California All Health

The Federal Trade Commission staff has advised that the formation and operation of California All Health (CAH) would not appear to violate federal antitrust laws and that it may produce significant efficiencies. CAH is a joint venture of six health maintenance organizations doing business in Cali- fornia that is being formed to bid on contracts to provide comprehensive medical services to beneficiaries of Califor- nia's Medicaid program (Medi-Cal) in four counties -- Los Angeles, San Bernardino, Riverside, and Kern.

The six HMOs are CIGNA, United Health Plan, Kaiser, FHP Healthcare, Blue Cross of California, and Blue Shield of Cali- fornia, and their participation will be non-exclusive. As planned, CAH will assume the financial risk of providing covered services to Medi-Cal enrollees in exchange for a fixed capitation payment established unilaterally by the California Department of Health Services. The bulk of this risk will be passed through to the participating HMOs through subcapitation agreements. Each HMO will agree to accept the subcapitation as payment in full for covered services rendered to CAH enrol- lees who have selected that HMO. CAH will be a separately licensed managed care organization, however, and it is respon- sible for providing contract services to beneficiaries.

In a letter to CAH, Mark J. Horoschak, Assistant Director for Health Care of the FTC's Bureau of Competition, analyzes several aspects of CAH before concluding that its operation is unlikely to significantly impair competition in any market. Among other things, the letter states, there is evidence of economic integration and risk-sharing among network partici- pants. Moreover, CAH would not appear to limit significantly competition among HMOs for the Medi-Cal contract in any of the counties in which it proposes to operate, the letter states.

In addition, the letter states, because the participating HMOS would not have bid for the Medi-Cal contract on their own, the formation of CAH enables an additional bidder to compete for the contract while still allowing Medi-Cal patients to choose from among the participating HMOs. "More- over, the joint venture permits the participating plans to share the costs of bidding on, and administering, the con- tract, and to share knowledge and experience concerning Medi- Cal services," the letter concludes.

NOTE: This letter sets out the views of the staff of the FTC's Bureau of Competition, as authorized by the Commission's Rules of Practice. It has not been reviewed or approved by the Commission. As the Commission's rules explain, the staff's advice is rendered "without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding." Staff advice concerning issues covered by the Federal Trade Commission/Department of Justice Health Care Policy Statements will be given within 90 to 120 days (depending on the topic) after all necessary information is provided.

Copies of the staff letter and the original inquiry, as well as the DOJ/FTC Statements of Antitrust Enforcement Policy in the Health Care Area, are available from the FTC's Public Reference Branch, Room 130, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20580. FTC news releases and other materials also are avail- able on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov