Download the WordPerfect version
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA, and | ) ) ) ) ) ) ) ) ) ) ) ) |
|
COMPETITIVE IMPACT STATEMENT
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act, 15 U.S.C. § 16(b)-(h) ("APPA"), the United States files this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I.
NATURE AND PURPOSE OF THE PROCEEDING
On September 13, 1995, the United States and the State of
Connecticut filed a civil antitrust complaint alleging that defendant
HealthCare Partners, Inc. ("HealthCare Partners"), defendant Danbury
Area IPA, Inc. ("DAIPA"), and defendant Danbury Health Systems, Inc.
("DHS"), with others not named as defendants, entered into an agreement
and took other actions, the purpose and effect of which were, among
other things, to restrain competition unreasonably by preventing or
delaying the development of managed care in the Danbury, Connecticut
area
Page 2
("Danbury"), to willfully maintain DHS' market power in acute, inpatient
care, and to gain an unfair advantage in markets for outpatient
services, in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C.
§§ 1, 2. The Complaint seeks injunctive relief to enjoin continuance or
recurrence of these violations.
The United States and the State of Connecticut filed with the
Complaint a proposed Final Judgment intended to settle this matter.
Entry of the proposed
Page 3
Final Judgment by the Court will terminate this action, except that the
Court will retain jurisdiction over the matter for further proceedings
that may be required to interpret, enforce, or modify the Judgment, or
to punish violations of any of its provisions.
Plaintiffs and all defendants have stipulated that the Court may
enter the proposed Final Judgment after compliance with the APPA, unless
prior to entry plaintiffs have withdrawn their consent. The proposed
Final Judgment provides that its entry does not constitute any evidence
against, or admission by, any party concerning any issue of fact or law.
The present proceeding is designed to ensure full compliance with
the public notice and other requirements of the APPA. In the
Stipulation to the proposed Final Judgment, defendants have also agreed
to be bound by the provisions of the proposed Final Judgment pending its
entry by the Court.
II.
PRACTICES GIVING RISE TO THE ALLEGED VIOLATIONS
DHS's 450-bed acute care facility, Danbury Hospital, is the sole
source of acute inpatient care in the Danbury area. It faces no
competition from other general acute care hospitals in the market for
these services and, accordingly, possesses a monopoly in general acute
inpatient care. The Hospital also provides outpatient surgical care and
other services.
By 1992, managed care organizations had recruited a sufficient
number of physicians with active staff privileges at
Page 4
Danbury Hospital to offer managed care plans to employers and
individuals in the Danbury area. The introduction of managed care plans
into the Danbury area reduced the Hospital's market power in inpatient
services by decreasing the number of hospital admissions and the length
of hospital stays, thereby causing the Hospital to lose significant
inpatient volume. Additionally, the introduction of managed care plans
resulted in increased competition among doctors and reduced referrals to
specialists in DOPS (Danbury Hospital's affiliated multispecialty
practice group).
In 1993, DHS took steps to form an alliance with virtually every
doctor on its Hospital's medical staff to protect the economic interests
of both the Hospital and the doctors and forestall the continued
development of managed care plans in Danbury. On May 6, 1994,
HealthCare Partners was incorporated to represent jointly Danbury
Hospital and physicians in negotiations with managed care organizations,
and DAIPA was created as the vehicle for physician ownership in
HealthCare Partners. Danbury Hospital and DAIPA jointly own HealthCare
Partners, and each appoints six of the twelve directors of HealthCare
Partners' board of directors.
Only active members of Danbury Hospital's medical staff could be
owners of DAIPA. Over 98% of the doctors on Danbury Hospital's medical
staff joined DAIPA. Each paid a small fee. None committed to any
integration of their practices.
Each doctor who joined DAIPA contracted with HealthCare
Page 5
Partners and authorized it to negotiate fees on the doctor's behalf.
The doctors authorized HealthCare Partners to enter into non-risk-
bearing contracts in one of two ways.1
First, it could prepare a minimum fee schedule and present it to
each doctor for approval. A doctor's approval would then authorize
HealthCare Partners to enter into non-risk-bearing contracts on behalf
of the doctor without further consultation so long as the resulting fees
equalled or exceeded the minimum fee schedule.
