IN THE UNITED STATES DISTRICT COURT
DISTRICT OF RHODE
| ||UNITED STATES OF AMERICA, ||) ||
[Filed(Feb.29, 1996)] |
| || ||)
| || Plaintiff, ||) ||Civil
Action No. CA 96 113 |
| || ||)
| || vs. ||) || |
| || ||) || |
DENTAL OF RHODE ISLAND, ||) ||
| || ||)
| || Defendant. ||) || |
| || ||) || |
United States of America, acting under the direction of the Attorney General of the
United States, brings this action for equitable and other relief against Delta Dental of Rhode
("Delta"), to prevent and enjoin defendant from continuing to violate the antitrust laws by
a contractual provision that raises barriers to entry and discourages lower prices by, in
penalizing contracting dentists if they charge less to rival plans or other purchasers of dental
than they charge Defendant. Delta's policies and actions have, in violation of Section 1 of
Sherman Act, excluded potential rivals, retarded expansion by existing competitors, and
increased the costs to Rhode Island consumers of dental insurance and dental services.
I. JURISDICTION AND
1. The United States files this Complaint under
Section 4 of the Sherman Act, 15 U.S.C.
§ 4, as amended, to prevent and restrain a continuing violation by Delta of Section 1 of the
Act, 15 U.S.C. § 1.
2. The Defendant is an inhabitant of, maintains an
office and transacts business in, and
is found within Rhode Island, all within the meaning of 15 U.S.C. § 22.
3. Delta, a Rhode Island not-for-profit corporation
with its principal place of business
in Providence, Rhode Island, is engaged in the business of underwriting and administering
dental care insurance plans for employers and other group purchasers located in Rhode Island
elsewhere. Delta is a member of Delta Dental Plan Association, a nationwide network of
4. Various firms and individuals not named as
defendants in this Complaint have entered
into contracts and combinations and otherwise participated with Delta in the unlawful actions
in this Complaint, and they have performed acts and made statements in furtherance
5. Certain employers remit across state lines not
insubstantial premium payments to the
Defendant for underwriting and administering dental care insurance for their employees.
6. Many employers that remit premiums to the
Defendant are businesses that sell
products and services in interstate commerce, and the premium levels paid by such businesses
dental insurance affect the prices of their products and services.
7. The activities of the Defendant that are the
subject of this Complaint have been within
the flow of, and have substantially affected, interstate trade and commerce.
RESTRAINT OF TRADE
A. DELTA'S POSITION IN THE RHODE ISLAND DENTAL MARKET
8. Delta is Rhode Island's largest dental insurer,
covering nearly 200,000 subscribers in
its service area (Rhode Island and border communities in Massachusetts and Connecticut).
insures or administers plans for about 35-45% of persons covered by dental insurance in
Island. Delta obtains dental care services on behalf of its subscribers by contracting with
approximately 675 actively practicing dentists, whom it refers to as "participating dentists,"
about 500 or 90% of the dentists actively practicing in Rhode Island. The balance practice
bordering areas of Massachusetts and Connecticut.
9. Each Delta participating dentist agrees to accept
payments from Delta--in addition
to any deductible or co-payment paid by the patient--as payment in full for covered services.
made payments of approximately $32 million to participating dentists in 1994. Most
practicing Rhode Island dentists receive a significant portion of their professional income
10. According to Delta, the dental insurance market
in Rhode Island "is being driven
entirely by price." The cost of dental services generally constitutes about 85-90% of the price
dental insurance, as reflected in premiums or payments made by self-insured groups. Delta
acknowledges that once a dentist has agreed to accept its payment levels, the dentist has no
to charge Delta patients less to attract more Delta patients.
11. Some other payers, however, have attempted
further to reduce their cost of dental
services in Rhode Island by contracting with a limited panel of conveniently located dentists
agree to accept fees discounted substantially below the fees paid by Delta.
