Montana Associated Physicians, Inc.; Billings Physician Hospital Alliance, Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 911-0008]

Montana Associated Physicians, Inc.; Billings Physician Hospital

Alliance, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would prohibit, among other things, two

organizations of Billings, Montana physicians from negotiating or

refusing to deal with third-party payers; determining the terms upon

which physicians deal with such payers; or fixing the fees charged for

any physicians's services. The agreement settles allegations that the

respondents obstructed the entry of managed care plans into Billings,

agreed on prices that they would accept from third-party payers, and

otherwise acted to thwart cost-containment measures. According to the

Commission, these actions resulted in higher prices and fewer health

care choices for patients of Billings physicians.

DATES: Comments must be received on or before January 3, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Mark Whitener, Federal Trade Commission, H-374, 6th and Pennsylvania

Ave, NW, Washington, DC 20582. (202) 326-2845. Robert F. Leibenluft,

Federal Trade Commission, S-3115, 6th and Pennsylvania Ave, NW,

Washington, DC 20582. (202) 326-2756.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the FTC

Home page, on the World Wide Web, at ``http://www.ftc.gov/os/actions/

htm.'' A paper copy can be obtained from the FTC Public Reference Room,

Room H-130, Sixth Street and Pennsylvania Avenue, N.W., Washington,

D.C. 20580, either in person or by calling (202) 326-3627. Public

comment is invited. Such comments or views will be considered by the

Commission and will be available for inspection and copying at its

principal office in accordance with Section 4.9(b)(6)(ii) of the

Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has agreed to accept, subject to final

approval, a proposed consent order settling charges that Montana

Associated Physicians, Inc. (``MAPI'') and the Billings Physician

Hospital Alliance, Inc. (``BPHA'') violated Section 5 of the Federal

Trade Commission Act.

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

The purpose of this analysis is to facilitate public comment on the

agreement. The analysis is not intended to constitute an official

interpretation of either the proposed complaint or the proposed consent

order, or to modify their terms in any way.

The proposed consent order has been entered into for settlement

purposes only and does not constitute an admission by MAPI or BPHA that

the law has been violated as alleged in the complaint.

The Complaint

The complaint charges that MAPI restrained competition among

physicians in the area of Billings, Montana, by, among other things,

combining or conspiring with its respective physician members or acting

as a combination of its physician members to fix the terms under which

they would deal with third-party payers, and to conduct boycotts and

other resistance to cost-containment efforts. The complaint further

charges that MAPI was extensively involved in BPHA's formation, had the

power to affect and control BPHA's dealings with third-party payers

seeking contracts for physician services, and that BPHA carried on

MAPI's anticompetitive conduct. The allegations set forth in the

Commission's complaint are summarized below.

MAPI is an association of approximately 115 physicians in over 30

independent practices. These physicians constitute approximately 43% of

all physicians in Billings, Montana. Most of the other physicians in

Billings are part of a multispecialty physician group practice. MAPI's

members constitute over 80 percent of all ``independent'' Billings

physicians, that is, those who are not part of the multispecialty

physician practice or employed by a hospital. Third-party payers

seeking to contract with a Billings physician panel constituting a

range of physician services must either contract with the

multispecialty physician practice or with many MAPI members.

The complaint charges that MAPI was formed in 1987 in substantial

part to be a vehicle for its members to deal collectively with managed

care plans. At that time, there were no health maintenance

organizations (HMOs) or preferred provider organizations (PPOs)

operating in Billings, but physicians there were concerned that such

plans would soon attempt to enter Billings, and that competitive

pressure could force physicians to deal with such plans at reduced

prices or on other than usual fee-for-service terms. The purpose of

engaging in collective dealings through MAPI was to obtain greater

bargaining power with third-party payers by presenting a united front,

and thereby to resist competitive pressures to discount fees and to

avoid accepting reimbursement on other than the traditional fee-for-

service basis.

In 1987, MAPI began negotiating with third-party payers on behalf

of its members. Members of MAPI who were approached by managed care

plans told the plans to deal with MAPI. When HMO Montana, an HMO owned

and operated by Blue Cross/Blue Shield of Montana, sought to contract

with MAPI physicians, MAPI rejected all contracts proposed by the HMO.

No member of MAPI entered into a contract with HMO Montana until 1993,

after MAPI became aware of the Commission's investigation. When another

health plan sought to establish the first PPO program in Billings, MAPI

offered a contract to the health plan that provided

[[Page 56683]]

for physicians to be paid their usual fees with no discounts, and

represented to the health plan that this was what MAPI's members would

accept. When the health plan subsequently sought to collect current fee

information from MAPI members in order to devise a proposed physician

fee schedule, MAPI urged its members to submit prices higher than they

were currently charging in order to inflate the fees the health plan

developed for the schedule.

In addition, MAPI gathered detailed fee information from its

members, enabling MAPI to determine for most physician services the

prevailing fees and the maximum reimbursement allowed by Blue Cross/

Blue Shield of Montana. Using this information, MAPI advised certain

physicians to raise their fees, and some fees were raised in accordance

with these recommendations.

In 1991, MAPI joined with Saint Vincent Hospital and Health Center

in Billings to form BPHA, a physician-hospital organization. Almost all

of MAPI's members joined BPHA, making MAPI members a substantial

majority of BPHA's physician membership. BPHA's structure and

governance gave MAPI substantial control over BPHA dealings with third-

party payers regarding physician contracting, and thus allowed MAPI to

continue to exercise the collective power of its physician members in

BPHA's dealings with third-party payers seeking contracts.