Alternatively, HealthCare Partners could negotiate fees on behalf
of all the doctors and then present each doctor with the collectively
negotiated fee schedule. Each doctor would then have the opportunity to
accept this jointly negotiated fee schedule.
HealthCare Partners negotiated two contracts using this latter
approach and succeeded in obtaining generous fees for the DAIPA doctors.
Indeed, one of the contracting managed care plans was forced to increase
its fees to doctors outside of the Danbury area to avoid the excessive
administrative costs it would have incurred to administer one fee
schedule for Danbury and a
Page 6
separate schedule for the other areas in which it operated.
The Hospital's goal in forming HealthCare Partners was to eliminate
competition among physicians in order to further its broader goal of
reducing or limiting the impact of managed care plans on its monopoly in
acute inpatient services. In furtherance of these goals, the Hospital
also used its control over admitting privileges to reduce competition in
physician and outpatient services markets. The Hospital adopted a
Medical Staff Development Plan in part to limit the size and mix of its
medical staff. This Plan effectively controlled the entry of new
physicians into Danbury and thereby insulated HealthCare Partners from
competition. The Hospital also announced a policy that required its
doctors to perform at least 30% of their procedures at the Hospital.
This announcement caused a reduction in the use of a competing
outpatient surgery center.
Based on the facts described above, the Complaint alleges (1) that
the defendants entered into a contract, combination, or conspiracy that
eliminated competition among physicians, reduced or limited the
development of managed care plans, and reduced or limited competition
among outpatient service providers, all in violation of Section 1 of the
Sherman Act, 15 U.S.C. § 1 and (2) that DHS took exclusionary acts that
had the purpose and effect of maintaining Danbury Hospital's market
power in acute inpatient hospital services and gaining an unfair
advantage in markets for outpatient services, in violation of Section 2
of the Sherman Act, 15 U.S.C. § 2.
Page 7
III.
EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The proposed Final Judgment is intended to prevent the continuance
or recurrence of defendants' agreement to eliminate competition among
doctors and reduce or limit the development of managed care in the
Danbury area. The proposed Final Judgment is also intended to prevent
the continuance or recurrence of DHS's exclusionary conduct. The
overarching goal of the proposed Final Judgment is to enjoin defendants
from engaging in any activity that unreasonably restrains competition
among physicians, outpatient service providers, or managed care plans in
the Danbury area, or that willfully maintains Danbury Hospital's market
power in acute inpatient services, or gains Danbury Hospital an unfair
advantage in markets for outpatient services, while still permitting
defendants to market a provider-controlled managed care plan.2
A. Scope of the Proposed Final Judgment
Section III of the proposed Final Judgment provides that the Final
Judgment shall apply to defendants and to all other persons who receive
actual notice of this proposed Final Judgment by personal service or
otherwise and then participate in active
Page 8
concert with any defendant. The proposed Final Judgment applies to DHS,
DAIPA, and HealthCare Partners.
B. Prohibitions and Obligations
Sections IV and V of the proposed Final Judgment contain the
substantive provisions of the Judgment.
In Section IV(A), DAIPA and HealthCare Partners are enjoined from
setting or expressing views on the prices or other competitive terms and
conditions or negotiating for competing physicians, unless the
negotiating entity is a Qualified Managed Care Plan ("QMCP" -- as
defined in the proposed Final Judgment and discussed below). However,
DAIPA and HealthCare Partners are permitted to use a messenger model, as
discussed below.
Section IV(B)(1) enjoins DHS, DAIPA, and HealthCare Partners from
precluding or discouraging any physician from contracting with any
payer, providing incentives for any physician to deal exclusively with
DAIPA, HealthCare Partners, or any payer, or agreeing to any priority
among themselves as to which will have the right to negotiate first with
any payer. Nothing in Section IV(B), however, prohibits physicians from
agreeing to exclusivity in connection with an ownership interest or
membership in a QMCP.
Section IV(B)(2) prohibits the sharing of competitively sensitive
information. DHS, DAIPA, and HealthCare Partners are enjoined from
disclosing to any physician any financial or other competitively
sensitive business information about any competing physician and from
requiring any physician to disclose any financial or other competitively
sensitive information about any
Page 9
payer. An exception permits any defendant to disclose such information
if disclosure is reasonably necessary for the operation of a QMCP in
which that defendant has an ownership interest, or if the information is
already generally available to the medical community or the public.
