Advisory Opinion to Lyden (01-30-97)

January 30, 1997

Shawn M. Lyden, Esq. 
Brouse & McDowell 
500 First National Tower 
Akron, Ohio 44308-1471

Dear Mr. Lyden:

This letter responds to the written request of Ohio Ambulance Network, Inc., ("OAN") for a staff advisory opinion. As described below, OAN proposes to create a network of ambulance and ambulette services providers across northeast and southcentral Ohio. OAN states that its proposed network will enable it more effectively to respond to payers' needs and to compete with other providers for contracts with large payers, such as health maintenance organizations that require ambulance and ambulette services across increasingly broad geographic service areas.

OAN submitted its written request for a business review of its proposed ambulance services network to the United States Department of Justice on July 12, 1996. The request was transferred to the Federal Trade Commission because its staff had some familiarity with the ambulance service industry gained in other matters. OAN provided additional information clarifying the nature of the network's proposed operations to Commission staff on December 12, 1996.

Based on our understanding of the facts as explained in your correspondence, Commission staff have no present intention to recommend a challenge to the proposed establishment and operation of OAN. We have not conducted an independent investigation, and our assessment could change if our understanding of the facts changes significantly.

Description

Ohio Ambulance Network, Inc., is a for-profit corporation incorporated under Ohio law for the purpose of operating an ambulance services network. The sole shareholder and director of OAN, Eileen Clemente, also owns and operates Clemente McKay, an ambulance company that operates in Mahoning County, Ohio, and Clement McKay Management, a management company that will manage OAN.

OAN proposes to create a network of thirteen licensed ambulance and ambulette service providers ("members")(1) to offer scheduled, non-emergency ambulance and ambulette services throughout northeast and southcentral Ohio. Members will not hold an ownership interest in OAN, but will pay an initial membership fee and an annual management fee to cover OAN's operating and administrative costs.

Ambulance and ambulette services involve the provision of transportation services to persons who may require medical assistance during transport, such as persons traveling to or between hospitals, physicians offices, treatment clinics, or other health facilities. Ambulance services are provided to persons who potentially may require basic or advanced life support services during transit.(2)Ambulette services are provided to non-ambulatory persons (e.g., those confined to a wheelchair) who do not require ambulance services.

OAN 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, OAN intends to hire an independent contractor to act as a "messenger," conveying information, offers, and counteroffers between potential purchasers, such as HMOs and large employers, and each member provider. Each member will decide independently, without knowledge of the views or intentions of the messenger or other OAN members, whether to accept, reject, or propose a counteroffer to, terms proposed by potential purchasers.(3) OAN intends to ensure that members of the network, including OAN's principal, do not share competitively sensitive information.

Once terms transmitted by the messenger are deemed mutually acceptable to the purchaser and some or all of the network members, OAN intends to sign network contracts confirming the agreements between the purchaser and those individual members wishing to join the contract. OAN intends to administer network contracts by coordinating the scheduling and dispatch of members, centralizing billing and payment functions, and facilitating any necessary communication between a purchaser and a participating provider relating to patient grievances or other non-price related concerns. In addition, OAN will identify potential purchasers and actively market the network.

OAN will not directly provide ambulance or ambulette services. Those services will be provided by each member independent of control or direction by the network, in accordance with the terms of network participating agreements and of contracts with purchasers. For purposes of network administration, OAN intends to designate service areas within which each member is responsible for providing adequate service coverage. Within these areas a member will be designated as the primary provider for network services. This is designed to ensure that the network can provide adequate coverage and to provide members with a certain volume of business and maintain member satisfaction and participation in the network. These service areas will not restrict members' non-OAN business.

Members may compete independently with OAN for contracts with potential purchasers and may join provider networks other than OAN, including competing ambulance, hospital, or other multiprovider networks.(4)

Of the thirteen initial members of OAN, twelve currently operate ambulance and ambulette services in northeast Ohio and one currently operates in south central Ohio. The areas in which these providers currently operate comprise the network's "initial proposed service area." Within this proposed service area, OAN estimates that its members would account for an aggregate of approximately 19% of licensed providers, based on the number of providers listed in the service directory of licensed ambulance providers in Ohio. OAN anticipates that it will extend membership to additional providers in order to serve additional geographic areas, eventually achieving a statewide network, but states that it will increase membership only as reasonably necessary to properly administer its contracts and offer services in new geographic areas. OAN does not anticipate that its membership in any geographic area currently serviced by its members will substantially increase above existing levels. OAN estimates that, in larger metropolitan areas, such as Cuyahoga, Summit, and Mahoning, its members would account for an aggregate of approximately 8.5 to 20% of licensed providers, based on the number of providers listed in the service directory of licensed ambulance providers in Ohio. OAN estimates that its members may account for a more significant share, approximately 20 to 50%, of the market in rural areas where fewer providers operate. However, OAN intends to contract with only one rural provider except when no one provider can adequately serve the entire area, and thus the network is required to contract with multiple providers in order to provide sufficient geographic coverage. In such areas, OAN will limit membership to the number of providers that is reasonably necessary to provide adequate services.