B. DELTA'S MOST FAVORED NATION
12. Each Delta participating dentist agrees to
comply with Delta's Participating Dentist's
Agreement, which incorporates by reference Delta's Rules and Regulations (together, the
"Agreement"). The Agreement governs the participating dentists' provision of dental care
to Delta subscribers and the fees that they may charge Delta subscribers. As applied, the
also establishes the minimum fees that participating dentists may charge patients who are not
subscribers without incurring a potential financial penalty. Specifically, Rule 10,
characterized by Delta as its "Prudent Buyer Policy," provides as follows:
Reimbursement Policy. Delta Dental
reserves the right to limit
reimbursements to dentists to such levels as such dentists have
to accept as reimbursement from other non-governmental
benefits reimbursement programs.
Provisions such as Rule 10 are known as Most Favored Nation ("MFN") clauses. Such
restrict a seller's ability to charge the buyer enforcing the provision more than the lowest price
the seller charges to any other purchaser.
13. According to Delta, it enforces its MFN clause
whenever the fees that a participating
dentist accepts from another non-governmental third-party payer are "demonstrably
lower than [Delta's]." Once the fees in issue are determined to be "demonstrably
lower," Delta claims that it will look at several "mitigating factors" before deciding whether to
the MFN clause: whether the fee differential will soon be eliminated by a fee increase adopted
the other plan, Delta's administrative cost of applying the MFN clause, and Delta's ability
overcome the difference in reimbursement through its efforts to manage use of dental services.
also has not enforced its MFN clause when a dentist, who had considered or agreed to charge
plan substantially lower fees, then raised the fees to Delta's level or disaffiliated from the other
14. Rule 7 of Delta's Rules and Regulations further
allows Delta to audit the records of
any participating dentist:
Verification program. Delta Dental at all
the right to review services rendered and fees charged by
participating and non-participating dentists or group
practices with respect to which benefits are sought. Such
review may encompass, without limitation, verification
of . . . fees charged and collections made with respect to
non-subscriber patients . . . .
Delta's audits ensure that no dentist charges any patient for any procedure a fee less than what
dentist charges to Delta.
15. Although Rule 10, as written, pertains only to
dentists' payments from non-
governmental dental benefits reimbursement programs, Delta also applies its MFN policy to
offering discounts to uninsured patients or patients with indemnity insurance. When Delta
determines--either through an audit under Rule 7 or otherwise--that a dentist has charged
uninsured patient less for a procedure than the dentist charged Delta or has advertised price
to uninsured patients, it will, except in limited circumstances, contact the dentist and demand
the discounted fees be discontinued or that the lower charges apply also to Delta
C. THE MFN CLAUSE'S
16. Delta's MFN clause has harmed competition and
reduced consumer welfare in the
dental services and related dental insurance plan markets in Rhode Island and localized areas
Rhode Island. Delta's MFN clause has reduced competition in Rhode Island dental services
by inhibiting participating dentists from lowering their fees below the level paid by Delta.
clause's deterrent effect on discounting of dental services has led to the further exclusionary
of preventing competing dental plans from offering limited-panel insurance plans at
significantly below those of Delta.
17. The MFN clause inhibits lower fees for dental
services by generally requiring a
participating dentist who charges a fee lower than Delta's for any non-Delta patient to
commensurately lower fees for all Delta patients. Because Delta patients are a significant
of the practice of most Rhode Island dentists, the MFN clause effectively imposes a large
penalty on Delta participating dentists who wish to charge fees significantly lower than those
by Delta. Because Delta represents such a large source of income for most Rhode Island
relative to other payers that have sought to pay fees significantly lower than Delta, Delta's
clause makes it unprofitable for a dentist to accept lower fees from non-Delta patients, even if
dentist would have otherwise been willing to accept those lower fees. As a result, most
dentists are unwilling to charge uninsured or indemnity plan patients, or to contract with other
insurance plans, at fee levels below Delta's. The result is higher prices for and reduced output
dental services in Rhode Island.
