UNITED STATES OF AMERICA
In the Matter of
PHYSICIAN NETWORK, a
| Docket No.
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 ("Commission"), having reason to
believe that the Washington University Physician Network ("WUPN")
has violated and is violating Section 5 of the Federal Trade
Commission Act, as amended, 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 its Complaint
stating its charges in that respect as follows:
Nature of the Case
1. This matter concerns horizontal agreements
among competing physicians in the greater St. Louis, Missouri,
area, to fix prices charged to health care plans and other
third-party payors ("payors"), and to refuse to deal with
payors except on collectively agreed-upon terms. The physicians
orchestrated these price-fixing agreements and concerted refusals
to deal through WUPN, and their conduct increased the prices
of physician services in the greater St. Louis area.
2. WUPN is organized under The General Not
for Profit Corporation Law of Missouri, and is doing business
under and by virtue of the laws of the State of Missouri.
WUPN's office and principal place of business is located at
7425 Forsyth Boulevard, Suite 307, Clayton, Missouri 63105.
3. Washington University and approximately
1,500 physicians are members of WUPN. WUPN, among other things,
negotiates on the physicians' behalf for contracts with payors.
All of the WUPN physicians practice medicine in the greater
St. Louis area. These physicians include not only approximately
900 members of the clinical faculty of the Washington University
School of Medicine ("faculty physicians"), but also approximately
600 independent physicians, whom WUPN refers to as "community
4. At all times relevant to this Complaint,
WUPN's community physicians have been engaged in the business
of providing medical services to patients for a fee. WUPN's
faculty physician members are full-time, salaried employees
of the Washington University School of Medicine. Except to
the extent that competition has been restrained as alleged
herein, WUPN's community physicians compete with one another
and with faculty physician members for the provision of physician
Has Jurisdiction over WUPN
5. WUPN's general business activities and
those of its members, including the acts and practices herein
alleged, are in or affecting "commerce" as defined in the
Federal Trade Commission Act ("FTC Act"), as amended, 15 U.S.C.
6. WUPN is a corporation within the meaning
of Section 4 of the FTC Act. Although WUPN's articles of incorporation
and by-laws designate Washington University, a non-profit
corporation, as its "sole member" for purposes of Missouri
corporation law, WUPN's community physicians are "members"
of the corporation within the meaning of Section 4 of the
FTC Act. WUPN engages in substantial activities for the pecuniary
benefit of its for-profit community physician members.
7. WUPN is governed by its Board of Directors,
which includes 29 "Voting Directors," a majority of whom (16)
are community physicians. These community physician board
members are elected by WUPN's community physician membership.
The board's remaining voting members are faculty physicians
chosen by Washington University.
8. WUPN regularly and in the ordinary course
of business classifies its community physicians as "members,"
and conducts its business affairs in a manner that demonstrates
that the community physicians are "members" of WUPN. To participate
in WUPN's network and utilize WUPN's contract negotiation
and other services, a community physician must complete a
WUPN "Membership Application." WUPN's "Membership and Credentialing
Committee," a 12-member panel of board members and appointees,
evaluates the physician's credentials and recommends to the
board the physician's eligibility for membership. Once community
physicians become members, they receive a "New Member Information
Packet" and are required to pay annual WUPN membership dues.
9. Community physicians, through their elected
representatives on the board, actively participate in WUPN's
management and business operations. WUPN's activities substantially
advance its community physician members' economic interests,
including providing discounted insurance rates, group purchasing,
continuing medical education, and financial planning opportunities;
and engaging in lobbying, marketing, and public relations
on behalf of its community physicians.
Overview of Market
and Physician Competition
10. WUPN's community physicians provide
health care services to patients in St. Louis city and St.
Louis County, Missouri; St. Charles and Jefferson Counties
in Missouri; and Madison County, Illinois ("the greater St.
11. Physicians often deal with payors through
contracts that establish the terms and conditions, including
prices and other competitively significantly terms, pursuant
to which the physicians provide medical services to patients
who are enrollees in the payors' health insurance plans. Payors
may also develop and sell access to networks of physicians
to employers and other purchasers of health insurance benefits.
