United States v. Vision Service Plan; Public Comments and United States' Response to Public Comments

DEPARTMENT OF JUSTICE

Antitrust Division

[Case No. 1:94CV02693]

United States v. Vision Service Plan; 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. Vision Service Plan,

Case No. 1:94CV026923, United States District Court for the District of

Columbia, 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 Columbia; 3rd Street and

Constitution Ave., NW.; room 1825; Washington, DC 20001.

Rebecca P. Dick,

Deputy Director of Operations, Antitrust Division.

United States' Response to Public Comments

I. Introduction

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 Final Judgment initially proposed as the basis for

settling this proceeding in the public interest. Since the comments

regarding the first proposed Final Judgment were submitted, the parties

have agreed to a superseding, proposed Revised Final Judgment, filed on

November 1, 1995, which reflects changes to a few provisions. After

careful consideration of the comments on the formerly proposed Final

Judgment, viewed in light of the proposed Revised Final Judgment, the

United States concludes that the Revised Final Judgment will provide an

effective and appropriate remedy for the antitrust violation 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 request that the Court enter the Revised Final

Judgment.

II. Procedural History

On December 15, 194, the United States filed a Complaint alleging

that Vision Service Plan (``VSP''), in all or parts of the many states

in which it does business as a vision-care insurer, has entered into

agreements with its panel doctors that unreasonably restrain

competition by discouraging the doctors from discounting their fees for

vision-care services, in violation of Section 1 of the Sherman Act, 15

U.S.C. 1. Simultaneously with the filing of the Complaint, the United

States filed a proposed Final Judgment and a Stipulation signed by both

it and the defendant, agreeing to the entry of the Final Judgment

following compliance with the Tunney Act.

Pursuant to the Tunney Act, on December 23, 1994, VSP filed the

required description of certain written and oral communications made on

its behalf; the United States filed a Competitive Impact Statement

(``CIS'') on January 13, 1995. A summary of the terms of the proposed

Final Judgment and the CIS and directions for the submission of written

comments were published in the Washington Post for seven consecutive

days, from January 22-28, 1995. The proposed Final Judgment and the CIS

were published in the Federal Register on January 26, 1995. 60 FR 5210-

17 (1995). The 60-day period for public comments on the then proposed

Final Judgment began on January 27, 1995, and expired on March 27,

1995. Five comments were received.

The United States filed the five comments with the Court on May 12,

1995, and was preparing to file its response to them when VSP raised

issues about the application of certain provisions of the then-proposed

Final Judgment to its operations. On June 23, 1995, the United States

advised the Court that the parties were considering whether those

issues warranted any modification to the proposed Final Judgment.

Reflecting the outcome of those negotiations are the parties'

Superseding Stipulation, the proposed Revised Final Judgment, and the

Revised CIS, filed on November 1, 1995. The latter two documents are

styled as ``Revised'' because they reflect changes made to a few of the

provisions of the proposed Final Judgment and to related portions of

the CIS. The Government agreed to these revisions to remedy certain

problems that VSP had experienced while operating under the terms of

the originally proposed Final Judgment, which, pursuant to Stipulation,

it had been doing since the proposed Final Judgment was filed.

In a letter accompanying the superseding filings, the United States

informed the Court of its intent to provide public notice of the

proposed Revised Final Judgment and the Revised CIS in accordance with

the Tunney Act. Pursuant to the Act, under cover of a letter dated

November 27, 1995, the defendant filed the required description of

certain written and oral communications made on its behalf. A summary

of the terms of the proposed Revised Final Judgment and the Revised CIS

and directions for the submission of written comments were published in

the Washington Post for seven consecutive days, from November 12-18,

1995. The proposed Revised Final Judgment and the Revised CIS were

published in the Federal Register on November 13, 1995. 60 FR 57017-21

(1995). The 60-day period for public comments started on November 14,

1995, and expired on January 13, 1995. No comments on the proposed

Revised Final Judgment were received.

III. Factual Background

VSP contracts with businesses, government agencies, health-care

insurers, and other organizations to provide prepaid vision-care

insurance to

[[Page 9488]]

employee groups and beneficiaries in 46 states and the District of

Columbia. In 1994, VSP covered about 15 million persons, and its

revenues totaled about $650 million. The United States sought

injunctive relief to remedy the anticompetitive consequences of a fee

non-discrimination clause in VSP's agreements with doctors in private

practice who have agreed to become VSP ``panel doctors'' and,

accordingly, provide vision care to patients covered by VSP.\1\ VSP

contracts with at least 17,000 such doctors--predominantly optometrists

and a relatively small number of ophtalmologists--across the nation.

The challenged clause is similar in substance to clauses commonly

called ``most-favored-nation'' (``MFN'') clauses. VSP's MFN clause

required each of its panel doctors to charge VSP no more than the

lowest price the doctor charged any non-VSP patient or insurance plan.

\1\ Such service consist primarily of diagnostic services and

the dispensing of optical goods, such as corrective lenses and

frames.

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As a result of the MFN clause, a VSP-panel doctor could not charge

any non-VSP plan or patient less than VSP for equivalent services. If

the doctor wished to charge a non-VSP plan or patient less than he or

she had been charging VSP, the doctor would also have had to grant an

equal discount to VSP for all VSP-insured patients the doctor served.

In all or parts of many states in which VSP does business, it contracts

with a high percentage of local optometrists,\2\ and in these areas

most optometrists earn a significant part of their professional income

from VSP. For these doctors, the financial consequences of granting a

greater discount for services provided to all of their VSP patients

would be substantial, so they ceased or refrained from discounting

below VSP-payment levels to anyone. In addition to discouraging the

discounting of vision care services below VSP-payment levels, VSP's MFN

clause made it impossible for some competing vision-care plans to

obtain or retain sufficient panel doctors to serve their members at

competitive prices, thus limiting the amount of competition faced by

VSP from other plans.

\2\ For example, in 1993 VSP reported that 98% of all

optometrists licensed in Nevada were VSP-panel doctors, and today in

California, VSP contracts with about 90% of optometrists in

independent private practice.

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IV. Response to Public Comments

All five of the comments address the originally proposed Final

Judgment. Some of the comments contend that Section V of that Judgment,

which expressly permits VSP to engage in certain activities, undermines

the prohibitions of the Judgment. Other comments urge that additional

relief be ordered for the conduct that was challenged. Finally, several

of the comments concern practices that the United States did not

challenge and that are not enjoined by the Judgment. The United States

has concluded that the Revised Final Judgment reasonably and

appropriately addresses the harm alleged in the Complaint. Therefore,

following publication of the comments and this response, pursuant to

the Tunney Act, and submission of the United States' certification of

compliance with the Act, the United States intends to urge this Court

to enter the proposed Revised Final Judgment based on the Court's

determination that that Judgment is in the public interest.

A. Comments About the Permitted Activities

Two comments from Alaska, Arizona, Hawaii, Nevada, New Mexico,

Oregon and Washington, (``the seven states'') and comments from

Northwest Administrators and First American Health Concepts question

Section V of the formerly proposed Final Judgment, which expressly

permitted VSP to collect from its panel doctors sufficient information

about the fees they charged non-VSP plans and patients to enable VSP to

calculate each doctor's modal or median fees, which were then to be

used by VSP in setting its own fees to panel doctors. The commenters

raised various concerns about these provisions.

In their initial comment, the seven states reported that several of

them have been examining the competitive effects of various VSP

business practices in addition to the MFN clause. Although they

recognized that the proposed Final Judgment was ``an agreement between

the parties with no precedential effect,'' they nevertheless expressed

concern about ``a potential problem with the inclusion of certain

language in the [proposed Final Judgment] which could potentially

inhibit future law enforcement efforts by the states'' against possible

horizontal price-fixing by VSP. They feared that the provisions in

Section V permitting certain activities may be ``taken out of context

to support horizontal price-fixing activity, which is beyond the scope

of [this] * * * lawsuit.''

It is well established, however, that ``a consent judgment, even

one entered at the behest of the Antitrust Division, does not immunize

the defendant from liability for actions, including those contemplated

by the decree, that violate the rights of nonparties.'' Broadcast

Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 13

(1979). Therefore, nothing in the formerly proposed Final Judgment

would have precluded any of the states, or any other party, from

bringing future antitrust claims against VSP, whether based on a per se

or rule of reason analysis. Nor would any provision in the formerly

proposed Final Judgment have obstructed entry of full and appropriate

relief in a subsequent suit. These conclusions apply equally to the

proposed Revised Final Judgment.

In their later comment, the states asserted directly that the

gathering by VSP of fee information and its setting of fees, in the

manner permitted by Section V of the formerly proposed Final Judgment,

would be per se violations of the Sherman Act when undertaken by a

provider-controlled plan. Even if VSP were controlled by optometrists,

as the states apparently believe they can prove, its setting of fees to

its panel doctors, as an activity related to the offering of a separate

and additional product--insurance--might in some circumstances be

analyzed under the rule of reason rather than the per se rule.\3\ See

generally id. at 19-24. Insurance plans such as VSP commonly establish

doctor panels to provide services to their insureds and set the fees

that the plan will pay the panel doctors for these services. VSP's fee-

setting policies may be reasonably ancillary to its operation of a

vision-care insurance plan, and, if so, they would appear to be subject

to rule of reason analysis.

