (3) all present VSP panel

doctors and all former VSP panel doctors whom VSP should reasonably

know have resigned because of the Most Favored Nation Clause;

(B) Distribute in a timely manner a copy of this Final Judgment to

any officer, director, or employee who succeeds to a position described

in Section VII(A) (1) or (2);

(C) Obtain from each present or future officer, director, or

employee designated in Section VII(A) (1) or (2), within 60 days of

entry of this Final Judgment or of the person's succession to a

designated position, a written certification that he or she: (1) Has

read, understands, and agrees to abide by the terms of this Final

Judgment; and (2) has been advised and understands that his or her

failure to comply with this Final Judgment may result in conviction for

criminal contempt of court;

(D) Maintain a record of persons to whom the Final Judgment has

been distributed and from whom, pursuant to Section VI(D), the

certification has been obtained;

(E) The Defendant shall notify all former VSP panel doctors whom it

should reasonably know have resigned [[Page 5214]] because of the Most

Favored Nation Clause, that they are reinstated, on terms and

conditions that VSP may establish consistently with this Final

Judgment, unless they do not desire reinstatement; and

(F) Report to the Plaintiff any violation of the Final Judgment.

VIII

Certification

(A) Within 75 days of the entry of this Final Judgment, the

Defendant shall certify to the Plaintiff whether it has: (1)

Disseminated contractual addenda pursuant to Section VI, (2)

distributed the Final Judgment in accordance with Section VII(A), and

(3) obtained certifications in accordance with Section VII(C).

(B) For five years after the entry of this Final Judgment, on or

before its anniversary date, the Defendant shall file with the

Plaintiff an annual Declaration as to the fact and manner of its

compliance with the provisions of Sections IV, V, VI, and VII.

IX

Plaintiff's Access

(A) To determine or secure compliance with this Final Judgment and

for no other purpose, duly authorized representatives of the Plaintiff,

upon written request of the Assistant Attorney General in charge of the

Antitrust Division and on reasonable notice to the Defendant made to

its principal office, shall be permitted, subject to any legally

recognized privilege.

(1) Access during the Defendant's office hours to inspect and copy

all documents in the possession or under the control of the Defendant,

who may have counsel present, relating to any matters contained in this

Final Judgment; and

(2) subject to the reasonable convenience of the Defendant and

without restraint or interference from it, to interview officers,

employees or agents of the Defendant, who may have Defendant's counsel

and/or their own counsel present, regarding such matters.

(B) Upon the written request of the Assistant Attorney General in

charge of the Antitrust Division made to the Defendant's principal

office, the Defendant shall submit such written reports, under oath if

requested, relating to any matters contained in this Final Judgment as

may be reasonably requested, subject to any legally recognized

privilege.

(C) No information or documents obtained by the means provided in

Section IX shall be divulged by the Plaintiff to any person other than

duly authorized representatives of the Executive Branch of the United

States, except in the course of legal proceedings to which the United

States is a party, or for the purpose of securing compliance with this

Final Judgment, or as otherwise required by law.

(D) If at the time information or documents are furnished by the

Defendant to Plaintiff, the Defendant represents and identifies in

writing the material in any such information or documents to which a

claim of protection may be asserted under Rule 26(c)(7) of the Federal

Rules of Civil Procedure, and the Defendant marks each pertinent page

of such material, ``subject to claim of protection under Rule 26(c)(7)

of the Federal Rules of Civil Procedure,'' then 10 days notice shall be

given by Plaintiff to the Defendant prior to divulging such material in

any legal proceeding (other than a grand jury proceeding) to which the

Defendant is not a party.

X

Further Elements of the Final Judgment

(A) This Final Judgment shall expire five years from the date of

its entry.

(B) Jurisdiction is retained by this Court for the purpose of

enabling either of the parties to this Final Judgment, but no other

person, to apply to this Court at any time for further orders and

directions as may be necessary or appropriate to carry out or construe

this Final Judgment, to modify or terminate any of its provisions, to

enforce compliance, and to punish violations of its provisions.

(C) Entry of this Final Judgment is in the public interest.

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

United States District Judge

In the United States District Court for the District of Columbia

United States of America, Plaintiff, vs. Vision Service Plan,

Defendant. Case No. 1:94CV02693 TPJ.