Section IV(B)(3) enjoins DHS, DAIPA, and HealthCare Partners from
owning an interest in any organization that directly or through an agent
or other third party sets fees or other terms of reimbursement, or
negotiates for competing physicians, unless that organization is a QMCP
and complies with Sections IV(B)(1) and (B)(2). However, defendants may
own an interest in an organization that uses a messenger model.
Section IV(C)(1) enjoins DHS from exercising its control over staff
privileges with the purpose of reducing competition with DHS in any line
of business, including managed care, outpatient services, and physician
services. Nothing in the Final Judgment limits DHS' authority to make
staff decisions for assuring quality of care.
Section IV(C)(2) prohibits DHS from conditioning the provision of
inpatient hospital services to individuals covered by any payer on the
purchase or use of DHS' utilization review program, qualified managed
care plan, ancillary or outpatient services, or any physician's
services, unless the physician services are intrinsically related to the
provision of inpatient care. (These prohibitions, however, do not apply
to any organization or any contract in which DHS has a substantial
Page 10
financial risk.)
Section IV(C)(3) prohibits DHS from conditioning rates to any
payer for inpatient hospital services on the exclusive use of the
Hospital's outpatient services. Nothing in this Section limits the
terms and conditions on which DHS may contract with any payer pursuant
to which DHS bears substantial financial risk for the delivery of
outpatient services.
Section V of the proposed Final Judgment contains additional
provisions with respect to DAIPA and HealthCare Partners. Section V(A)
requires DAIPA and HealthCare Partners to notify participating
physicians annually that they are free to contract separately with any
payer on any terms, except with regard to those physicians who have
agreed to exclusivity in connection with an ownership interest or
membership in a QMCP. Similarly, DAIPA and HealthCare Partners must
notify in writing each payer with whom HealthCare Partners has or is
negotiating a contract, or which subsequently inquires about
contracting, that each of its participating physicians is free to
contract separately with such payer on any terms and without
consultation with DAIPA or HealthCare Partners.
Under Section V(B), DHS must file with plaintiffs annually on the
anniversary of the filing of the Complaint a written report disclosing
the rates for inpatient hospital services to any payer, including any
plan affiliated with DHS. In lieu of a report, DHS may file documents
disclosing the rates for each payer other than Medicare and Medicaid.
Page 11
Section VI of the proposed Final Judgment requires defendants to
implement a judgment compliance program. Section VI(A) requires that
within 60 days of entry of the Final Judgment, defendants must provide a
copy of the proposed Final Judgment and the Competitive Impact Statement
to all officers and directors. Sections VI(B) and (C) require
defendants to provide a copy of the proposed Final Judgment and
Competitive Impact Statement to persons who assume those positions in
the future and to brief such persons annually on the meaning and
requirements of the proposed Final Judgment and the antitrust laws,
including penalties for violating them. Section VI(D) requires
defendants to maintain records of such persons' written certifications
indicating that they (1) have read, understand, and agree to abide by
the terms of the proposed Final Judgment, (2) understand that their
noncompliance with the proposed Final Judgment may result in conviction
for criminal contempt of court, and imprisonment, and/or fine, and (3)
have reported any violation of the proposed Final Judgment of which they
are aware to counsel for defendants. Section VI(E) requires defendants
to maintain for inspection by plaintiffs a record of recipients to whom
the proposed Final Judgment and Competitive Impact Statement have been
distributed and from whom annual written certifications regarding the
proposed Final Judgment have been received.
The proposed Final Judgment also contains provisions in Section VII
requiring defendants to certify their compliance with specified
obligations of Section VI(A) of the proposed Final
Page 12
Judgment. Section VIII of the proposed Final Judgment sets forth a
series of measures by which plaintiffs may have access to information
needed to determine or secure defendants' compliance with the proposed
Final Judgment. Section IX provides that each defendant must notify
plaintiffs of any proposed change in corporate structure at least 30
days before that change to the extent the change may affect compliance
obligations arising out of the proposed Final Judgment.
Finally, Section XI states that the Judgment expires ten years from
the date of entry.
