United States v. HealthCare Partners, Inc., et al.; Public Comments and United States' Response to Public Comments

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil Action No. 395CV01946RNC]

United States v. HealthCare Partners, Inc., et al.; Public

Comments and United States' Response to Public Comments

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

16(b)-(h), the United States publishes below the comments received on

the proposed Final Judgment in United States versus HealthCare

Partners, Inc., et al., Civil Action No. 395CV01946RNC, United States

District Court for the District of Connecticut, together with the

response of the United States to the comments.

Copies of the response and the public comments are available on

request for inspection and copying in Room 215 of the Antitrust

Division, U.S. Department of Justice, 325 7th Street, N.W., Washington,

D.C. 20004, and for inspection at the Office of the Clerk of the United

States District Court for the District of Connecticut, 450 Main Street,

Hartford, Connecticut 06103.

Rebecca P. Dick,

Deputy Director of Operations, Antitrust Division.

United States of America, and State of Connecticut, ex rel.,

Richard Blumenthal, Attorney General, Plaintiffs, vs. HealthCare

Partners, Inc., Danbury Area IPA, Inc., and Danbury Health Systems,

Inc., Defendants. [Civil Action No. 395CV01946RNC]

January 18, 1996.

United States' Response to Public Comments

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act (commonly referred to as the ``Tunney Act''), 15 U.S.C.

16(b)-(h), the United States hereby responds to public comments

regarding the Consent Decree proposed as the basis for settling this

proceeding in the public interest. After careful consideration of these

comments, the United States concludes that the proposed Consent Decree

will provide an effective and appropriate remedy for the antitrust

violations alleged in the Complaint. Once the public comments and this

Response have been published in the Federal Register, pursuant to 15

U.S.C. 16(d), the United States will urge the Court to enter the

Consent Decree as originally proposed.

On September 13, 1995, the United States and the State of

Connecticut filed a Complaint alleging that Defendants HealthCare

Partners, Inc., Danbury Area IPA, Inc., and Danbury Health Systems,

Inc. violated Section 1 of the Sherman Act, 15 U.S.C. Sec. 1. The

Complaint also charges that Defendant Danbury Health Systems, Inc.

violated Section 2 of the Sherman Act, 15 U.S.C. Sec. 2. Simultaneously

with the filing of the Complaint, the United States and the State of

Connecticut filed a proposed Consent Decree, a Stipulation signed by

all parties to entry of the Decree following compliance with the Tunney

Act, and a Competitive Impact Statement (CIS).

Pursuant to the Tunney Act, on September 27, 1995, the Defendants

filed the required description of certain written and oral

communications made on their behalf. A summary of the terms of the

proposed Decree and the CIS and directions for the submission of

written comments were published in the Danbury News-Times for seven

consecutive days, from September 22, through September 29, 1995. The

proposed Consent Decree and the CIS

[[Page 3732]]

were published in the Federal Register on October 4, 1995. 60 Fed. Reg.

52014 (1995).

The 60-day period for public comments began on October 4, 1995, and

expired on December 4, 1995. Two comments were submitted; the United

States is filing them as attachments to this Response. The United

States has concluded that the Consent Decree reasonably, adequately,

and appropriately addresses the harm alleged in the Complaint.

Therefore, the United States urges that following publication of the

comments and this Response, this Court hold that entry of the proposed

Consent Decree would be in the public interest.

I.

Background

Danbury Health Systems, Inc. (``DHS'') owns the Danbury Hospital

which is a 450-bed acute care facility. It is the sole source of acute

inpatient care in the Danbury area and possesses a monopoly in general

acute inpatient care. The Hospital also provides outpatient surgical

care and other services.

By 1992, managed care organizations had recruited a sufficient

number of physicians with active staff privileges at Danbury Hospital

to offer managed care plans to employers and individuals in the Danbury

area. The introduction of managed care plans into the Danbury area

reduced the Hospital's market power in inpatient services and decreased

the number of hospital admissions and length of hospital stays. Managed

care also resulted in increased competition among the doctors in

Danbury and reduced referrals to Danbury Office of Physician Services

(``DOPS''), the Hospital's affiliated multispecialty practice group.

On May 6, 1994, DHS implemented the first of two means it had

developed to forestall the continued development of managed care plans

in Danbury. DHS and virtually every doctor on its Hospital's medical

staff incorporated HealthCare Partners. The Hospital and the physicians

authorized HealthCare Partners to represent them jointly in

negotiations with managed care organizations. Danbury Area IPA

(``DAIPA'') was also formed on that date as a vehicle for physician

ownership in HealthCare Partners. Each doctor who joined DAIPA

contracted with HealthCare Partners and authorized it to negotiate fees

on the doctor's behalf.

