United States v. Woman's Hospital Foundation and Woman's Physician Health Organization; Public Comments and United States' Response to Public Comments

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil Action No. 96-389-BMZ]

United States v. Woman's Hospital Foundation and Woman's

Physician Health Organization; 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 v. Woman's Hospital

Foundation and Woman's Physician Health Organization, Civil Action 96-

389-BMZ, United States District Court for the Middle District of

Louisiana, 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 200 of the U.S. Department

of Justice, Antitrust Division, 325 7th Street, NW., Washington, DC

20530, and for inspection at the Office of the Clerk of the United

States District Court for the Middle District of Louisiana, United

States Courthouse, 777 Florida Street, Suite 208, Baton Rouge,

Louisiana 70801.

Rebecca P. Dick,

Deputy Director of Operations, Antitrust Division.

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 to settle this proceeding in the

public interest. The United States received several comments from a

single source, General Health, Inc. (``General Health''). General

Health does not oppose entry of the Consent Decree. Rather, one of its

comments points out an inadvertent mistake in the language of the

Decree which has been corrected to reflect the original intent of the

parties. (A revised Final Judgment will be filed shortly with the Court

as an attachment to a motion for entry of the Judgment.) General

Health's two other comments suggest additional prophylactic relief.

After careful consideration of these comments, the United States

concludes that the additional relief suggested by General Health is not

necessary because the proposed Consent Decree, as amended, 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 move the Court to enter the Consent

Decree.

On April 23, 1996, the United States filed a Complaint alleging

that Defendants Woman's Hospital Foundation and Woman's Physician

Health Organization (``WPHO'') violated sections 1 and 2 of the Sherman

Act, 15 U.S.C. 1, 2. At the same time, the United States filed a

proposed Consent Decree, a Stipulation signed by all parties agreeing

to entry of the Decree following compliance with the Tunney Act, and a

Competitive Impact Statement (``CIS''). On May 6, 1996, the United

States filed a Notice of Amendment of Competitive Impact Statement and

an Amended Competitive Impact Statement.

Pursuant to the Tunney Act, on May 3, 1996, 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 Washington Post for seven consecutive days, from April

28, through May 4, 1996, and in the Baton Rouge Advocate from April 30,

through May 7, 1996. The proposed Consent Decree and the CIS were

published in the Federal Register on May 10, 1996. 61 FR 21,489 (1996).

The 60-day period for public comments began on May 10, 1996, and

expired on July 9, 1996. General Health submitted several comments; the

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

United States has concluded that the Consent Decree, as amended,

reasonably, adequately, and appropriately addresses the harm alleged in

the Complaint. Therefore, following publication of the comments and

this Response, the United States will move this Court to hold that

entry of the proposed Consent Decree, as amended, is in the public

interest.

I. Background

Woman's Hospital Foundation owns and operates Woman's Hospital, a

facility with 149 staffed acute care beds. Woman's Hospital provides a

range of care, including inpatient, outpatient, and home health

services, to women and infants in the Baton Rouge area. It is the

dominant provider of private inpatient obstetrical care in Baton Rouge.

In the late 1980's, competition among doctors for participation in

managed care plans created the opportunity for the entry of other Baton

Rouge area

[[Page 43381]]

hospitals into the market for inpatient obstetrical care. Woman's

Hospital viewed the new entrants, particularly the Health Center, owned

by General Health, as a serious competitive threat because General

Health also owned the Gulf South Health Plans, Inc. (``Gulf South''),

the largest managed care plan in Baton Rouge.

In June 1992, in an effort to stave off competition from the new

Health Center, Woman's Hospital entered into negotiations with General

Health offering to continue contracting at discounted hospital rates

with Gulf South in return for General Health's agreement not to provide

inpatient obstetrical services for the next 5 to 7 years. Woman's

Hospital eventually retreated from this particular attempt to foreclose

competition from the Health Center.

