Office of the Secretary

April 25, 2001

Gary B. Schwartz, MPH
Senior Practice Consultant
Integrated Medical Practices, LLP
3180 Peger Road, Suite E
Fairbanks, Alaska 99709

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

Dear Mr. Schwartz:

Thank you for your letter 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 specialties 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).

Most of your comment states your disagreement, based on your experience as Executive Director of AHN during the time of the challenged conduct, with the charges in the complaint. The Commission, however, found that there was reason to believe that AHN had engaged in the conduct charged and that the law had been violated. Because AHN has agreed to entry of the consent order, the facts will not be adjudicated. It would be inappropriate for the Commission to discuss the evidence obtained during its non-public investigation that underlies the allegations regarding AHN's conduct that are set forth in the complaint.

The Commission considered the concerns you raise regarding the temporary caps on AHN's membership that are contained in the order, but found no reason to modify the terms of the consent order. First, nothing in the order should lead to the break-up of the two multispecialty group practices in Fairbanks. Part III of the order permits AHN to have as members all the doctors in a single pre-existing group practice, without regard to the market share caps.

Second, the Commission carefully considered whether the order poses any other 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. 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 explicitly 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.

Finally, with respect to your concern about the impact of the order on large medical groups and IPAs throughout the country, the order's market share limitations 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 order's 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 Fairbanks in the five specialties 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 or in other parts of the nation 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.(1)

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. You also expressed concern about potential impacts of the order on medical groups. Members of an integrated physician group practice are not considered competitors under the antitrust laws. Thus, their collective negotiation and contracting with health plans does not raise the antitrust issues that underlie the Commission's actions in this matter.