Office of the Secretary

April 25, 2001

James J. Jordan
Executive Director
Alaska State Medical Association
4107 Laurel Street
Anchorage, Alaska 99508

Re: Alaska Healthcare Network, Inc., File No. 991-0103, Docket No. C-4007

Dear Mr. Jordan:

Thank you for your letter on behalf of the Alaska State Medical Association commenting on the consent order provisionally accepted by the Commission in this proceeding. Your letter was placed on the public record pursuant to  2.34 of the Commission's Rules of Practice. The Commission gave careful consideration to the views expressed in your letter as well as the other comments filed in this matter. On April 25, 2001, the Commission voted to make the consent order final without change.

The consent agreement settles charges that Alaska Healthcare Network (AHN) unlawfully restrained competition by facilitating and implementing agreements among its physician members to fix prices and to refuse to deal with health plans except on collectively determined terms. Specifically, the complaint charges that AHN negotiated price and other contract terms with health plans on behalf of its member physicians and that the members regarded the organization de facto as their exclusive bargaining agent, so that most health plans that sought to enter the market were unable to contract with a sufficient number of physicians. Further, the complaint alleges that AHN did not engage in any activities that might justify collective agreements on the prices its members would accept for their services, and that its actions restrained price and other competition among Fairbanks physicians and thereby harmed consumers.

Because of the high proportion of Fairbanks area physicians who are members of AHN and the relatively limited number of doctors in the community, there appears to be a significant danger that, without some form of structural relief, AHN members could successfully perpetuate the effects of AHN's unlawful conduct by colluding on a tacit basis with respect to their dealings with health plans. As a consequence, the order imposes certain limits (for a period of five years) on the proportion of Fairbanks physicians practicing in five specialty fields who may be members of AHN if it decides to offer the services of its physicians to health plans (either through a qualified risk-sharing or clinically integrated joint venture or through another type of arrangement such as a messenger model network).

The Commission carefully considered whether the temporary caps on AHN's membership that are contained in the order pose any risk of competitive harm in Fairbanks, including whether the order might discourage efficient mergers among physician practices or inhibit entry into the market by new physicians. It found no reason to modify the terms of the consent order. The order does not prohibit mergers among physician practices, and it is unlikely to discourage the formation of more efficient medical practices. Given the distribution of Fairbanks physicians in the affected five specialty areas, most of the potential mergers among physicians in each specialty who were members of AHN at the time of the investigation would produce practices that did not exceed the market share caps, unless the single largest physician group in Fairbanks were involved.

With respect to the possible effects of the structural relief on entry by new physicians, the order permits AHN member practices to expand by entry from outside the market without limitation by the market share caps. Furthermore, it does not appear likely that non-members of AHN would be placed at a competitive disadvantage that might discourage new physicians from entering independently or joining Fairbanks physician practices that are not members of AHN during the five years the market share caps are in place. It is unlikely that exclusion from a messenger model operated by AHN would place any doctor at a competitive disadvantage, because there should not be any significant impediment to the non-AHN doctors establishing their own messenger organization, if desired. Should AHN establish an integrated venture during the five year period that its size is limited, it is unlikely that any such venture would be the sole provider panel for any health plan. Most health plans, particularly in recent years, have tried to recruit broad physician networks in order to meet consumer demand for choice among physicians. As a result, any AHN integrated venture likely would be only one part of a payer's provider network, leaving ample competitive opportunities for physicians outside the venture.

Your letter suggests that the market share limitations contained in the order may be applied more generally to physician groups throughout Alaska. These limitations, however, apply only to AHN (for a period of 5 years). As is explained in the Analysis to Aid Public Comment that was published with the consent order in this matter, the market share limitations do not mean that physician networks with more inclusive memberships are inherently or presumptively unlawful. The five-year limitation on the proportion of doctors in the five specialties in Fairbanks who may contract through AHN is a "fencing-in provision," designed to remedy the effects of illegal conduct, and it does not reflect a judgment by the Commission that arrangements that fall outside these temporary fencing-in limits are in themselves illegal. Thus, physicians in Alaska will not be subject to investigation or prosecution by the Commission simply because their memberships are more inclusive than is permitted under the fencing-in provision of this order.

Finally, the order's inclusion of government health benefit programs within the definition of "payer" does not prohibit AHN from working with government payers. The kinds of discussions between government agencies and professional associations about the administration of government-sponsored health benefits programs that are referred to in your letter would not violate the order.(1) Indeed, the Commission has recognized that many kinds of discussions between physician organizations and payers do not raise antitrust concerns, but instead may promote competition and benefit consumers.(2) It is clear, on the other hand, that price-fixing agreements and collective refusals to deal directed against government payers are unlawful.(3) The order properly prohibits these types of activities. Because the order as written does not prohibit either constitutionally-protected petitioning of government by AHN or its communications with payers that are not part of prohibited anticompetitive concerted action among AHN's members, the Commission has determined that no revision is necessary to accommodate the concern expressed in your letter.

By direction of 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

1. The order prohibits AHN from entering into or facilitating any agreement among Fairbanks-area physicians involving joint negotiation with a payer, refusing to deal with payers, or regarding terms on which any physician is willing to deal, and from exchanging among competing physicians information about their intentions with respect to negotiation or contracting with payers.

2. See, e.g., Prepared Statement of the Federal Trade Commission Before the Committee on the Judiciary, United States House of Representatives, Concerning H.R. 1304 (June 22, 1999). The Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care 40-48 (1996) recognize "antitrust safety zones" for health care providers' collective provision of certain types of fee-related and other information to purchasers of health care services.

3. See, e.g., FTC v. Superior Court Trial Lawyers, 493 U.S. 411 (1990).