Urological Stone Surgeons, Inc., et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 931-0028]

Urological Stone Surgeons, 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 March 13, 1998.

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

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

FOR FURTHER INFORMATION CONTACT:

William Baer or Robert Leibenluft, FTC/H-374, Washington, D.C. 20580.

(202) 326-2932 or 326-3688.

C. Steven Baker, Federal Trade Commission, Chicago Regional Office, 55

East Monroe St., Suite 1437, Chicago, IL. 60603. (312) 353-8156.

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

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

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

given that the above-captioned consent agreement containing a consent

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

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

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

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

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

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

(for January 6, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions/htm.'' A paper copy can be obtained from the FTC Public

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

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

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

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

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

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

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted an agreement, subject to

final approval, to a proposed consent order settling charges that

Urological Stone Surgeons, Inc. (``USS''), Stone Centers of America,

L.L.C. (``SCA''), and Urological Services, Ltd. (``USL'') (doing

business as Parkside Kidney Stone Center (``Parkside'')), and Marc A.

Rubenstein, M.D., and Donald M. Norris, M.D. (individually, and as

officers, directors, and shareholders of USS, as shareholders of SCA,

and as owners and officers of USL), violated Section 5 of the Federal

Trade Commission Act by agreeing on prices to be charged for the

physician services provided by urologists as part of performing

lithotripsy.

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

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

received during this period will become part of the public record.

After sixty (60) days, the Commission will review the agreement and the

comments received, and will decide whether it should withdraw from the

agreement and take other appropriate action or make final the

agreement's proposed order.

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

proposed consent order. It is not intended to constitute an official

interpretation of the agreement and proposed 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 USS, SCA, USL,

Dr. Rubenstein, or Dr. Norris that the law has been violated as alleged

in the complaint.

The Complaint

Extracorporeal shock wave lithotripsy (``lithotripsy'') is a non-

surgical alternative for treating kidney stones. It

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requires the services of a urologist (a physician specializing in the

diagnosis and treatment of diseases or medical conditions of the

urogenital system) to operate a lithotripsy machine, which shatters the

kidney stones into sand-like particles by means of high-energy pressure

waves. The complaint charges that the five proposed respondents, and

other unnamed urologists agreed to fix the price for their professional

services in providing lithotripsy (``lithotripsy professional

services'') at Parkside.

Parkside is one of about eight providers of lithotripsy in the

Chicago metropolitan area. Parkside operates two lithotripsy

facilities: one in Park Ridge, Illinois; and a second in LaGrange,

Illinois. The owners of USS and SCA, who constitute approximately 45

percent of the urologists in the Chicago metropolitan area, have

jointly invested in the purchase and operation of the two lithotripsy

machines that Parkside operates. USS, which is owned by 35 urologists,

including Drs. Rubenstein and Norris, purchased and provides the

lithotripsy machine for Parkside's Park Ridge facility. SCA, which is

owned by USS and approximately 66 additional urologists, purchased and

provides the lithotripsy machine for Parkside's LaGrange facility.

The complaint alleges that, beginning in 1985, the proposed

respondents and unnamed urologists agreed to fix the price of

lithotripsy professional services delivered at Parkside, and in

furtherance of that agreement: (1) Agreed to use a common billing agent

and to establish a uniform charge for lithotripsy professional

services; (2) prepared and distributed fee schedules for lithotripsy

professional services at Parkside; (3) billed a uniform amount, either

the amount listed in the fee schedules or an amount negotiated on

behalf of all urologists at Parkside.

In particular, in March 1985, USS informed its prospective

investors, all of whom were urologists, that USS or its agent (USL)

would bill and collect an estimated $2,000 professional fee for each

lithotripsy professional service provided at Parkside, and remit such

fee to the provider urologist. In April 1985, in furtherance of this

agreement, USS agreed to use its best efforts to establish a

lithotripsy professional fee of $2,000, subject to annual increases to

reflect the changes in the cost of medical services in the Chicago

metropolitan area. USL produced and disseminated to the urologists a

fee schedule that included an initial lithotripsy professional fee of

$2,000. The urologists, in turn, agreed to accept the amount

established by USL and to use USL as their common billing agent for all

services provided at Parkside. Each year thereafter, pursuant to the

April 1986 agreement, USL increased the charges for lithotripsy

professional services and distributed revised fee schedules.

