[Federal Register Volume 61, Number 164 (Thursday, August 22, 1996)]
[Notices]
[Pages 43380-43384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21432]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF JUSTICE
Antitrust Division
[Civil Action No. 96-389-BMZ]
United States v. Woman's Hospital Foundation and Woman's
Physician Health Organization; Public Comments and United States'
Response to Public Comments
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States publishes below the comments received on
the proposed Final Judgment in United States v. Woman's Hospital
Foundation and Woman's Physician Health Organization, Civil Action 96-
389-BMZ, United States District Court for the Middle District of
Louisiana, together with the response of the United States to the
comments.
Copies of the response and the public comments are available on
request for inspection and copying in Room 200 of the U.S. Department
of Justice, Antitrust Division, 325 7th Street, NW., Washington, DC
20530, and for inspection at the Office of the Clerk of the United
States District Court for the Middle District of Louisiana, United
States Courthouse, 777 Florida Street, Suite 208, Baton Rouge,
Louisiana 70801.
Rebecca P. Dick,
Deputy Director of Operations, Antitrust Division.
United States' Response to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act (commonly referred to as the ``Tunney Act''), 15 U.S.C.
16(b)-(h), the United States hereby responds to public comments
regarding the Consent Decree proposed to settle this proceeding in the
public interest. The United States received several comments from a
single source, General Health, Inc. (``General Health''). General
Health does not oppose entry of the Consent Decree. Rather, one of its
comments points out an inadvertent mistake in the language of the
Decree which has been corrected to reflect the original intent of the
parties. (A revised Final Judgment will be filed shortly with the Court
as an attachment to a motion for entry of the Judgment.) General
Health's two other comments suggest additional prophylactic relief.
After careful consideration of these comments, the United States
concludes that the additional relief suggested by General Health is not
necessary because the proposed Consent Decree, as amended, will provide
an effective and appropriate remedy for the antitrust violations
alleged in the Complaint. Once the public comments and this Response
have been published in the Federal Register, pursuant to 15 U.S.C.
16(d), the United States will move the Court to enter the Consent
Decree.
On April 23, 1996, the United States filed a Complaint alleging
that Defendants Woman's Hospital Foundation and Woman's Physician
Health Organization (``WPHO'') violated sections 1 and 2 of the Sherman
Act, 15 U.S.C. 1, 2. At the same time, the United States filed a
proposed Consent Decree, a Stipulation signed by all parties agreeing
to entry of the Decree following compliance with the Tunney Act, and a
Competitive Impact Statement (``CIS''). On May 6, 1996, the United
States filed a Notice of Amendment of Competitive Impact Statement and
an Amended Competitive Impact Statement.
Pursuant to the Tunney Act, on May 3, 1996, the Defendants filed
the required description of certain written and oral communications
made on their behalf. A summary of the terms of the proposed Decree and
the CIS and directions for the submission of written comments were
published in the Washington Post for seven consecutive days, from April
28, through May 4, 1996, and in the Baton Rouge Advocate from April 30,
through May 7, 1996. The proposed Consent Decree and the CIS were
published in the Federal Register on May 10, 1996. 61 FR 21,489 (1996).
The 60-day period for public comments began on May 10, 1996, and
expired on July 9, 1996. General Health submitted several comments; the
United States is filing them as attachments to this Response. The
United States has concluded that the Consent Decree, as amended,
reasonably, adequately, and appropriately addresses the harm alleged in
the Complaint. Therefore, following publication of the comments and
this Response, the United States will move this Court to hold that
entry of the proposed Consent Decree, as amended, is in the public
interest.
I. Background
Woman's Hospital Foundation owns and operates Woman's Hospital, a
facility with 149 staffed acute care beds. Woman's Hospital provides a
range of care, including inpatient, outpatient, and home health
services, to women and infants in the Baton Rouge area. It is the
dominant provider of private inpatient obstetrical care in Baton Rouge.
In the late 1980's, competition among doctors for participation in
managed care plans created the opportunity for the entry of other Baton
Rouge area
[[Page 43381]]
hospitals into the market for inpatient obstetrical care. Woman's
Hospital viewed the new entrants, particularly the Health Center, owned
by General Health, as a serious competitive threat because General
Health also owned the Gulf South Health Plans, Inc. (``Gulf South''),
the largest managed care plan in Baton Rouge.