Physicians entering into payor contracts often agree to reductions
in their compensation to obtain access to additional patients
made available by the payors' relationship with enrollees
of their health insurance plans. Physician-payor contracts
may reduce payors' costs, enable them to lower the price of
health insurance, and reduce out-of-pocket medical care expenditures
by subscribers to the payors' health insurance plans.
12. Absent agreements among them to the
contrary, competing physicians decide unilaterally whether
to enter into contracts with payors to provide services to
enrollees of the payors' health insurance plans, and on the
prices and other terms and conditions of dealing that they
will accept under such contracts.
13. Medicare's Resource Based Relative Value
System ("RBRVS") is a system used by the United States Centers
for Medicare and Medicaid Services to determine the amount
to pay physicians for the services they render to Medicare
patients. The RBRVS approach provides a method to determine
fees for specific services. In general, payors make contract
offers to individual physicians or groups at a price level
specified as some percentage of the RBRVS fee for a particular
year (e.g., "110% of 2002 RBRVS").
14. In light of WUPN's large number of member
physicians and the extensive geographic territory that they
collectively cover in the greater St. Louis area, payors believe
that, to be competitively marketable in that area, their health
insurance plans must offer physician networks that include
WUPN's physician members.
WUPN Negotiated Payor Contracts
on the Physicians' Behalf
15. WUPN was established in 1993 to promote,
among other things, the collective economic interests of its
community physicians by increasing their negotiating leverage
with payors. Among other things, WUPN, through its board,
develops guidelines for negotiating, reviewing, approving,
rejecting, terminating, and renewing payor contracts; approves
price terms for dealing with payors; establishes procedures
for credentialing WUPN's physicians; approves formulas for
distributing revenues among the School of Medicine and community
physicians from payor contracts; and establishes billing and
payment procedures for the community physicians. WUPN has
implemented agreements among its physician members to restrain
competition by, among other things, engaging in collective
negotiations over price and other terms and conditions of
dealing with payors, and resisting payors' cost containment
measures. In 2000, WUPN reported that it had "successfully
negotiated 25 managed care fee-for-service contracts for its
members, most of which have very favorable terms when compared
to contracts entered into on an individual basis or through
16. WUPN negotiates payor contracts, including
the price terms therein, on the collective behalf of its faculty
physicians and community physicians. Representatives of WUPN's
management committee, a 12-member panel consisting of physician
board members and other board appointees, negotiate directly
with payors and report on the progress of their negotiations
to the board. This committee advises the board on which proposed
payor price terms to accept or reject, and which payor contracts
to terminate or continue. The board decides whether to accept
or reject a payor contract, including the price terms contained
therein, upon the approval of a majority of the community
physician directors and of the faculty physician directors
present at the board meeting, so long as a majority of the
board is present.
17. WUPN's member physicians sign an agreement
appointing WUPN as their agent in contract negotiations with
payors. If a WUPN member physician participates in a payor's
health plan through a contract that WUPN negotiated after
the same physician contracted to participate in the same plan
through another group contract, then WUPN informs that payor
that the WUPN contract supersedes the payor's pre-existing
contract with that physician.
Negotiations with Blue Cross
Blue Shield of Missouri
18. Blue Cross Blue Shield of Missouri ("BCBS")
is a payor doing business in the greater St. Louis area. At
a November 2000 board meeting, WUPN's management committee
reported that its representatives had begun negotiating on
behalf of WUPN's member physicians for a new contract with
BCBS. WUPN's then-current contract with BCBS was scheduled
to expire on March 31, 2001. Pursuant to their agreement with
each other and with WUPN, the community physicians and faculty
physicians acted in concert concerning whether and on what
terms, including price, to deal with BCBS.