C. Effect of the Proposed Final Judgment on Competition
l. The Prohibitions on Setting and Negotiating Fees and Other
Contract Terms
The prohibitions on setting or expressing views on prices and other
contract terms or negotiating for competing physicians, set forth in
Section IV(A), provide defendants with essentially two options for
complying with the proposed Final Judgment. First, HealthCare Partners
and DAIPA may change their manner of operation and no longer set or
negotiate fees on behalf of competing physicians, for example by using a
"messenger model," a term defined in the proposed Final Judgment.
Second, HealthCare Partners and DAIPA may restructure their ownership
and provider panels to become a QMCP.3
DAIPA jointly owns HealthCare Partners with DHS and appoints
Page 13
six of HealthCare Partners directors. DAIPA includes competing
physicians among its owners on whose behalf HealthCare Partners
negotiates fees and other competitively sensitive terms and conditions.
These physicians do not share financial risk. The proposed Final
Judgment prevents HealthCare Partners and DAIPA, under their present
structures, from continuing to set or negotiate fees or other terms of
reimbursement collectively on behalf of the competing physicians.
(Section IV(A)) Such conduct would constitute naked price fixing.
Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 356-57
(l982).
The proposed Final Judgment does not, however, prohibit HealthCare
Partners and DAIPA, as presently structured, from engaging in activities
that are not anticompetitive. In particular, while the proposed
Judgment enjoins HealthCare Partners and DAIPA from engaging in price
fixing or similar anticompetitive conduct, it permits HealthCare
Partners and DAIPA to use an agent or third party to facilitate the
transfer of information between individual physicians and purchasers of
physician services. Appropriately designed and administered, such
messenger models rarely present substantial competitive concerns and
indeed have the potential to reduce the transaction costs of
negotiations between health plans and numerous physicians.
The proposed Final Judgment makes clear that the critical feature
of a properly devised and operated messenger model is that individual
providers make their own separate decisions about
Page 14
whether to accept or reject a purchaser's proposal, independent of other
physicians' decisions and without any influence by the messenger.
(Section II(H)) The messenger may not, under the proposed Judgment,
coordinate individual providers' responses to a particular proposal,
disseminate to physicians the messenger's or other physicians' views or
intentions concerning the proposal, act as an agent for collective
negotiation and agreement, or otherwise serve to facilitate collusive
behavior.4 The proper role of the messenger is
simply to facilitate the transfer of information between purchasers of
physician services and individual physicians or physician group
practices and not to coordinate or otherwise influence the physicians'
decision-making process.5
Page 15
If, on the other hand, HealthCare Partners or DAIPA wants to
negotiate on behalf of competing physicians, it must restructure itself
to meet the requirements of a QMCP as set forth in the proposed Final
Judgment. To comply, (1) the owners or members of HealthCare Partners
or DAIPA (to the extent they compete with other owners or members or
compete with physicians on their provider panels) must share substantial
financial risk, and comprise no more than 30% on a nonexclusive basis,
or 20% on an exclusive basis, of the physicians in any relevant market;
and (2) to the extent HealthCare Partners or DAIPA has a provider panel
that exceeds either of these limits in any relevant market, there must
be a divergence of economic interest between the owners and the
subcontracting physicians, such that the owners have the incentive to
bargain down the fees of the subcontracting physicians. (Section II
(L)(1) and (2)) As explained below, the requirements of a QMCP are
necessary to avoid the creation of a physician cartel while at the same
time allowing payers access to larger physician panels.
a. QMCP Ownership Requirements
The financial risk-sharing requirement of a QMCP ensures that the
physician owners in the venture share a clear economic incentive to
achieve substantial cost savings and provide better services at lower
prices to consumers. This requirement is applicable to all provider-
controlled organizations since without this requirement a network of
competing providers would have both the incentive and the ability to
increase prices for health care
Page 16
services.
The requirement that a QMCP not include more than 30% on a
nonexclusive basis, and 20% on an exclusive basis, of the local
physicians in certain instances is designed to ensure that there are
available sufficient remaining physicians in the market with the
incentive to contract with competing managed care plans or to form their
own plans.6 These limitations are particularly
critical in this case in view of defendants' prior conduct in forming
negotiating groups with nearly every physician with active staff
privileges at Danbury Hospital.