\3\ Statements 6 and 8 of the Statements of Enforcement Policy

and Analytical Principles Relating to Health Care and Antitrust,

jointly issued by the Department of Justice and the Federal Trade

Commission in 1994 and cited by the states, do not address the

issuance of insurance, the activity at issue here.

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The seven states also asserted that permitting VSP to base its fees

on its panel doctors' modal or median prices to non-VSP plans for

patients risks the same anticompetitive harm that has resulted from

VSP's enforcement of its MFN clause. Two other commenters, Northwest

Administrators and First American Health Concepts, raised similar

arguments. Under the Revised Final Judgment, VSP will no longer

maintain the option, contained in the formerly proposed Final Judgment,

to calculate payments made to its panel doctors based on a doctor's

modal or median fees. Rather, under Section V of the Revised Final

Judgment, VSP will retain the option of calculating the fees that it

pays panel doctors based merely on their usual and customary fees

charged to private patients before any discounts are applied. The

proposed

[[Page 9489]]

Revised Final Judgment's narrowing of VSP's permitted fee-calculation

options to a method based on a panel doctor's usual and customary fees,

defined as such fees before any discounts are applied, eliminates any

possibility that VSP's permitted fee-setting activity will inhibit

discounting.\4\

\4\ Similarly, VSP's permitted use (under the formerly proposed

Final Judgment) of modal or median fee calculations as the basis for

its own fees, unlike VSP's enforcement of its MFN clause, should not

have discouraged doctors from discounting to non-VSP plans or

patients. A substantial percentage of vision-care patients are

uninsured, and for the most part, these are not the patients who are

able to obtain discounts in any amount. Thus, a VSP-panel doctor's

median or modal fee, even though calculated in part on fees charged

to other plans to which the doctor does offer a discount, would

likely have been well above the lowest fee charged by the doctor to

a non-VSP plan or patient. Under the formerly proposed Final

Judgment, discounting by a VSP-panel doctor to some non-VSP plans or

patents was, therefore, not likely to have significantly depressed

the doctor's income from VSP. Thus, this method of fee-setting by

VSP, unlike the MFN clause, should not have operated to deter

effective competition to VSP from other vision-care plans. Indeed,

the modification of this provision of the decree (the substitution

of a ``usual and customary'' for a ``median'' or ``modal'' basis

from which VSP may set its panel doctors' fees) arose from VSP's

practical difficulties in implementing a ``median'' or ``modal''

methodology, rather than from competitive concerns.

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The commenters also objected to some of the practices permitted

under Section V of the formerly proposed Final Judgment on other

grounds. First American Health Concepts contended that the collection

of fee information would enable VSP to punish panel doctors if they

discount to or even participate in non-VSP plans. This claim, however,

ignores Sections IV (C) and (D) of the Final Judgment (and Revised

Final Judgment), which clearly prohibit such conduct.\5\ In any event,

the proposed Revised Final Judgment no longer permits VSP to obtain fee

information that reflects a panel doctor's discounting.

\5\ Section IX of the Revised Final Judgment authorizes the

United States to investigate VSP's compliance with the Judgment at

any time upon reasonable notice. The United States may inspect and

copy VSP documents, interview VSP employees, and require VSP to

submit written reports under oath. Moreover, the Judgment, once

entered, is an injunction, violations of which are punishable by the

Court's contempt power.

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First American also contended that the information-collection

provision (Section V(A) of the formerly proposed Final Judgment) would

have enabled VSP to impose burdensome recordkeeping requirements on

doctors. But most doctors already keep, in the ordinary course of their

business, all of the information VSP would have been allowed to seek.

At any rate, Section V(A) of the proposed Revised Final Judgment

effectively reduces a panel doctor's potential fee-reporting

obligations to an annual submission of the doctor's usual and customary

fees for a retrospective period of up to 12 months. Such a requirement

entails no more than submission of the doctor's fee schedule(s) in

effect for the relevant period.

As the preceding discussion shows, the theme of many of the

comments was that Section V of the formerly proposed Final Judgment

went too far in granting VSP leeway to continue to operate its business

despite the restrictions imposed by Section IV. Although the United

States believes that Section V of the formerly proposed Final Judgment

granted VSP nothing that compromised the remedy embodied in Section IV,

the proposed Revised Final Judgment's narrowing of VSP's permitted

activities substantially addresses most of the commenters' arguments.

Moreover, the United States fully intends to monitor VSP's practices

under the Revised Final Judgment and to seek enforcement or additional

relief if warranted. Should competitive problems again restrain

optometrists from discounting their fees for vision-care services to

plans competing with VSP or to others, the United States stands ready

to take all appropriate action.

B. Comments Seeking Additional Relief for the Challenged Conduct

Northwest Administrators urged that additional relief be obtained

in the then-proposed Final Judgment. Its comment applies equally to be

the Revised Final Judgment, which also does not provide for the

additional relief sought. Northwest Administrators wanted the formerly

proposed Final Judgment to require VSP to take affirmative steps to

encourage doctors to rejoin competing plans and to repay doctors the

difference between what VSP has paid them and what it would have paid

them in the absence of its MFN clause. Pursuant to the Stipulation

filed with the Complaint in this action, VSP has already provided all

of its panel doctors with an addendum to its Panel Doctor's Agreement

that expressly nullifies the MFN clause. In addition, the proposed

Revised Final Judgment would require VSP to give each panel doctor a

copy of the Judgment, which enjoins VSP from taking actions to deter

panel doctors from participating in non VSP plans. As to payments, it

is not the role of the United States to secure monetary damages for

private parties.

C. Comments About Conduct Not Challenged in the Complaint

The Optical Laboratories Association and First American Health

Concepts urged that the formerly proposed Final Judgment (and, by

extension, the Revised Final Judgment) be expanded to cover a variety

of conduct not challenged in the Complaint. Essentially, these

commenters disagreed with the United States' prosecutorial decision

about what conduct to challenge. As explained below, however, the

Tunney Act does not authorize the Court to reject the proposed Revised

Final Judgment on the ground that it does not enjoin conduct, allegedly

in violation of the antitrust laws, that was not challenged in the

Complaint. The scope of a governmental antitrust challenge is a matter

solely within the discretion of the United States and is beyond the

scope of the Court's Tunney Act review.

V. The Legal Standard Governing the Court's Public Interest

Determination

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

proposed Judgment ``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. Wester Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.), cert.

denied, 114 S. Ct. 487 (1993) (emphasis added, internal quotation and

citation omitted).\6\ Consequently, the Court should evaluate the

relief set forth in the proposed Revised Final Judgment 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 Tunney Act

does not empower the Court to reject the remedies in the proposed

Decree based on the belief that ``other remedies were preferable.'' Id.

at 1460.

\6\ 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 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 like, competitive

[[Page 9490]]

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.''\7\ Id. Thus, 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.

\7\ The Tunney Act does not give a court authority to impose

different terms on the parties. See, e.q., 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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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 antritrust

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 proposed 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 * * *''

Mircosoft, 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, VSP will remain liable for any illegal acts, and any

private party may challenge such conduct if and when appropriate. If

any of the commenting parties has a basis for suing VSP, 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.

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.'' Microsoft, 56

F.3d at 1459 (emphasis added). Entry of the proposed Revised Final

Judgment will not prevent the government from investigating and

challenging, if appropriate, conduct not addressed in the current

action.

VI. 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 Revised Final Judgment based on the Court's determination

that the Judgment is in the public interest.

Dated: February 16, 1996.

Respectfully submitted,

Steven Kramer,

Richard S. Martin,

U.S. Department of Justice, Antitrust Division, Bicentennial Building--

Room 9420, 600 E Street NW., Washington, DC 20530, (202) 307-0997.

January 19, 1995.

Gail Kursh

Chief Professional & Intellectual Property Section, Antitrust

Division, U.S. Department of Justice, 600 E. Street NW., Room 9300,

Washington, DC 20530.

Dear Ms. Kursh: These comments are submitted regarding United

States of America vs. Vision Service Plan, case number 1:94CV02693.

Northwest Administrators, Inc. (NW) is a third party

administrator which manages a vision care plan which competes with

Vision Service Plan in the Northwestern United States. Our vision

plan is known as the Northwest Benefit Network (NBN) vision care

plan. During the past several years, NBN has experienced the anti-

competitive actions by VSP as described in the U.S. Justice

Department ``Complaint''. Eventually, we took our concerns to the

Washington State Attorney General, which has conducted its own

investigation.

We are concerned that the proposed settlement will enable VSP to

continue to engage in anti-competitive activities, and we request

that your settlement be modified to include the following:

1. VSP should be prohibited from asking participating panel

doctors for any information regarding fees accepted from other plans

or regarding participation in any other plan. By allowing this

activity, you permit them to identify doctors who they may wish to

punish for cooperating with competing plans. By allowing them to

collect fee information about their competitors, they will be in a

position to continue to use the information in restraint of trade

even if they don't do so under the authority of a ``most favored

nation'' contract clause.

To support my concern, I am enclosing a copy of a letter from

VSP to its panel doctors in which VSP states, ``In the future, VSP's

payments will be based on the range of fees the doctor accepts,

rather than the lowest fee.'' The ``range'' of a doctor's fees, by

definition, includes the lowest and highest fees which the doctor

accepts. This is the type of information which VSP has misused in

the past.

