UNITED STATES OF AMERICA In the Matter of Asociacion de Farmacias Region de Arecibo, Inc., a nonprofit corporation, and Ricardo L. Alvarez Class, individually and as an officer of Asociacion de Farmacias Region de Arecibo, Inc. Docket No. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission (“Commission”), having reason to believe that Asociacion de Farmacias de Region Arecibo ("respondent AFRA") and Ricardo L. Alvarez Class ("respondent Alvarez") have violated the provisions of said Act, 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 as follows: PARAGRAPH ONE: This complaint concerns the respondents’ agreement to set the price and other terms and conditions under which they would participate in “the Reform,” the Puerto Rican program established under the Puerto Rico Health Insurance Administration Act of 1993, Act No. 72, Article II, to provide care to Puerto Rico’s indigents. The Government of Puerto Rico established the Reform in order to provide high quality health care, including pharmacy goods and services, to its indigents. RESPONDENTS PARAGRAPH TWO: Respondent AFRA is a nonprofit corporation organized, existing, and doing business under and by virtue of the laws of the Commonwealth of Puerto Rico, with its principal place of business at Suite 336, GPO Box 3016, Manati, Puerto Rico 00674. PARAGRAPH THREE: Respondent Alvarez is an owner of Empresas Alvasie, which operates Farmacia Elda in Manati, Puerto Rico. He served as AFRA’s President from its inception until March 1997, and is currently AFRA’s treasurer. Respondent Alvarez’s principal place of business is located at Barrio Cantera Carr. #2, Km. 44.5, Manati, Puerto Rico 00674. JURISDICTION PARAGRAPH FOUR: Respondent AFRA exists and operates in substantial part for the pecuniary benefit of its members. By virtue of its purposes and activities, respondent AFRA is a "corporation" within the meaning of Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. §44. PARAGRAPH FIVE: The acts and practices of respondents, including those herein alleged, are in or affect commerce within the meaning of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45. THE REFORM PARAGRAPH SIX: The government of Puerto Rico established the Reform in order to ensure that all island residents have access to quality health care, including pharmacy services, regardless of financial condition and capacity to pay. The Reform is financed by the Commonwealth, Federal Medicaid funds, other applicable Federal funds, contributions by employers and individual employees, and income from privatization funds (such as leases and sales of government-owned health care facilities). To date, the Reform has been implemented throughout much of Puerto Rico, although it is not yet in place in San Juan and its environs, or Ponce. The reform currently covers approximately 1.1 million individuals, 29% of Puerto Rico’s total population. When fully operational, the Reform is expected to cover approximately 2 million individuals, over 50% of Puerto Rico’s population. PARAGRAPH SEVEN: The law implementing the Reform created the Administración de Seguros de Salud (“ASES”), a public corporation, and charged it with implementing and administering the Reform. ASES divided Puerto Rico into seven regions. With respect to each region, ASES solicits bids from payers to administer the Reform, and to organize and provide services for beneficiaries. ASES then selects one payer per region. That payer then contracts with health care providers, including hospitals, physicians, pharmacies, and dentists. PARAGRAPH EIGHT: After reviewing bids from several payers, ASES selected Triple- S to administer the North Region of the Reform upon the Reform’s inception in the Region on April 1, 1995. The North Region consists of the municipalities of Arecibo, Barceloneta, Camuy, Ciales, Florida, Hatillo, Lares, Manati, Morovis, Quebradillas, Utuado, and Vega Baja. The combined population of these municipalities is approximately 434,000, of which 260,000, are beneficiaries under the Reform. AFRA’S MEMBERSHIP PARAGRAPH NINE: All of respondent AFRA’s members are pharmacies located in the North Region of the Reform. During the time period during which the acts and practices described in Paragraphs FOURTEEN through TWENTY-ONE below took place, respondent AFRA’s membership included the vast majority of pharmacies operating in the North Region. For much of this time period, respondent AFRA had approximately 125 members, constituting approximately 80% of the pharmacies in the North Region, and at least 64% of the pharmacies in each municipality in the Region. PARAGRAPH TEN: Except to the extent that competition has been restrained as alleged herein, some or all of the members of respondent AFRA have been, and are now, in competition among themselves and with other pharmacies in the North region. PARAGRAPH ELEVEN: Except to the extent that competition has been restrained as alleged herein, respondent Alvarez, through his ownership of Empresas Alvasie, which operates Farmacia Elda, has been, and is now, in competition with at least some of AFRA’s member pharmacies and other pharmacies in the North region. PARAGRAPH TWELVE: Absent agreements among competing pharmacies on the price and other terms upon which they will provide services to third-party payers, competing pharmacies decide individually whether to enter into contracts with third-party payers, and on the terms and conditions under which they are willing to enter into such