In 1993, Woman's Hospital made another effort to prevent new

entrants from becoming significant competitors. Woman's Hospital formed

an economic alliance with its medical staff in the form of defendant

WPHO, a physician hospital organization. WPHO's purpose was to

establish a minimum physician fee schedule and serve as a joint

bargaining agent on behalf of Woman's Hospital and participating

doctors with managed care payers. Through WPHO, Woman's Hospital hoped

to assure the continued ``loyalty'' of its medical staff. Nearly every

OB/GYN on Woman's Hospital's medical staff joined WPHO. The physicians'

agreement with WPHO authorized it to contract with managed care plans

on behalf of doctors at or above a minimum fee schedule. WPHO did not

develop utilization review standards, and the agreement to limit price

competition was not reasonably necessary to further any efforts by WPHO

to encourage physicians to practice more cost effectively.

Defendants and WPHO physicians collectively obtained higher fees

for OB/GYNs, deprived managed care plans of the ability to selectively

contract with OB/GYNs, and prevented the development of competition for

inpatient obstetrical services.

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 comments on the Consent Decree are from a single source,

General Health, whose relationship with Woman's Hospital is discussed

above. General Health does not object to the entry of the proposed

Decree, rather its comments suggest changes or additions to the relief

set forth. Each of General Health's comments is discussed separately

below.

1. General Health's first comment refers to the language used in

the definition of ``qualified managed care plan'' (``QMCP''). General

Health proposes that the last phrase of Section II (G)(1)(b) be amended

to add the underscored word ``or'' as follows: ``so long as Woman's

Hospital or WPHO and they do not own an interest in another physician

network * * *.'' (``They'' refers to any single physician or single

pre-existing physician practice group.) The rationale for the proposed

change is to make clear that the prohibition against ownership in

another physician network applies to any physician network in which

Woman's Hospital and ``they'' or WPHO and ``they'' are involved, rather

than only to physician networks in which all three entities are

involved. The United States discussed this comment with Defendants'

counsel who concurs that the proposed change actually clarifies the

original intent of the parties.

2. General Health's second comment suggests adding two provisions

to the proposed Decree. First, General Health would add a prohibition

against Woman's Hospital and WPHO participating in ``any agreement

relating to prices, terms, or conditions upon which physician services

are provided to patients'' except in connection with a QMCP or

messenger model. Second, General Health would add a provisions

enjoining consenting physicians from participating in ``any agreement

relating to the prices, terms or conditions upon which Woman's Hospital

provides hospital services to patients'' except in connection with a

QMCP or messenger model. The rationale asserted for these proposed

changes is that the Final Judgment will not prevent the defendants and

consenting physicians from ``informally'' engaging in the same types of

anticompetitive conduct alleged in the Complaint.

The United States believes that the Court should enter the proposed

Consent Decree without these additions. The proposed ``addition'' to

the injunctive relief against Woman's Hospital and WPHO neither differs

substantively from, nor adds to, the relief already provided. Contrary

to General Health's contention, the proposed Final Judgment does not

permit Woman's Hospital and WPHO to engage in ``informal''

anticompetitive conduct. Specifically, Section IV(A)(1) enjoins Woman's

Hospital and WPHO from ``directly, or through any agent, organization

or other third party, expressing views on, or conveying information on,

competing physicians' prices or other terms and conditions, or

negotiating on behalf of competing physicians.'' Any attempt by Woman's

Hospital or WPHO informally to enter into an agreement relating to

prices or other terms and conditions for the provision of competing

physicians' services would violate this Section of the proposed Decree.

General Health's suggestion to prohibit consenting physicians from

participating in agreements involving Woman's Hospital's fees would add

a substantive provision that is inappropriate and unnecessary. This

additional injunctive relief would prevent a single consenting

physician from participating in a managed care plan controlled solely

by another area hospital for the purpose of competing with other

managed care companies simply because Woman's Hospital was also

participating in the other hospital's plan. Such circumstances do not

necessarily raise competitive concerns. In fact, to the extent that

formation of such a plan offers consumers additional choice in the

marketplace, its formation could be procompetitive.