2. ``Permitted Activities'' described on page five of your Final

Judgment neutralize several of the activities described in

``Prohibited Conduct'' on page four and five of your Final Judgment.

For example, VSP is prohibited from ``monitoring or auditing the

fees any VSP panel doctor charges any non-VSP patient or any non-VSP

plan; and 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.'' In the very next section, under ``Permitted

Activities'', VSP is allowed to collect fee information and to audit

fee information regarding doctors' charges to non-VSP patients. The

only way to insure that such information is not used for anti-

competitive activities is to prohibit them from collecting or

possessing such information.

3. VSP should be required to notify all doctors who withdrew

from competing plans that they will not in any way be penalized for

re-enrolling in other non-VSP plans. As currently written, your

``Compliance Measures'' simply assist VSP in becoming more

monopolistic. To enhance competition and provide equitable relief,

competing plans which were damaged should be made whole. Due to

VSP's dominant market position, when forced to choose between

dropping their participation in VSP and dropping their participation

in non-VSP plans, providers almost always choose to drop their

participation in non-VSP plans. Your efforts should be to help non-

VSP plans regain lost providers; not to help VSP to become bigger

and stronger. Non-VSP plans should be

[[Page 9491]]

allowed to monitor the distribution of such notices to insure that all

affected providers receive proper notification.

4. VSP should be required to repay all doctors who were

penalized for participating in other non-VSP plans. VSP should be

required to reimburse the difference in the amount they would have

paid and the reduced amount paid because the doctor was on a

competing plan which paid less than VSP.

Finally, I would like to request clarification of Section X of

the Final Judgment which states that ``This Final Judgment shall

expire within five years from the date of its entry.'' Does that

mean that VSP can resurrect their ``Most Favored Nation'' activities

after five years?

We would like to express our sincere gratitude to the Justice

Department for helping to level the playing field and for attempting

to restore a competitive market environment. We also appreciate your

consideration of our suggestions regarding the proposed settlement

with VSP.

Sincerely,

James H. Baker,

Vice President.

March 17, 1995.

Gail Kursh,

Chief, Professions & Intellectual Property Section, Department of

Justice, Antitrust Division, 600 E. Street NW., Room 9300,

Washington, DC 20530.

Re: U.S. v. Vision Service Plan, USDC for District of Columbia,

Case No. 1:94CV02693

Dear Sir/Madam: This comment on the proposed Final Judgment in

the above--entitled case is filed on behalf of the Optical

Laboratories Association, ``(OLA''), a trade association who address

is P.O. Box 2000, Merrifield, VA 22116-2000. Many of the members of

the Association have agreements with VSP as ``VSP contract

laboratories'' to ``perform opthalmic prescription work for VSP''.

The thrust of this comment is that the proposed consent order

should be expanded to prohibit the MFN clause in VSP's contracts

with its contract laboratories.

A vision service plan needs agreements with two sets of

providers: a panel of optometrists to perform refractions for the

plan members; and a panel of optical laboratories to perform

prescription work and provide completed devices--lenses and frames--

to be delivered to the plan members. A plan which cannot secure the

services of adequate panels in each of these areas cannot be

competitive in the market place.

The Department's Competitive Impact Statement adequately

describes conditions in the optical industry, and provides

justification for the proposed consent order. However, it does not

go far enough. The word ``laboratory'' could be substituted for the

word ``optometrist'' wherever the latter word appears in the

Statement to describe the reluctance of contract laboratories to

give discounts to plans that compete with VSP. This means that the

market can be made competitive for other vision service plans only

if the laboratories can be freed from enforcement of VSP's MFN

clause.

Attached is a copy of VSP's ``Laboratory Agreement''. Paragraph

``J'' refers to prices and provides that--``these prices . . .

reflect discounts which are greater than Laboratory gives to any

non-VSP customer.'' Paragraph ``H'' provides that--``Laboratory

agrees not to sell . . . any vision care group plan . . .'' There

can be no doubt that the agreement is designed to lock the

laboratory into a non-competitive position.

Also attached is a copy of a typical letter received by a

contract laboratory after VSP had audited its prices. There is no

question that VSP enforces its MFN clause.

In view of the above, it is submitted that in order to assure

competitive conditions in the market for vision care plans, VSP must

be enjoined from enforcing a MFN clause in any Laboratory Agreement.

Respectfully submitted,

Optical Laboratories Association, by:

Joseph S. Gill,

VSP Laboratory Agreement

The undersigned optical laboratory, hereinafter referred to as

``Laboratory,'' hereby agrees to perform ophthalmic prescription

work for VISION SERVICE PLAN, hereinafter referred to as ``VSP,'' as

a ``VSP contract laboratory.''

A. Term. This contract shall be effective upon the date of

acceptance by VSP and shall remain in full force and effect until

terminated by either party hereto giving the other fifteen (15) days

prior written notice of intent to terminate. Laboratory agrees to

complete and deliver any prescription orders already in process on

the date of termination of this contract, and VSP agrees to pay for

these prescriptions at the contract prices listed herein. Laboratory

agrees that VSP will exercise its sole discretion in determining

that laboratories with which it will contract and that VSP reserves

the right to cancel this contract and remove Laboratory's name from

its approved list, subject only to the fifteen (15) day notice

provided for hereinabove.

B. Laboratory Representations. Laboratory agrees and represents

that:

(1) It adheres to applicable ANSI Z-80 Standards.

(2) It conducts a complete wholesale optical service, serving

all optometrists and ophthalmologists without discrimination as to

race, color or creed.

(3) It has surfacing and finishing capabilities in-house or

through the parent company (a lab by the same name) which is located

within the same region.

(4) It is not owned, in whole or in part, by any person

practicing as an optometrist, ophthalmologist or dispensing optician

or by any person owning any part of a dispensary or retail outlet.

(5) It has listed below all persons having an ownership interest

in Laboratory.

(6) It will notify VSP immediately of any change in ownership of

laboratory.

(7) It understands and agrees that this contract is not

assignable and becomes invalid if the Laboratory changes ownership,

name, or address.

(8) It agrees to adhere to and be bound by all policies and

procedures of VSP.

(9) It agrees to notify VSP of any price changes by sending its

revised price lists to the VSP Contract Laboratory Department within

thirty (30) days of the effective new prices.

C. Audits and Inspections. Laboratory agrees that

representatives of VSP may visit Laboratory at any reasonable time

during normal business hours for the purpose of inspecting

Laboratory's facilities, stock, and fabrication operations, and to

audit any records. Laboratory will allow VSP representatives to

analyze pricing and discount information by reviewing wholesale

invoices and statements selected from Laboratory's files. Laboratory

will provide VSP all wholesale prescription price lists used for any

and all Laboratory customers, including buying groups. Pricing

information shall be held in strictest confidence by VSP, and shall

be utilized solely for VSP's internal purposes. Pricing information

will not be disseminated to any other laboratory or third party.

D. Name Use. Laboratory agrees not to sue the name ``Vision

Service Plan, ``VSP,'' the VSP logo, or any variation of any of them

without having first obtained the express written consent of VSP and

agrees that using either the name of servicemarks of VSP for any

purpose without the express written consent of VSP is a violation of

state and federal law and will result in immediate termination of

this contract.

E. Financial Incentives. Laboratory agrees not to offer or

provide any discounts, gifts, premiums, or other financial

inducements to VSP member doctors to attract VSP prescriptions.

Laboratory agrees not to include the VSP volume when determining a

VSP member doctor's volume discount on private prescriptions.

F. Insurance. Laboratory agrees to provide and maintain general

and product liability insurance in a minimum amount of $1,000,000

per occurrence and to have VSP named as an additional insured on the

general and product liability policies.

G. Cooperation. Laboratory agrees not to take any actions

demonstrating any unwilliness or inability to work cooperatively for

the best interest of VSP, its doctors, subscribers or subscriber

groups.

H. Competition. Laboratory agrees not to sell or offer to sell,

directly or indirectly (including through any partnership,

association or corporation in which Laboratory owns more than 10% of

outstanding shares), any vision care group plan except safety

eyewear programs.

I. Redos. Laboratory shall honor lab and doctor redos for at

least six (6) months from the date of completion of the original Rx.

Lab redos shall be remade until correct at no charge, and the VSP

member doctor will be the final judge of quality. A doctor redo

shall be remade at no additional charge. Laboratory agrees that the

contract prices paid for original Rxs cover the costs of doctor

redos.

J. Prices. Laboratory agrees to perform VSP prescription work

for the prices listed below. These prices include all materials and

labor involved in supplying finished and mounted prescription lenses

to VSP member doctors and reflect discounts which are greater than

Laboratory gives to any non-VSP customer.

All single Vision Lenses................................ $__________

[[Page 9492]]

All bifocal Lenses...................................... $__________

All Other Prescriptions Including Trifocal, Lenticular,

Double Seg., Etc....................................... $__________

Laboratory will supply frames for VSP prescriptions at

the catalog price on the date the prescription is

completed less: 15%

$__________

Laboratory agrees there will be no service charge to VSP or the

doctor for supplying any frame normally available to Laboratory's

customers. The price for each category of prescription lenses

includes all types of lenses within that category, and is the total

price, except for times on the VSP Lab Options List. Laboratory

agrees not to charge the VSP member doctor directly unless

authorized by VSP. Laboratory agrees not to refuse any VSP

prescription because of its cost. Laboratory agree to at all times

give VSP prescriptions the same priority as non-VSP prescriptions.

