991 0103

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of
Alaska Healthcare Network, Inc., a corporation.

Docket No. C-4007

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, as amended, 15 U.S.C. 41 et seq., and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Alaska Healthcare Network, Inc. ("Respondent AHN" or "AHN") has violated and is violating Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues this Complaint stating its charges in that respect as follows:

PARAGRAPH ONE: Respondent AHN is a non-profit corporation, organized, existing, and doing business under and by virtue of the laws of the State of Alaska, with its office and principal place of business located at 1867 Airport Way, Suite 115-A, Fairbanks, Alaska 99701.

PARAGRAPH TWO: Fairbanks is the second largest city in Alaska, with a population of over 31,000. The greater Fairbanks area has a population of over 80,000. Fairbanks is isolated in the interior of Alaska. The nearest city to Fairbanks that has a population over 2,000 is Anchorage, which is approximately 360 miles southwest of Fairbanks. Fairbanks Memorial Hospital is the only private acute care hospital in Fairbanks.

PARAGRAPH THREE: At all times relevant to this Complaint, all members of Respondent AHN were physicians (medical doctors and doctors of osteopathic medicine) engaged in the business of providing health care services for a fee, and practiced in Fairbanks and its immediate environs. Except to the extent that competition has been restrained as alleged herein, some or all of the physician members of Respondent AHN have been, and are now, in competition with each other for the provision of physician services.

PARAGRAPH FOUR: At all times relevant to this Complaint, of the physicians in full-time, year-round private practice in Fairbanks who have active medical privileges at Fairbanks Memorial Hospital, Respondent AHN's members included approximately 63% of all such physicians, 48% of the family and general practitioners, 72% of the internists, 100% of the pediatricians, 80% of the obstetrician-gynecologists, and 86% of the general surgeons.

PARAGRAPH FIVE: The general business practices of Respondent AHN and its members, including the acts and practices herein alleged, are in or affecting "commerce" as defined in the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

PARAGRAPH SIX: Respondent AHN engages in substantial activities for the pecuniary benefit of its members. At all times relevant to this Complaint, Respondent AHN is and has been organized in substantial part for the profit of its members, and is therefore a corporation within the meaning of Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

PARAGRAPH SEVEN: Physicians often contract with health insurance firms and other third-party payors, including health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs"). Such contracts typically establish the terms and conditions, including price terms, under which the physicians will render services to the subscribers of the third-party payors. In many cases, physicians entering into such contracts agree to reductions in their compensation in order to obtain access to additional patients. These contracts may permit third-party payors to lower their costs and thus reduce the cost of medical care for their subscribers.

PARAGRAPH EIGHT: Absent agreements among competing physicians on the terms, including price, on which they will provide services to subscribers or enrollees in health care plans offered or provided by third-party payors, competing physicians decide individually whether to enter into contracts with third-party payors to provide services to their subscribers or enrollees, and what prices they will accept pursuant to such contracts.

PARAGRAPH NINE: Respondent AHN, acting as a combination of its members, and in conspiracy with at least some of its members and others, has acted to restrain competition by, among other things, facilitating, entering into, and implementing agreements among its members, express or implied, to fix price and other competitively significant terms of dealing with payors, and to refuse to deal with payors except on collectively agreed-upon terms.

PARAGRAPH TEN: Respondent AHN was formed in 1996 to promote the collective economic interests of AHN's physician members. When AHN was formed, no HMO and only one PPO operated in the Fairbanks area; however, a wide range of third-party payors of physician services, including PPOs, HMOs, and government health care purchasing cooperatives, were then seeking to contract with Fairbanks physicians. AHN's founding members sought to organize Fairbanks physicians into a group that would have the power to maintain physicians' collective control over price and other terms of dealing with third-party payors.

PARAGRAPH ELEVEN: AHN described itself to members as a vehicle permitting them to bargain collectively with payors from a position of strength. It emphasized to its members that AHN, as a result of its size and its members' agreement to allow AHN to bargain on their behalf, was in a position to avert the competition that might otherwise be introduced into the Fairbanks area by managed care plans.