contracts. ANTICOMPETITIVE CONDUCT PARAGRAPH THIRTEEN: In engaging in the acts and practices described in Paragraphs FOURTEEN through TWENTY-ONE below, respondent AFRA has acted as a combination of its members and has conspired with at least some of its members including respondent Alvarez. PARAGRAPH FOURTEEN: Respondent AFRA was formed on November 22, 1994, as a vehicle for its members to deal concertedly with third party payers. Pursuant to a provision in its Articles of Incorporation, and upon agreement of its members, AFRA negotiated on behalf of its members with health plans. In furtherance of this agreement, in December 1994, each AFRA member signed an agreement designating AFRA as its bargaining agent. PARAGRAPH FIFTEEN: Respondent Alvarez was instrumental in the formation and activities of respondent AFRA. As respondent AFRA’s President from its inception until March 1997, respondent Alvarez directed respondent AFRA’s efforts to set price and other terms and conditions for participation in the Reform, and provided the leadership necessary to unite otherwise competing pharmacies. PARAGRAPH SIXTEEN: From approximately January 1995 to the present, respondent AFRA, under the leadership of respondent Alvarez, conspired to fix the terms and conditions, including terms of financial compensation, under which its members would contract with Triple- S and thereby participate in the Reform. PARAGRAPH SEVENTEEN: Beginning in January 1995, respondent AFRA negotiated on behalf of its members with Triple-S the terms and conditions of member participation in the Reform. Specifically, respondent AFRA sought to increase compensation for its members, and to require Triple-S to contract with all its members that sought to do so. Respondent Alvarez was respondent AFRA’s principal spokesperson and negotiator in discussions with Triple-S. PARAGRAPH EIGHTEEN: On January 13, 1995, respondent AFRA’s members met to discuss the payment terms pursuant to which they would participate in the Reform. Respondent AFRA’s members prepared a proposed dispensing fee schedule. Respondent Alvarez exhorted respondent AFRA’s members to refuse to sign contracts with Triple-S until advised to do so by respondent AFRA, and directed delegates from each municipality to spread the word to pharmacies in their respective towns not to sign contracts with Triple-S. PARAGRAPH NINETEEN: On January 15, 1995, respondent Alvarez and other AFRA members met with Triple-S, and presented AFRA’s proposed dispensing fee schedule. Thereafter, Triple-S raised the dispensing fee for generic pharmaceuticals by one dollar, and AFRA members agreed that they would provide services when the Reform began in the North Region on April 1, 1995. PARAGRAPH TWENTY: In March 1996, Triple-S announced a new price schedule that lowered reimbursement to AFRA’s member pharmacies. In response, respondent Alvarez requested a meeting with Triple-S, at which he demanded that Triple-S rescind the new price schedule. When Triple-S refused to rescind the price schedule, respondent Alvarez enlisted AFRA’s attorneys to contact Triple-S and threaten legal action. Thereafter, Triple-S raised the dispensing fee paid to pharmacies in the North Region, but kept its new price schedule for pharmaceuticals in place. PARAGRAPH TWENTY-ONE: In May 1996, respondent AFRA’s members, under respondent Alvarez’s leadership and guidance, threatened to withhold services under the Reform as of June 10, 1996, because Triple-S had refused to accede to all of its demands concerning the terms of pharmacy compensation. Specifically, although Triple-S had agreed to raise the dispensing fee paid to pharmacies as demanded by respondent AFRA, Triple-S remained unwilling to comply with respondent AFRA’s demands to raise its price schedule for pharmaceuticals. Upon receiving the boycott threat, Triple-S acceded to respondent AFRA’s demands and raised the prices it paid to pharmacies for pharmaceuticals, thus averting the threatened boycott. The new fee schedule implemented by Triple-S amounted to a 22% increase over the level of prices paid to AFRA’s members under the March 1996 fee schedule. Respondent Alvarez organized and presided over the meeting at which AFRA’s members voted to threaten to boycott Triple-S, and composed the letter in which respondent AFRA communicated the boycott threat to Triple-S. PARAGRAPH TWENTY-TWO: The individual members of respondent AFRA have not integrated their businesses in any economically significant way, nor have they created any efficiencies that might justify the acts and practices described in Paragraphs FOURTEEN through TWENTY-ONE. EFFECTS PARAGRAPH TWENTY-THREE: The purpose, tendency, effects, or capacity of respondents’ acts and practices as described in Paragraphs FOURTEEN through TWENTY-ONE are and have been to restrain trade unreasonably and hinder competition in the provision of pharmacy goods and services in the North Region of the Reform in Puerto Rico, in the following ways, among others:
PARAGRAPH TWENTY-FOUR: The combination or conspiracy and the acts and practices of respondents AFRA and Alvarez, as herein alleged, constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The violation or the effects thereof, as herein alleged, will continue or recur in the absence of the relief herein requested. WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this _____ day of ____________, 199 , issues its complaint against respondents AFRA and Alvarez. By the Commission. SEAL Donald S. Clark |