Laboratory understands and agrees that some prescriptions within

each of these categories are more expensive than others, and these

prices cover all prescriptions. Laboratory agrees not to divulge any

of these prices to any other party.

K. Laboratory Ownership. The following are the only persons who

have an ownership interest in the Laboratory:

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

Percentage

Name of owner(s) of

ownership

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

[None Listed]

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

Vision Service Plan, Contract Laboratory Program, 333 Quality Drive,

Rancho Cordova, CA 95670-7989, (910) 851-5000 (800) 852-7609,

Telefax (916) 851-4866

Enclosed is a new laboratory contract for your completion.

Please carefully review this new contract. Among other changes, note

the following.

* The minimum general and product liability insurance coverage

has increased to $1,000,000 per occurrence. In addition, VSP is to

be named as an additional insured on the policies.

* When we last surveyed all contract laboratories on their

current liability limits, it was evident that most labs already

realized the necessity of higher liability coverage. We found that

85% of our contract labs carried at least $1,000,000 coverage.

Please forward a Certificate of Insurance reflecting the minimum

of $1,000,000 general and product liability, as well as showing VSP

as an additional insured.

* The laboratory agrees not to sell any competing vision care

group plan. Safety eyewear programs may continue to be sold by

contract laboratories.

* As a result of increased communications between VSP and

contract labs, a paragraph titled ``Confidential Information'' has

been added. This will help ensure confidentiality of any information

exchanged.

* The laboratory's bid prices must reflect competitive pricing

for VSP.

A recent price audit was conducted on your laboratory prices.

The audit utilizes the frequency of options, different lens

prescriptions and styles, and miscellaneous add-on items, and then

compares the amount VSP pays against your laboratory's private

pricing.

VSP has found through this audit process that VSP is not

receiving a discount off maximum discounted private prices. As a

remedy to this situation, we ask that you submit a new bid to

continue as a VSP Contract Laboratory.

Your cooperation on returning the completed contract with new

bid prices and Certificate of Insurance by (____________________) is

appreciated. If you have any questions, please call me.

Sincerely,

Teri M. Lew,

Contract Laboratory Program Administrator.

TML/td

Enclosures

March 28, 1995.

Gail Kursh,

Chief, Professional and Intellectual Property Section, Antitrust

Division, United States Department of Justice, 600 W. Street NW.,

Room 9300, Washington, D.C. 20530

Re: United States v. Vision Service Plan, Case Number 1:94CV02693

Dear Ms. Kursh: The undersigned states offer the following

comments in the matter of United States v. Vision Service Plan. We

are pleased that you have attempted to address some of the problems

raised by VSP's practices and applaud your enforcement efforts.

However, on behalf of the chief antitrust enforcement officers of

our respective states we would like to point out a potential problem

with the inclusion of language in the Consent Decree which could

potentially inhibit any future enforcement efforts by the states.

Although we recognize that the proposed Consent Decree is merely an

agreement between the parties with no precedential effect, we

nevertheless feel that the Decree could be improved to more

adequately address the public interest in this matter.

As you are aware, Vision Service Plan (VSP) is based in

California and does business throughout the western United States.

As your investigation revealed, many states have been impacted by

VSP's activities. Consequently, for some time now several states

have been examining VSP's practices and their effects on consumers

in our region. The scope of our review is somewhat broader than the

DOJ investigation, focusing on other issues in addition to the most

favored nation clause.

Our purpose in submitting comments is to raise our concern that

the Consent Decree as proposed might be interpreted as a court-

sanctioned seal of approval for the activities which have been

specifically identified in Section V of the Decree. That section

permits, inter alia, the defendant to continue to gather fee

information from participating doctors. The fees gathered are then

permitted to be used as part of a determination of median or modal

fees, which are in turn used to set reimbursement rates. Although

this activity has been permitted in the context of responding to

your concerns about misuse of most favored national clauses, we are

concerned that it will be taken out of context to support horizontal

price-fixing activity, which is beyond the scope of activity

addressed in your lawsuit. It would be disturbing to see such a

result.

We suggest that our concern would be eliminated if Section V is

simply moved to the Stipulation between the parties, rather than

made a part of the court's order. Alternative by, language should be

inserted which makes it clear that the permitted activities are

permitted only insofar as they are not part of action which would be

otherwise illegal, such as horizontal price-fixing. Either solution

would address our concern by clarifying the scope of the Consent

Decree, yet would not affect the substance of your settlement with

VSP.

Thank you for your consideration. Please feel free to contact us

if you have any questions.

Very truly yours,

Tina E. Kondo,

Brian Dew,

Assistant Attorneys General, State of Washington.

Daveed Schwartz,

Assistant Attorney General, State of Alaska.

Kenneth S. Countryman,

Assistant Attorney General, State of Arizona.

Michael T. Lee,

Deputy Attorney General, State of Hawaii.

Marty Howard,

Deputy Attorney General, State of Nevada.

Susan G. White,

Assistant Attorney General, State of New Mexico.

Andy Aubertine,

Assistant Attorney General, State of Oregon.

April 21, 1995.

Ms. Anne Bingaman,

Assistant Attorney General, Antitrust Division, U.S. Department of

Justice, 600 E. Street N.W., Washington, D.C. 20530

Re: United States v. Vision Service Plan, Case No. 1:94CV026993 TPJ

Dear Ms. Bingaman: Pursuant to conversations with the Department

of Justice (the Department), the undersigned states submit this

Additional Comment in the matter of United States v. Vision Service

Plan. We are concerned that entry of the proposed Final Judgment, as

drafted, would not be in the public interest. Entry of the decree

would give VSP a court order which arguably allows it to engage in

activity which the Ninth Circuit, the Department and the Federal

Trade Commission (FTC) consider to be per se illegal. Although the

decree contains prohibitions against certain activities associated

with most favored nation clauses, Section V can be interpreted as

overruling them and allows VSP to engage in many of these

activities. Although we applaud the Department's recognition that

VSP's business practices have severe and significant anticompetitive

effects and support the Department's efforts to address the problem,

we fear that the proposed Final Judgment will create more problems

than it

[[Page 9493]]

will solve. Accordingly, we object to entry of the proposed Final

Judgment.

I

Section V May Allow VSP to Engage in Activities That Would

Otherwise be per se Illegal

In Hahn v. Oregon Physicians' Service, 868 F.2d 1022 (9th Cir.

1988), the Ninth Circuit held that a provider-controlled plan which

collected fee information and set reimbursement rates and maximum

fee caps for other providers could be construed as a horizontal

price fixing conspiracy, and thus per se illegal. Moreover, the

Department and the FTC, in jointly prepared guidelines declare that

activities such as information gathering and fee setting by

provider-controlled plans is per se illegal.

A. Provider Control

VSP is a provider-controlled plan. Historically, all of its

directors have been doctors. Its mission ``is to put . . . dollars

into optometric bank accounts.'' \1\ Currently, twelve of its

thirteen directors are doctors. Each of these twelve director-

doctors is also a VSP panel doctor. Under these panel doctors'

direction, VSP collects information about the fees charged by all

panel doctors. The director-doctors are ultimately responsible for

using this information to set fee reimbursement rates and maximum

fee caps for their fellow doctors. Each of these activities:

information gathering and fee setting, is per se illegal when

engaged in by a provider-controlled plan.\2\

\1\ ``The mission of our corporation as stated by the founders,

reaffirmed by the present board, and by all of the leaders in

between, is to put patients into our panel doctors' offices and

dollars into optometric bank accounts.'' February 12, 1987 Speech by

VSP's President, John O'Donnell, p. 8. Exhibit 62 to Declaration of

Jeffrey M. Shohet in Support of Plaintiffs' Motion for Partial

Summary Judgment in Allstate Optical Services, Inc. v. California

Vision Service, Docket No. C87-20572WAI, U.S. District Court,

Southern District of California.

\2\ A ``safe harbor'' exists where a provider-controlled plan

shares substantial financial risk through capitation or withholding

of at least 20%. Statement 8 of The Department of Justice and

Federal Trade Commission Statements of Enforcement Policy and

Analytical Principles Relating to Health Care and Antitrust. VSP,

however, does not use capitation and only withholds a maximum of 2%.

Accordingly, VSP does not qualify for the safe harbor.

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

B. Information Gathering

A number of provisions in Section V arguably would allow VSP to

engage in illegal information gathering. Section V(A) of the

proposed Final Judgment would allow VSP to collect fee information

from panel doctors in order to determine doctors' median or modal

fees. The median fee is defined as ``the fee below and above which

there are an equal number of fees,'' and the modal fee is defined as

the fee charged most frequently to non-VSP patients. Either

measurement requires knowledge of every fee charged by a doctor

during the preceding year. Accordingly, this section would allow

VSP's doctor-controlled board to collect information about all fees

charged by fellow member doctors during the preceding year and use

this information to set fee reimbursement rates and maximum fee

caps.

The Department and the FTC explicitly condemn this activity.