18. The financial disincentive to discount posed by
Delta's MFN clause also impedes
competing dental insurance plans' ability to contract with Rhode Island dentists at fee
significantly lower than Delta's. In some cases, Delta's MFN clause has caused participating
to disaffiliate from--or refuse to join--competing dental plans offering fees below those paid
Delta. In other cases, Delta participating dentists have insisted as a condition of their
that payments be increased to Delta's levels. In either case, the high percentage of dentists in
Island who participate in Delta means that the MFN clause has made it substantially more
for new plans to find enough dentists to serve their subscribers at lower fees. When Delta
participating dentists are faced with the prospect of substantially reduced payments for all of
Delta patients if they participate in a reduced-fee plan, especially where such a plan would send
considerably fewer patients than Delta, participating dentists have uniformly opted not to
in such lower-price plans, even though they would have been willing to do so in the absence of
MFN clause. Thus Delta's MFN clause has deprived consumers of the benefits that discounted
plans can offer: increased competition, lower premiums, and greater availability of dental
19. The experiences of the Dental Blue PPO in
Rhode Island illustrate the anticompetitive
effects of Delta's MFN clause. In the fall of 1993, Blue Cross and Blue Shield of
("Blue Cross of Massachusetts") recruited dentists in Rhode Island for Dental Blue PPO, a
provider organization (PPO) established for Raytheon employees and their families,
approximately 1,000 employees (plus family members) at Raytheon's facility in Portsmouth,
Island. Dental Blue PPO sought to recruit and contract at substantially reduced fees with
used by a number of Raytheon Portsmouth plan members, including Rhode Island dentists
in Portsmouth, Tiverton, Jamestown, and Newport, who are located conveniently for most
Portsmouth plant employees and their families. Dental Blue PPO was one of three dental
options for Raytheon employees. Blue Cross of Massachusetts also offered the employees
from a large, "traditional" network (including most dentists in the area) and from
dentists. However, Raytheon employees would incur the lowest out-of-pocket cost--often no
or at least substantial savings--if they used dentists participating in Dental Blue PPO.
20. Dental Blue PPO recruited a number of Rhode
Island dentists who practiced in the
area around Portsmouth, and it expected to contract with more dentists in the area. All of the
Island dentists who joined Dental Blue PPO also participated in Delta. Delta calculated that
Blue PPO would have paid these dentists at a substantial discount--14% lower, on average,
21. Identifying Dental Blue PPO as a long-run
competitive threat, and in particular
fearing that the Dental Blue PPO would be expanded beyond Raytheon, Delta's senior
met on or around December 9, 1993, and agreed to pursue three related tactics: (a) to
communications with the Rhode Island Dental Association ("RIDA") regarding Dental Blue
(b) to apply Delta's MFN clause to all dentists who had agreed to join Dental Blue PPO in order
in the words of Delta's Vice President for Strategic Planning, "send a strong message to the
community"; and (c) to develop its own limited-panel PPO.
22. Implementing the first tactic, Delta's president
contacted the chairman of RIDA's
Council on Dental Programs, who Delta's president knew to be a vociferous opponent of low
and managed care programs, and who supports Delta's MFN clause because he believes it
to set a floor on dentist's fees. Shortly after, RIDA sent its members a letter, dated December
1993, warning that:
[T]he fee schedule proposed [by Dental Blue PPO] is below
current Delta profile, and if accepted may subject you to
retroactive repayment of your collected Delta fees since by
contract you have agreed to provide Delta patients your lowest
fees (except from Medicaid).
Though the letter went on to say that each dentist must make an individual decision whether
participate in Dental Blue PPO, the RIDA letter reminded each member to "be aware that
decision may have severe financial penalties."
23. Soon after, Delta implemented its second tactic
by informing the Rhode Island
dentists, who it knew were participating in the Dental Blue PPO, of its intent to apply its
clause. Delta similarly informed several Massachusetts dentists who participate in Delta and
had also agreed to participate in Dental Blue PPO. Following up on telephone conversations
many of the dentists, on December 30, 1993, as part of its yearly update of dental fees, Delta
letters to these dentists, informing them that their payment levels would be lowered to the
that they had agreed to accept from Dental Blue PPO. Delta sent a second letter to each of
dentists in January, 1994, enclosing their new, reduced-fee schedule. This letter stated
[Y]our profile reflects certain adjustments necessitated by our
policy. We understand that you have agreed to accept these fees
Dental Blue PPO. As a result, your Delta Dental of Rhode
reimbursement has been limited to these levels.