In June 1992, in an effort to stave off competition from the new
Health Center, Woman's Hospital entered into negotiations with General
Health offering to continue contracting at discounted hospital rates
with Gulf South in return for General Health's agreement not to provide
inpatient obstetrical services for the next 5 to 7 years. Woman's
Hospital eventually retreated from this particular attempt to foreclose
competition from the Health Center.
In 1993, Woman's Hospital made another effort to prevent new
entrants from becoming significant competitors. Woman's Hospital formed
an economic alliance with its medical staff in the form of defendant
WPHO, a physician hospital organization. WPHO's purpose was to
establish a minimum physician fee schedule and serve as a joint
bargaining agent on behalf of Woman's Hospital and participating
doctors with managed care payers. Through WPHO, Woman's Hospital hoped
to assure the continued ``loyalty'' of its medical staff. Nearly every
OB/GYN on Woman's Hospital's medical staff joined WPHO. The physicians'
agreement with WPHO authorized it to contract with managed care plans
on behalf of doctors at or above a minimum fee schedule. WPHO did not
develop utilization review standards, and the agreement to limit price
competition was not reasonably necessary to further any efforts by WPHO
to encourage physicians to practice more cost effectively.
Defendants and WPHO physicians collectively obtained higher fees
for OB/GYNs, deprived managed care plans of the ability to selectively
contract with OB/GYNs, and prevented the development of competition for
inpatient obstetrical services.
These actions, along with the additional conduct alleged in the
Complaint, violated Sections 1 and 2 of the Sherman Act.
II. Response to Public Comments
The comments on the Consent Decree are from a single source,
General Health, whose relationship with Woman's Hospital is discussed
above. General Health does not object to the entry of the proposed
Decree, rather its comments suggest changes or additions to the relief
set forth. Each of General Health's comments is discussed separately
below.
1. General Health's first comment refers to the language used in
the definition of ``qualified managed care plan'' (``QMCP''). General
Health proposes that the last phrase of Section II (G)(1)(b) be amended
to add the underscored word ``or'' as follows: ``so long as Woman's
Hospital or WPHO and they do not own an interest in another physician
network * * *.'' (``They'' refers to any single physician or single
pre-existing physician practice group.) The rationale for the proposed
change is to make clear that the prohibition against ownership in
another physician network applies to any physician network in which
Woman's Hospital and ``they'' or WPHO and ``they'' are involved, rather
than only to physician networks in which all three entities are
involved. The United States discussed this comment with Defendants'
counsel who concurs that the proposed change actually clarifies the
original intent of the parties.
2. General Health's second comment suggests adding two provisions
to the proposed Decree. First, General Health would add a prohibition
against Woman's Hospital and WPHO participating in ``any agreement
relating to prices, terms, or conditions upon which physician services
are provided to patients'' except in connection with a QMCP or
messenger model. Second, General Health would add a provisions
enjoining consenting physicians from participating in ``any agreement
relating to the prices, terms or conditions upon which Woman's Hospital
provides hospital services to patients'' except in connection with a
QMCP or messenger model. The rationale asserted for these proposed
changes is that the Final Judgment will not prevent the defendants and
consenting physicians from ``informally'' engaging in the same types of
anticompetitive conduct alleged in the Complaint.
The United States believes that the Court should enter the proposed
Consent Decree without these additions. The proposed ``addition'' to
the injunctive relief against Woman's Hospital and WPHO neither differs
substantively from, nor adds to, the relief already provided. Contrary
to General Health's contention, the proposed Final Judgment does not
permit Woman's Hospital and WPHO to engage in ``informal''
anticompetitive conduct. Specifically, Section IV(A)(1) enjoins Woman's
Hospital and WPHO from ``directly, or through any agent, organization
or other third party, expressing views on, or conveying information on,
competing physicians' prices or other terms and conditions, or
negotiating on behalf of competing physicians.'' Any attempt by Woman's
Hospital or WPHO informally to enter into an agreement relating to
prices or other terms and conditions for the provision of competing
physicians' services would violate this Section of the proposed Decree.
