# North Lake Tahoe Medical Group, Inc.; Analysis To Aid Public Comment

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URL: https://www.frixlaw.com/law-library/documents/fr%3A99-7404

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** March 26, 1999
- **Citation:** 64 FR 14730

## Text

FEDERAL TRADE COMMISSION

[File No. 9810261]

North Lake Tahoe Medical Group, Inc.; 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 May 26, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:
Paul Nolan, FTC/H-3115, 600 Pennsylvania Avenue, NW., Washington, DC
20580, (202) 326-2770 or Matthew Gold, San Francisco Regional Office,
Federal Trade Commission, 901 Market Street, Suite 570, San Francisco,
CA 94103, (415) 356-5276.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 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 March 22, 1999), on the World Wide Web, at ``http://www.ftc.gov/
os/actions97.htm.''. A paper copy can be obtained form the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., Washington,
DC 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 Sec. 4.9(b)(6)(ii) of the Commission's rules
of practice (16 CFR 4.9(b)(6)(ii)).

North Lake Tahoe Medical Group, Inc.; Analysis of Proposed Consent
Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final
approval, an agreement to a proposed consent order from North Lake
Tahoe Medical Group, Inc. (``Tahoe IPA''). The agreement settles
charges by the Federal Trade Commission Tahoe IPA has violated Section
5 of the Federal Trade Commission Act by: (1) Acting concertedly to
delay the entry into the market of managed care; (2) engaging in
collective negotiations over prices with payers; and (3) refusing to
deal with Blue Shield of California (``Blue Shield'') when it did not
comply with the Tahoe IPA's demands. 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 review the agreement and the comments received, and
will decide whether it should withdraw from the agreement or make final
the agreement and proposed order.
The purpose of this analysis is to facilitate public comment on the
proposed order. The analysis is not intended to constitute an official
interpretation of the agreement and proposed order, or to modify in any
way their terms. Further, the proposed consent order has been entered
into for settlement purposes only and does not constitute an admission
by Tahoe IPA that the law has been violated as alleged in the
complaint.

The Complaint

Under the terms of the agreement, a proposed complaint will be
issued by the Commission along with the proposed consent order. The
allegations in the Commission complaint are summarized below.
Tahoe IPA is a physician organization based in Truckee, California.
All of the members of Tahoe IPA are physicians practicing in and around
the Tahoe Basin, which includes the North Lake Tahoe and South Lake
Tahoe areas. During the time period addressed by the allegations of the
complaint, Tahoe members constituted at least 70% of all physicians
practicing in the North and South Lake Tahoe areas.
Tahoe IPA was formed in 1994 as a vehicle for its members to deal
concertedly with the impending entry into North and South Lake Tahoe of
managed care. Beginning in 1994, and continuing until at least 1998,
when Tahoe IPA first learned that it was under investigation by the
staff of the Commission, Tahoe IPA conspired to fix the prices and
other terms under which its members dealt with third-party payers.
Tahoe IPA also conspired to prevent or delay the entry into the North
Lake and South Lake Tahoe areas of managed care. Tahoe IPA refused to
participate, either individually or collectively, in HMO plans offered
by Blue Shield, Hometown Health Plan, Foundation Health Plan, St.
Mary's Health Plan, and other third-party payers attempting to do
business in the Tahoe Basin. Tahoe IPA engaged in collective
negotiations to fix price terms and other competitively significant
terms with all payers seeking to enter the North and South Lake Tahoe
areas. Tahoe IPA maintained an exclusivity clause in its ``Provider
Participation Agreement,'' and encouraged its members to deal with
third-party payers only through Tahoe IPA. Tahoe IPA sought to coerce
payers into accepting the IPA fee schedules and minimum reimbursement
rates. Tahoe IPA leaders stated that payers must accept the IPA's price
terms if they want to contract with IPA members.
In furtherance of its unlawful agreements, since 1996 Tahoe IPA
attempted to coerce Blue Shield to raise its level of fee-for-service
reimbursement to IPA physicians. Since November 1997, when it became
clear the Blue Shield would not negotiate on the Tahoe IPA's terms, the
IPA encouraged its physician members to departicipate from Blue
Shield's preferred provider organization (``PPO''). In private and
public statements, the Tahoe IPA reminded its members that it was
acting as their agent with Blue Shield, and that the IPA would
ultimately be successful in its negotiations with Blue Shield if the
members continued to contract on a united front. Beginning as early as

[[Page 14731]]

January 1998, many of the physician members of Tahoe IPA submitted
letters of termination to Blue Shield. Some of these members no longer
contract with Blue Shield, and others have notified Blue Shield of
their intent to terminate their contracts as of January 1, 1999.
Tahoe IPA's members have not integrated their medical practices in
any economically significant way, nor have they created any
efficiencies that might justify this conduct. Tahoe IPA's actions have
harmed consumers in the North and South Lake Tahoe areas by restraining
competition among physicians, by fixing or increasing the prices that
are paid for physician services, and by depriving third-party payers,
their subscribers, and patients of the benefits of competition among
physicians.