``If an exchange among competing providers of price or cost

information results in an agreement among competitors as to the

prices for health care services . . . that agreement will be

considered unlawful per se.'' Statement of Department of Justice and

Federal Trade Commission Enforcement Policy on Provider

Participation in Exchanges of Price and Cost Information, BNA

Antitrust Trade and Regulation Reporter, Sep. 29, 1994, p. S-14.

C. Fee Setting

A number of provisions in Section V arguably would allow VSP to

engage in illegal fee setting. Section V(B) would allow VSP to

calculate the fees it pays to panel doctors on the basis of median

or modal fees. Section V(D) would allow VSP to devise a fee system

for new panel members based on average fees. Section V(E) would

allow VSP to maintain the current fee reimbursements and maximum fee

caps it has already set. Taken together, these sections seem to

allow VSP's doctor-controlled board to continue to set fee

reimbursement rates and maximum fee caps as long as they do not base

them on the lowest fees charged by panel doctors. The fact that

providers are setting fees for fellow providers, however, should be

more of a concern than the statistic used to set the fee.\3\

\3\ As the Department points out at p. 7 of the Competitive

Impact Statement, one of the effects of VSP's practices is that fees

for vision care services are 30% higher in areas where VSP is

dominant. The Department implies that VSP currently bases its fees

on the lowest fees accepted by its doctors. By encouraging VSP to

set fees based on any amount other than the lowest fees, however,

costs for vision care services are likely to rise even higher.

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

The Department notes that Section V would allow VSP to use a fee

schedule, which is ``an approach used by other vision care insurance

plans.'' Competitive Impact Statement, p. 12. VSP is not like other

vision care insurance plans. It is controlled by doctors. ``Even if

a fee schedule is therefore desirable, it is not necessary that the

doctors do the price fixing.'' Arizona v. Maricopa County Medical

Society, 457 U.S. 332, 352 (1982).

15 U.S.C.A. Sec. 16(e) (1995) requires that the proposed Final

Judgment be in the public interest. If the proposed Final Judgment

is entered, it will give to VSP, a collection of doctors the

government contends have already acted anticompetitively, a court

order which arguably allows further behavior the Ninth Circuit, the

Department and the FTC all consider per se illegal. This behavior

will most likely result in even higher vision care costs in areas

where VSP is dominant. Because of Section V, the proposed Final

Judgment not only fails to remedy the anticompetitive effects of

VSP's actions, it arguably makes them worse. Entry of such a consent

judgment can not be in the public interest.

II

Section V Compromises the Decree's Ability to Terminate Alleged

Violations

The proposed Final Judgment, as drafted, also fails the public

interest test because it does not terminate the alleged violations.

The complaint alleges that one of the ``agreements'' between VSP and

panel doctors that has raised prices for vision care services is the

most favored nation (MFN) clause. The complaint also alleges that

the MFN clause creates disincentives to discounting. Although

Section IV of the proposed Final Judgment purports to prohibit

various activities associated with the MFN clause, section V

overrules these restrictions and explicitly permits VSP to engage in

many of these activities. Because of section V, the decree also

fails to remove the disincentives to discounting.

A. MFN Activities

Section IV of the proposed Final Judgment attempts to prevent

illegal conduct regarding most favored nation clauses. Although

Sections IV(E) and IV(F) would prohibit VSP from monitoring,

auditing or communicating with any panel doctor about the fees the

doctor charges any non-VSP patient or plan, Section V(C) allows VSP

to audit any of its doctors and Section V(A), as discussed above,

allows VSP to collect (monitor and communicate) information on each

fee charged by a doctor to a non-VSP patient or plan. Section IV(B)

would prohibit VSP from linking panel doctor payments to fees

charged by the doctor to non-VSP patients or plans. Section V(B),

however, allows VSP to calculate payments to doctors on median or

modal fees which are, by definition, calculated exclusively on fees

paid to non-VSP patients or plans. Finally, whereas Section IV(C)

would prohibit VSP from differentiating payments to doctors who

charge lower fees to non-VSP patients or plans, Section V(E) allows

VSP to maintain current fees which, because of most favored nation

enforcement, already differentiate.

B. Discounting Disincentives

Use of modal or median fees in place of the lowest fee fails to

remove disincentives to discounting. For example, the median fee,

``the fee below and above which there are an equal number of fees,''

is potentially lowered anytime a provider discounts his fee to a

non-VSP patient or plan. Providers are still unlikely to risk

reducing the amounts they receive from VSP, which constitutes a

significant portion of many practices, by accepting anything less

than their VSP fees.\4\

\4\ Perhaps most significantly, the proposed Final judgment

fails to address what is arguably the strongest disincentive to

discounting. Many optometrists feel that VSP is ``optometry's

plan.'' They see discounting or membership on a competitor's panel

as forms of disloyalty. The decree thus would leave intact the most

significant disincentive to discounting.

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

Section V thus not only facilitates price fixing, it also

compromises the proposed Final Judgment's attempts to prohibit MFN

activities and remove disincentives to discounting. Moreover, by

allowing VSP to maintain the current fees which are the result of

years of VSP's misuse of most favored

[[Page 9494]]

nation clauses, the proposed Final Judgment fails to remedy a specific

practice alleged in the Complaint. It would not be in the public

interest to simply tell VSP to ``sin no more'' without also

addressing the unfair advantage it has already gained.\5\

\5\ It is unclear why the proposed Final Judgment in this case

differs so significantly from the proposed Final Judgment in the

Department's recent Arizona Delta Dental case. The complaint in the

Delta Dental case, like the VSP case, included allegations of misuse

of most favored nations clauses. The decree in Delta Dental does not

contain a section of permitted activities. There is no apparent

difference in the Complaints that would explain the presence of

Section V in this case.

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

III. Conclusion

Nothing is alleged in the VSP complaint which would necessitate

the inclusion of Section V. This section arguably would allow VSP to

engage in conduct that would otherwise be illegal. Section V also

reduces the safeguards of Section IV to nothing more than an

illusion. For these reasons we object to entry of the proposed Final

Judgment in this matter.

Respectfully Submitted this 21st day of April, 1995.

Very truly yours,

Tina E. Kondo,

Brian L. Dew,

Assistant Attorneys General, State of Washington.

Bruce M. Botelho,

Attorney General.

Daveed A. Schwartz,

Assistant Attorney General, State of Alaska.

Kenneth S. Countryman,

Assistant Attorney General, State of Arizona.

Michael T. Lee,

Deputy Attorney General, State of Hawaii.

Marty Howard,

Deputy Attorney General, State of Nevada.

Susan G. White,

Assistant Attorney General, State of New Mexico.

Andrew E. Aubertine,

Assistant Attorney General, State of Oregon.

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

Defendant.

[No. CV 94-2693 TPJ]

Comment of First American Health Concepts, Inc.

Pursuant to the Antitrust Procedures and Penalties Act, 15

U.S.C. Sec. 16(b), First American Health Concepts, Inc., (``FAHC''),

an interested person, submits to the Department of Justice for

filing with the United States District Court for the District of

Columbia and publication in the Federal Register its written Comment

on the Final Judgment proposed by the parties to this action. This

Comment is supported by the attached Memorandum of Points and

Authorities and all Exhibits hereto.\1\

\1\ FAHC incorporates at Exhibits A and B the letters dated

October 10, 1994 and October 17, 1994, and all exhibits thereto,

submitted to the Department of Justice by Daniel F. Gruender.

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

Respectfully Submitted this 29th day of March, 1995.

Shimmel Hill, Bishop & Gruender, P.C.

Daniel F. Gruender,

Michael V. Perry,

Glenn B. Hotchkiss,

3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First

American Health, Concepts, Inc.

Memorandum of Points and Authorities

I. Introduction

FAHC is an Arizona corporation formed in 1981 and a competitor

of the Defendant, Vision Service Plan (``VSP''), in the market for

pre-paid vision care services. Both FAHC and VSP offer their

enrolled members eye examinations and eyeware (eyeglasses and

contact lenses) through a network of affiliated service providers,

primarily optometrists and opticians.

FAHC incorporates the factual recitations contained in the

Competitive Impact Statement Sections I and II filed in this action.

FAHC opposes the proposed Final Judgment for the following

reasons. As explained in Sec. II(B) below, mere elimination of the

Most Favored Nations (``MFN'') provision by name from the VSP Panel

Doctor Agreement does not remedy VSP's anti-competitive practice of

penalizing panel doctors for accepting lower fees from competing

plans because Sec. V(B) of the proposed Final Judgment permits VSP

to continue calculating the fees it will pay its panel doctors in

relation to what those doctors accept from non-VSP patients. As

explained in Sec. II(C) below, the proposed Final Judgment is

deficient because it does not even address, let along prohibit,

VSP's illegal tying/exclusive dealing arrangement between a VSP

panel doctor's membership on a VSP panel and then purchase of

eyeglasses from a VSP-controlled sources.