General Health's suggestion to prohibit consenting physicians from
participating in agreements involving Woman's Hospital's fees would add
a substantive provision that is inappropriate and unnecessary. This
additional injunctive relief would prevent a single consenting
physician from participating in a managed care plan controlled solely
by another area hospital for the purpose of competing with other
managed care companies simply because Woman's Hospital was also
participating in the other hospital's plan. Such circumstances do not
necessarily raise competitive concerns. In fact, to the extent that
formation of such a plan offers consumers additional choice in the
marketplace, its formation could be procompetitive.
Moreover, the allegations in the Complaint directed at physicians
involve agreements among competing physicians concerning the prices
charged for physician services. The United States has not alleged any
anticompetitive conduct resulting from an agreement by physicians
regarding the fees charged for Woman's Hospital services. The
injunctive relief against consenting physicians in Section IV(B)(2)
provides appropriate and adequate relief by prohibiting them from
``participating in or facilitating any agreement among competing
physicians on fees or other terms and conditions for physician
services, including the willingness of physicians to contract on any
terms with particular payers or to use facilities competing with
Woman's Hospital's facilities * * *.'' In sum, the proposed Decree
provides appropriate and adequate relief for the violations alleged in
the Complaint.
3. General Health's third comment suggests that any network
operated by Defendants based on a messenger model should be subject to
the 30% physician participation limitation placed on a QMCP and the
requirement of prior written approval for its formation from the
Department of Justice.
These additional limitations are inappropriate. The messenger model
in the proposed Consent Decree uses an agent or third party to
facilitate the transfer of information concerning prices and other
competitively sensitive information between individual physicians and
purchasers of physician
[[Page 43382]]
services. The critical feature of a properly devised and operated
messenger model, as defined by the Decree, is that individual providers
make their own separate decisions about whether to accept or reject a
purchaser's proposal, independent of the other physicians' decisions
and without any influence by the messenger. Thus, the messenger model
in the Decree already contains adequate safeguards against its being
used as a vehicle for organizing a physician boycott. As explained in
the CIS, the messenger may not coordinate individual providers'
responses to a particular proposal, disseminate to physicians the
messenger's or other physician's views or intentions concerning the
proposal, act as an agent for collective negotiation and agreement, or
otherwise serve to facilitate collusive behavior. CIS at 18.
Because a QMCP, in contrast to a messenger model, allows for some
collective decision-making among competing physicians, including
agreements among competitors on the prices for their services, a QMCP
presents a greater risk of collusive behavior. For this reason, in the
circumstances of this case, the proposed Decree requires that
defendants obtain prior approval from the Department of Justice to
operate a QMCP and limits physician ownership participation to no more
than 30% in any relevant market.
III. The Legal Standard Governing the Court's Public Interest
Determination
The Tunney Act directs the Court to determine whether entry of the
proposed Decree ``is in the public interest.'' 15 U.S.C. Sec. 16(e). In
making that determination, ``the court's function is not to determine
whether the resulting array of rights and liabilities is one that will
best serve society, but only to confirm the resulting settlement is
within the reaches of the public interest.'' United States v. Western
Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.), cert. denied, 114 S. Ct.
487 (1993) (internal quotation and citation omitted).\1\
---------------------------------------------------------------------------
\1\ The Western Electric decision concerned a consensual
modification of an existing antitrust decree. The Court of Appeals
assumed that the Tunney Act was applicable.
---------------------------------------------------------------------------
The Court should evaluate the relief set forth in the Decree in
light of the claims alleged in the Complaint and should enter the
Decree if it falls within the Government's ``rather broad discretion to
settle with the defendant within the reaches of the public interest.''
United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995).