Competitive Impact Statement

Pursuant to Section 2(b) of the Antitrust Procedures and Penalties

Act, 15 U.S.C. 16(b)-(h), the United States submits this Competitive

Impact Statement relating to the proposed Final Judgment submitted for

entry in this civil antitrust proceeding.

I

Nature and Purpose of the Proceeding

On December 15, 1994, the United States filed a civil antitrust

Complaint alleging that Vision Service Plan (VSP), in all or parts of

many states in which VSP does business, entered into agreements with

its panel doctors that unreasonably restrain competition by restraining

discounting of fees for vision care services in violation of section 1

of the Sherman Act, 15 U.S.C. 1. The Complaint seeks injunctive relief

to enjoin continuance of the violation.

Entry of the proposed Final Judgment will terminate this action,

except that the Court will retain jurisdiction over the matter for

further proceedings that may be required to interpret, enforce or

modify the Judgment or to punish violations of any of its provisions.

II

Practices Giving Rise to the Alleged Violation

Defendant VSP is a California not-for-profit corporation

headquartered in Rancho Cordova, California. It controls the operations

of vision care insurance plans, operated under the name of Vision

Service Plan, in 46 states and the District of Columbia. VSP contracts

with businesses, government agencies, health care insurers, and other

organizations to provide pre-paid vision care coverage to their

employees or beneficiaries. In 1994, VSP plans covered about 15 million

persons; VSP revenues in 1994 totalled about $650 million.

VSP contracts directly with doctors--primarily optometrists but

also with a relatively small number of ophthalmologists--in private

practice, whom it refers to as panel doctors, to provide vision care

services--consisting essentially of diagnostic and dispensing services

and optical materials, such as corrective lenses and frames--to

patients covered by VSP plans. VSP's agreements with its panel doctors

(termed the Panel Doctor's Agreement) require its panel doctors to

report to VSP periodically a listing of the doctor's usual and

customary fees charged to non-VSP patients. VSP typically has paid

panel doctors fees that are derived from those usual and customary

fees, subject to a discount and area-specific fee caps that VSP

imposes.

During 1994, VSP contracted with about 17,000 panel doctors. In all

or parts of many states in which VSP does business, it contracts with a

high percentage of an area's optometrists. For example, in 1993, VSP

reported that 98% of all optometrists licensed in Nevada were VSP panel

doctors. In California, VSP contracts with approximately 4,000 panel

doctors, constituting about 90% of California optometrists in

independent private practice. Moreover, in all or parts of many states,

VSP's payments to optometrists constitute a significant part

[[Page 5215]] of their professional income. In California, for example,

VSP plans cover over 5.7 million members accounting for total annual

revenue of approximately $200 million.

Against this background, Defendant VSP's Panel Doctor's Agreement

contains a so-called fee non-discrimination clause, which is similar,

in substance, to clauses commonly characterized in the health care

industry as most favored nation (MFN) clauses. VSP's MFN clause

requires that each panel doctor charge VSP no more than the lowest

price that the doctor charges any non-VSP patient or any other vision

care group or insurance plan. Accordingly, if a VSP panel doctor wishes

to reduce the fees that the doctor charges to any non-VSP plan or

patient below the amounts that VSP pays the doctor, the MFN requires

the doctor to reduce to that same level the fees the doctor charges to

VSP. For the reasons described below, however, VSP's MFN clause has

actually caused many doctors not to reduce their fees to VSP, but

instead to charge other vision care insurance plans and non-VSP

patients fees that are at least as high as those paid to the doctor by

VSP.

The Complaint alleges that, beginning at a time unknown to

Plaintiff and continuing through at least November, 1994, in all or

parts of many states in which VSP does business, VSP entered into

agreements with its panel doctors that had the effect of unreasonably

restraining optometrists' discounting of fees for vision care services

to vision care insurance plans competing with VSP or to other

purchasers of vision care services, in violation of section 1 of the

Sherman Act. The Complaint alleges that, for the purpose of forming and

effectuating these agreements, (1) VSP required its panel doctors to

agree to the MFN clause in VSP's Panel Doctor's Agreement, which had

the effect of restricting the willingness of its panel doctors to

discount fees for vision care services and substantially reducing

discounted fees for vision care services; (2) VSP enforced the MFN

clause; and (3) VSP coerced many panel doctors into dropping out of, or

charging higher fees to, vision care insurance plans that compete with

VSP.