19. On February 26, 2001, WUPN demanded
in writing that BCBS pay specific, substantial price increases
before its member physicians would agree to participate in
BCBS's several health plan products. For example, WUPN required
that BCBS pay its member physicians 140% of 2001 RBRVS for
their participation in BCBS's "BlueChoice" product. On March
19, 2001, BCBS counter proposed much smaller rate increases
to WUPN. BCBS's proposed terms included, with respect to the
BlueChoice product, payment levels of 85% to 110% of 2001
RBRVS, depending on the covered medical procedure. WUPN rejected
this offer and, at an April 2001 board meeting, its management
committee asked for and received the board's permission to
issue a notice of termination to BCBS.
20. In May of 2001, shortly before the threatened
termination, BCBS met WUPN's demands for substantial price
increases. BCBS agreed to pay WUPN's physician members 140%
of RBRVS for their participation in the BlueChoice plan. BCBS
also agreed to meet WUPN's price demands for the other BCBS
Negotiations with CarePartners
21. CarePartners is a payor doing business
in the greater St. Louis area. Pursuant to their agreement
with each other and with WUPN, the community physicians and
faculty physicians acted in concert concerning whether and
on what terms, including price, to deal with CarePartners.
On February 1, 2000, at a WUPN board meeting, the management
committee reported on a meeting that it recently held with
CarePartners to discuss payment levels under CarePartners'
contract with the WUPN physicians. WUPN, through its management
committee negotiators, demanded substantial price increases
under the CarePartners contract. CarePartners counterproposed
much smaller price increases, which WUPN rejected. WUPN insisted
that CarePartners submit a revised price proposal by the end
of February 2000 "that better addresses WUPN Member's [sic]
22. At a March 7, 2000, WUPN board meeting,
the management committee reported that CarePartners submitted
a revised proposal that was "equally as unacceptable as their
first proposal," and the board rejected it. On April 4, the
board voted to serve CarePartners with notice that WUPN was
terminating its current contract, effective April 26. After
receiving this notice, CarePartners - threatened with the
community physicians' and faculty physicians' concerted refusal
to deal - resumed contract negotiations with WUPN. On May
1, 2000, CarePartners agreed to pay the prices that WUPN demanded.
The Board voted to accept these terms, which became effective
December 1, 2000.
Negotiations with Other Payors
23. Pursuant to agreements with and among
the community physicians and faculty physicians, and on their
collective behalf, WUPN has negotiated price and other competitively
significant contract terms with other payors as well, including
CIGNA Healthcare, UnitedHealth Group, and Healthlink. WUPN's
coercive tactics, including threatened refusals to deal, have
forced payors to pay higher prices to WUPN member physicians
to obtain their participation in the health insurance plans
available to patients in the greater St. Louis area.
WUPN Engaged in Restraints
24. The faculty physicians and community
physicians, acting as a combination of competing physicians
through and with WUPN, have restrained competition by, among
a. facilitating, negotiating, entering
into, and implementing agreements among themselves and WUPN
b. refusing to deal with payors except
on collectively agreed-upon terms; and
c. negotiating prices and other competitively
significant terms in contracts with payors.
WUPN's Actions Are Not Justified
by Any Efficiencies
25. WUPN's joint negotiation of price and
other competitively significant contract terms has not been,
and is not, reasonably related to any efficiency-enhancing
integration among the community physicians themselves, or
among the community physicians jointly with the faculty physicians.
WUPN's Conduct Resulted in
26. WUPN's actions as described in this
Complaint have had, or have tended to have, the effect of
restraining trade unreasonably and hindering competition in
the provision of physician services in the greater St. Louis
area in the following ways, among others:
a. price and other forms of competition
among WUPN's member physicians were unreasonably restrained;
b. prices for physician services were
c. health plans, employers, and individual
consumers were deprived of the benefits of competition among
27. The combinations, conspiracies, acts,
and practices described above constitute unfair methods of
competition in violation of Section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. § 45. Such combinations,
conspiracies, acts, and practices, or the effects thereof,
are continuing and will continue in the absence of the relief
WHEREFORE, THE PREMISES CONSIDERED,
the Federal Trade Commission on this ________ day of _________________,
2003, issues its Complaint against WUPN.
By the Commission.
Donald S. Clark