The Court is not ``to make de novo determination of facts and
issues.'' Western Elec., 993 F.2d at 1577. Rather, ``[t]he balancing of
competing social and political interests affected by a proposed
antitrust decree must be left, in the first instance, to the discretion
of the Attorney General.'' Id. (internal quotation and citation omitted
throughout). In particular, the Court must defer to the Department's
assessment of likely competitive consequences, which it may reject
``only if it has exceptional confidence that adverse antitrust
consequences will result--perhaps akin to the confidence that would
justify a court in overturning the predictive judgments of an
administrative agency.'' Id \2\
---------------------------------------------------------------------------
\2\ The Tunney Act does not give a court authority to impose
different terms on the parties. See, e.g., United States v. American
Tel. & Tel. Co., 552 F. Supp. 131, 153 n.95 (D.D.C. 1982), aff'd sub
nom. Maryland v. United States, 460 U.S. 1001 (1983) (Mem.); accord
H.R. Rep. No. 1463, 93d Cong., 2d Sess. 8 (1974). A court, of
course, may condition entry of a decree on the parties' agreement to
a different bargain, see, e.g., AT&T, 552 F. Supp. at 225, but if
the parties do not agree to such terms, the court's only choices are
to enter the decree the parties proposed or to leave the parties to
litigate.
---------------------------------------------------------------------------
The Tunney Act does not empower the Court to reject the remedies in
the proposed Decree based on the belief that ``other remedies were
preferable.'' Microsoft, 56 F.2d at 1460. To a great extent it is the
realities and uncertainties of litigation that constrain the role of
courts in Tunney Act proceedings. See United States v. Gillette Co.,
406 F. Supp. 713, 715-16 (D. Mass. 1975). As Judge Greene has observed:
If courts acting under the Tunney Act disapproved proposed
consent decrees merely because they did not contain the exact relief
which the court would have imposed after a finding of liability,
defendants would have no incentive to consent to judgment and this
element of compromise would be destroyed. The consent decree would
thus as a practical matter be eliminated as an antitrust enforcement
tool, despite Congress' directive that it be preserved.
United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 151
(D.D.C. 1982), aff'd sub nom., Maryland v. United States, 460 U.S. 1001
(1983) (Mem.). Indeed, where, as here, the Consent Decree comes before
the Court at the time the Complaint is filed, ``the district judge must
be even more deferential to the government's predictions as to the
effect of the proposed remedies * * *.'' Microsoft, 56 F.3d at 1461.
IV. Conclusion
As required by the Tunney Act, the United States will publish the
public comments and this Response in the Federal Register. After such
publication, the United States will notify this Court and move for
entry of the proposed Consent Decree based on this Court's
determination that the Decree is in the public interest.
Respectfully submitted,
Mark J. Botti, Pamela C. Girardi,
U.S. Department of Justice, Antitrust Division, Liberty Place--Suite
400, 325 7th St., N.W., Washington, D.C. 20530, (202) 307-0827.
L.J. Hymel,
United States Attorney.
By: ____________
John J. Gaupp LBN # 14976,
Assistant United States Attorney, 777 Florida St., Suite 208, Baton
Rouge, LA 70801, (504) 389-0443, Local Counsel.
June 25, 1996
Pam Girardi
United States Department of Justice
Health Care Task Force
Room 434
325 7th St., N.W.
Washington, D.C. 20530
Dear Ms. Girardi: As we discussed over the phone last week, we
would like to comment, on behalf of our client General Health, Inc.,
on the Department's proposed consent order with Woman's Hospital and
Woman's Physician Hospital Organization. We will formally submit our
comments before the comment period expires on July 9th. However, I
have attached a draft of our comments for your information, and to
facilitate an informal discussion of our proposed comments. I would
appreciate having an opportunity to discuss our comments with you
before we formally submit them. I can be reached at (202) 861-1888.
Thank you very much for your consideration.
Sincerely,
Michael R. Bissegger
II.
Definitions
(C) ``Qualified managed care plan'' means an organization that is
owned, in whole or in part, by either or both of the defendants, offers
a provider panel and satisfies each of the following criteria:
(1) Its owners or not-for-profit members (``members'') who compete
with other owners or members or with subcontracting physicians
participating in the plan, (a) [NO CHANGE] and (b) in combination with
the owners and members of all other physician networks in which Woman's
Hospital, WPHO or any of them who own an interest constitute no more
than 30% of the physicians in any relevant physician market, except
that it may include any single physician, or any single preexisting
physician practice group for each relevant physician market, so long as
Woman's Hospital or WPHO and they
[[Page 43383]]
do not own an interest in another physician network;
(2) [NO CHANGE]
(3) [NO CHANGE]
(4) [NO CHANGE]
(5) [NO CHANGE]
The organization * * * [NO CHANGE]
[RATIONALE FOR CHANGE]
The word ``or'' (at the bottom of page 7) is needed to make it
clear that the prohibition identified after the phrase ``so long as''
(at the bottom of page 7) is against any physician network in which two
of the three parties (e.g., Woman's Hospital and the single physician
or preexisting physician group practice, but not WPHO), rather than
only prohibiting a physician network in which all three are involved
(e.g., Woman's Hospital, WPHO, and a single physician or preexisting
physician group).
