ANALYSIS OF AGREEMENT CONTAINING
CONSENT ORDER TO AID PUBLIC COMMENT
The Federal Trade Commission has accepted,
subject to final approval, an agreement containing a proposed
consent order with the Washington University Physician Network
(WUPN). The agreement settles charges that WUPN violated Section
5 of the Federal Trade Commission Act, 15 U.S.C. § 45, by
orchestrating and implementing agreements among WUPN and its
independent, community-based physician members ("community
physicians"), and facilitating agreements among its community
physicians and its Washington University School of Medicine
full-time faculty physician members ("faculty physicians"),
to fix prices and other terms on which they would deal with
health plans, and to refuse to deal with such purchasers except
on collectively-determined terms. The proposed consent order
has been placed on the public record for 30 days to receive
comments from interested persons. Comments received during
this period will become part of the public record. After 30
days, the Commission will review the agreement and the comments
received, and will decide whether it should withdraw from
the agreement or make the proposed order final.
The purpose of this analysis is to facilitate
public comment on the proposed order. The analysis is not
intended to constitute an official interpretation of the agreement
and proposed order, or to modify their terms in any way. Further,
the proposed consent order has been entered into for settlement
purposes only and does not constitute an admission by WUPN
that it violated the law or that the facts alleged in the
complaint (other than jurisdictional facts) are true.
The Complaint Allegations
WUPN consists of 900 faculty physicians
and 600 community physicians who provide health care services
in St. Louis, Missouri and four neighboring counties ("the
greater St. Louis area"). WUPN was established in 1993 to
facilitate, among competing physicians, collective bargaining
with health plans in order to obtain more favorable reimbursement
rates and other "very favorable terms when compared to contracts
entered into on an individual basis or through another organization."
WUPN is a not-for-profit corporation, and
its sole legal member is Washington University ("WU"), also
a non-profit entity. Section 4 of the FTC excludes certain
types of non-profit corporations from its definition of entities
under its jurisdiction. However, the Commission has jurisdiction
over WUPN because WUPN's community physicians, who operate
for profit, are "members" of WUPN due to their significant
role in governing the organization. Also, WUPN provides substantial
economic benefits for its community physician members, who
make up a minority of the membership but are granted a substantial
role in WUPN to enhance their incomes and bargaining power.
WUPN is managed and controlled by a Board
of Directors made up of 16 community physicians and 13 faculty
physicians. Contracts with health plans are negotiated by
representatives of WUPN's Management Committee, and progress
of its negotiations is reported to WUPN's Board. The Committee
recommends to the Board whether to accept or reject a payor's
fee schedule, or whether to terminate or extend a payor's
existing contract. The Board votes on the recommendation,
which requires majority approval.
WUPN has successfully coerced a number
of health plans to increase the fees they pay to WUPN members,
and thereby raised the cost of medical care in the greater
St. Louis area. As a result of the challenged actions of WUPN,
consumers in the greater St. Louis area are deprived of the
benefits of competition among physicians. By facilitating
agreements among WUPN members to deal only on collectively-determined
terms, and actual or threatened refusals to deal with health
plans that would not meet those terms, WUPN has violated Section
5 of the FTC Act.
WUPN's collective negotiations with payors
are not justified by any efficiency-enhancing integration
among the community physicians, or among the community physicians
and the faculty physicians.
The Proposed Consent Order
The proposed order is designed to prevent
recurrence of the illegal conduct charged in the complaint,
while allowing WUPN to engage in legitimate conduct that does
not impair competition. It is similar to recent orders that
the Commission has issued to settle charges that physician
groups engaged in unlawful agreements to raise the fees they
receive from health plans.
The proposed order's specific provisions
are as follows:
Paragraph II.A prohibits WUPN from entering
into or facilitating any agreement between or among any physicians:
(1) to negotiate with payors on any physician's behalf; (2)
to deal, refuse to deal, or threaten not to deal with payors;
(3) on what terms to deal with any payor; or (4) not to deal
individually with any payor, or not to deal with any payor
through an arrangement other than WUPN.
Other parts of Paragraph II reinforce these
general prohibitions. Paragraph II.B prohibits WUPN from facilitating
exchanges of information among physicians concerning whether,
or on what terms, to contract with a payor. Paragraph II.C
bars attempts to engage in any action prohibited by Paragraph
II.A or II.B. Paragraph II.D proscribes inducing anyone to
engage in any action prohibited by Paragraphs II.A through
As in other orders addressing providers'
collective bargaining with health care purchasers, certain
kinds of agreements are excluded from the general bar on joint
First, WUPN would not be precluded from
engaging in conduct that is reasonably necessary to form or
participate in legitimate joint contracting arrangements among
competing physicians, whether a "qualified risk-sharing joint
arrangement" or a "qualified clinically-integrated joint arrangement."
Second, WUPN would be permitted to enter into any agreement
or engage in any conduct that only involves WU faculty members
with respect to services provided by WU physicians.
As defined in the proposed order, a "qualified
risk-sharing joint arrangement" possesses two key characteristics.
First, all physician participants must share substantial financial
risk through the arrangement, such that the arrangement creates
incentives for the participants to control costs and improve
quality by managing the provision of services. Second, any
agreement concerning reimbursement or other terms or conditions
of dealing must be reasonably necessary to obtain significant
efficiencies through the joint arrangement.
A "qualified clinically-integrated joint
arrangement," on the other hand, need not involve any sharing
of financial risk. Instead, as defined in the proposed order,
physician participants must participate in active and ongoing
programs to evaluate and modify their clinical practice patterns
in order to control costs and ensure the quality of services
provided, and the arrangement must create a high degree of
interdependence and cooperation among physicians. As with
qualified risk-sharing arrangements, any agreement concerning
price or other terms of dealing must be reasonably necessary
to achieve the efficiency goals of the joint arrangement.
Paragraphs III.A and III.B require WUPN
to send notice of the order and complaint to all WUPN participating
physicians, WUPN employees and principals, and all payors
WUPN has contacted since January 1, 1998, concerning the provision
of physician services. Paragraph III.C. requires WUPN to terminate,
without penalty, any preexisting contract with a payor upon
receipt of a payor's written request to terminate the contract.
This provision is intended to eliminate the effects of WUPN's
anticompetitive actions. Paragraph III.D of the proposed order
requires WUPN to distribute the order and complaint prospectively
to new members, newly contracted payors, and new employees
for a period of three years, and Paragraphs IV through VI
set out WUPN's requirements to report or provide access to
information to the Commission to facilitate monitoring of
WUPN's compliance with the order.
The proposed order will expire in 20 years.