DHS's second means of forestalling the continued development of

managed care plans was the exercise of its control over admitting

privileges at the Hospital. DHS implemented a Medical Staff Development

Plan to reduce competition among the doctors. It also proposed to amend

its bylaws to require the active medical staff to perform a minimum

volume of outpatient procedures at the Hospital rather than at

competing outpatient facilities.

These actions, along with the additional conduct alleged in the

Complaint, violated Sections 1 and 2 of the Sherman Act.

II.

Response to Public Comments

The two comments on the Consent Decree are both from physicians

practicing in a group of neonatalogists, Complete Newborn Care. Neither

objects to entry of the proposed Decree, nor contends that the Decree

does not adequately and appropriately remedy the violations alleged in

the Complaint. Dr. Alicia Perez says, in effect, that DHS has

monopolized the delivery of healthcare in the Danbury area through

additional means not charged in the Complaint or addressed in the

Consent Decree. According to Dr. Perez, the formation of DOPS, its

size, and the administrative functions of the Hospital performed by

DOPS members unreasonably restrain competition among physicians. Dr.

Perez asserts that Hospital physicians have improperly induced non-DOPS

physicians to refer to DOPS and to use the Hospital's facilities. As

set forth more fully below, Dr. Perez's comments do not provide a basis

for not entering the Decree.

Similarly, Dr. Diana M. Lippi's comments do not raise any grounds

for not entering the Decree. Rather, Dr. Lippi simply urges the

Department to continue its investigation of DHS in light of the

relationship between the Hospital and DOPS on which Dr. Perez commented

and in order to address conduct of the Hospital occurring subsequent to

the events set forth in the Complaint and redressed in the Decree.

Dr. Lippi contends that the Hospital is taking new actions to

restrict medical staff privileges. Dr. Lippi's comments in fact support

entry of the Decree, in that the Decree limits the Hospital's ability

to use its control over staff privileges to reduce competition. Entry

of the Decree gives the Court the authority to punish such actions if

they violate the Decree. Moreover, the Tunney Act, as explained below,

does not authorize the Court to reject the Decree on the grounds that

the Hospital is, or will, abuse its control over privileges in ways

that independently violate the antitrust laws, but are not challenged

in the Complaint.

III.

The Legal Standard Governing The Court's Public Interest Determination

The Tunney Act directs the court to determine whether entry of the

proposed Decree ``is in the public interest.'' 15 U.S.C. Sec. 16(e). In

making that determination, ``the court's function is not to determine

whether the resulting array of rights and liabilities is one that will

best serve society, but only to confirm that the resulting settlement

is within the reaches of the public interest.'' United States v.

Western Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.), cert. denied, 114

S. Ct. 487 (1993) (internal quotation and citation omitted).\1\

\1\ The Western Electric decision concerned a consensual

modification of an existing antitrust decree. The Court of Appeals

assumed that the Tunney Act was applicable.

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The Court should evaluate the relief set forth in the Decree in

light of the claims alleged in the Complaint and should enter the

Decree if it falls within the government's ``rather broad discretion to

settle with the defendant within the reaches of the public interest.''

United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995).

The Court is not ``to make de novo determination of facts and

issues.'' Western Elec., at 1577. Rather, ``[t]he balancing of

competing social and political interests affected by a proposed

antitrust decree must be left, in the first instance, to the discretion

of the Attorney General.'' Id. (internal quotation and citation omitted

throughout). In particular, the Court must defer to the Department's

assessment of likely competitive consequences, which it may reject

``only if it has exceptional confidence that adverse antitrust

consequences will result--perhaps akin to the confidence that would

justify a court in overturning the predictive judgments of an

administrative agency.'' Id.\2\

\2\ The Tunney Act does not give a court authority to impose

different terms on the parties. See, e.g., United States v. American

Tel. & Tel. Co., 552 F. Supp. 131, 153 n.95 (D.D.C. 1982), aff'd sub

nom. Maryland v. United States, 460 U.S. 1001 (1983) (Mem.); accord

H.R. Rep. No. 1463, 93d Cong., 2d Sess. 8 (1974). A court, of

course, can condition entry of a decree on the parties' agreement to

a different bargain, see, e.g., AT&T, 552 F. Supp. at 225, but if

the parties do not agree to such terms, the court's only choices are

to enter the decree the parties proposed or to leave the parties to

litigate.

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The Court may not reject a decree simply ``because a third party

claims it could be better treated.'' Microsoft, 56 F.3d at 1461 n.9.

