[Federal Register Volume 63, Number 104 (Monday, June 1, 1998)]
[Notices]
[Pages 29736-29738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14420]
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FEDERAL TRADE COMMISSION
[File No. 961-0005]
Institutional Pharmacy Network, 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 July 31, 1998.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW, Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
William Baer or Willard Tom, FTC/H-374, Washington, DC 20580. (202)
326-2032 or 326-2786.
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 May 21, 1998), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, Sixth Street and 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 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, subject to final
approval, an agreement to a proposed consent order from Institutional
Pharmacy Network (IPN) and its five members: Evergreen Pharmaceutical,
Inc.; NCS Healthcare of Oregon, Inc.; NCS Healthcare of Washington,
Inc.; United Professional Companies, Inc.; and White, Mack and Wart,
Inc.
The proposed consent order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
order.
The purpose of this analysis is to facilitate public comment on the
proposed order, and it is not intended to constitute an official
interpretation of the agreement and proposed order or to modify in any
way their terms. The proposed consent order has been entered into for
settlement purposes only and does not constitute an admission by any
proposed respondent that the law has been violated as alleged in the
complaint.
Description of the Draft Complaint
A complaint that the Commission prepared for issuance along with
the proposed order alleges the following:
Evergreen Pharmaceutical, Inc.; NCS Healthcare of Oregon, Inc.; NCS
Healthcare of Washington, Inc.; United Professional Companies, Inc.;
and White, Mack and Wart, Inc., are institutional pharmacies that
compete to serve institutional care facilities, such as nursing homes.
Institutional pharmacies provide specialized services, including
providing medications in single dose packages, maintaining an
``emergency box'' at the client facility with drugs for use in
emergency situations, and providing consulting and quality assurance
services to institutional care facilities. The institutional pharmacy/
respondents together provide pharmacy services for approximately 80
percent of the patients that receive institutional pharmacy services in
Oregon.
The State of Oregon created the Oregon Health Plan (``OHP'') in
1994 to provide health care to Medicaid recipients and other needy
Oregonians. Under OHP, the state contracts with Fully Capitated Health
Plans (``Plans''), which are managed care organizations that receive a
fixed payment to care for
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OHP patients. The Plans in turn contract with providers, including
nursing homes, hospitals, physicians, retail pharmacies, and
institutional pharmacies. OHP covers about half of all institutional
care patients in Oregon.
The institutional pharmacy respondents formed IPN to offer their
services jointly. Their purpose to negotiate collectively has been to
maximize their resulting leverage in bargaining over reimbursement
rates with the Plans. Indeed, even before forming IPN, they saw ``an
advantage to negotiate from strength for reimbursement'' because they
recognized that competition among themselves would drive down
reimbursement rates. IPN neither provides new or efficient services,
nor enables its members to provide new or efficient services. Moreover,
IPN members do not share risk.
IPN has contracted with three Plans. Pursuant to each of those
contracts, each Plan pays IPN members a higher rate than it pays
institutional pharmacies that are not IPN members and that did not
negotiate collectively with that Plan. IPN also attempted to contract
with at least four other Plans. Clinical, Evergreen, IPAC, ProPac, and
UPC agreed that, before conducting individual negotiations, each member
would give IPN time to attempt to negotiate a contract. Pursuant to
this agreement, the pharmacies negotiated separately with three of the
Plans only after IPN failed to reach an agreement on behalf of the
group. IPN also negotiated with a fourth Plan that is by far the
largest purchaser of institutional pharmacy services for OHP patients.
Although this Plan sought to deal with the pharmacies individually,
they largely refused to respond and instead approached the Plan as a
group. After months of attempting to negotiate individually with the
institutional pharmacy members of IPN, and under pressure to implement
pharmacy arrangements for institutional care patients under OHP, the
Plan began negotiating with IPN. As a result of these negotiations, the
Plan agreed to pay higher rates to IPN members than it had agreed to
pay other institutional pharmacies.
The institutional pharmacy members of IPN have agreed among
themselves, and used IPN, to engage in collective negotiations over
price and other terms with the Plans and thereby to fix the fees they
charge the Plans. In so doing, IPN and its institutional pharmacy
members have fixed, stabilized, or increased the price of institutional
pharmacy services and otherwise restrained competition among
institutional pharmacies in Oregon and thereby deprived the State of
Oregon, the Plans, nursing homes and other long-term care facilities,
and OHP beneficiaries of the benefits of competition among providers of
institutional pharmacy services in Oregon.