The Complaint further alleges that, in all or parts of many states,

the challenged agreements have had the effect of (1) unreasonably

restraining price competition among vision care insurance plans because

many competing vision care insurance plans have been unable to obtain

or retain a sufficient number of optometrists to provide services to

their members at competitive prices because panel doctors have

withdrawn from, refused to participate in, or insisted on higher fees

from vision care insurance plans that seek to pay them less than the

Defendant; and (2) raising prices for the provision of vision care

services to non-VSP patients and plans in competition with VSP because,

as a result of the MFN, many VSP panel doctors have opted not to

discount their fees to competing vision care insurance plans or to

uninsured patients.

VSP's adoption and enforcement of the MFN in its Panel Doctor's

Agreement has reduced the willingness of many optometrists to discount

their fees for the following reasons. Since many VSP panel doctors in

all or parts of many states receive a significant portion of their

professional income from treating VSP patients, they have found that

discounting their fees below VSP payments to non-VSP patients or

competing vision care programs, and consequently reducing their income

from VSP by virtue of the MFN clause, is unprofitable. For the same

reason, VSP panel doctors are unwilling to drop their participation in

VSP to avoid the MFN and be able to discount their fees to competing

discount vision care plans.

In a number of reported situations, optometrists had reduced their

fees in a range of 20-40% below their usual fees to participate in

vision care insurance plans competing with VSP. Subsequently, fearing

VSP's enforcement of the MFN clause, however, many VSP panel doctors

resigned from such competing plans or insisted that the plans pay them

fees that are at least as high as VSP's to avoid having to lower their

fees charged to VSP. Consequently, VSP's MFN clause has substantially

restrained both discounting arrangements that were already in place and

potential discounting that otherwise would have occurred but for the

MFN. Thus, VSP's MFN clause has severely hampered competing vision care

insurance plans' efforts to attract or retain, at competitive prices, a

sufficient, geographically dispersed panel of qualified optometrists to

make their plans commercially marketable.

In all or parts of many states, VSP's MFN clause has effectively

deprived vision care consumers of the benefits of free and open

competition. VSP's MFN clause has deprived uninsured patients of price

competition among optometrists who--because of the MFN clause--are

unwilling to discount their fees below VSP levels. VSP's MFN clause has

also reduced purchasers' opportunities to choose among competing vision

care insurance plans offering different combinations of optometrists

and prices. This reduction in the scope of vision care coverage

alternatives, such as managed care and other discount plans, has

substantially reduced the cost savings to consumers that such competing

plans could provide if they were able to contract for optometrists'

services at fees below VSP levels. Indeed, claims data suggest

generally that average claims, based on panel doctor's usual charges,

filed with VSP for services rendered in all or parts of many states

where VSP contracts with a substantial percentage of optometrists in

private practice and does a substantial amount of business range

between $95-110, compared to $70-80 in some other areas where VSP has

less of a market presence.

III

Explanation of the Proposed Final Judgment

The Plaintiff and VSP have stipulated that the Court may enter the

proposed Final Judgment after compliance with the Antitrust Procedures

and Penalties Act, 15 U.S.C. 16(b)-(h). The proposed Final Judgment

provides that its entry does not constitute any evidence against or

admission of any party concerning any issue of fact or law.

Under the provisions of section 2(e) of the Antitrust Procedures

and Penalties Act, 15 U.S.C. 16(e), the proposed Final Judgment may not

be entered unless the Court finds that entry is in the public interest.

Section X(C) of the proposed Final Judgment sets forth such a finding.

The proposed Final Judgment is intended to ensure that VSP

eliminates its MFN clause and stops all similar practices that

unreasonably restrain competition among optometrists and vision care

insurance plans.

A. Scope of the Proposed Final Judgment

Section III (A) of the proposed Final Judgment provides that the

Final Judgment shall apply to VSP and to its successors and assigns,

and to all other persons (including VSP panel doctors) in active

concert or participation with any of them, who shall have received

actual notice of the Final Judgment by personal service or otherwise.