The Tunney Act does not empower the Court to reject the remedies in the

proposed Decree based

[[Page 3733]]

on the belief that ``other remedies were preferable.'' Id. at 1460.

To a great extent it is the realities and uncertainties of

litigation that constrain the role of courts in Tunney Act proceedings.

See United States v. Gillette Co., 406 F. Supp. 713, 715-16 (D. Mass.

1975). As Judge Greene has observed:

If courts acting under the Tunney Act disapproved proposed

consent decrees merely because they did not contain the exact relief

which the court would have imposed after a finding of liability,

defendants would have no incentive to consent to judgment and this

element of compromise would be destroyed. The consent decree would

thus as a practical matter be eliminated as an antitrust enforcement

tool, despite Congress' directive that it be preserved.

United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 151

(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 450 U.S. 1001

(1983) (Mem). Indeed, where, as here, the Consent Decree comes before

the Court at the time the Complaint is filed, ``the district judge must

be even more deferential to the government's predictions as to the

effect of the proposed remedies * * *.'' Microsoft, 56 F.3d at 1461.

Moreover, the entry of a governmental antitrust decree forecloses

no private party from seeking and obtaining appropriate antitrust

remedies. Thus, Defendants will remain liable for any illegal acts, and

any private party may challenge such conduct if and when

appropriate.\3\ If any of the commenting parties has a basis for suing

Defendants, they may do so. The legal precedent discussed above holds

that the scope of a Tunney Act proceeding is limited to whether entry

of this particular proposed Consent Decree, agreed to by the parties as

settlement of this case, is in the public interest.

\3\ The commenters in fact previously sued Danbury Hospital and

DOPS and obtained injunctive relief against them from this Court. It

is the understanding of the United States that the commenters have

filed a motion before Judge Dorsey in Perez, et al. v. Danbury

Hospital and Danbury Office of Physician Services, P.C., Civil

Action No. 3:94-CV416(PCD), to hold defendants in that case in

contempt. The contempt motion apparently rests at least in part on

some of the conduct that Dr. Perez believes the United States should

now investigate in connection with this case, namely, an allegation

that DOPS physicians have coerced non-DOPS obstetricians to refer

neonatalogy patients to DOPS neonatalogists. The United States is

investigating whether that alleged conduct occurred and, if it did,

whether it violates the Final Judgment proposed in this action.

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Finally, the Tunney Act does not contemplate judicial reevaluation

of the wisdom of the government's determination of which violations to

allege in the Complaint. The government's decision not to bring a

particular case on the facts and law before it at a particular time,

like any other decision not to prosecute, ``involves a complicated

balancing of a number of factors which are peculiarly within [the

government's] expertise,'' such as ``whether [the government's]

resources are best spent on this violation or another, whether the

[government] is likely to succeed if it acts, whether the particular

enforcement action requested best fits the [government's] overall

policies, and, indeed, whether the [government] has enough resources to

undertake the action at all.'' Heckler v. Chaney, 470 U.S. 821, 831

(1985); see also Maryland v. United States, 460 U.S. 1001, 1106 (1983)

(Rehnquist, J., dissenting from summary affirmance). The Court may not

``reach beyond the complaint to evaluate claims that the government did

not make and to inquire as to why they were not made.'' 56 F.3d at 1459

(emphasis added). Entry of the proposed Decree will not prevent the

government from investigating and challenging, if appropriate, conduct

not addressed in the current action.

IV.

Conclusion

The Tunney Act requires that public comments and this Response be

published in the Federal Register. When that publication has been

accomplished, the United States will notify the Court and urge entry of

the proposed Consent Decree based on the Court's determination that the

Decree is in the public interest.

Respectfully submitted,

Mark J. Botti,

Pamela C. Girardi,

U.S. Department of Justice, Antitrust Division.

Christopher F. Droney,

United States Attorney.

Carl J. Schuman,

Assistant U.S. Attorney.

Certificate of Service

I, Mark J. Botti, hereby certify that copies of the Response to

Public Comments in U.S. v. HealthCare Partners, Inc., et. al., Civ. No.

395CV01946RNC was served on the 18th day of January 1996 by first class

mail to counsel as follows:

William M. Rubenstein,

State of Connecticut,

David Marx, Jr.,

McDermott, Will & Emery.

James Sicilian,

Day, Berry & Howard

October 27, 1995.

Gail Kursh,

Chief, Professions and Intellectual Property Section/Health Care

Task Force, Department of Justice, Antitrust Division, 600 E Street

N.W. Room 9300, Washington, D.C.