24. By the end of January, 1994, the dental
community had received Delta's "message."
All of the Rhode Island dentists contacted by Delta disaffiliated from Dental Blue PPO, some
them making clear to Delta at the time that their reason for resigning was Delta's decision to
its MFN clause. For example, on January 6, 1994, one dentist sent Delta copies of his letters
Dental Blue PPO of the same date resigning from Dental Blue PPO, and specifically asked that
update his fee profile because of his resignation. On January 25, 1994, another dentist did the
A third dentist did not even wait until he received his new fee schedule from Delta. As he
in his January 3, 1994 letter to Delta's Vice President for Provider Relations, he resigned from
Blue PPO once he received RIDA's letter detailing how participation with Dental Blue PPO
affect his payments from Delta.
25. Delta's MFN clause prevented Dental Blue PPO
from developing a marketable
network of Rhode Island dentists willing to accept fees substantially below those paid by Delta.
doing so it denied Raytheon employees and their families a meaningful choice of dental
through Dental Blue PPO, and the substantial savings that it represented to them. Delta's
prevented Dental Blue PPO from successfully offering a lower-price, dental insurance plan in
26. Delta's decision to apply its MFN clause to
Dental Blue PPO also had an adverse
impact upon the dental insurance market beyond its immediate effect on Raytheon employees
their families. Delta had feared that Blue Cross might ultimately expand Dental Blue
Raytheon, and offer it to other employers in Rhode Island. The disaffiliation of the Dental
dentists enabled Delta to postpone indefinitely its originally planned third response to Dental
the development of its own limited-panel, reduced-fee PPO. With the collapse of the Dental
PPO network in Rhode Island, Delta felt no competitive pressure to offer an alternative
product, and returned development of its own PPO to the back-burner. Over two years later,
still has not established a PPO in the market. Had Dental Blue PPO succeeded and had Delta
forced to respond as planned with its own PPO, Rhode Island consumers would have had
insurance plan choices that could have been significantly lower-priced than those now available
27. At least two organizations--a self-insured
employee group and an uninsured retiree
group--currently have contracted with limited panels of dentists in Rhode Island who have
to fees substantially below Delta's. Although all of these dentists also participate in Delta, they
avoided the application of Delta's MFN clause--despite Delta's commitment to consistently
the clause--because Delta had been unaware of the operation of their reduced-fee panels. Even
Delta may remain unaware of which dentists participate in the panels. Both organizations
reason to believe that the dentists currently in their panels would disaffiliate if Delta were to
its MFN to them. Despite their preference for more Rhode Island dentists to serve their
at reduced fees, both have decided not to recruit additional dentists to avoid bringing
Delta's attention and causing Delta to apply its MFN to their currently participating dentists.
members of each group, moreover, the availability of such discounted fees sometimes makes
difference between being able to afford dental care or not. Enforcement of Delta's MFN
would consequently preclude some consumers from obtaining necessary dental care.
28. Delta's MFN clause also caused dentists to
disaffiliate from or refuse to join a dental
insurance plan--established by Dental Benefit Providers, Inc., on behalf of Harvard
Health Plan--until the plan increased its payments to the levels paid by Delta. Because this plan
been forced to compete in Rhode Island with a network of dentists paid at higher fees than
consumers are being deprived of the opportunity to obtain lower-cost dental services and
insurance. Delta's MFN clause has consequently restricted the ability of this plan to serve
of patients in Rhode Island at lower, more competitive prices.
29. A plan operated by U.S. Healthcare seeks to
contract with Rhode Island dentists to
provide basic preventive services in return for a monthly capitated (fixed amount per
payment and to provide other services for payment according to a substantially discounted
service schedule. U.S. Healthcare has similarly encountered consistent resistance from dentists
fear that Delta would apply its MFN clause, lowering the fees they would receive for their
patients to the substantially lower level of U.S. Healthcare's discounted fee schedule.
concern with Delta's MFN clause among dentists has prevented U.S. Healthcare from
with any Rhode Island dentists, and U.S. Healthcare has consequently been unable to offer its
cost dental plan in Rhode Island.
30. As discussed above, Delta's MFN clause is not
limited to third-party payer plans.