Section III(B) of the proposed Final Judgment limits application of the

Judgment to VSP's MFN clause, as defined in Section II(C) of the

Judgment, but to no other clause in the VSP Panel Doctor's Agreement,

VSP policy, or VSP practice.

In the Stipulation to the proposed Final Judgment, VSP has agreed

to be bound by the provisions of the proposed Final Judgment, pending

its approval by the Court. VSP has also agreed to send,

[[Page 5216]] within 15 days of the filing of the proposed Final

Judgment, a copy of the attached letter, which has been approved by the

Antitrust Division, to every VSP panel doctor participating at any time

since January 1, 1993.

B. Prohibitions and Obligations

Under Section IV(A) of the proposed Final Judgment, VSP is enjoined

and restrained for a period of five years from maintaining, adopting,

or enforcing an MFN clause in any VSP Panel Doctor's Agreement, or in

its corporate by-laws, policies, rules, regulations, or by any other

means or methods.

Subject to activities permitted in Section V of the proposed Final

Judgment, other provisions of the Final Judgment seek to ensure that

the MFN clause's anticompetitive effects cannot be achieved in other

ways. Specifically, Section IV(B) enjoins VSP from maintaining,

adopting, or enforcing any policy or practice linking payments made by

VSP to any VSP panel doctor to fees charged by the doctor to any non-

VSP patient or any non-VSP plan; Section IV(C) enjoins VSP from

differentiating VSP's payments to, or other treatment of, any VSP panel

doctor because the doctor charges any fee lower than that charged by

the doctor to VSP, to any non-VSP patient or to any non-VSP plan;

Section IV(D) enjoins VSP from taking any action to discourage any VSP

panel doctor from participating in any non-VSP plan or from offering or

charging any fee lower than that paid to the doctor by VSP to any non-

VSP patient or any non-VSP plan; Section IV(E) enjoins VSP from

monitoring or auditing the fees any VSP panel doctor charges to any

non-VSP patient or any non-VSP plan; and Section IV(F) enjoins VSP from

communicating in any fashion with any VSP panel doctor regarding the

doctor's participation in any non-VSP plan or regarding the doctor's

fees charged to any non-VSP patient or to any non-VSP plan.

Section V of the Proposed Final Judgment describes several

activities that VSP may elect to undertake in calculating the payments

it makes in the future to its panel doctors that, if carried out

consistently with the restrictions of Section V and applicable

injunctive provisions contained in Section IV, will not constitute a

violation of the Judgment. Essentially, the restrictions of Section V

seek to ensure that VSP does not discriminate against VSP panel doctors

who choose to discount fees to non-VSP insurance plans or to uninsured

patients, with the effect of discouraging such discounting. Section

V(A) allows VSP to request annually sufficient information to enable

VSP to calculate either a doctor's modal fee (the doctor's most

frequently charged fee) or median fee (the fee above and below which

the doctor charges other fees an equal number of times) for each

service provided by all VSP panel doctors in a meaningful geographic

area specified by zip codes; Section V(C) allows VSP to verify, through

reasonable audit procedures, the information provided to it by its

panel doctors pursuant to Section V(A) and to check into any reasonable

suspicions VSP might have of excessive billings by panel doctors; and

under Section V(F), VSP may impose penalties in a nondiscriminatory

manner on panel doctors for billing misrepresentations.

Section V(D) permits VSP, if it chooses, to devise and use a new

fee system for doctors who become VSP panel doctors after the entry of

the Judgment, based on the average fees that VSP pays its existing

panel doctors within a meaningful area specified by zip codes. Under

Section V(E), VSP also may elect to maintain its current fee levels for

its current panel doctors and base any future fee increases on the

Consumer Price Index, VSP's own financial growth or any other

meaningful economic indicator.

Section VI of the Final Judgment declares that VSP's MFN clause, or

any future clause, policy or practice having the same purpose or

effect, null and void.