IV.
Injunctive Relief
(A) Woman's Hospital and WPHO are enjoined from:
(7) Directly, or indirectly, entering into, or participating in,
any agreement relating to the prices, terms, or conditions upon which
physician services are provided to patients; unless such an agreement
is necessary for the formation, organization, or operation of a
qualified managed care plan or messenger model as defined herein, and
approved in writing by the Department of Justice. Nothing in this
paragraph IV(A)(7) prevents Woman's Hospital or WPHO from entering an
agreement with a managed care plan or network for the provision of
hospital services, provided that such managed care plan or network is
not owned or controlled by Woman's Hospital, WPHO, or any consenting
physician.
(B) Each consenting physician is enjoined from:
(3) Directly, or indirectly, entering into, or participating in,
any agreement relating to the prices, terms, or conditions upon which
Woman's Hospital provides hospital services to patients; unless such an
agreement is necessary for the formation, organization, or operation of
a qualified managed care plan or messenger model as defined herein, and
approved in writing by the Department of Justice.
[RATIONALE FOR CHANGE]
The formation of WPHO and the other acts included in the complaint
represent the continuation of a long-standing pattern of concerted
action among many of the physicians in the community and Woman's
Hospital. The restrictions and limitations placed on the defendants and
consenting physicians go a long way toward preventing future agreements
on price, concerted refusals to deal, and other forms of
anticompetitive concerted action undertaken through a formal agreement
or organization such as WPHO. However, without the type of prohibition
or fencing in provision suggested above, the defendants and consenting
physicians will remain relatively free to informally engage in the same
types of anticompetitive conduct as alleged in the complaint through
other means.
Given the fact that the defendants and consenting physicians have a
history of coordinating their actions and have already ironed out a lot
of the mechanics of concerted action, it would be particularly easy for
these defendants and consenting physicians to continue their previous
course of conduct without creating the formal agreements and
organizational structure prohibited by the Final Order. Consequently,
we believe it is imperative that the Final Order address the potential
for the traditional, informal price agreements, boycotts, etc. that
have been such a significant part of antitrust enforcement for almost a
century.
(D) Nothing in this Final Judgment prohibits the defendants or the
consenting physicians from
(1) Forming, operating, owning an interest in, or participating in
(a) a messenger model (provided such messenger model satisfies each of
the criteria used to define a qualified managed care plan in II.(G)),
or (b) a qualified managed care plan, if defendants obtain prior
written approval from the Department of Justice, which will not be
withheld unreasonably, or
(2) [NO CHANGE]
[RATIONALE FOR CHANGE]
The Department's complaint alleges that the defendants engaged in
two types of anticompetitive behavior: an agreement on price among and
between physicians and Woman's Hospital; and an agreement among and
between physicians and Woman's Hospital regarding with whom physicians
would deal (only those payers willing to negotiate with WPHO), and
would not deal (General Health's Health Center). The provisions in the
Final Judgement relating to qualified managed care plans clearly
address both the potential for price fixing and for collective
agreements not to deal. However, while the messenger model provisions
contain in the Final Judgement do apparently address the potential for
price fixing agreements, the Final Judgement is ambiguous as to whether
or not the messenger model provisions are subject to the limitations
placed on qualified managed care plans that prevent or hinder the
formation of collective agreements not to deal. Without similar
limitations, a messenger model could be a vehicle for providers to
collectively agree not to deal.