The Proposed Consent Order

The proposed consent order is designed to prevent the illegal
concerted action alleged in the complaint, while allowing Tahoe to
engage in legitimate joint conduct. Section II of the proposed order
contains the core operative provisions. Section II.A prohibits Tahoe
IPA from: (1) Engaging in collective negotiations on behalf of its
members; (2) orchestrating concerted refusals to deal; (3) fixing
prices, or any other terms, on which its members deal, and (4)
restricting the ability of any physicians to deal with any payer or
provider individually or through any arrangement outside of Tahoe IPA.
Section II.B prohibits Tahoe IPA from exchanging or facilitating
the exchange of information among physicians of information concerning
the terms or conditions of reimbursement. Section II.C prohibits this
Tahoe IPA from encouraging, advising or pressuring any person to engage
in any action that would be prohibited if the person were subject to
the order.
Section II includes a proviso allowing Tahoe IPA 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) any
``qualified clinically integrated joint arrangement,'' provided Tahoe
IPA complies with the order's prior notification requirements. For the
purpose of the order, a ``qualified risk-sharing joint arrangement''
must satisfy three conditions. First, all physicians participating in
the arrangement must share substantial financial risk from their
participation in the arrangement. The order lists ways in which
physicians might share financial risk, tracking the types of financial
risk sharing set forth in the Statements of Antitrust Enforcement
Policy in Health Care, issued jointly by the FTC and the Department of
Justice. Statements of Antitrust Enforcement Policy in Health Care,
issued August 28, 1996, 4 Trade Reg. Rep. (CCH) para. 13,153. Second,
any agreement on prices or terms of reimbursement entered into by the
arrangement must be reasonably necessary to obtain significant
efficiencies through the joint arrangement. Third, the arrangement must
be non-exclusive, i.e., it must not restrict the ability, or facilitate
the refusal, or physicians participating in the arrangement to deal
with payers individually or through any other arrangement.
A ``qualified clinically integrated joint arrangement'' includes
arrangements in which the physicians 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 physicians
have a high degree of interdependence and cooperation through their use
of programs to evaluate to evaluate and modify their clinical practice
patterns, to control costs and assure the quality of physician services
provided through the arrangement. As with risk-sharing arrangements,
the definition of clinically integrated arrangements reflects the
analysis contained in the 1996 FTC/DOJ Statements of Antitrust
Enforcement Policy in Health Care. In addition, as with risk-sharing
arrangements, the arrangement must be non-exclusive in light of Tahoe
IPA's large share of the market.
For a qualified clinically integrated joint arrangement to fall
within the proviso, the Tahoe IPA must comply with the order's
requirements for prior notification. The prior notification mechanism
will allow the Commission to evaluate a specific proposed arrangement
and assess its likely competitive impact. This requirement will help
guard against the recurrence of acts and practices that have restrained
competition and consumer choice.
Section II also contains a proviso that permits the Tahoe IPA to
refuse to transmit information from payers or providers to less than
all of its participating physicians. This proviso, however, does not
permit the Tahoe IPA to require that payers or providers make offers to
all participating physicians or to any particular physician.
Section III of the proposed order requires the Tahoe IPA to
terminate the participation in the Tahoe IPA of physicians who have
terminated their participation, or have given notice of their intent to
terminate their participation, in Blue Shield's PPO. this provision
requires the Tahoe IPA to provide to Blue Shield the names and
addresses of all of its participating physicians, and to request from
Blue Shield the names of all participating physicians who either have
terminated participation in Blue Shield, or have given notice of intent
to terminate future participation in any Blue Shield health plan
between January 1, 1998, and the date the agreement was signed. Within
twenty days after Tahoe IPA has received from Blue Shield the names and
addresses of the boycotting physicians, the Tahoe IPA must terminate
their participation unless the physician either: (1) Attempts in good
faith to reestablish participation in a Blue Shield health plan for a
period of at least six months thereafter; or (2) rescinds in writing
his or her notice of intent to terminate future participation in a Blue
Shield health plan and continues to participate in a Blue Shield health
plan for a period of at least six months thereafter.
Section IV.A requires that Tahoe IPA notify its members and certain
third parties, including certain third-party payers, about the order.
Section IV.A also requires the IPA to revise its ``Provider
Agreement,'' which contains a clause requiring members to contract
exclusively through the Tahoe IPA, so that it complies with the order.
Section IV.B requires the IPA to terminate any contracts with any
payers that do not comply with Section II of the order, at the earlier
of (1) the termination or renewal date of the contract; or (2) receipt
of a written request from the payer to terminate the contract. Section
IV.C requires that the IPA, for the next five years (1) distribute
copies of the complaint and order to new members, and (2) publish
annually to members a copy of the complaint and order.
Sections V, VI, and VII consist of standard Commission reporting
and compliance procedures, with the exception that Section V specifies
some of the information Tahoe IPA must include in its annual compliance
reports, including: (1) Information identifying each health plan that
has contacted Tahoe IPA for the purpose of contracting for physician
services, the terms of any contract the health plan was seeking with
Tahoe IPA, and Tahoe IPA's response to the health plan; (2) information
sufficient to describe the manner in which Tahoe IPA's members share
financial risk in each ``qualified non-exclusive risk-sharing
arrangement'' in which the Tahoe IPA participates; and (3) copies of
the