Moreover, the allegations in the Complaint directed at physicians

involve agreements among competing physicians concerning the prices

charged for physician services. The United States has not alleged any

anticompetitive conduct resulting from an agreement by physicians

regarding the fees charged for Woman's Hospital services. The

injunctive relief against consenting physicians in Section IV(B)(2)

provides appropriate and adequate relief by prohibiting them from

``participating in or facilitating any agreement among competing

physicians on fees or other terms and conditions for physician

services, including the willingness of physicians to contract on any

terms with particular payers or to use facilities competing with

Woman's Hospital's facilities * * *.'' In sum, the proposed Decree

provides appropriate and adequate relief for the violations alleged in

the Complaint.

3. General Health's third comment suggests that any network

operated by Defendants based on a messenger model should be subject to

the 30% physician participation limitation placed on a QMCP and the

requirement of prior written approval for its formation from the

Department of Justice.

These additional limitations are inappropriate. The messenger model

in the proposed Consent Decree uses an agent or third party to

facilitate the transfer of information concerning prices and other

competitively sensitive information between individual physicians and

purchasers of physician

[[Page 43382]]

services. The critical feature of a properly devised and operated

messenger model, as defined by the Decree, is that individual providers

make their own separate decisions about whether to accept or reject a

purchaser's proposal, independent of the other physicians' decisions

and without any influence by the messenger. Thus, the messenger model

in the Decree already contains adequate safeguards against its being

used as a vehicle for organizing a physician boycott. As explained in

the CIS, the messenger may not coordinate individual providers'

responses to a particular proposal, disseminate to physicians the

messenger's or other physician's views or intentions concerning the

proposal, act as an agent for collective negotiation and agreement, or

otherwise serve to facilitate collusive behavior. CIS at 18.

Because a QMCP, in contrast to a messenger model, allows for some

collective decision-making among competing physicians, including

agreements among competitors on the prices for their services, a QMCP

presents a greater risk of collusive behavior. For this reason, in the

circumstances of this case, the proposed Decree requires that

defendants obtain prior approval from the Department of Justice to

operate a QMCP and limits physician ownership participation to no more

than 30% in any relevant market.

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 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\

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\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., 993 F.2d 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\

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\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, may 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 Tunney Act does not empower the Court to reject the remedies in

the proposed Decree based on the belief that ``other remedies were

preferable.'' Microsoft, 56 F.2d 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, 460 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.

IV. Conclusion

As required by the Tunney Act, the United States will publish the

public comments and this Response in the Federal Register. After such

publication, the United States will notify this Court and move for

entry of the proposed Consent Decree based on this 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, Liberty Place--Suite

400, 325 7th St., N.W., Washington, D.C. 20530, (202) 307-0827.

L.J. Hymel,

United States Attorney.

By: ____________

John J. Gaupp LBN # 14976,

Assistant United States Attorney, 777 Florida St., Suite 208, Baton

Rouge, LA 70801, (504) 389-0443, Local Counsel.

June 25, 1996

Pam Girardi

United States Department of Justice

Health Care Task Force

Room 434

325 7th St., N.W.

Washington, D.C. 20530

Dear Ms. Girardi: As we discussed over the phone last week, we

would like to comment, on behalf of our client General Health, Inc.,

on the Department's proposed consent order with Woman's Hospital and

Woman's Physician Hospital Organization. We will formally submit our

comments before the comment period expires on July 9th. However, I

have attached a draft of our comments for your information, and to

facilitate an informal discussion of our proposed comments. I would

appreciate having an opportunity to discuss our comments with you

before we formally submit them. I can be reached at (202) 861-1888.

Thank you very much for your consideration.

Sincerely,

Michael R. Bissegger

II.

Definitions

(C) ``Qualified managed care plan'' means an organization that is

owned, in whole or in part, by either or both of the defendants, offers

a provider panel and satisfies each of the following criteria:

(1) Its owners or not-for-profit members (``members'') who compete

with other owners or members or with subcontracting physicians

participating in the plan, (a) [NO CHANGE] and (b) in combination with

the owners and members of all other physician networks in which Woman's

Hospital, WPHO or any of them who own an interest constitute no more

than 30% of the physicians in any relevant physician market, except

that it may include any single physician, or any single preexisting

physician practice group for each relevant physician market, so long as

Woman's Hospital or WPHO and they

[[Page 43383]]

do not own an interest in another physician network;

(2) [NO CHANGE]

(3) [NO CHANGE]

(4) [NO CHANGE]

(5) [NO CHANGE]

The organization * * * [NO CHANGE]

[RATIONALE FOR CHANGE]

The word ``or'' (at the bottom of page 7) is needed to make it

clear that the prohibition identified after the phrase ``so long as''

(at the bottom of page 7) is against any physician network in which two

of the three parties (e.g., Woman's Hospital and the single physician

or preexisting physician group practice, but not WPHO), rather than

only prohibiting a physician network in which all three are involved

(e.g., Woman's Hospital, WPHO, and a single physician or preexisting

physician group).