The Competitive Impact Statement would apparently allow Women's
Hospital and WPHO to use a messenger model that is not subject to the
limitations, including the percentage of physicians that can
participate, that are placed on the defendants' development of a
qualified managed care plan. We believe that any negotiating
organization developed by the defendants using the messenger model
should be subject to the same constraints as those placed on a
qualified managed care plan, and that the language of the Final
Judgement and Competitive Impact Statement should be modified to make
that limitation explicit.
The price-fixing protections contained in the definition of the
messenger model do not adequately protect against the messenger model
becoming the means for boycott activity. A physician network organized
and operating according to the messenger model defined in the Final
Judgement is indeed, less likely to lead to price fixing behavior, but
it is wholly inadequate to prevent or even significantly hinder
attempts among the participants to collectively refuse to deal. For
example, the messenger model as defined would not prohibit the
messenger from informing participating physicians about the number of
physicians that have agreed to participate in a given plan, as long as
the messenger does not covey any information about prices or terms.
Similarly, the messenger would not be prohibited from communicating to
physicians how many other physicians were generally participating in
the network. The messenger would also be allowed to provide physicians
with a comparison of offers from various payers, which could easily
become a means for conveying to physicians which payer contracts are
favored, and which ones are not.
Obviously, the language of the messenger model provisions could be
modified to address the problems noted above. However, it would be
extremely difficult to ascertain whether defendants are complying with
the substantive protections included in the messenger model provisions.
Ensuring or verifying compliance is particularly important given the
fact that WPHO has already
[[Page 43384]]
been used as a vehicle to boycott the new Health Center. Subjecting a
messenger model network to a 30% limit on participation, as well as to
the other qualified managed care plan limitations, is not only the most
effective way to prevent a boycott from being effective, but also makes
compliance easily verifiable.\1\ Allowing defendants to operate a
messenger model that does not require DOJ approval and does not limit
the number of physicians who can participate, would be imprudent and
would jeopardize the efficacy of the Final Judgment. Consequently, we
believe that any network operated by defendants based on a messenger
model should be subject to all the limitations placed on a qualified
managed care plan.
---------------------------------------------------------------------------
\1\ While 30% of the physicians in a market could attempt a
boycott, it is unlikely they would try because a boycott consisting
of only 30% of the physicians in any relevant market would
undoubtedly, and obviously fail.
---------------------------------------------------------------------------
A 30% participation limitation on the messenger model would also
have a significant deterrent effect on any attempts to use the
messenger model as a means to coordinate pricing because managed care
plans competing with the Woman's Hospital/WPHO qualified managed care
plan could exclude the 30% of the doctors involved in the price fix.
Consequently, there would be little incentive for only 30% of the
physicians to agree on prices. Therefore, the 30% participation limit
goes a long way toward preventing such an agreement from taking place.
If it is important to prevent both price fixing and boycott
activity via the formation of a managed care plan, it is illogical to
address only the price fixing potential inherent in a negotiating
organization of physician and hospital providers. The use of the
messenger model alone does not address the potential for such a
negotiating organization to be the vehicle for organizing a boycott.
Without limitations such as those placed on qualified managed care
plans, a messenger model could be a vehicle for providers to
collectively agree not to deal. Similarly, we cannot see any
distinction between a messenger model and qualified managed care plan
that justifies not requiring prior written DOJ approval for operating a
messenger model. Consequently, we believe that the messenger model
should be limited to participation by 30% of the physicians in any
relevant market, and should be subject to the other restrictions placed
on qualified managed care plans. Finally, we recommend that the
defendants and consenting physicians also be required to obtain prior
written approval from the DOJ before forming, operating, owning an
interest in, or participation in a messenger model.
Certificate of Service
I, Pamela Girardi, hereby certify that copies of the United States'
Response to Public Comments in U.S. v. Women's Hospital Foundation and
Woman's Physician Health Organization, Civ. No. 96-389-B-MZ were served
on the 15th day of August 1996 by first class mail to counsel as
follows:
John J. Miles,
Ober, Kaler, Grimes & Shriver, Fifth Floor, 1401 H Street, NW.,
Washington, DC 20005.
Toby G. Singer,
Jones, Day, Reavis & Pogue, 1450 G Street, NW., Washington, DC 20005.
Pamela C. Girardi.
[FR Doc. 96-21432 Filed 8-21-96; 8:45 am]
BILLING CODE 4410-01-M