For all these reasons, and as further explained in Sec. II(D),

FAHC respectfully suggests that the proposed Final Judgment be

modified in the following respects:

(1) VSP should be prohibited from calculating the fees it will

pay its panel doctors based directly or indirectly on the fees those

doctors charge to non-VSP patients;

(2) VSP should be prohibited from requiring VSP panel doctors to

maintain or produce any information relating to the fees those

doctors charge to non-VSP patients, and also should be prohibited

from auditing VSP panel doctors' records to discover such

information; and

(3) VSP should be prohibited from tying the VSP membership of

its panel doctors to the purchase of vision products manufactured by

VSP-owned or controlled sources or requiring that VSP panel doctors

obtain vision products only from VSP-controlled sources.

II. Analysis

A. Introduction

The Tunney Act requires that before entering the proposed Final

Judgment, this Court must first determine that entry of the Final

Judgment is in the public interest. 15 U.S.C. Sec. 16(e). As stated

in United States v. Airline Tariff Pub. Co., 836 F.Supp. 9, 11

(D.D.C. 1993):

Courts have developed a two-pronged public interest inquiry.

First, courts inquire as to whether the proposed relief effectively

will foreclose the possibility that antitrust violations will occur

or recur * * *. Second, courts consider whether the relief impinges

upon other public policies. (citations omitted)

In making the public interest determination, the Court must

evaluate whether the proposed Final Judgment provides a valid

antitrust remedy by ``pry[ing] open to competition a market that has

been closed by [VSP's] illegal restraints.'' International Salt Co.

v. United States, 332 U.S. 392, 401 (1947). See also United States

v. Microsoft, 159 F.R.D. 318, 331 (D.D.C. 1995). Stated another way,

in assessing whether a proposed consent judgment passes muster, the

Court must determine that it (a) rectifies the behavior the

government perceives to be a current antitrust violation, and (b)

does not allow the settling defendant to engage in similar anti-

competitive behavior. Airline Tariff, supra, at 12-13. The Court

must independently review the proposed Final Judgment using the

above analysis, and may not merely rubber stamp it. Microsoft,

supra, at 329. Finally, in making the public interest determination,

this Court is not restricted to the allegations of DOJ's Complaint,

and instead, may look beyond the four corners of the Complaint to

all relevant conduct and circumstances. Microsoft, supra, at 331.

For the reasons set forth below, the proposed Final Judgment does

not serve the public interest and should be rejected.

B. The Proposed Final Judgment Is Deficient Because It Allows VSP To

Demand From Its Panel Doctors Information Regarding Fees Charged Non-

VSP Patients And To Continue Calculating The Fees It Pays Its Panel

Doctors In Relation To What Those Doctors Charge Non-VSP Patients.

On the simplest level, DOJ Claims that the proposed Final

Judgment will eliminate VSP's anti-competitive practices and open

the vision services industry to an unparalleled degree of

competition. The proposed Final Judgment will bring about this

result, DOJ says, because it renders the MFN provision in the VSP

Panel Doctor's Agreement null and void. The vice in that MFN

provision (and what presumably led DOJ to sue VSP in the first

place) is that it allows VSP to calculate the fees it will pay its

panel doctors in relation to the fees those same doctors charge non-

VSP patients and non-VSP plans. DOJ knows that VSP has a history of

cutting providers' rates under the guise of the MFN alleging the

provider is accepting lower fees from another competitor even when

that allegation is incorrect or the fees involved are not

comparable. Based on this evidence, there is no reason to expect VSP

will not do the same with any other formula permitted. Based on what

DOJ knows, it should, as it did in the case of Delta Dental,

prohibit VSP access to any fee information of providers for others

than its own patients and not put its imprimatur on any fee setting

mechanism.

[[Page 9495]]

An additional problem with the proposed Final Judgment is that

while it prohibits VSP from enforcing the MFN provision, it

expressly allows VSP to continue its anti-competitive practice of

setting its fees in relation to the fees charged by its competitors.

Part of the problem with the permitted Section V is it is based

on the erroneous assumption that non-VSP fees will be for the

identical or comparable level of service and product as VSP's. In

fact, some providers use composite rates, one price for any exam,

whether limited, intermediate or comprehensive, and the same type of

lens and glasses while this is not in fact the case with VSP.

Accordingly, efforts to construct ``median'' or ``modal'' fees are

meaningless because it involves a comparison of dissimilar services

or products.

There is no doubt but that the proposed Final Judgment allows

VSP to disguise and continue its anti-competitive comparative fee-

setting policy. Section IV of the proposed Final Judgment prohibits

VSP from maintaining or enforcing the MFN and from linking payments

made by VSP to its panel doctors to the fees charged by those

doctors to any non-VSP patient or plan. However, the entirety of

Sec. IV is qualified by the clause ``[e]xcept as permitted in

Section V.'' Section V permits VSP to ``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 fee. * * *.''

Sec. V(B). In turn, ``modal fee' and ``median fee'' are both defined

in terms of ``the fee(s) charged * * * for each service rendered to

non-VSP patients * * *.'' Sec. II(F) & (G) (emphasis added). In

short, Section V expressly authorizes VSP to continue some vaguely

defined comparative fee-setting policy which resulted in this

lawsuit and which Section IV purports to prohibit.

DOJ tacitly concedes that the proposed Final Judgment will not

prohibit VSP from basing its payments on the fees paid by its

competitors:

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.

Impact Statement at 13 (emphasis added). Apparently, DOJ's position

is that VSP may base its payments to its panel doctors on the fees

those doctors receive from non-VSP patients or plans so long as VSP

does not do so routinely or directly.

The fallacy in DOJ's reasoning is obvious. If the fee-setting

mechanism embodied in the MFN provision is the competitive evil DOJ

says it is,\2\ then the policy must be prohibited whether it is

implemented routinely or sporadically, directly or indirectly.

Otherwise, VSP is free to do indirectly what it is prohibited from

doing directly, in which case the very idea that competition will

increase and consumers will benefit is laughable.

\2\ In its Complaint, DOJ states that the MFN provision/

comparative fee policy: 1) unreasonably restrains competition among

vision service care insurance plans; 2) results in higher prices for

vision care services for non-VSP patients; and 3) deprives consumers

of vision care services of the benefits of free and open

competition. See Complaint at Sec. 18(a)-(c). FAHC agrees, which is

why it files this Comment to see that this anti-competitive practice

is stopped rather than reformulated.

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DOJ's only response is to suggest that in light of the fact that

many patients have no vision coverage at all, the VSP panel doctor's

median or modal (i.e., non-VSP) fee is not likely to be the doctor's

lowest fee. Impact Statement at 13. This argument also misses the

mark. The point is not that the median or modal fee will be a given

doctor's lowest fee, but rather, that it will be a lower fee than

the previously determined VSP fee. In that event, VSP can (and

undoubtedly will) lower its fee to the lower level, the VSP panel

doctor will suffer financially due to his membership in a competing

plan, and the doctor's financial incentive will be to drop his

membership in the competing plan to the detriment of that plan which

reduces the competitor's ability to be an effective competitor which

results in higher costs to the consumer. This is exactly the anti-

competitive chain of events of which DOJ complains in its Complaint.

See Complaint at Paras. 9-11.

DOJ's inadequate remedy also presents a significant obstacle to

a doctor's decision to join another panel in addition to VSP. Under

Sec. V(A) of the proposed Final Judgment, VSP can compel a panel

doctor to provide on an annual basis information sufficient to

determine that doctor's modal and median fee. The modal fee is

defined as the doctor's most frequently charged fee to non-VSP

patients or for non-VSP covered services, while the median fee is

defined as the doctor's fee below and above which there are an equal

number of fees charged to non-VSP patients or for non-VSP covered

services. Proposed Final Judgment at Sec. II(F) & (G).

DOJ's modal/median fee scheme will require doctors to carry an

enormous record-keeping burden in order to comply with VSP's

requirements. Each doctor who participates in both a VSP panel and a

competing panel will have to maintain (and produce at least

annually), and probably compile and compute from, extensive records

regarding each non-VSP patient and the fees charged to each non-VSP

patient. The cost of this type of record-keeping could well be

prohibitive. The failure to comply with the record-keeping

requirement could be even worse because the proposed Final Judgment

also permits VSP to impose unspecified penalties on doctors who

misrepresent their fees or the frequency with which they charge

those fees.\3\ Proposed Final Judgment at Sec. V(F). Rather than go

through all that red tape and risk unspecified reductions and

potential penalties and costs, providers will stay off of other

panels just as they have under the MFN by whatever name it has been

called.

\3\ The proposed Final Judgment does not define the term

``misrepresent'' as that term is utilized in Sec. V(F). Therefore, a

doctor who inadvertently fails to keep accurate records of all non-

VSP patient charges might be accused of misrepresenting his non-VSP

fees.

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When faced with this Hobson's choice (between the cost of

compliance and penalties for non-compliance), the only way for a

doctor to escape the record-keeping burden and potential risks,

expenses and uncertainties of ``modals'' and ``medians'' as well as

penalties, is to drop his membership in a competing panel or simply

not join if the fees are not the same as VSP. That is what most

plans that have resisted VSP's MFN enforcement tactics have been

forced to do, namely raise their rates to those provided by VSP. In

other words, if a doctor chooses to join a VSP panel, and only a VSP

panel, the onerous record-keeping requirements of Sec. V(A) do not

apply to him because he is not providing services to any non-VSP

patients.\4\ Again, the clear incentive is for the doctor to drop

his membership in a competing plan and provide services only through

VSP, and the end result is a corresponding diminution in the number

of doctors available to competing plans such as FAHC or other non-

VSP plans and programs, and, of course, less competition for VSP who

is growing by leaps and bounds.\6\

\4\ Of course, to the extent that a doctor provides services to

a non-VSP patient who is not affiliated with a competing plan, the

record-keeping requirements would, in theory, still apply. However,

it is doubtful that VSP would enforce the requirements where a

competing plan is not involved.