Description of the Proposed Consent Order
The proposed order would prohibit IPN and the institutional
pharmacy respondents from entering into, maintaining, or enforcing any
agreement with any pharmacy concerning fees or fixing, raising,
stabilizing, maintaining, or tampering with any fees. The proposed
order contains a number of provisos.
Proviso (1) allows each respondent to engage in conduct (including
collectively determining reimbursement and other terms of contracts
with payers) that is reasonably necessary to operate (a) any
``qualified risk-sharing joint arrangement,'' or (b) upon prior notice
to the Commission, any ``qualified clinically integrated joint
arrangement.'' The proviso addresses the arrangements that the
respondents may enter into, rather than the overall nature of the
group, because a pharmacy network may enter into legitimate
arrangements with some third-party payers but engage in illegal conduct
with respect to others. For the purposes of the order, a ``qualified
risk-sharing joint arrangement'' must satisfy two conditions: (a)
participating pharmacies must share substantial financial risk and (b)
the arrangement must be non-exclusive. The order lists ways in which
pharmacies might share financial risk. These track the four types of
financial risk sharing set forth in the Joint FTC-Department of Justice
Statements of Antitrust Enforcement Policy in Health Care. 4 Trade Reg.
Rep. (CCH) para. 13,153 (August 29, 1996). To be a ``qualified'' risk
sharing arrangement, the arrangement must also be non-exclusive, both
in name and in fact. An arrangement that either restricts the ability
of participating pharmacies to contract outside the arrangement
(individually or through other networks) with third-party payers, or
facilitates refusals to deal outside the arrangement by participating
pharmacies, does not fall within the proviso. Although exclusive joint
arrangements are not necessarily anticompetitive, they can impair
competition, particularly when they include a large portion of the
pharmacies in a market. In light of the IPN members' large share of the
Oregon institutional pharmacy market, this definition does not permit
the respondents to form or participate in exclusive arrangements.
A qualified clinically integrated joint arrangement includes
arrangements in which the pharmacies undertake cooperative activities
to achieve efficiencies in the delivery of clinical services, without
necessarily sharing substantial financial risk. For purposes of the
order, such arrangements are ones in which the participating pharmacies
have a high degree of interdependence and cooperation through their use
of programs to evaluate and modify their clinical practice patterns, in
order to control costs and assure the quality of pharmacy services
provided through the arrangement. As with risk-sharing arrangements,
the definition of clinically integrated arrangements reflects the
analysis in the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy
in Health Care and the arrangement must be non-exclusive. Because the
definition of a clinically integrated arrangement is by necessity less
precise than that of a risk sharing arrangement, the order imposes
prior notification requirements. Such prior notification will allow the
Commission to evaluate the likely competitive impact of a specific
proposed arrangement and thereby help guard against the recurrence of
acts and practices that have restrained competition and consumer
choice.
The remaining provisos allow business arrangements typical to
pharmacy markets. Proviso (2)(a) allows the proposed respondents to
contract with pharmacy benefit managers that own or are affiliated with
retail pharmacies. Provisos (2)(b) and (3) together permit price
agreements between a pharmacy and a nursing home even if the nursing
home is affiliated with a pharmacy. Provisio (2)(c) permits a pharmacy
to enter into subcontracting agreements where it is not reasonable for
a pharmacy with an agreement with a nursing home or third-party payer
to provide services by itself. Such agreements are common among both
retail and institutional pharmacies. Proviso (2)(c) also allows for
such subcontracts where the respondent that operates a long-term care
network (as UPC does) enters into an agreement with the incumbent
pharmacy provider for an institutional facility within that network.
Finally, Proviso (4) permits pharmacy agreements to operate or manage a
pharmacy.
Parts III.A and III.B of the proposed order require the respondents
to distribute the order to the Fully Capitated Health Plans and to
certain officers, directors, and managers. Parts III.C, III.D, and
III.E require each
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respondent to file compliance reports, retain certain documents, and
notify the Commission of certain changes in its corporate structure.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-14420 Filed 5-29-98; 8:45 am]
BILLING CODE 6750-01-M