The 20% and 30% limitations will prevent defendants from
aggregating market power to pursue and achieve the same type of
anticompetitive effects that led to this action. Consistent with the
reasons for these limitations, the proposed Final Judgment permits
recruitment of new physicians, and thus an increase in
Page 17
the supply of physicians in the Danbury area, even if that recruitment
causes a QMCP to exceed the 20% or 30% limitation. Similarly,
defendants will not violate the proposed Final Judgment if these limits
are exceeded as a result of a physician exiting any relevant market.
In addition, the 30% limitation does not apply where a QMCP
includes any single physician or pre-existing practice group that
already has more than a 30% market share. In these circumstances, no
aggregation of market power could occur as a result of the practice
group joining the QMCP. To qualify for this exemption, the pre-existing
practice group must exist as of the date of the filing of the Complaint
in this action. (Section II(I)) For example, Danbury Hospital would
violate the Final Judgment if it owns an interest in a QMCP in which
DOPS participates as an owner on a nonexclusive basis and, after the
filing of the Complaint, DOPS acquires physician practices that cause it
to exceed the 30% limitation or increase its market share in markets
where it already exceeds 30%.7
b. QMCP Subcontracting Requirements
Many employers and payers may want managed care products with
panels larger than permitted by the 20% and 30% limitations. The QMCP's
subcontracting requirements are designed to permit a
Page 18
larger physician panel, but with restrictions to avoid the risk of
competitive harm. To offer panels above the 20% and 30% limits, a QMCP
must operate with the same incentives as a nonprovider-controlled plan.
Specifically, the owners of a QMCP must bear significant financial risk
for the payments to, and utilization practices of, the panel physicians
in excess of the 20% and 30% limitations. These requirements
significantly reduce the incentives for a QMCP to use the subcontracts
as a mechanism for increasing fees for physician services.
Consequently, the proposed Final Judgment permits a QMCP to
subcontract with any number of physicians in a market provided important
safeguards are met. Under Section II(L)(2) of the proposed Final
Judgment, the subcontracting physician panel may exceed the 20% or 30%
limitation if the organization bears significant financial risk for
payments to and the utilization practices of the subcontracting
physicians and does not compensate those subcontracting physicians in a
manner that substantially replicates ownership. These requirements will
assure that there is a sufficient divergence of economic interest
between those subcontracting physicians and the owners such that the
owners have the incentive to bargain down the fees of the subcontracting
physicians. Indeed, without these requirements, the organization could
serve as a cartel manager for all members of Danbury Hospital's active
medical staff by, for example, passing through directly to payers
substantial liability for making payments to the subcontracting
physicians.
Page 19
A QMCP would meet the subcontracting requirements if, for example,
a QMCP were compensated on a capitated, per diem, or diagnostic related
group basis and, in turn, reimbursed subcontracting physicians pursuant
to a fee schedule. In such a situation, an increase in the fee schedule
to subcontracting physicians during the term of a QMCP's contract with
the particular payer would not be directly passed through to the payer
but rather would be borne by a QMCP itself. This would provide a
substantial incentive for a QMCP to bargain down its fees to the
subcontracting physicians.
On the other hand, the subcontracting requirements would
not be met if a QMCP's contract with a payer were structured so
that significant changes in the payments by a QMCP to its physicians
directly affected payments from the payer to a QMCP, or if the payer
directly bears the risk for paying the panel physicians or pays the
panel physicians pursuant to a fee-for-service schedule. The
requirements would also not be satisfied if contracts between a QMCP and
the subcontracting physicians provided that payments to the physicians
depended on, or varied in response to, the terms and conditions of a
QMCP's contracts with payers.8 Any of these scenarios would permit a
QMCP to pass through to payers, rather than bear, the risk that its
provider panel will charge
Page 20
fees that are too high or deliver services inefficiently.9
2. Prohibitions Against Exclusionary Acts
In addition to helping to organize HealthCare Partners and DAIPA,
DHS used other exclusionary acts to maintain its market power in acute
inpatient hospital services and to gain an unfair advantage in markets
for outpatient services. The proposed Final Judgment eliminates the
continuance or recurrence of such exclusionary acts.