The complaint further alleges that USL, acting in accordance with

this series of agreements, uniformly billed the then-current fee

schedule amount for lithotripsy professional services regardless of

which urologist provided the service. In addition, USL, on behalf of

all the urologists providing lithotripsy professional services at

Parkside, negotiated contracts with puchasers of lithotripsy services.

Pursuant to these contracts, each purchaser agreed to reimburse for

such services on the basis of either a negotiated uniform percentage

discount from charges, or a negotiated uniform bundled or ``global''

fee (which included the fee for use of the lithotripsy machine, the

urologist's professional fee, and the fee for the anesthesiologist's

services in the lithotripsy procedure). Through each such contract, the

urologists effectively agreed collectively to offer their lithotripsy

professional services to each purchaser at a fixed price or discount.

The ``global fee'' established at Parkside merely aggregates three

uniformly necessary inputs to a single medical procedure--lithotripsy--

where the usage, costs, and relative proportions of the inputs do not

vary substantially from case to case.\1\ Thus, the ``global fee'' used

at Parkside is unlike arrangements in which health care providers, for

a fixed, pre-determined ``global fee'' (sometimes called an ``all-

inclusive case rate''), agree to provide all needed services for a

patient's complex or extended course of treatment, such as cardiac care

or cancer treatment. This type of global fee arrangement, in contrast

to the arrangement used by Parkside, may involve the sharing of

substantial financial risk by the participants, and provide incentives

for them to determine and use the most efficient combination of

treatment inputs for each case. Under these circumstances, their

collective setting of the global fee may be reasonably necessary for

them to achieve significant efficiencies, and therefore judged under

the rule of reason rather than treated as unlawful price fixing.\2\

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\1\ Anesthesia charges may vary somewhat, if a procedure takes

slightly more or less time. However, even this variation is quite

limited, since there are limits set on how much exposure to the

shock waves generated by lithotripsy that patients may receive at

any treatment.

\2\ See U.S. Department of Justice and Federal Trade Commission

Statements of Antitrust Enforcement Policy in Health Care (Aug.

1996) at 68-69, 71-72; 107-110.

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The complaint charges that, while the owners of USS and SCA have

financially integrated by joint investing in the purchase and operation

of the two lithotripsy machines that Parkside operates, collective

setting of the price for their lithotripsy professional services, or

for other non-investor urologists using Parkside, is not reasonably

necessary (or ``ancillary'') to achieving any efficiencies that may be

realized through their legitimate joint ownership and operation of the

machines.\3\ Moreover, the complaint alleges that the urologists

providing lithotripsy professional services at Parkside, which also

includes urologists who are not investors in the machine joint venture,

have not substantially integrated their professional practices so as to

justify respondents' agreement to fix the price for urologists'

lithotripsy professional services at Parkside.

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\3\ Id. at 18-19

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About two-thirds of the lithotripsy procedures performed in the

Chicago metropolitan area are, and for several years have been,

performed at Parkside. The complaint charges that the agreement to fix

the price of lithotripsy professional services at Parkside has injured

consumers by restraining competition among urologists in the provision

of lithotripsy professional services and fixing or increasing the

prices for such services.

The Proposed Consent Order

Part II.A. of the proposed consent order would prohibit the five

proposed respondents from engaging in any agreement with each other or

with any other urologist: (1) To fix the price for lithotripsy

professional services; and (2) concerning any other term of sale for

lithotripsy professional services. In addition, under Part II.B. of the

proposed consent order, USS, SCA, and USL would be required to

terminate any agreement with any third-party payer for the provision of

lithotripsy professional services that does not comply with Part II.A.

of the order at the earlier of: (1) The termination or renewal date of

the agreement; or (2) receipt of a written request from the third-party

payer to terminate such agreement.

