Statement of Chairman Robert Pitofsky
North Lake Tahoe Medical Group, Inc., File No. 981-0261
The Commission has published a proposed complaint alleging that North Lake Tahoe Medical Group ("Tahoe IPA") violated § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, by orchestrating an illegal group boycott among its member physicians who refused to deal with Blue Shield of California ("Blue Shield"). Because the actions of Tahoe IPA went beyond a mere refusal to contract and were, instead, part of a larger agreement to impede the growth of managed care health plans, we believe that the proposed order, including the remedial provisions contained in Section III, prescribes appropriate relief to restore competition and remedy the harm caused by Tahoe IPA's illegal activities.
Having reached an impasse in its efforts to raise the reimbursement rate paid by Blue Shield to its members, Tahoe IPA requested that its members withdraw from Blue Shield's health plan. Twenty-four doctors either withdrew, or announced their intention to withdraw, following Tahoe IPA's request. By engaging in an illegal group boycott directed at Blue Shield, Tahoe IPA and its members attempted to impair the growth and effectiveness of health insurance plans in the relevant market.
The proposed order is designed to restore competition lost as a result of the boycott. Section II.A of the order would prohibit Tahoe IPA from negotiating on behalf of its members with any payer or provider for physician services. Section II.A also would prohibit Tahoe IPA from orchestrating refusals to deal among its members with payers, fixing prices or any other terms on which its members deal with physicians, and preventing physicians from dealing with any payer or provider individually or through arrangements outside of Tahoe IPA. Section III of the proposed order further requires that Tahoe IPA terminate member physicians for a period of six months who refused to deal with Blue Shield as part of the illegal boycott led by Tahoe IPA. Section III permits Tahoe IPA to retain these members if they either (1) attempt in good faith to re-join Blue Shield's network for six months, or (2) rescind their refusals to deal and participate in the Blue Shield plan for at least six months.
The Commission is unanimous in its belief that the relief set forth in Section II is necessary to restore competition in the relevant market. However, Commissioner Swindle dissents from Section III of the order and contends that Tahoe IPA's members will have sufficient independent incentives to negotiate or contract with Blue Shield without Section III of the proposed order. The facts tell a different story.
Since the proposed order was reached with Tahoe IPA, 20 of its member physicians have agreed to re-join the Blue Shield provider network or to enter negotiations over terms under which they might re-join. Only four members of Tahoe IPA have refused to enter negotiations with Blue Shield. There is every reason to believe that the doctors have re-joined the Blue Shield network in part because of the pending order, and may have been more reluctant to do so in the absence of Section III.
Accordingly, given the conduct alleged in the complaint and its anticompetitive effects, we respectfully disagree with Commissioner Swindle. Section III of the proposed order is a modest, but appropriate, step to reverse the harm caused by Tahoe's illegal conduct. With a large percentage of area doctors withdrawing from its plan through an illegal boycott, Blue Shield no longer offered adequate services to its members. Provisions of the cease and desist order other than Section III prohibit further action to effectuate an agreement to boycott. But where the action has already succeeded, as it did here, something more is needed to restore competition that was eliminated through the anticompetitive conduct alleged in the complaint. Insufficient relief in this case could increase the likelihood of similar conduct arising in other markets. Moreover, the relief in Section III is limited to a six-month time period, and is narrowly tailored to meet the direct purpose of the proposed order by covering only the period when negotiations were occurring for the 1999 coverage year. Tahoe IPA is primarily responsible for the boycott, and it is therefore appropriate that Tahoe IPA take steps to make clear to its own membership that they must make a unilateral decision whether to continue to deal with Blue Shield.
In cases where illegal conduct has caused serious harm, the remedy should aim to undo the damage when reasonably possible. The objective of the proposed order in this case is to restore competition that has been lost through the illegal activities of Tahoe IPA and its members. Section III of the proposed order is an appropriate limited measure designed to accomplish this traditional antitrust remedial objective. It ensures that Tahoe IPA will allow its members to act in a manner consistent with their independent incentives, not in a fashion that allows the effects of an antitrust violation to persist.