IV.

Injunctive Relief

(A) Woman's Hospital and WPHO are enjoined from:

(7) Directly, or indirectly, entering into, or participating in,

any agreement relating to the prices, terms, or conditions upon which

physician services are provided to patients; unless such an agreement

is necessary for the formation, organization, or operation of a

qualified managed care plan or messenger model as defined herein, and

approved in writing by the Department of Justice. Nothing in this

paragraph IV(A)(7) prevents Woman's Hospital or WPHO from entering an

agreement with a managed care plan or network for the provision of

hospital services, provided that such managed care plan or network is

not owned or controlled by Woman's Hospital, WPHO, or any consenting

physician.

(B) Each consenting physician is enjoined from:

(3) Directly, or indirectly, entering into, or participating in,

any agreement relating to the prices, terms, or conditions upon which

Woman's Hospital provides hospital services to patients; unless such an

agreement is necessary for the formation, organization, or operation of

a qualified managed care plan or messenger model as defined herein, and

approved in writing by the Department of Justice.

[RATIONALE FOR CHANGE]

The formation of WPHO and the other acts included in the complaint

represent the continuation of a long-standing pattern of concerted

action among many of the physicians in the community and Woman's

Hospital. The restrictions and limitations placed on the defendants and

consenting physicians go a long way toward preventing future agreements

on price, concerted refusals to deal, and other forms of

anticompetitive concerted action undertaken through a formal agreement

or organization such as WPHO. However, without the type of prohibition

or fencing in provision suggested above, the defendants and consenting

physicians will remain relatively free to informally engage in the same

types of anticompetitive conduct as alleged in the complaint through

other means.

Given the fact that the defendants and consenting physicians have a

history of coordinating their actions and have already ironed out a lot

of the mechanics of concerted action, it would be particularly easy for

these defendants and consenting physicians to continue their previous

course of conduct without creating the formal agreements and

organizational structure prohibited by the Final Order. Consequently,

we believe it is imperative that the Final Order address the potential

for the traditional, informal price agreements, boycotts, etc. that

have been such a significant part of antitrust enforcement for almost a

century.

(D) Nothing in this Final Judgment prohibits the defendants or the

consenting physicians from

(1) Forming, operating, owning an interest in, or participating in

(a) a messenger model (provided such messenger model satisfies each of

the criteria used to define a qualified managed care plan in II.(G)),

or (b) a qualified managed care plan, if defendants obtain prior

written approval from the Department of Justice, which will not be

withheld unreasonably, or

(2) [NO CHANGE]

[RATIONALE FOR CHANGE]

The Department's complaint alleges that the defendants engaged in

two types of anticompetitive behavior: an agreement on price among and

between physicians and Woman's Hospital; and an agreement among and

between physicians and Woman's Hospital regarding with whom physicians

would deal (only those payers willing to negotiate with WPHO), and

would not deal (General Health's Health Center). The provisions in the

Final Judgement relating to qualified managed care plans clearly

address both the potential for price fixing and for collective

agreements not to deal. However, while the messenger model provisions

contain in the Final Judgement do apparently address the potential for

price fixing agreements, the Final Judgement is ambiguous as to whether

or not the messenger model provisions are subject to the limitations

placed on qualified managed care plans that prevent or hinder the

formation of collective agreements not to deal. Without similar

limitations, a messenger model could be a vehicle for providers to

collectively agree not to deal.