Section VII of the Final Judgment sets forth several compliance

measures that VSP must fulfill. Section VII(A) requires that, within 60

days of entry of the Final Judgment, VSP provide a copy of the Final

Judgment to all VSP officers and directors, VSP employees having

responsibility for VSP Panel Doctor Agreements, and all present VSP

panel doctors or former panel doctors whom VSP reasonably believes

resigned from the VSP plan because of the MFN. Sections VII(B), (C) and

(D) require VSP to provide a copy of the Final Judgment to future

officers, directors and employees having responsibility for VSP Panel

Doctor Agreements and to obtain and maintain records of such persons'

written certifications that they have read, understand and will abide

by the terms of the Final Judgment. Section VII(E) requires VSP to

notify all former VSP panel doctors whom VSP reasonably believes

resigned from a VSP plan because of the MFN and to reinstate them as

panel doctors if they so desire; Section VII(F) obligates VSP to report

to Plaintiff any violation of the Final Judgment.

The Final Judgment also contains provisions, in Section VIII,

obligating VSP to certify its compliance with specified obligations of

Sections IV, V, VI and VII of the Final Judgment. In addition, Section

IX of the Final Judgment sets forth a series of measures by which the

Plaintiff may have access to information needed to determine or secure

VSP's compliance with the Final Judgment.

C. Effect of the Proposed Final Judgment on Competition

By eliminating the MFN clause, the relief ordered by the proposed

Final Judgment will enjoin and eliminate a substantial restraint on

price competition between VSP and other vision care insurance plans and

among optometrists, in all or parts of many states. It will do so by

eliminating the disincentives created by the MFN clause that inhibit

optometrists' willingness to discount their fees and to join non-VSP

plans offering payments below VSP levels. The Judgment also prevents

VSP from taking any other action to dissuade or discourage optometrists

from discounting or participating in competing vision care insurance

plans. Consequently, non-VSP plans' efforts to attract and maintain

viable panels of optometrists to serve their members will no longer be

hampered.

On the other hand, VSP will be able to compete on the same terms

with other vision care insurance plans because it will not be

restricted from seeking and obtaining lower fees through activities

permitted in Section V of the Judgment or by other means, such as a fee

schedule--an approach used by other vision care insurance plans--that

are unlikely to have anticompetitive effects. Though Section V does not

allow VSP routinely to base its payments on the lowest fee charged by

its panel doctors to any non-VSP plan or patient--as VSP has done

through its MFN clause--Section V does permit VSP to base its payments

to panel doctors on their median or modal fees charged to non-VSP plans

and patients, two measures of usual and customary fees that are not

linked directly to the lowest fee charged.

In view of the substantial percentage of vision care patients who

are not covered by a vision care insurance plan, a VSP panel doctor's

median or modal fee is not likely to be the lowest fee charged by the

doctor to any non-VSP plan or patient. Thus, VSP's possible use of

median or modal fees, to set payments to panel doctors, is unlikely to

create disincentives to discount. The activities that Section V permits

VSP to engage in are unlikely, therefore, to replicate the effects of

VSP's MFN clause or consequently to perpetuate the

[[Page 5217]] competitive concerns raised by the MFN clause.

The proposed Final Judgment's elimination of VSP's MFN clause will

restore to vision care insurance plans and consumers, in all or parts

of many states, the benefits of free and open competition.

Consequently, vision care insurance plans should be able to achieve

cost savings that they can pass on to consumers, and consumers should

have access to a more competitive selection of vision care insurance

alternatives and optometrists.

IV

Alternatives to the Proposed Final Judgment

The alternative to the proposed Final Judgment would be a full

trial on the merits of the case. In the view of the Department of

Justice, such a trial would involve substantial costs to both the

United States and VSP and is not warranted because the proposed Final

Judgment provides all of the relief that appears necessary to remedy

the violations of the Sherman Act alleged in the Complaint.

V

Remedies Available to Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any

person who has been injured as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damages suffered, as well as costs and reasonable attorney's fees.

Entry of the proposed Final Judgment will neither impair nor assist in

the bringing of such actions. Under the provisions of Section 5(a) of

the Clayton Act, 15 U.S.C. 16(a), the Final Judgment has no prima facie

effect in any subsequent lawsuits that may be brought against the

Defendant in this matter.