Despite these provisions, however, the proposed consent order would

not prevent the five proposed respondents from providing lithotripsy

professional services pursuant to any existing

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agreement with any third-party payer until the earlier of (1) the

termination or renewal date of the agreement, or (2) receipt of a

written request from the third-party payer to terminate such agreement,

In addition, the proposed consent order would not prevent either Dr.

Rubenstein or Dr. Norris from entering into an agreement with any other

physician with whom he practices in partnership or in a professional

corporation, or who is employed by the same person as Dr. Rubenstein or

Dr. Norris, to deal with any patient, purchaser, or their-party payer

on collectively determined terms.

Nothing in the proposed order would prevent USS, SCA, or USL from

offering a bundled or ``global'' fee that included the lithotripsy

machine fee and the anesthesia fee, without the lithotripsy

professional service fee, since such an arrangement would not involve

any agreement on fees of lithotripsy professional services. Likewise,

the proposed order would not prohibit them from contracting with

purchasers of payers using a ``messenger model'' arrangement that did

not involve any explicit or implicit agreement among urologist

regarding the prices, discounts, or other terms of sale or

reimbursement of their services.

The proposed consent order also would not prohibit any of the

respondents from dealing through an integrated joint venture with any

purchaser on collectively determined terms regarding lithotripsy

professional services, provided that the respondent first notifies the

Federal Trade Commission of any such joint venture activity in writing

at least forty-five (45) days prior to the activity.

Part III of the proposed consent order would require USS, SCA, and

USL to distribute copies of the proposed order and accompanying

complaint to (a) persons whose activities are affected by the order, or

who have responsibilities with respect to the subject matter of the

order, and (b) each urologist who provides lithotripsy professional

services at Parkside. In addition, the proposed consent order would

require USS, SCA, and USL to distribute copies of the proposed order

and accompanying complaint, together with the NOTICE attached to the

order, to each third-party payer with whom they have an agreement that

does not comply with Part II.A. of the order.

Parts IV, V, and VI of the proposed 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.

Donald S. Clark,

Secretary.

Separate Statement of Commissioner Mary L. Azcuenaga Concurring in Part

and Dissenting in Part in Parkside Kidney Stone Center, File No. 391-

0028

I agree that an order requiring the respondents to cease and desist

from fixing the price of professional lithotripsy services is

warranted, but the requirement that the respondents, for ten years,

give the Commission 45 days notice before ``forming or participating in

an integrated joint venture'' that deals on collectively determined

terms for lithotripsy services is unjustified and unnecessary.\1\ The

prior notice requirement departs from the Commission's policy adopting

a presumption against prior approval and prior notice provisions in

merger and joint venture orders.\2\ An exception to the policy may be

appropriate, if these is a credible risk that prior notice is necessary

to prevent repetition of the unlawful conduct. Given the express

prohibition in the proposed order of the allegedly unlawful conduct,

the potential liability for civil penalties for a violation, and the

periodic reports of compliance that may be required under the order, no

such necessity appears. I dissent from the prior notice requirement.

\1\ The prior notice requirement is inconsistent with the weight

of Commission precedent. Similar cases in the health care field

typically have not imposed any notice requirements or have required

notice within 30 days after certain joint venture activity. See

e.g., Physicians Group, Inc., Docket C-3620 (Aug. 11, 1995); Trauma

Associates of North Broward, Inc., Docket C-3541 (Nov. 1, 1994);

Southbank IPA, Inc., 114 F.T.C. 783 (1991); Preferred Physicians,

Inc., 110 F.T.C. 157 (1988); Medical Staff of Doctors' Hospital of

Prince George's County, 100 F.T.C. 476 (1988). But see Montana

Associated Physicians, Inc., Docket C-3704 (Jan 13, 1997) (20-year

prior approval); College of Physicians-Surgeons of Puerto Rico, File

No. 971-0011 (filed D. Puerto Rico Oct. 2, 1997) (Commissioner

Azcuenaga concurring in part and dissenting from perpetual prior

approval requirement).

\2\ Prior Approval Policy Statement (June 1955), Reprinted in 4

Trade Reg. Rept. Rep. (CCH) para.13,241.

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[FR Doc. 98-710 Filed 1-9-98; 8:45 am]

BILLING CODE 6750-01-M