\5\ See Exhibit C and Exhibit D.

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If DOJ is serious about increasing competition in the vision

services industry by providing incentives for providers to join more

than one vision services plan (or at least by removing the

disincentives to doing so), that goal can be accomplished only by

prohibiting VSP, as the Justice Department required of a similar

plan using a MFN clause and fee setting mechanism in the dental

industry, from setting the fees it will pay its panel doctors in

comparison to the lower fees those doctors accept from competing

plans.\6\ DOJ does not explain why it prohibited Delta Dental from

doing what it permits VSP to do. Any lesser remedy leaves VSP's

litigation-inducing, anti-competitive practice intact.

\6\ See Delta Dental Consent Judgment and Competitive Impact

Statement in case of Delta Dental. Exhibits E and F.

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C. The Proposed Final Judgment Is Deficient Because It Fails to Even

Address the Tying/Exclusive Dealing Arrangement Between Membership on a

VSP Panel and the Lenses VSP Panel Doctors Must Dispense.

1. Introduction

In addition to the defects discussed above, the proposed Final

Judgment fails to serve the public interest because it does not even

address a VSP-imposed requirement which is either a tying

arrangement or an exclusive dealing arrangement. Specifically, the

VSP Member Doctor's Procedure Manual (the ``Manual'') requires that

VSP panel doctors must obtain lenses to be dispensed to patients

only from VSP-approved

[[Page 9496]]

laboratories.\7\ This requirement should be (but is not) prohibited by

the proposed Final Judgment.

\7\ Under the heading ``Ophthalmic Laboratories,'' the Manual

states ``VSP doctors must use one of the VSP contract laboratories

listed in the Laboratory Section of this Manual.'' Manual at G-1.

The Manual also states ``VSP POLICY DOES NOT ALLOW THE PANEL DOCTOR

TO FABRICATE AND/OR SUPPLY LENSES OUT OF HIS OWN OFFICE STOCK. ALL

TINTING MUST BE DONE BY THE VSP CONTRACT LAB THAT SUPPLIED THE

LENSES.'' Manual at G-1 (capitalization in original).

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2. Tying Arrangement

A tying arrangement is ``an agreement by a party to sell one

product but only on the condition that the buyer also purchases a

different (or tied) product, or at least agrees that he will not

purchase that product from any other supplier.'' Northern Pacific

Railway Co. v. United States, 356 U.S. 1, 5-6 (1958) Not all tying

arrangements violate the antitrust laws. A tying arrangement will

violate Sec. 1 of the Sherman Act if the seller has ``appreciable

economic power'' in the tying product market and if the arrangement

affects a substantial volume of commerce in the tied market. Eastman

Kodak Co. v. Image Technical Services, Inc., 119 L.Ed.2d 265, 280

(1992). According to the Supreme Court, ``the essential

characteristic of an invalid tying arrangement lies in the seller's

exploitation of its control over the tying product to force the

buyer into the purchase of a tied product that the buyer either did

not want at all, or might have preferred to purchase elsewhere on

different terms.'' Jefferson Parish Hospital District No. 2 v. Hyde,

466 U.S. 2, 12 (1984).

The elements of an invalid tying arrangement are: (1) Two

separate products or services, (2) the tying of the sale of one

product or service to the purchase of another product or service,

(3) sufficient market power in the tying product to restrain trade

in the market for the tied product, and (4) a not insubstantial

amount of interstate commerce in the tied product. Virtual

Maintenance, Inc. v. Prime Computer, Inc., 11 F.3d 660, 664 n.6 (6th

Cir. 1993). Tying arrangements which satisfy all four elements

violate Sec. 1 of the Sherman Act and Sec. 3 of the Clayton Act.\8\

\8\ Clayton Act Sec. 3 is implicated only if both the tying

product and the tied product are ``commodities,'' i.e., durable

goods. Waldo v. North American Van Lines, Inc., 669 F.Supp. 722, 727

(W.D. Pa. 1987). If either product is a service, only Sherman Act

Sec. 1 is implicated. Id.

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a. Separate Tying and Tied Products Or Services

By definition, the tying product must be separate from the tied

product. Otherwise, there is really only one product, and there can

be no tying arrangement. In determining whether one or two products

are involved, courts focus on the character of the demand for the

two products. Jefferson Parish, supra, at 19. Thus, there must be a

demand for the tied product separate from the tying product

sufficient to identify a distinct market for the tied product. Id.

at 21-22. Although the products must be separate, a tying

arrangement may exist between two functionally related but separate

products. See, e.g., Jefferson Parish, supra at 22-24 (hospital

services and anesthesiological services held to be two

distinguishable services for tying arrangement purposes).

There is no doubt that a doctor's membership on a VSP panel\9\

and the lenses that doctor dispenses to patients are sufficiently

distinct so as to constitute two separate products for tying

arrangement purposes. But for the tying arrangement, VSP panel

doctors would be free to acquire lenses for their VSP patients from

sources not affiliated with VSP, or even to make the lenses

themselves. These alternative sources for eyeglass lenses

conclusively demonstrate that VSP panel membership and the lenses to

be dispensed to patients are two separate ``products'' for tying

arrangement purposes.

\9\ The tying ``product'' is really the patient referrals which

flow from membership on a VSP panel. It is this source of referrals

which optometrists wish to purchase, and which induces them to join

the VSP panel. For purposes of convenience, however, this Comment

will refer to the tying product simply as VSP panel membership.

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b. Tying of Sale of One Product To Purchase of Another Product

The fact of a tie may be established either by reliance on a

contract term, or by showing that defendant coerced the purchaser

into accepting the tied product. Waldo, supra, at 727. In this case,

the tie is beyond dispute because the Manual expressly requires VSP

panel doctors to acquire lenses only from VSP-approved sources. See

footnote 5, supra. In turn, the requirements of the Manual are

incorporated by reference in the Panel Doctor's Agreement.\10\

\10\ The VSP Panel Doctor's Agreement states ``THE DOCTOR AGREES

to adhere to [VSP] policies and procedures as set forth in the panel

doctors' manual * * * .'' Panel Doctor's Agreement at para.4.

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c. Market Power To Restrain Trade in the Market for the Tied Product

The requisite market power may in inferred from a dominant

market share without a showing of actual restraint on competition in

the relevant market. Eastman Kodak, supra, at 282; Jefferson Parish,

supra, at 17-18. In the event of dominant market share, the tie is

per se illegal, and is not subject to a rule of reason analysis of

actual market conditions. Jefferson Parish, supra, at 13-15.

VSP enjoys a dominant market share in California, other Western

states, and quite probably, in most of the states in which it does

business. FAHC is not able to more specifically identify VSP's share

of the relevant market(s) because DOJ has avoided raising this issue

in either its Complaint or Impact Statement. The proposed Final

Judgment also is silent on VSP's market share. This lack of crucial

information is reason enough to reject the proposed Final Judgment.

See Microsoft, supra, at 332-33 (rejecting proposed decree in part

because parties had failed to provide court with sufficient

information to make the public interest determination).

With respect to the market share component of an illegal tying

arrangement, FAHC asks this Court to take judicial notice of VSP's

dominant market share in California. FAHC also respectfully suggests

that DOJ and VSP should be required to come forward with evidence of

VSP's market share in the relevant market(s) so as to provide this

Court with adequate information to analyze VSP's anti-competitive

practices, including the tying arrangement.

d. Substantial Interstate Commerce

The last element of a tying arrangement is that more than an

insubstantial amount of interest commerce must be affected by the

tie. As the Supreme Court noted in Jefferson Parish, ``if only a

single purchaser were `forced' with respect to the purchase of a

tied item, the resultant impact on competition would not be

sufficient to warrant the concern of antitrust law.'' Id. at 16.

However, from a dollar volume perspective, the requirement is easily

reached. See, e.g., United States v. Loew's, 371 U.S. 38 (1962)

($60,800 sufficient).

VSP operates on a nationwide basis. Impact Statement at 2. VSP

plans cover more than 15 million people. Id. VSP revenues in 1994

alone exceeded $650 million. Id. These facts clearly establish that

VSP's anti-competitive practices affect a substantial amount of

interstate commerce.

VSP's requirement that its panel doctors dispense only lenses

obtained from VSP-approved sources as a condition of VSP panel

membership is a classic tying arrangement which the proposed Final

Judgment completely ignores. The proposed Final Judgment should be

modified to prohibit this blatant anti-competitive practice. At the

very least, this Court should require DOJ and VSP to explain why

this practice does not violate the antitrust laws or should not be

prohibited.\11\

\11\ Specifically, Sherman Act Sec. 1 and Clayton Act Sec. 3.