The Competitive Impact Statement would apparently allow Women's

Hospital and WPHO to use a messenger model that is not subject to the

limitations, including the percentage of physicians that can

participate, that are placed on the defendants' development of a

qualified managed care plan. We believe that any negotiating

organization developed by the defendants using the messenger model

should be subject to the same constraints as those placed on a

qualified managed care plan, and that the language of the Final

Judgement and Competitive Impact Statement should be modified to make

that limitation explicit.

The price-fixing protections contained in the definition of the

messenger model do not adequately protect against the messenger model

becoming the means for boycott activity. A physician network organized

and operating according to the messenger model defined in the Final

Judgement is indeed, less likely to lead to price fixing behavior, but

it is wholly inadequate to prevent or even significantly hinder

attempts among the participants to collectively refuse to deal. For

example, the messenger model as defined would not prohibit the

messenger from informing participating physicians about the number of

physicians that have agreed to participate in a given plan, as long as

the messenger does not covey any information about prices or terms.

Similarly, the messenger would not be prohibited from communicating to

physicians how many other physicians were generally participating in

the network. The messenger would also be allowed to provide physicians

with a comparison of offers from various payers, which could easily

become a means for conveying to physicians which payer contracts are

favored, and which ones are not.

Obviously, the language of the messenger model provisions could be

modified to address the problems noted above. However, it would be

extremely difficult to ascertain whether defendants are complying with

the substantive protections included in the messenger model provisions.

Ensuring or verifying compliance is particularly important given the

fact that WPHO has already

[[Page 43384]]

been used as a vehicle to boycott the new Health Center. Subjecting a

messenger model network to a 30% limit on participation, as well as to

the other qualified managed care plan limitations, is not only the most

effective way to prevent a boycott from being effective, but also makes

compliance easily verifiable.\1\ Allowing defendants to operate a

messenger model that does not require DOJ approval and does not limit

the number of physicians who can participate, would be imprudent and

would jeopardize the efficacy of the Final Judgment. Consequently, we

believe that any network operated by defendants based on a messenger

model should be subject to all the limitations placed on a qualified

managed care plan.

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\1\ While 30% of the physicians in a market could attempt a

boycott, it is unlikely they would try because a boycott consisting

of only 30% of the physicians in any relevant market would

undoubtedly, and obviously fail.

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A 30% participation limitation on the messenger model would also

have a significant deterrent effect on any attempts to use the

messenger model as a means to coordinate pricing because managed care

plans competing with the Woman's Hospital/WPHO qualified managed care

plan could exclude the 30% of the doctors involved in the price fix.

Consequently, there would be little incentive for only 30% of the

physicians to agree on prices. Therefore, the 30% participation limit

goes a long way toward preventing such an agreement from taking place.

If it is important to prevent both price fixing and boycott

activity via the formation of a managed care plan, it is illogical to

address only the price fixing potential inherent in a negotiating

organization of physician and hospital providers. The use of the

messenger model alone does not address the potential for such a

negotiating organization to be the vehicle for organizing a boycott.

Without limitations such as those placed on qualified managed care

plans, a messenger model could be a vehicle for providers to

collectively agree not to deal. Similarly, we cannot see any

distinction between a messenger model and qualified managed care plan

that justifies not requiring prior written DOJ approval for operating a

messenger model. Consequently, we believe that the messenger model

should be limited to participation by 30% of the physicians in any

relevant market, and should be subject to the other restrictions placed

on qualified managed care plans. Finally, we recommend that the

defendants and consenting physicians also be required to obtain prior

written approval from the DOJ before forming, operating, owning an

interest in, or participation in a messenger model.

Certificate of Service

I, Pamela Girardi, hereby certify that copies of the United States'

Response to Public Comments in U.S. v. Women's Hospital Foundation and

Woman's Physician Health Organization, Civ. No. 96-389-B-MZ were served

on the 15th day of August 1996 by first class mail to counsel as

follows:

John J. Miles,

Ober, Kaler, Grimes & Shriver, Fifth Floor, 1401 H Street, NW.,

Washington, DC 20005.

Toby G. Singer,

Jones, Day, Reavis & Pogue, 1450 G Street, NW., Washington, DC 20005.

Pamela C. Girardi.

[FR Doc. 96-21432 Filed 8-21-96; 8:45 am]

BILLING CODE 4410-01-M