Dear Ms. Kursh, The consent decree pending in Civil No. 395-CV-

01946-RNC concerning the antitrust suit brought by the Justice

Department and the Connecticut Attorney General's Office against

Danbury Health Systems (DHS) and the Danbury Area IPA (DAIPA) should

be reconsidered in light of the following information.

The formation of the DAIPA is only a small part of a more far-

reaching attempt by DHS to willfully monopolize health care in the

Danbury area.

Despite the outcome of this case, there continues to be ongoing

and extensive activity by DHS to maintain its monopoly in inpatient

care and extend this monopoly into the outpatient care arena. These

activities are a blatant attempt to eliminate competition from area

physicians and other outpatient services. They promote the almost

exclusive use of the services of the physician employees of the

Danbury Office of Physician Services, P.C. (DOPS), other physicians

affiliated with Danbury Hospital or the new ``Foundation'' which is

forming, and outpatient ancillary services affiliated with or owned

by DHS.

The consent decree prohibits activities by DHS to control

medical staff privileges to reduce competition. However, at the last

medical staff meeting on 10/10/95, the Hospital railroaded through

amendments to the Medical Staff Bylaws including the establishment

of a committee that could potentially limit the size and mix of the

medical staff. This committee is to prescreen and interview

applicants for medical staff privileges before they are evaluated by

the medical department in which they seek privileges. This could

allow the committee to discourage applicants representing

competition to DHS and DOPS from continuing their application

process. It could allow this committee, and not the competitive

market, to decide which specialities in the area are over-

represented or understaffed and could potentially allow DHS to

expand DOPS to the detriment of competing groups.

Another amendment dissolved the category of ``courtesy staff''.

Physicians with courtesy privileges are generally affiliated with

competing hospitals. They do, however, admit a percentage of their

patients to Danbury Hospital but are not required to fulfill many of

the responsibilities of an active member of the Danbury Hospital

staff. By eliminating this category, their patients would then be

admitted to the ``house

[[Page 3734]]

doctor'' (DOPS) who would use DOPS consultants for any specialty

services needed.

These amendments were ``passed'' without observing the process

outlined in the Medical Staff Bylaws.

The medical staff is further controlled by DHS through DOPS.

Although DOPS physicians constitute only about 25% of the medical

staff at Danbury Hospital, an arrangement has been established which

places a DOPS physician as Chairman of each medical department

(except one, as a result of a per-existing contract) and a DOPS

physician as Chief of virtually every medical service in which there

are DOPS physicians. By virtue of their positions of power, DOPS

physicians control the Executive Committee and 33% or more of all

but one of the other committees of the medical staff.

The Chairmen of the departments are, in part, paid by the

Hospital and, therefore, directed by Hospital recommendations and

not the desires of the members of their departments. Indeed, when

asked to whom they report, they reply, the President of the Hospital

and CEO of DHS, rather than to the president of DOPS, their

employer. I have knowledge of department Chairmen using their

position as chairmen to influence referrals of patients to their won

corporation, DOPS.

I urge you to continue your investigation of the antitrust

activities of DHS and Danbury Hosptial to allow fair and

unrestrained competition for health care services in our community.

Sincerely,

Diana M. Lippi.

October 23, 1995.

Gail Kursh,

Chief, Professions and Intellectual Property Section/Health Care

Task Force, Department of Justice, Antitrust Division, 600 E Street,

N.W., Room 9300, Washington, D.C. 20530.

By facsimile transmission and by regular mail.

Dear Ms. Kursch: In response to the Legal Notice in the Danbury

News Times, I have several concerns regarding the proposed final

Judgment against Health Partners Inc., et al., Civil No. 395-CV-

01946-RNC.

Despite the objections to the Final judgment filed in the civil

complaint, it is my opinion that Danbury Health Systems continues to

protect its monopoly of health care in the Greater Danbury Area.

The anti-competitive activities of Danbury Health Systems Inc.,

its subsidiaries, and affiliates extends beyond the hospital and

community walls. As the biggest employer in town the economic

ramifications of its business associations and its political network

are too powerful to allow for legitimate competition to exist in any

arena.

Control and monopoly of inpatients at Danbury Hospital is

accomplished through the affiliated physician corporation the

hospital created in 1985, Danbury Office of Physician Services, P.C.

(DOPS). The agreement between Danbury Hospital and DOPS physicians

directly and indirectly restrains competition among physicians in

Danbury, in violation of Section 1 of the Sherman Act.