[[Page 14732]]

minutes of Tahoe IPA's annual meetings.
Finally, Section VIII of the proposed order contains a twenty year
``sunset'' provision under which the terms of the order terminate
twenty years after the date of issuance.

By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Chairman Robert Pitofsky and Commissioners Sheila F.
Anthony and Mozelle W. Thompson

[North Lake Tahoe Medical Group, Inc., File No. 981-0261]

The Commission has published a proposed complaint alleging that
North Lake Tahoe Medical Group (``Tahoe IPA'') violated section 5 of
the Federal Trade Commission Act, 15 U.S.C. 45, by orchestrating an
illegal group boycott among its member physicians who refused to deal
with Blue Shield of California (``Blue Shield''). Because the actions
of Tahoe IPA went beyond a mere refusal to contract and were, instead,
part of a larger agreement to impede the growth of managed care health
plans, we believe that the proposed order, including the remedial
provisions contained in Section III, prescribes appropriate relief to
restore competition and remedy the harm caused by Tahoe IPA's illegal
activities.
Having reached an impasse in its efforts to raise the reimbursement
rate paid by Blue Shield to its members, Tahoe IPA requested that its
members withdraw from Blue Shield's health plan. Twenty-four doctors
either withdrew, or announced their intention to withdraw, following
Tahoe IPA's request. By engaging in an illegal group boycott directed
at Blue Shield, Tahoe IPA and its members attempted to impair the
growth and effectiveness of health insurance plans in the relevant
market.
The proposed order is designed to restore competition lost as a
result of the boycott. Section II.A of the order would prohibit Tahoe
IPA from negotiating on behalf of its members with any payer or
provider for physician services. Section II.A also would prohibit Tahoe
IPA from orchestrating refusals to deal among its members with payers,
fixing prices or any other terms on which its members deal with
physicians, and preventing physicians from dealing with any payer or
provider individually or through arrangements outside of Tahoe IPA.
Section III of the proposed order further requires that Tahoe IPA
terminate member physicians for a period of six months who refused to
deal with Blue Shield as part of the illegal boycott led by Tahoe IPA.
Section III permits Tahoe IPA to retain these members if they either
(1) attempt in good faith to re-join Blue Shield's network for six
months, or (2) rescind their refusals to deal and participate in the
Blue Shield plan for at least six months.
The Commission is unanimous in its belief that the relief set forth
in Section II is necessary to restore competition in the relevant
market. However, Commissioner Swindle dissents from Section III of the
order and contends that Tahoe IPA's members will have sufficient
independent incentives to negotiate or contract with Blue Shield
without Section III of the proposed order. The facts tell a different
story.
Since the proposed order was reached with Tahoe IPA, 20 of its
member physicians have agreed to re-join the Blue Shield provider
network or to enter negotiations over terms under which they might re-
join. Only four members of Tahoe IPA have refused to enter negotiations
with Blue Shield. There is every reason to believe that the doctors
have re-joined the Blue Shield network in part because of the pending
order, and may have been more reluctant to do so in the absence of
Section III.
Accordingly, given the conduct alleged in the complaint and its
anticompetitive effects, we respectfully disagree with Commissioner
Swindle. Section III of the proposed order is a modest, but
appropriate, step to reverse the harm caused by Tahoe's illegal
conduct. With a large percentage of area doctors withdrawing from its
plan through an illegal boycott, Blue Shield no longer offered adequate
services to its members. Provisions of the cease and desist order other
than Section III prohibit further action to effectuate an agreement to
boycott. But where the action has already succeeded, as it did here,
something more is needed to restore competition that was eliminated
through the anticompetitive conduct alleged in the complaint.
Insufficient relief in this case could increase the likelihood of
similar conduct arising in other markets. Moreover, the relief in
Section III is limited to a six-month time period, and is narrowly
tailored to meet the direct purpose of the proposed order by covering
only the period when negotiations were occurring for the 1999 coverage
year. Tahoe IPA is primarily responsible for the boycott, and it is
therefore appropriate that Tahoe IPA take steps to make clear to its
own membership that they must make a unilateral decision whether to
continue to deal with Blue Shield.
In cases where illegal conduct has caused serious harm, the remedy
should aim to undo the damage when reasonably possible. The objective
of the proposed order in this case is to restore competition that has
been lost through the illegal activities of Tahoe IPA and its members.
Section III of the proposed order is an appropriate limited measure
designed to accomplish this traditional antitrust remedial objective.
It ensures that Tahoe IAP will allow its members to act in a manner
consistent with their independent incentives, not in a fashion that
allows the effects of an antitrust violation to persist.

