Statement of Chairman Robert Pitofsky and Commissioners Sheila F. Anthony and Mozelle W. Thompson
Alaska Healthcare Network, Inc.
The Commission today issued a final consent order settling charges that a group of approximately 90 physicians in Fairbanks, Alaska, acting through an organization known as the Alaska Healthcare Network (AHN), unlawfully fixed prices and refused to deal with health plans except on collectively-determined terms. Commissioners Swindle and Leary have voted to issue the complaint and accept the consent order, but they dissent from the part of the order that limits AHN's membership if it engages in contracting activities with health plans. Commissioners Swindle and Leary recognize that structural relief can, in certain markets for physician services, "be appropriate fencing-in relief for the type of conduct involved in this case." We issue this statement to discuss why we believe that this order's modest structural provisions - which will last for a period of only five years, and which are subject to certain exceptions - are appropriate under the factual circumstances in this case.
The structural relief is based on our conclusion that, in this particular market, consumers would not be adequately protected by an order that only barred similar unlawful conduct in the future, without seeking to prevent continued anticompetitive harm from tacit collusion among AHN members. Part III of the order limits membership in AHN to 50 percent of the physicians in each of the five medical specialties if AHN acts as a "messenger" to facilitate health plan contracting with physicians. Membership is limited to 30 percent of physicians in these specialties in the event that AHN elects to form an integrated joint venture that would actually negotiate contracts on behalf of its physicians. We believe that this approach, rather than the more drastic remedy of dissolution, represents an appropriate supplement to the conduct remedy.(1)
Commissioners Swindle and Leary raise specific concerns about the effectiveness of a structural remedy in a market the size of the Fairbanks, Alaska market, the order's "grandfather" provision (which allows AHN to have a single pre-existing group practice in the organization even when that group's members cause AHN to exceed the cap), and the "entry" exception (which allows doctors new to the market to join existing practices without regard to the limits). Our view of the evidence differs. We believe that the structural relief will be effective at preventing future anticompetitive conduct, while the specific exceptions will preserve efficiencies.
The structural remedy will operate to reduce significantly AHN's "market share" in the various physician specialties, and thus its likely market power. Notably, the order will ensure that if AHN undertakes contracting activities, at least one of the two existing multi-specialty physician practice groups that previously have participated in AHN will henceforth remain outside of AHN, and thus will be available to serve as the nucleus for an alternative physician network. The order recognizes that while the present level of consolidation in particular specialties may confer market power on certain Fairbanks practice groups, that market power exists apart from, and has not been caused by, AHN's prior conduct.
We are also unpersuaded by our colleagues' suggestion that the structural remedy might discourage efficiency-enhancing mergers of physician practice groups in the specialties subject to the percentage limits. It is theoretically possible that physicians could so value AHN membership that they would refrain from a procompetitive merger because the merger would require forfeiting AHN membership. However, neither the Commission's investigation nor the public comments provide any evidence to support such a theory. To date, AHN appears to have had little function other than to facilitate the anticompetitive agreements challenged in this case. If AHN undertakes significant procompetitive activities in the future, the opportunities for establishing networks outside of AHN, along with the temporary nature of the structural remedy, make it highly unlikely that any competitive advantages of AHN membership would deter efficient consolidation of physician practices.
The evidence that we have seen persuades us that the structural remedy included in the order - limited in scope as well as duration - is necessary to prevent the perpetuation of AHN's unlawful conduct and its effects. Moreover, the risk that procompetitive integration will be deterred seems speculative at most. We therefore believe that limited structural relief is appropriate under the circumstances of this case.
1. In some prior cases involving physician collective bargaining with health plans, the Commission has ordered that the organization be entirely disbanded. See Physicians Group, Inc., 120 F.T.C. 567 (1995) (consent order); Southbank IPA, 114 F.T.C. 783 (1991) (consent order).