DOPS physicians comprise approximately one fourth of the Medical

Staff. However, these physicians are employed (paid) by Danbury

Hospital to hold positions of power and thus control over the

general Medical Staff. DOPS physicians are Chairmen of all but one

of the clinical Departments, Chiefs of virtually all sections within

the clinical departments, and hold the majority vote on many Medical

Staff Committees. The Chairmen of the clinical departments at

Danbury Hospital are accountable to the hospital's CEO and not to

the members of their respective departments. Chairmen of clinical

departments actively direct patient referrals to DOPS physicians,

thus taking advantage of their administrative role for their own

economic self-interest. DOPS physicians are in control of Medical

Staff Committees, including most Peer Review Committees, and the

activities of these committees are overwhelmingly targeted against

non-DOPS physicians. Chairmen of clinical departments are free to

disband a committee without discussion with or prior notification of

its members or the President of the Medical Staff. Although DOPS

physicians are not employed by Danbury Hospital directly, they are

expected to support the philosophy and the wishes of the

administration of the hospital.

Non-DOPS physicians are also intimidated and scare tactics are

used by administrators to induce referrals to DOPS physicians. There

are reports of special favors and/or privileges (i.e., O.R.

schedules) being used as rewards to those physicians that refer to

DOPS and use Danbury Hospital facilities exclusively.

During the last few weeks such tactics have been used to coerce

community obstetricians (chosen to join the soon to be established

HMO) to refer only to DOPS neonatologists. This practice disregards

the prior established policy developed by the members of the

Department of Pediatrics and agreed to by the members of the

Department of Obstetrics and Gynecology. As a result, this practice

has significantly reduced the referrals to my group.

I enclose a list of community pediatricians affiliated with

Danbury Hospital. All you need to do to verify this anti-competitive

practice is to ask the pediatricians to describe how they choose a

neonatologist for referrals.

Respectfully,

Alicia Perez,

Pediatricians & Neonatologists Associated with Danbury Hospital

Brockfield

John Gundy, MD & Sarojini Kurra, MD, 300 Federal Road, 775-1118

Danbury

Lorraine Braza, MD, 69 Sandpit Road, 798-8228

Costom for Pediatrics Medicines, P.C.

Robert Golenbock, MD, Anna Paula Machado, MD, Joan Magner, MD, 107

Newtown Road, Suite 1D, 790-0822

Child Care Associates

Pushpa Mani, M.D., Rajadevi Satchi, MD, 57 North Street, Suite 209,

791-9599

Barry Keller, MD, 16 Hospital Avenue, 743-1201

Uwa Koepke, MD, 57 North Street, Suite 311, 792-4021

Christopher Randolph, MD & Martin Randolph, MD, 70 Deer Hill Avenue,

792-4021

Pediatric Associates

Leon Baczeski, MD, Bruce Cohen, MD, John Erti, MD, David Gropper,

MD, Nandini Kogekar, MD, L Robert Rubin, MD, 41 Germantown Road,

744-1620

Pediatric Health Ctr./Danbury Hospital

Jack S. C. Fong, MD, Chief, Veronica Ron, MD, Gary Wenick, MD, 73

Stand Pit Road, 797-7216

New Fairfield

Oscar Lascano, MD, Fairwood Professional Building, 746-6000

New Milford

Josef Burton, MD, 23 Poplar Street, 355-4113

Vadakkekara Kavirajan, MD, 7 Pickett District Road, 355-4195

Candlewood Pediatrics

Diane D'Isidori, MD, Wendy Drost, MD, Evan Hack, MD, 17 Poplar

Street, 355-8190

Newton

Humberto Bauta, MD, Danbury Newton Road, 426-3267

Alex Lagut, MD, 18 Church Hill Road, 426-1818

Pediatric Health Ctr. of Newton

Thomas Draper, MD, 184 Mount Pleasant Road, 426-2400

Ridgefield

Ridgefield Pediatrics

Robert Elisofon, MD, Susan Leib, MD, James Sheehan, MD, 38B Grove

Street, 438-9557

Southberg

Southberg Pediatrics

Susan Beris, MD, 108 Main Street North, 264-9200

Neonatologists

Neonatologists, Dept. of Pediatrics, Danbury Hospital

Edward James, MD, Chief, Laura K. Lasley, MD, 24 Hospital Avenue,

Danbury, CT 06810, 797-7150

Complete Newborn Care

Diana Lippi, MD, Alicia Perez, MD, Joseph M. Tuggle, MD, 57 North

Street, Suite 408, Danbury, CT 06810, 790-4262

[FR Doc. 96-1794 Filed 1-31-96; 8:45 am]

BILLING CODE 4410-01-M