PARAGRAPH TWELVE : From early 1997 through 1998, AHN bargained collectively, on behalf of its physician members, about price and other terms of dealing with at least seven third-party payors. In early 1997, Respondent AHN collected fee information from its member physicians in order to develop a fee schedule that was used in contract negotiations with third-party payors. AHN told its members that its fee schedule represented members' usual fees, and that the fee schedule would be used to obtain a favorable level of reimbursement for area physicians. AHN's Board and Contracting Committee also adopted a "model contract" that required payors to use AHN's fee schedule and to delegate their credentialing, utilization review, and formulary management to AHN rather than operating their own programs.

PARAGRAPH THIRTEEN: AHN members authorized AHN's Executive Director to bargain on their behalf over the terms and conditions under which individual physicians would deal with third-party payors for contracts, including whether AHN members would share substantial financial risk for services delivered. With respect to PPO and other contracts where its members did not assume financial risk, AHN purported to operate as a "messenger model." Under a messenger model, an agent conveys payors' contract offers to individual physicians, who each make an independent decision whether to accept or reject each contract. In fact, AHN did not negotiate any contracts under which its physicians shared substantial financial risk, and it did not adhere to the messenger model. Instead, its Executive Director and Contracting Committee bargained with payors over payment and other terms of fee-for-service contracts. If a payor refused to agree to AHN's price and non-price terms, AHN would not transmit these payors' contract offers to AHN's physician members.

PARAGRAPH FOURTEEN: In 1998, AHN reached agreement on a contract with NYLCare, and referred it to individual members for their approval. AHN's Executive Director told the members that the Contracting Committee had revised the NYLCare contract proposal in a way that was responsive to the common economic interest of all AHN providers. Thereafter, Respondent AHN demanded that six other third-party payors use AHN's fee schedule, which represented fees actually charged by most AHN members. In addition, AHN demanded that those third-party payors use its model contract that required payors to delegate credentialing, quality assurance, and utilization review to AHN physicians. However, AHN had not implemented any utilization review, quality assurance, or credentialing systems, and it lacked the capacity to implement some or all of those services. AHN engaged payors in protracted negotiations over price and non-price terms that often extended for more than a year, with no resolution. AHN did not refer contract offers from any of these payors to its members.

PARAGRAPH FIFTEEN: Respondent AHN functioned de facto as the exclusive representative of its members. Through statements in its newsletters, documents, and other media, AHN encouraged its members to deal with payors only through AHN in order to obtain better price and other terms. Some payors who were seeking to enter the Fairbanks area attempted unsuccessfully to contract with individual physicians instead of AHN; physicians told the payors that AHN handled contracting for them and for other Fairbanks physicians. Payors believed that they could not go around AHN to contract individually with physicians in Fairbanks, and thus that they had no alternative but to reach agreement with AHN or to give up their planned entry into Fairbanks.

PARAGRAPH SIXTEEN: As a result of Respondent AHN's conduct, a wide range of third-party payors of physician services, including PPOs, HMOs, and employer health care purchasing cooperatives, were unable to secure contracts with physicians and thus were unable to do business in the Fairbanks area.

PARAGRAPH SEVENTEEN: The physician members of Respondent AHN have not integrated their practices to create efficiencies sufficient to justify their acts and practices described in Paragraphs 9 through 16.

PARAGRAPH EIGHTEEN: The purpose, effects, tendency, or capacity of the conduct described in Paragraphs 9 through 16 are and have been to restrain trade unreasonably and hinder competition in the provision of physician services in the Fairbanks area in the following ways, among others:

A. Price and other forms of competition among Respondent AHN's member physicians were unreasonably restrained;
B. Prices for physician services were increased;
C. The development of alternative health care financing and delivery systems was hindered;
D. Health plans, employers, and individual consumers were deprived of the benefits of competition in the purchase of physician services; and
E. Employers and individual consumers were deprived of the benefits of competition among health plans.

PARAGRAPH NINETEEN: The combination, conspiracy, acts and practices described above constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45. Such combination, conspiracy, acts and practices, or the effects thereof, are continuing and will continue or recur in the absence of the relief herein requested.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this twenty-fifth day of April, 2001, issues its Complaint against AHN.

By the Commission, with the five Commissioners voting in the affirmative, but with Commissioner Swindle and Commissioner Leary dissenting as to a structural component of the relief prescribed by the Decision and Order.

Donald S. Clark
Secretary
SEAL