Through BPHA's Physician Agreements, MAPI was designated as the

agent of almost all BPHA physicians who were MAPI members with respect

to their membership in BPHA. This agency designation gave MAPI the

authority to accept or reject all contracts negotiated by BPHA with

third-party payers, as well as the power to elect and remove physician

members of BPHA's Board of Directors. In addition, BPHA's structure

gave its physician members (most of whom were MAPI members) the ability

to control BPHA's pricing and other terms of contracts for physician

services.

By virtue of this structure, MAPI was able to carry on its unlawful

activities through BPHA. Though payers sought to contract with BPHA for

physician services, and did contract with Saint Vincent directly for

hospital services, BPHA did not enter into any contract for physician

services until nearly two years after its creation, after the time BPHA

and MAPI became aware of the Commission's investigation.

Although MAPI and BPHA did not explicitly bar their members from

dealing with managed care plans individually or on terms other than

ones endorsed by MAPI or BPHA, these physicians largely dealt with such

plans exclusively through MAPI and BPHA. Physician members and

officials of MAPI and BPHA directed payers to deal with MAPI and BPHA

rather than with individual physicians. Few physicians who were members

of MAPI or BPHA participated in any managed care plans.

Neither the physician members of MAPI, nor the physician members of

BPHA, have integrated their practices in any economically significant

way, nor have they created efficiencies sufficient to justify their

acts or practices described above.

The complaint charges that the conduct of MAPI and BPHA has injured

consumers by restraining competition among physicians, fixing or

increasing prices for physician services, and depriving third-party

payers and patients of the benefits of competition among physicians.

The Proposed Consent Order

The proposed consent order would prohibit MAPI and BPHA from

engaging in any agreement with physicians to (1) negotiate or refuse to

deal with any third-party payer; (2) determine the terms upon which

physicians deal with such payers; or (3) fix the fees charged for any

physician's services. In addition, under Part III of the proposed

consent order, MAPI is prohibited from: (1) advising physicians to

raise, maintain, or otherwise adjust the fees charged for their medical

services; (2) encouraging adherence to any fee schedule for physicians'

services; and (3) encouraging any person to engage in any action

prohibited by the order.

Notwithstanding these provisions, however, the proposed consent

order would not prevent MAPI and BPHA from operating, or participating

in, a legitimate joint venture. First, MAPI and BPHA respectively, if

they are operating through a ``risk-sharing joint venture,'' may enter

into agreements with physicians regarding terms of dealing with third-

party payers, provided that the physicians participating in the venture

remain free to deal individually with third-party payers. A ``risk-

sharing joint venture,'' for purposes of this order, is one in which

physicians who would otherwise be competitors share a substantial risk

of loss from their participation in the venture.

The order's proviso permiting MAPI and BPHA to engage in joint

dealing through ``risk-sharing joint ventures'' extends only to those

that are ``non-exclusive,'' that is, those in which the participating

physicians are available to contract with payers outside the venture.

Although exclusive physician networks are not necessarily

anticompetitive, they can impair competition, particularly when they

include a large portion of the physicians in a market. Given the large

share of the physicians in Billings that participated in MAPI and BPHA,

along with evidence that as part of the challenged conduct these

physicians largely refused to deal with managed care plans outside of

MAPI or BPHA, the proviso does not permit exclusive risk-sharing

ventures.

The proposed order allows MAPI and BPHA to operate or participate

in joint ventures that involve collective price setting by competing

physicians, even if those physicians do not share substantial financial

risk as defined in the order, provided that they first receive the

prior approval of the Commission. The order uses a prior approval

provision because it is not feasible to define in an order all of the

types of procompetitive joint ventures that MAPI or BPHA might seek to

operate. The prior approval mechanism will allow the Commission to

evaluate a specific proposal and assess its likely competitive impact.

Allowing MAPI and BPHA the opportunity to seek prior approval of non-

risk-sharing joint ventures will help to ensure that they are able to

respond to dynamic changes in health care markets in ways that promote

competition, while guarding against the recurrence of acts and

practices that have restrained competition and consumer choice.

In addition, the proposed order contains a provision designed to

make it clear that BPHA, as a physician-hospital organization, can take

actions to facilitate contracting between its physician members and

third-party payers that do not create or facilitate the kind of

agreements that the order prohibits. The provision sets forth the

aspects of a ``messenger model'' that would not run afoul of the order.

The messenger model used here is remedial, and tailored to particular

facts and circumstances.

The proposed order would also specifically permit BPHA to keep in

effect contracts with third-party payers that were in effect on

September 30, 1994, in order to avoid any disruption that might result

from applying the order's prohibitions to those existing contractual

arrangements.

Part V of the proposed order would require MAPI and BPHA to publish

and distribute copies of the order and accompanying complaint. Parts VI

and VII of the order impose certain reporting requirements in order to

assist the Commission in monitoring compliance with the order.

[[Page 56684]]

The proposed consent order would terminate 20 years after the date

it is issued.

Donald S. Clark,

Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in Montana

Associated Physicians, Inc.

[File No. 911-0008]

I concur in the decision to issue the complaint and accept the

order for public comment and write separately to emphasize two

points. First, the complaint and order do not directly challenge the

organization and conduct of the Billings Physician Hospital

Alliance, Inc., as a physician hospital organization (PHO), and in

my view, this order should cast no shadow on the activities of

PHO's. Second, although I concur in the unusual and complicated

fencing-in relief in the particular circumstances of this case, in

my view, this negotiated order is not, and should not be viewed as,

a guide for what a PHO can and cannot do.

[FR Doc. 96-28277 Filed 11-1-96; 8:45 am]

BILLING CODE 6750-01-M