Statement of Commissioner Orson Swindle Concurring in Part and
Dissenting in Part

[Tahoe Health System, Inc., File No. 981-0261]

The Commission has accepted a consent agreement in this matter that
includes a novel remedy I do not support. North Lake Tahoe Medical
Group, Inc. (``Tahoe IPA''), the respondent, engaged in negotiations on
behalf of its member physicians to obtain from third-party payers
prices that were discounted no more than 10 percent below their usual
fees. Blue Shield, a third-party payer, refused to accede to Tahoe
IPA's demands, leading Tahoe IPA to successfully encourage many of its
members no longer to participate as physicians for Blue Shield. Other
third-party payers that were considering offering HMO products in the
Lake Tahoe area responded to Tahoe IPA's demands by deciding not to
enter.
I agree that there is reason to believe that Tahoe IPA's conduct
violated Section 5 of the FTC Act. To remedy these violations,
Paragraph II of the proposed consent order contains typical provisions
that would prohibit Tahoe IPA from entering into any agreement to (1)
negotiate on behalf of physicians with any payer or provider for
physician services, or (2) refuse to deal with any payer or provider. I
support the relief in Paragraph II because it is necessary to prevent
Tahoe IPA from engaging in unlawful conduct that is identical or
similar to that alleged in the proposed complaint. Both the
Commission's complaint and the relief prescribed by Paragraph II make
it clear to Tahoe IPA's members that they must make unilateral
decisions as to whether to deal with Blue Shield.
The proposed consent order, however, also contains a novel--and
questionable--remedy, Paragraph III requires that Tahoe IPA terminate
the membership of all physicians who refused to deal (or who gave
notice of their intent to refuse to deal) with Blue Shield as a result
of Tahoe IPA's encouragement. Tahoe IPA, however,

[[Page 14733]]

would not have to terminate: (1) physicians who refused to deal but
attempt in good faith to reparticipate in Blue Shield for six months,
and (2) physicians who rescind their notices of refusal to deal and
continue to participate in Blue Shield for at least six months.
I do not believe that Paragraph III is needed. Prior to the refusal
to deal with Blue Shield alleged in the complaint, the Tahoe IPA
physicians who participated in Blue Shield had their own sufficient
market incentives to participate. With the cessation of the refusal to
deal and the prohibition in Paragraph II on future refusals to deal,
these market incentives should revive. With the return of these
incentives, the Tahoe IPA physicians who refused to deal presumably
would choose once again to participate in Blue Shield even without the
burdens imposed by Paragraph III.\1\
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\1\ Twenty physicians have agreed to reparticipate in Blue
Shield, while four have not. All this demonstrates is that
physicians have reparticipated in Blue Shield while Paragraph III is
in effect. It does not establish that Paragraph III was a cause of
this reparticipation, or that market incentives would not have
caused the physicians to reparticipate in the absence of Paragraph
III.
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The majority believes that government action beyond these market
incentives is needed to make this market work better in the future. I
disagree. Because Tahoe IPA physicians on their own have sufficient to
return to Blue Shield, there is no reason to add a layer of government
intervention intended to achieve the same result.
I dissent as to Paragraph III of the proposed consent order.

[FR Doc. 99-7404 Filed 3-25-99; 8:45 am]
BILLING CODE 6750-01-M

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-7404. Public record. Not legal advice.