Analysis

Based on your description of the proposed operation of OAN 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,(5) use of the messenger model to avoid a horizontal agreement on price terms can avoid concerns about price-fixing among the members through the network. Moreover, OAN does not propose to agree on other terms of dealing with payers.

Based on your representations, it is our understanding that OAN's agent will transmit information and contract offers between payers and OAN members, but will not negotiate fees or other terms on their behalf. The messenger will not disseminate to network members the views or intentions of other members regarding proposed terms, express an opinion on the terms offered, or make any representations about the attractiveness of proposed prices or price-related terms. Members will make individual determinations about whether to accept the terms offered by payers. Thus, the network proposed by OAN appears unlikely to create or facilitate exchanges of price or price-related information, or collective agreements on price or price-related terms, among members.

Furthermore, OAN maintains that it will not jointly negotiate utilization or quality assurance terms with payers. Under these circumstances, the facts do not suggest a basis for concern that operation of the network would be likely to have anticompetitive effects.

According to your letter of December 12, 1996,"[f]or utilization management and/or quality assurance policies and procedures developed by OAN, if any, an independent third party consultant would be retained to develop the policies and procedures and the approval of the OAN members would be sought through the use of the messenger model." Use of an "independent agent" hired by OAN to develop utilization review or quality assurance standards or programs to be offered or adopted by the entity would not necessarily eliminate a horizontal agreement on those terms, even if the members individually decide whether to agree to the group's adoption of them without discussion or explicit agreement among the members collectively.(6) Any such agreements would be evaluated under the rule of reason. This does not imply that adoption by OAN of uniform quality or service standards for services provided through the network, for example, necessarily would raise competitive concerns. However, since it is not clear from your letter whether OAN will seek to develop such programs, and no information about them has been provided, this letter does not analyze such agreements.

Conclusion

For the reasons discussed above, Commission staff has no current intention to recommend a challenge to the proposed creation and operation of OAN. 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. Action Emergency Ambulance; Ambulance Associates, Inc.; Ambulance Service, Inc.; C, C &S Ambulance; Carlson Ambulance Service; Clemente-McKay Ambulance Service, Inc.; Community Care Ambulance; Courtesy Ambulance; Donald Martens & Sons, Inc.; Life Care Ambulance Inc., and its subsidiary, Lorain Lifecare; Medical Response Ambulance, Inc.; Medical Transport Systems, Inc., and its subsidiary, Summit Transport Systems; United Ambulance, and its subsidiary, American Ambulance Response;

2. Basic life support services involve the equipment and trained personnel necessary to provide care such as controlling blood loss, splinting fractures, treating shock, delivering babies, and administering cardiopulmonary resuscitation. Advanced life support services involve more complex, specialized equipment, as well as personnel trained to provide critical life-sustaining services such as mobile coronary care, intravenous therapy, anti-shock trousers, and cardiac monitoring.

3. Under the terms of the draft agreement between OAN and the messenger:

  1. The Messenger shall convey to and obtain from the Network providers all information, offers and counter-offers concerning competitive contract terms and conditions individually and confidentially; and 
     
  2. The Messenger acknowledges that each individual Network provider shall make a separate, independent and unilateral decision to accept an offer or counter-offer from a Managed Care entity, in its sole discretion; and 
     
  3. The Messenger acknowledges that it has no authority to negotiate competitive contract terms and conditions on behalf of Network provider or otherwise bind the providers; and 
     
  4. The Messenger shall not disseminate to any Network provider the Messenger's or any of the provider's views or intentions as to a Managed Care entity's offer or counter-offer or otherwise facilitate any agreement among the Network providers on competitive contract terms and conditions; and 
  5. The Messenger shall convey only the information which Messenger receives from a Managed Care Entity to Network providers regarding proposed competitive contract terms and conditions, including comparisons with the terms and conditions offered by other Managed Care entities, and may solicit clarifications from Managed Care entities if so requested by a Network provider so long as the response is furnished only to the individual Network provider which requested the clarification.

4. Members of OAN currently contract independently with managed care payers and will remain free, under the terms of their contracts with OAN, to continue to do so.

5. Statements of Antitrust Enforcement Policy In Health Care, Issued by the U.S. Department of Justice and the Federal Trade Commission (August 1996).

6. See Health Care Statements at 126 n.65.