Delta has applied it to any participating dentist who offers fees below Delta's fee schedule to
with indemnity coverage or no insurance at all. The result of Delta's application of its MFN
to such patients has been to discourage discounting, thereby increasing the price and
availability of dental services in Rhode Island.
D. THE MFN CLAUSE'S FUTURE
31. Delta intends to continue to enforce its MFN
clause against those dentists who offer
fees discounted below Delta's either to other dental insurance plans, patients covered by
plans, or to uninsured patients. This enforcement will continue to prevent other dental
plans from paying fees for dental services discounted to levels below those paid by Delta
therefore, will deter low-fee dental insurance plans from entering, or expanding their presence
Rhode Island unless they raise their fees to Delta's level. By deterring low-cost plans' entry
expansion, Delta's MFN clause will deprive consumers of the benefits that such plans can
increased competition, lower premiums, and greater use of dental care. By discouraging
discounting to patients covered by indemnity insurance and to uninsured patients, Delta's
clause will have similar adverse effects upon the cost and availability of dental care for
insured and uninsured consumers in Rhode Island.
E. THE MFN CLAUSE'S LACK OF
32. In contrast to Delta's MFN clause's actual
anticompetitive effects, the MFN clause,
by Delta's own admissions, has not generated any meaningful savings or other
benefits. Delta has not considered the MFN clause a cost-savings device, has not sought to
any savings from its application, and has not factored any such savings into determining
premiums it charges its customers.
33. Beginning at a time unknown to the Plaintiff and
continuing to date, the Defendant
has entered into agreements with its participating dentists in unreasonable restraint of interstate
and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. This offense is
to continue or recur unless the relief hereinafter sought is granted.
34. For the purpose of forming and effectuating
these agreements, the Defendant did the
following things, among others:
(a) required participating dentists to agree to the MFN clause;
(b) enforced the MFN clause; and
(c) made clear its intention to continue enforcing the MFN clause.
35. These agreements have had the following
effects, among others:
(a) caused Delta participating dentists to disaffiliate from, or charge higher
to, reduced-fee dental plans in Rhode Island;
(b) unreasonably restrained price competition among dental insurance plans
Rhode Island because the clause has substantially foreclosed other
plans from obtaining or retaining a sufficient number of
Rhode Island dentists to provide low-cost services to their
(c) deterred the entry or expansion of limited-panel PPOs and other
dental insurance plans in Rhode Island;
(d) raised prices for the provision of dental services to non-Delta patients and
dental plans in Rhode Island because Delta-participating dentists
not to discount their fees, below levels received from Delta, to
plans, patients with indemnity insurance, or to uninsured patients;
(e) deprived consumers of dental services and dental insurance in Rhode Island
of the benefits of free and open competition.
REQUEST FOR RELIEF
WHEREFORE, the Plaintiff requests:
That the Court adjudge and decree that the Defendant entered into
agreements in unreasonable restraint of interstate trade and commerce in violation of Section 1
the Sherman Act, 15 U.S.C. § 1.
That the Defendant, its members, officers, directors, agents, employees,
successors, and all other persons acting or claiming to act on its behalf, be enjoined, restrained
prohibited from, in any manner, directly or indirectly, continuing, maintaining, or renewing
agreements, or from engaging in any other combination, conspiracy, agreement, understanding,
program, or other arrangement having the same effect as the alleged violation.
3. That the United States recover the costs of this
That the United States have such other relief as the nature of the case
may require and
the Court may deem just and proper.
K. Bingaman Steven Kramer
Assistant Attorney General
/s/ Paul J.
Deputy Assistant Attorney General
Michael S. Spector
Rebecca P. Dick Antitrust Division
Deputy Director U.S. Dept. of Justice
Office of Operations 600 E Street, N.W. (until 3/15/96)
325 7th Street,
N.W. (after 3/15/96)
Washington, D.C. 20530
Health Care Task Force
David C. Jordan District of Rhode Island
Health Care Task Force /s/
By: Anthony DiGioia
Ass't. United States Attorney
Westminster Square Building
10 Dorrance Street
Providence, RI 02903