Advisory Opinion to Cashmore (12-22-97)

December 22, 1997

Timothy C. Cashmore
Saperstein & Day, P.C.
1100 M&T Center
Three Fountain Plaza

Buffalo, NY 14203-1486

Dear Mr. Cashmore:

This letter responds to the written request of Alliance of Independent Medical Services, LLC ("AIMS"), for a staff advisory opinion concerning its proposal to create a network of ambulance, ambulette, wheel chair van and fly-car transportation service(1) providers in New York State. Based on our understanding of the facts as explained in your letters of August 22, 1997 and November 10, 1997, as well as other information available to us, Commission staff have no present intention to recommend a challenge to the establishment and operation of AIMS as proposed. We have not conducted an independent investigation, and our assessment could change if our understanding of the facts changes significantly.

DESCRIPTION

AIMS is a New York limited liability company formed for the purpose of marketing and coordinating the delivery of medical transportation services by a network of independent ambulance service providers to health plans and other large purchasers of health care services. Six providers(2) of ambulance services ("members") have become members of AIMS and intend to participate in the proposed multi-provider network. All six ambulance service providers are licensed under Article 30 of the New York Public Health Law. Each member has an equal membership interest in AIMS, and each member will designate one person to serve on the Board of Managers of the organization. Each AIMS member contributed $2,500 to cover start-up expenses, and AIMS anticipates that it will be compensated for certain services it will provide, such as centralized dispatch and billing pursuant to contracts with its members. Additionally, AIMS members will make annual contributions to cover any excess expenses of its operation.

The expressed purpose of AIMS is to enable its members to compete more effectively with large ambulance providers by permitting them to offer ambulance transportation coverage state-wide or in the western New York region through a single network at a reasonable cost.(3) New York State limits the geographic area in which each provider may operate. You have stated that because of these geographic limitations and other factors, the participants of AIMS are unlikely to expand their individual operations throughout the western New York region. As a result, they find it difficult to compete with ambulance service providers who can offer broader regional coverage to health care purchasers. AIMS members believe that in order to remain competitive, it will become critical for ambulance service companies to provide large purchasers with broader regional networks within the state and, that through AIMS, they will be able to provide a competitive alternative to regional providers.

Initially, AIMS will serve Western New York pursuant to network contracts. In the future, AIMS may admit ambulance providers in other parts of New York State to membership in

order to expand the geographic areas it can serve. However, AIMS intends to avoid admitting members whose market shares, alone or in conjunction with the market shares held by existing members, would pose the danger that operation of AIMS would reduce rather than increase competition for ambulance transportation services. Additionally, AIMS anticipates limiting its members to one ambulance transportation service provider in each geographical area in order to minimize the likelihood that its members will be in actual competition with one another. Some of the existing members of AIMS are licensed by the New York State Health Department to service overlapping areas. However, the areas members traditionally have served do not overlap significantly, and the members do not generally compete directly with one another.

AIMS members intend to share in the cost of centralized billing, dispatch and complaint resolution. AIMS plans to provide purchasers of health care services with a single phone number to contact for dispatch purposes. Depending on the location of the patient, the dispatcher would determine which member should provide ambulance transportation services in a particular situation. The primary responsibility for providing ambulance transportation services will be assigned to the ambulance service licensed in the particular geographic area where the services are required. If there is an overlap of authorized geographical territories, the primary responsibility will be assigned to the ambulance service that AIMS determines is best able to respond, based principally on the traditional service area of the participants. Outside the network, AIMS will not restrict the ability of its members to compete with one another, to compete with the network itself, or to participate in other multi-provider networks.

AIMS intends to contract with payers using the "messenger model." Initially, it is anticipated that pricing would be on a transport-by-transport basis, including a mileage component.(4) AIMS members will not agree among themselves on the terms of their dealings with payers or negotiate collectively with respect to price, utilization or quality assurance terms. Instead, an agent of AIMS, not otherwise affiliated with any of the members of AIMS, will act as a "messenger" and obtain from each participant a fee schedule that represents the minimum payment that member will accept from a purchaser. The agent will be authorized to contract on behalf of the members with payers offering prices at or above the minimum payment level specified by the member. The agent will not negotiate pricing terms with the payer and will not share pricing information among competing members. Price offers that do not meet an individual member’s authorized fee will be conveyed to that member, who may agree to accept the lower fee schedule. If requested by a purchaser in developing a contract offer, the agent may develop a schedule to be presented to the purchaser showing the percentages of members in the network who have authorized contracts at various price levels.

If a particular purchaser is unable to contract with at least a majority of the members of AIMS, AIMS will not be permitted to administer the contract, such as by providing centralized dispatch, billing and complaint resolution. AIMS believes it would be inappropriate to utilize network services for contracts that benefit fewer than a majority of the members. However, any members who wished to contract with a purchaser at a price that was unacceptable to the majority of the participants would be free to negotiate the contract independently directly with the purchaser.

ANALYSIS

Based on your description of the proposed operation of AIMS as summarized above, the proposed network does not appear to involve horizontal agreements on price-related terms. As is discussed in Statement 9 of the Health Care Statements, use of the messenger model to avoid a horizontal agreement on price terms can avoid concerns about price-fixing among the members through a network. Moreover, AIMS does not propose to agree on other terms on which AIMS’ members would deal with payers.

Based on your representations, it is our understanding that the agent hired by AIMS will transmit information and contract offers between payers and the AIMS members, but will not negotiate fees or other terms on their behalf. The messenger will not negotiate pricing terms with the payer and will not share pricing information among competing members. Members will make individual determinations about whether to accept the terms offered by payers. As described, the network proposed by AIMS appears unlikely to create or facilitate exchanges of price or price-related information, or collective agreements on price or other terms of dealing, among members.

CONCLUSION

For the reasons discussed above, Commission staff has no current intention to recommend a challenge to the proposed creation and operation of AIMS. This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission’s Rules of Practice. Under Commission Rule § 1.3(c), 16 C.F.R. § 1.3(c) (1994), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved and, with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed program results in substantial anticompetitive effects, if the program is used for improper purposes, if facts change significantly, or if it would be in the public interest to do so.

Sincerely yours,

Robert F. Leibenluft
Assistant Director

1. The services are referred to collectively as "ambulance transportation services."

2. The six providers are: 1) Medical Transport Service, Inc., serving Allegany County; 2) Monroe Medi-Trans, Inc., serving Monroe, Livingston, Orleans, Genesee, Wayne and Ontario Counties; 3) Genesee Memorial Hospital and St. Jerome Hospital, serving Genesee and Wyoming Counties; 4) Trans Am Ambulance Services, Inc., serving Cattaraugus and Allegany Counties; 5) Twin City Ambulance Corp., serving Erie and Niagra Counties; and 6) WCA Services Corporation, Inc., serving Chautauqua, Cattaraugus and Allegany Counties. Each owns and operates a local ambulance service. AIMS was unable to attain information on its members’ revenues or volume of transports relative to other providers in the members’ areas of operation, but it estimated that each of its members constituted less than 20% of the ambulance service providers operating in its service areas.

3.AIMS anticipates that most of its contracts will pertain to non-emergency medical transports, principally by ambulance, although it would like to have the ability to compete for contracts for emergency medical services on a region-wide basis.

4.Depending on payer preference, the members of AIMS may also entertain proposals based on capitation or risk-sharing arrangements. However, as you did not provide any details about such contracts or request an opinion regarding these arrangements, this opinion letter does not discuss risk-sharing or capitation arrangements.