Section IV(C) of the proposed Final Judgment prohibits Danbury
Hospital from exercising its control over staff privileges with the
purpose of reducing competition with the Hospital in any line of
business, tying the availability of inpatient services to any other
service, or conditioning favorable inpatient rates on exclusive use of
Danbury Hospital's outpatient services. These prohibitions are crafted
to permit Danbury Hospital to assure the quality of care delivered at
the Hospital, participate in managed care plans, retain freedom to
contract on acceptable terms, and compete aggressively in outpatient
markets, while at the same time ensure that Danbury Hospital does not
unlawfully abuse its monopoly in acute
Page 21
inpatient services. The Hospital is also required to report annually
its inpatient rates to payers. (Section V(B))
3. Other Substantive Provisions
Section IV(B)(2) of the proposed Final Judgment enjoins the
disclosure to any physician of any financial or competitively sensitive
business information about any competing physician. It also enjoins
defendants' requiring any physician to disclose competitively sensitive
information about any payer. This provision will ensure that defendants
do not exchange information that could facilitate price fixing or other
anticompetitive harm.
Section V(A) requires DAIPA and HealthCare Partners to give notice
to doctors and managed care plans that each doctor currently under
contract with HealthCare Partners is free to contract separately from
DAIPA and HealthCare Partners. This will help abate any continuing
effect from the unlawful conspiracy.
4. Conclusion
The Department of Justice believes that the proposed Final Judgment
contains adequate provisions to prevent further violations of the type
upon which the Complaint is based and to remedy the effects of the
alleged conspiracy and DHS' exclusionary acts. The proposed Final
Judgment's injunctions will restore the benefits of free and open
competition in the Danbury area and will provide consumers with a
broader selection of competitive health care plans.
IV.
Page 22
ALTERNATIVE TO THE PROPOSED FINAL JUDGMENT
The alternative to the proposed Final Judgment would be a full
trial on the merits of the case. In the view of the Department of
Justice, such a trial would involve substantial costs to the United
States, the State of Connecticut, and defendants and is not warranted
because the proposed Final Judgment provides all of the relief necessary
to remedy the violations of the Sherman Act alleged in the Complaint.
V.
REMEDIES AVAILABLE TO PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages suffered, as well as costs and a reasonable attorney's fee.
Entry of the proposed Final Judgment will neither impair nor assist in
the bringing of such actions. Under the provisions of Section 5(a) of
the Clayton Act, 15 U.S.C. § 16(a), the proposed Final Judgment has no
prima facie effect in any subsequent lawsuits that may be
brought against one or more defendants in this matter.
VI.
PROCEDURES AVAILABLE FOR MODIFICATION
OF THE PROPOSED FINAL JUDGMENT
As provided by Sections 2(b) and (d) of the APPA, 15 U.S.C. § 16(b)
and (d), any person believing that the proposed Final Judgment should be
modified may submit written comments to Gail
Page 23
Kursh, Chief; Professions & Intellectual Property Section/Health Care
Task Force; United States Department of Justice; Antitrust Division; 600
E Street, N.W.; Room 9300; Washington, D.C. 20530, within the 60-day
period provided by the Act. Comments received, and the Government's
responses to them, will be filed with the Court and published in the
Federal Register. All comments will be given due consideration by
the Department of Justice, which remains free, pursuant to Paragraph 2
of the Stipulation, to withdraw its consent to the proposed Final
Judgment at any time before its entry, if the Department should
determine that some modification of the Final Judgment is necessary for
the public interest. Moreover, the proposed Final Judgment provides in
Section X that the Court will retain jurisdiction over this action, and
that the parties may apply to the Court for such orders as may be
necessary or appropriate for the modification, interpretation, or
enforcement of the proposed Final Judgment.
VII.
DETERMINATIVE DOCUMENTS
No materials and documents of the type described in Section 2(b) of
the APPA, 15 U.S.C. § 16(b), were considered in formulating the proposed
Final Judgment. Consequently, none are filed herewith.
