Asociacion de Farmacias Region de Arecibo, Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9810153]

Asociacion de Farmacias Region de Arecibo, Inc., et al.; Analysis

To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before February 19, 1999.

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

Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Gary H. Schorr or Steven J. Osnowitz, FTC/s-3115 601 Pa. Ave., N.W.,

Washington, D.C. 20580, (202) 326-3063 or (202) 326-2746.

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

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

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

given that the above-captioned consent agreement containing a consent

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

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

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

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

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for December 14, 1998), on the World Wide Web, at ``http://

www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the

FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W.,

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

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

the Commission and will be available for inspection and copying at its

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

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

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade commission (Commission) has accepted, subject to

final approval, an agreement to a proposed consent order from the

Asociacion de Farmacias Region de Arecibo (``AFRA'') and Ricardo

Alvarez Class (``Alvarez''). AFRA is an organization of approximately

125 pharmacies operating in northern Puerto Rico and Alvarez, a

pharmacy owner in Manati, Puerto Rico, is one of AFRA's officers. The

agreement settles charges that the proposed respondents violated

Section 5 of the Federal Trade Commission Act by fixing the terms and

conditions, including prices, under which AFRA's members would contract

with a third party payer to provide

[[Page 70408]]

services to indigents under Puerto Rico's Health Insurance Act of 1993

(the ``Reform''), and by threatening to withhold services if AFRA's

terms were not met.

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

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

Comments received during this period will become part of the public

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

agreement and the comments received and will decide whether it should

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

order.

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

agreement. The analysis is not intended to constitute an official

interpretation of either the proposed complaint or the proposed consent

order, or to modify their terms in any way.

The proposed consent order has been entered into for settlement

purposes only and does not constitute an admission by either of the

proposed respondents that the law has been violated as alleged in the

complaint.

Summary of the Complaint Allegations

The Administracion de Seguros de Salud (``ASES''), a public

corporation, implements and administers the Reform, the Puerto Rico

government program designed to provide health care to the indigent and

certain other residents of Puerto Rico. ASES has divided Puerto Rico

into regions, soliciting bids for each region from payers to organize

and provide services for beneficiaries. ASES currently selects one

payer with which to contract per region. That payer then contracts with

providers, including hospitals, physicians, pharmacies, and dentists.

After reviewing bids from several payers, ASES selected Triple-S to

administer the North Region of the Reform beginning April 1, 1995. The

North Region consist of the municipalities of: Arecibo, Barceloneta,

Camuy, Ciales, Florida, Hatillo, Lares, Manati, Morovis, Quebradillas,

Utuado, and Vega Baja. The combined population of these municipalities

is 434,000, of whom 260,000 are beneficiaries of the Reform.

Respondent AFRA, whose members are located in the North Region of

the Reform, was formed on November 22, 1994, as a vehicle for its

members to jointly negotiate with health plans. Each AFRA member agreed

that AFRA would serve as its bargaining agent. Respondent Alvarez

served as AFRA's president from its inception until March 1997, and is

currently its treasurer. Alvarez provided the leadership necessary to

unite otherwise competing pharmacies, and directed AFRA's efforts to

set prices and other terms for participation in the Reform by its

members.

In January 1995, AFRA began negotiating on behalf of its members

with Triple-S. Alvarez served as AFRA's chief spokesman and negotiator.

AFRA sought to increase compensation for its members, and to require

Triple-S to contract with all AFRA members who were interested in

providing services. Alvarez exhorted AFRA's members to refuse to sign

contracts with Triple-S until advised to do so by AFRA. The refusal by

AFRA members to provide services caused Triple-S to raise the fees paid

to AFRA members, so that they would have a viable network of pharmacies

to provide services under the Reform.