VI

Procedures Available for Modification of the Proposed Final Judgment

As provided by the Antitrust Procedures and Penalties Act, any

person believing that the proposed Judgment should be modified may

submit written comments to Gail Kursh, Chief; Professions &

Intellectual Property Section, Department of Justice; Antitrust

Division, 600 E Street, NW., Room 9300; Washington, DC 20530, within

the 60-day period provided by the Act. Comments received, and the

Government's responses to them, will be filed with the Court and

published in the Federal Register. All comments will be given due

consideration by the Department of Justice, which remains free,

pursuant to Paragraph 2 of the Stipulation, to withdraw its consent to

the proposed Final Judgment at any time before its entry if the

Department should determine that some modification of the Judgment is

necessary to the public interest. The proposed Judgment itself provides

that the Court will retain jurisdiction over this action, and that the

parties may apply to the Court for such orders as may be necessary or

appropriate for the modification, interpretation, or enforcement of the

Judgment.

VII

Determinative Documents

No materials and documents of the type described in section 2(b) of

the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b), were

considered in formulating the proposed Judgment. Consequently, none are

filed herewith.

Dated: January 13, 1995.

Respectfully submitted,

Steven Kramer,

Richard S. Martin,

Attorneys, Antitrust Division, U.S. Dept. of Justice, 600 E Street,

NW., Room 9420, Washington, DC 20530, (202) 307-0997.

Attachment

Vision Service Plan,

3333 Quality Drive, Rancho Cordova, CA 95670-7985, (916) 851-5000--

(800) 852-7600, Telefax (916) 851-4855

Dear VSP Doctor: VSP has entered into an agreement with the

United States Department of Justice which will require VSP to

eliminate its fee non-discrimination (FND) policy. This is the

policy which is sometimes called a most favored nations clause and

prohibits a member doctor from charging VSP more for services than

the doctors accepts from any other source for the same services. As

you know, VSP has always contended it has consistently enforced the

fee non-discrimination policy to ensure our groups are provided the

most cost effective services that may be obtained from VSP member

doctors. Without cost effectiveness, the groups have little

incentive to buy from Vision Service Plan.

Effective immediately, VSP will no longer reduce a doctor's fee

because that doctor accepts a lower fee for the same service from

another source and, your Panel Doctor's Agreement with Vision

Service Plan is amended to eliminate Paragraph 6. Please keep this

letter with your VSP agreement and consider it as an addendum. The

Justice Department has agreed that existing fees may stay at their

current levels until a new fee payment mechanism can be put in

place. In the future, VSP's payments will be based on the range of

fees the doctor accepts, rather than the lowest fee.

We have agreed to eliminate the FND policy to avoid long and

expensive litigation with the United States Department of Justice.

We feel our resources need to be maintained to support our mission

of providing our member doctors with more VSP patients and providing

the best vision care in the nation. The vision care market is

changing rapidly. Institutions like insurance companies, HMOs,

Medicaid and the government in general are having a tremendous

effect on health care and its costs. VSP is striving, more than any

other organization, to look out for the interests of our member

doctors and their patients. VSP is, and will continue to be, the

best source of patients for our member doctors.

This policy change may have significant impact on some VSP

member doctors. We will need to develop new fee-setting systems

which will make VSP more competitive but are not based on the lowest

fee which a doctor accepts.

We will be in further communication with you when a new fee

system has been established. Our Board is confident we will be able

to devise a system which will meet your needs and meet VSP's

competitive needs for the future while satisfying the Justice

Department's guidelines.

Thank you for your patience, understanding and continued support

of VSP.

Denis Humphreys,

Chairman of the Board.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, vs. Vision Service Plan,

Defendant. Civil Action No. .

Certificate of Service

I certify that I caused a copy of the United States' Competitive

Impact Statement to be served on January 13, 1995, by Federal Express

to:

Barclay L. Westerfeld, General Counsel, Vision Service Plan, 3333

Quality Drive, Rancho Cordova, California 95670

and by courier to:

John J. Miles, Ober, Kaler, Grimes & Shriver, 1401 H Street NW., Fifth

Floor, Washington, DC 20005-2110

Dated: January 13, 1995.

Steven Kramer,

Attorney, Antitrust Division, Department of Justice, 600 E Street NW.,

Room 9420, Washington, DC 20530, (202) 307-1029.

[FR Doc. 95-1988 Filed 1-25-95; 8:45 am]

BILLING CODE 4410-01-M