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3. Exclusive Dealing Arrangement

VSP's lens requirement also constitutes an exclusive dealing

arrangement \12\ in that it requires VSP panel doctors to obtain

lenses only from VSP-controlled sources. Unlike tying arrangements,

exclusive dealing arrangements are subject to review under a rule of

reason analysis. Jefferson Parish, supra, at 44-45 (O'Connor, J.,

concurring) (citing Tampa Electric Co. v. Nashville Coal Co., 365

U.S. 320, 333-35 (1961)). The relevant inquiry is whether the

restraint in question promotes or suppresses competition. National

Society of Professional Engineers v. United States, 435 U.S. 679,

691 (1978). Tampa Electric sets forth a three-part test for

determining the reasonableness of the restraint: (1) A determination

of the line of commerce involved, (2) a determination of the area of

effective competition, and (3) a determination of whether

competition has been foreclosed in a substantial share of the

[[Page 9497]]

relevant market. Tampa Electric, supra, at 327-29.

\12\ In her concurrence in Jefferson Parish, Justice O'Connor

noted that tying arrangements and exclusive dealing arrangements are

similar in nature. Id. at 33, 44-45. Therefore, she separately

analyzed the contract for anesthesiological services at issue in

that case as both a tying arrangement and an exclusive dealing

arrangement. Id. FAHC takes the same approach here with respect the

VSP lens requirement.

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The line of commerce determination simply involves identifying

the type of goods or services involved in the particular restraint.

Tampa Electric, supra, at 327. In this case, VSP's exclusive dealing

arrangement with its panel doctors relates specifically to eyeglass

lenses.

The area of effective competition determination is a function of

the market in which the seller operates, and the market to which the

purchaser can turn to obtain alternate supplies. Id. at 327. Here,

the ``seller'' is VSP (through the labs it approves and controls)

and the ``purchasers'' are the panel doctors. Because VSP operates

on a national basis, and its panel doctors are located nationwide,

the area of effective competition is the entire country.\13\

\13\ For purposes of examining the reasonableness of the VSP-

imposed restraint on lenses, this broad definition of the relevant

geographic market actually favors VSP. Despite this broad market

definition, however, the restraint is still unreasonable.

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Finally, the Court must determine whether the restraint

forecloses a substantial share of competition in the relevant

market. Id. at 328-29. By any standard, the amount of competition

foreclosed is substantial. VSP typically controls as much as 98% of

the total number of optometrists in a given market,\14\ and more

than 17,000 doctors in all. Impact Statement at 3. VSP's share of

the pre-paid vision care services market is as high as 75% in some

states such as California.\15\ Finally, the VSP-controlled portion

of its panel doctors' income is ``substantial.'' Complaint at

para.9.

\14\ The figure provided is for the state of Nevada in 1993.

Again, DOJ has not provided relevant data for the relevant

market(s). This information is critical to the Court's public

interest determination. See Microsoft, supra.

\15\ Again, FAHC provides information to the best of its

ability, given its status as a competitor of VSP. DOJ has the

authority to compel VSP to disclose this information, and may have

done so, but the Complaint, Impact Statement, and proposed Final

Judgment contain no information concerning VSP's share of the

relevant market(s).

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Thus, VSP, through its control over the vast majority of doctors

and pre-paid vision care patients, is able to dictate the source of

a substantial percentage of eyeglass lenses purchased in this

country. Every pair of lenses purchased from a VSP-controlled source

pursuant to the lens requirement forecloses all other lens suppliers

from the market. The foreclosure of a substantial percentage of the

lens market is obvious.

VSP's lens requirement is an illegal exclusive dealing

requirement which violates both Sec. 1 of the Sherman Act and Sec. 3

of the Clayton Act. The proposed Final Judgment must be modified to

prohibit this anti-competitive practice.

D. The Proposed Final Judgment Should Be Modified To Remedy All of

VSP's a Anti-Competitive Practices

Where a proposed consent decree provides an ineffective remedy--

one which does not pry open the relevant market to competition--a

court can and should modify or reject the decree. See, e.g.,

Microsoft, supra, at 333-34. Where the proposed decree does not

address anti-competitive practices, particularly those it prohibited

in the similar circumstances in the dental industry, the reviewing

court cannot shut its eyes to the obvious. Id. at 334.

The proposed Final Judgment provides an ineffective remedy

because: (1) It expressly allows VSP to continue setting its fees in

comparison to its competitors, thereby allowing VSP the benefit of

the MFN provision even while purporting to prohibit enforcement of

that provision, and (2) it fails to even address the VSP lens

requirement which is an illegal tying arrangement and/or exclusive

dealing arrangement which has the anti-competitive effect of

extending VSP's dominance in the pre-paid vision care market to the

market for vision products.

As earlier noted, the inadequate remedy set forth in the

proposed final Judgment is especially disappointing given that just

this past December, DOJ tackled the health care industry's use of

most favored nations clauses in United States v. Delta Dental Plan

of Arizona, Inc. \16\ That case arose out of a nearly identical most

favored nations clause contained in the standard agreement defendant

forced on its participating dentists. There, as here, the effect of

the clause was to lower participating dentists' ``usual and

customary fee'' to the lowest fee charged to any other person or

plan.

\16\ Case No. CIV 94-1793 PHX PGR.

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While the violations in the Delta Dental case and this one are

nearly identical, the final judgments are not. The Delta Dental

judgment, which is attached hereto as Exhibit E, completely

prohibits the defendant from maintaining or enforcing an MFN

provision, demanding information about competing plans or those

plans' customers, auditing plan providers with respect to fees

charged to competing plans or other persons, communicating with plan

providers about such fees, or taking any action directly or

indirectly to force plan providers to refrain from participating in

other plans or offering discount fees to competing plans or those

plans customers. See Exhibit E at Sec. IV. Unlike the proposed Final

Judgment, the Delta Dental judgment does not allow the defendant to

continue the same anti-competitive practices previously carried out

through the MFN. In other words, there is no subsequent section,

like the proposed Final Judgment's Sec. V, which guts the injunctive

provisions of the judgment. FAHC respectfully submits that the

proposed Final Judgment should be modified to tailor its injunctive

provisions to the injunctive provisions of the Delta Dental

judgment, and to delete Sec. V in its entirety.

In addition, the proposed Final Judgment should be modified to

prohibit VSP's other anti-competitive practices. Specifically, VSP

should be prohibited from tying membership on its panels to the use

of vision products under the control of VSP, or from requiring its

panel doctors to purchase or obtain any vision products exclusively

from sources controlled by VSP.

The compliance measure requirement on page 7 of the Judgment

which only requires VSP to send copies of the Final Judgment to

``former'' VSP providers whom VSP ``should reasonably know have

resigned because of the MFN clause'' is too vague and ambiguous to

be enforced. VSP knows which providers it sent letters to in seeking

to enforce the terms of the MFN. Those are the people who need to

know VSP's anti-competitive activities are prohibited. A copy of the

Judgment should be sent to each of those providers who are still

licensed by the states in which they practice. VSP can probably say

they do not know why a provider resigned unless he specifically

provided them with a reason. Besides, it only refers to providers

who resigned from VSP, not former VSP providers who resigned from

other panels because of VSP's illegal conduct. Few, if any,

providers resigned from VSP as a result of VSP's efforts to enforce

the MFN or VSP would not have been so enthusiastic in enforcing it.

III. Conclusion

VSP is the Microsoft of the pre-paid vision care industry. It

enjoys the dominant position in the industry. It regularly employs

anti-competitive practices to erect barriers to entry by its

competitors. It continues to take all means necessary to deter

licensed vision care providers from participating in competing

plans. In these ways, VSP maintains its dominant market position at

the expense of its competitors and vision care consumers, and in

violation of this country's antitrust laws.

The proposed Final Judgment does virtually nothing to curb VSP's

anti-competitive behavior. In fact, the proposed Final Judgment

sanctions VSP's conduct by expressing permitting it. Any person with

even a passing familiarity with antitrust law would be hard pressed

to conceive of a less effective mechanism to stop VSP's anti-

competitive practices.

Therefore, VSP opposes entry of the proposed Final Judgment for

all the reasons set forth in this Comment, and requests that the

proposed Final Judgment be modified as requested in Sec. II(D).

Anything less is not in the public interest.

Respectfully Submitted this 29th day of March, 1995.

Shimmel, Hill, Bishop & Gruender, P.C.

Daniel F. Gruender,

Michael V. Perry,

Glenn B. Hotchkiss,

3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First

American Health Concepts, Inc.

Notice of Errata

In its Comment on the proposed Final Judgment in this matter,

First American Health Concepts, Inc. (``FAHC'') concluded by stating

``VSP opposes entry of the proposed Final Judgment for all the

reasons set forth in this Comment, and requests that the proposed

Final Judgment be modified as requested in Sec. II(D).'' Comment at

21. The above-quoted language should read ``FAHC opposes entry of

the proposed Final Judgment for all the reasons set forth in this

Comment, and requests that the proposed Final Judgment be modified

as requested in Sec. II(D).''

[[Page 9498]]

Respectfully Submitted this 6th day of April, 1995.

Shimmel, Hill, Bishop & Gruender, P.C.

Daniel F. Gruender,

Michael V. Perry,

Glenn B. Hotchkiss,

3700 North 24th Street, Phoenix, Arizona 85016, Attorneys for First

American Health Concepts, Inc.

[FR Doc. 96-5472 Filed 3-7-96; 8:45 am]

BILLING CODE 4410-01-M