In March 1996, Triple-S lowered the fees paid to AFRA member

pharmacies. In response, AFRA, under Alvarez's leadership and guidance,

threatened to withhold its members' services as of June 10, 1996,

unless Triple-S rescinded its fee schedule and increased reimbursement

to its members. Thereafter, Triple-S acceded to AFRA's demands. The new

fee schedule amounted to a 22% increase over the March 1996 fee

schedule.

AFRA's members have not integrated their practices in any

economically significant way, nor have they created efficiencies

sufficient to justify their acts or practices described above.

The complaint alleges that the proposed respondents, by fixing the

compensation upon which pharmacies would participate in the Reform,

raised the cost of pharmacy goods and services to be furnished to the

beneficiaries of the Reform, and thereby deprived the Commonwealth of

Puerto Rico, payers, and consumers of the benefits of competition among

pharmacies.

The Proposed Consent Order

The proposed consent order would prohibit the proposed respondents

from concertedly 1) negotiating on behalf of any pharmacies with any

payer or provider; 2) refusing to deal, boycotting, or threatening to

boycott any payer or provider; 3) determining any terms, conditions, or

requirements upon which pharmacies will deal with any payer or

provider, including, but not limited to, terms of reimbursement; or 4)

restricting the ability of pharmacies to deal with payers individually

or through any arrangement outside of AFRA.

The proposed consent order would, however, allow either of the

proposed respondents to engage in conduct (including collectively

determining reimbursement and other terms of contracts with payers)

that is reasonably necessary to operate (a) any ``qualified risk-

sharing joint arrangement,'' or (b) upon prior notice to the

Commission, any ``qualified clinically integrated joint arrangement.''

For the purposes of the order, a ``qualified risk-sharing joint

arrangement'' must satisfy two conditions. First, participating

pharmacies must share substantial financial risk. The order lists ways

in which pharmacies might share financial risk. Second, the arrangement

must be non-exclusive, both in name and in fact. The order does not

permit arrangements that either restrict the ability of participating

pharmacies to contract outside the arrangement (individually or through

other networks) with third-party payers, or facilitate refusals to deal

outside the arrangement by participating pharmacies.

For the purposes of the order, a ``qualified clinically integrated

joint arrangement'' includes arrangements in which the pharmacies

undertake cooperative activities to achieve efficiencies in the

delivery of clinical services, without necessarily sharing substantial

financial risk. For purposes of the order, such arrangements are ones

in which the participating pharmacies have a high degree of

interdependence and cooperation through their use of programs to

evaluate and modify their clinical practice patterns, in order to

control costs and assure the quality of pharmacy services provided

through the arrangement. As with risk-sharing arrangements, the

arrangement must be non-exclusive. Because the definition of a

clinically integrated arrangement is by necessity less precise than

that of a risk sharing arrangement, the order imposes prior

notification requirements. Such prior notification will allow the

Commission to evaluate the likely competitive impact of a specific

proposed arrangement and thereby help guard against the recurrence of

acts and practices that have restrained competition and consumer

choice.

The proposed order would permit respondent Alvarez to negotiate

with any payer or provider on behalf of pharmacies that he owns. The

proposed order would also permit Alvarez to negotiate on behalf of

pharmacies that he operates pursuant to a contract, provided that he

submits written notice and a copy of the contract to the Commission

within ten (10) days of entering into such contract and refrains from

negotiations with any payer or provider for at least thirty (30) days

after providing such notice.

[[Page 70409]]

Part III of the proposed order would require the AFRA distribute

copies of the order and accompanying complaint, as well as certified

Spanish translations, to each person who, at any time since November

22, 1994, has been an officer, director, manager, employee, or

participating pharmacy in AFRA, and to each payer or provider, who at

any time since November 22, 1994, has communicated any desire,

willingness, or interest in contracting for pharmacy goods and services

with AFRA members.

Parts IV and V of the order impose certain reporting requirements

in order to assist the Commission in monitoring compliance with the

order.

The proposed consent order would terminate 20 years after the date

it is issued.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-33707 Filed 12-18-98; 8:45 am]

BILLING CODE 6750-01-M