Dated: September 13, 1995
Respectfully submitted,
/s/
MARK J. BOTTI
Page 24
PAMELA C. GIRARDI
Attorneys
Antitrust Division
U.S. Dept. of Justice
600 E Street, N.W.
Room 9320
Washington, D.C. 20530
(202) 307-0827
CHRISTOPHER F. DRONEY
UNITED STATES ATTORNEY
___________________________
CARL J. SCHUMAN
Assistant U.S. Attorney
Federal Bar No. CT 05439
450 Main Street
Hartford, Connecticut 06103
(203) 240-3270
FOOTNOTES
1
While the doctors also authorized HealthCare Partners to enter
into risk-bearing contracts, HealthCare Partners has not exercised this
authority. Even if it had, or does in the future, the negotiation of
risk-bearing contracts would not justify the unlawful negotiation of
non-risk-bearing contracts that occurred here. See Statements of
Enforcement Policy and Analytical Principles Relating to Health Care and
Antitrust ("Health Care Policy Statements") that the U.S. Department of
Justice and the Federal Trade Commission issued jointly on September 27,
1994, 4 Trade Reg. Rep. (CCH) ¶ 13,152, at 20,794 n.35.
2
This relief comports with the Health Care Policy Statements,
and in particular with the principles enunciated therein that a provider
network (1) should not prevent the formation of rival networks and (2)
may not negotiate on behalf of providers, unless those providers share
substantial financial risk or offer a new product to the market place.
Statement 8, 4 Trade Reg. Rep. (CCH) ¶ 13,152, at 20,788-89; Statement
9, id. at 20,793-94, 20,796.
3
Of course, HealthCare Partners and DAIPA could simply cease
operations and dissolve.
4
For example, it would be a violation of the proposed Final
Judgment if the messenger were to select a fee for a particular
procedure from a range of fees previously authorized by the individual
physician, or if the messenger were to convey collective price offers
from physicians to purchasers or negotiate collective agreements with
purchasers on behalf of physicians. This would be so even if individual
physicians were given the opportunity to "opt in" to any agreement. In
each instance, it would in fact be the messenger, not the individual
physician, who would be making the critical decision, and the purchaser
would be faced with the prospect of a collective response.
5
For example, the messenger may convey to a physician objective
or empirical information about proposed contract terms, convey to a
purchaser any individual physician's acceptance or rejection of a
contract offer, canvass member physicians for the rates at which each
would be willing to contract even before a purchaser's offer is made,
and charge a reasonable, non-discriminatory fee for messenger services.
The proposed Final Judgment gives guidelines for these and other
activities that a messenger may undertake without violating the Final
Judgment. (Section II(H))
6
The proposed Final Judgment embodies the parties' stipulation
that only physicians with active staff privileges (not including those
with just courtesy privileges) at Danbury Hospital are in any relevant
physician market. One anticompetitive effect remedied by the proposed
Final Judgment was the reduction in competition among these physicians,
which allowed both the exercise of horizontal market power in physician
markets and the willful maintenance of the Hospital's market power in
acute inpatient hospital services. Accordingly, the 20% and 30%
limitations apply to this universe of doctors. The proposed Final
Judgment specifies three separate product markets to which these
limitations apply: adult primary care doctors (Section II(M)(1)),
OB/GYNs (Section II(M)(2)), and pediatricians (Section II(M)(3)). The
limitations also apply to any other relevant product market for
physician services. (Section II(M)(4)) The proposed Final Judgment
permits plaintiffs to give written approval of relevant markets
differing from those specified.
7
In contrast, the 20% limitation does not have an exception for
pre-existing practice groups because in an exclusive arrangement such
practice groups could have the incentives and ability to create the same
type of cartel that the proposed Final Judgment is intended to break up.
8
Nothing in the proposed Final Judgment prohibits a QMCP from
entering into arrangements that shift risk to subcontracting physicians,
such as may be desirable to create cost-reducing incentives, so long as
those arrangements are consistent with the criteria for a QMCP set forth
in Section II(L) of the Judgment.
9
Similarly, a QMCP would fail the ownership replication
restriction of Section II(L) of the proposed Final Judgment if, for
example, the owners paid themselves a dividend and then, through
declaration of a bonus, paid the same or similar amount to the
subcontracting physicians. The same would be true if the owners
otherwise structured dividends, bonuses, and incentive payments in such
a way that ensures that subcontracting and owning physicians receive
equal overall compensation.