UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
the Matter of
CARLSBAD PHYSICIAN ASSOCIATION, INC., a
WILLIAM J. BAGGS, M.D.,
SRICHAND S. DARA, M.D.,
JAMES J. PURPURA, D.O.,
DEBORAH J. SCHENCK, M.D.,
CHARLES L. SECORA, M.D.,
MAJID A. SYED, M.D., and
RICHARD L. ZIZZA, M.D., individually.
Docket No. C-4081
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, having reason to
believe that the Carlsbad Physician Association, Inc. ("CPA"), William J. Baggs, M.D.,
Srichand S. Dara, M.D., Glen Moore, James J. Purpura, D.O., Deborah J. Schenck, M.D., Charles L.
Secora, M.D., Majid A. Syed, M.D., and Richard L. Zizza, M.D., hereinafter collectively referred to
as "Respondents," have violated Section 5 of the Federal Trade Commission Act, 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 this Complaint stating its charges in that respect as follows:
I. NATURE OF THE CASE
1. This matter concerns horizontal agreements among
competing physicians who constitute most of the physicians in the Carlsbad,
New Mexico, 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 CPA, and their conduct
had the purpose and effect of raising the
prices of physician services in the Carlsbad area.
2. CPA is a for-profit corporation, organized, existing,
and doing business under and by virtue of the laws of the State of New Mexico,
with its principal address at 2420 West Pierce St., Suite 100, Carlsbad,
NM 88220. CPA's Board of Directors ("Board") consists of the
organization's officers: the President, Vice President, Treasurer, Secretary,
and Member-at-Large. The Contract Committee, which consists of all the Board
members and certain other physician
members of Respondent CPA, negotiates and reviews proposed payor contracts before
presenting contract information to CPA's physician members. Upon a majority
vote of acceptance by CPA's
physician members, the Board signs payor contracts on behalf of the members.
3. Glen Moore has been CPA's Executive Director since
December 1999. His principal address is P.O. Box 381, Benton, MS 39039. Respondent
Moore is CPA's principal negotiator of payor contracts on the physician members'
behalf. Respondent Moore has participated in
most, if not all, Board meetings, Contract Committee meetings, and general membership
meetings in which CPA's physicians discuss and agree on the prices to charge
payors. The Board and the
Contract Committee often assist Respondent Moore in negotiating and reviewing
4. The following individuals ("Physician Respondents")
are physicians licensed to practice medicine in the State of New Mexico,
and are engaged in the private practice of medicine for a fee in the Carlsbad,
New Mexico area. The Physician Respondents are, or were, active
members of CPA. Except to the extent that competition has been restrained as
alleged herein, the Physician Respondents have been, and are now, in competition
with each other, and with other
physician members of CPA, for the provision of services. Their respective names,
and roles in CPA are as follows:
a. William J. Baggs, M.D., 2410 W. Pierce St., Carlsbad, NM 88220, was one
of CPA's founders, and has been a member of the Board and the Contract
Committee at various times between 1998 and the present.
b. Srichand S. Dara, M.D., 110 S. Halagueno, Carlsbad, NM 88220, was one of
CPA's original Board members. Dr. Dara is a former Secretary of CPA, and
has been a member of the Board and Contract Committee at various times
between 1998 and the present.
c. James J. Purpura, D.O., 2330 West Pierce St., Carlsbad, NM 88220, is a
former President of CPA, and has been a member of the Board and the
Contract Committee at various times between 1998 and the present.
d. Deborah J. Schenck, M.D., 2420 West Pierce St., Suite 103, Carlsbad, NM
88220, is a former Treasurer of CPA, and has been a member of the Board
and the Contract Committee at various times between 2000 and the present.
e. Charles L. Secora, M.D., 2402 West Pierce St., Suite 6F, Carlsbad, NM
88220, is a former Secretary and Vice President of CPA, and was a member
of the Board and the Contract Committee at various times between 1998 and
2002. He is also a former Chairperson of the Contract Committee.
f. Majid A. Syed, M.D., 2402 West Pierce St., Suite 6D, Carlsbad, NM 88220,
was a founder of CPA, is a former President of CPA, and has been a member
of the Board and the Contract Committee at various times between 1998 and
the present. He is also a former Chairperson of the Contract Committee.
g. Richard L. Zizza, M.D., 2420 West Pierce St., Suite 100, Carlsbad, NM
88220, has been CPA's President and the Chairperson of its Contract
Committee since 2001. He has served on the Board and Contract Committee
at various times between 2000 and the present.
III. THE FTC HAS JURISDICTION OVER RESPONDENTS
5. Respondents' general business practices, including
the acts and practices herein alleged, are in or affecting "commerce" as defined in the Federal Trade Commission Act, as amended,
15 U.S.C. § 44.
IV. OVERVIEW OF MARKET AND PHYSICIAN COMPETITION
6. CPA has approximately 38 physician members, all of
whom are licensed to practice allopathic, osteopathic, chiropractic, or podiatric
medicine in the State of New Mexico, and are engaged in the business of providing
physician services to patients in the Carlsbad, New Mexico,
area. Approximately 83% of the primary care physicians and 76% of all physicians
who practice in the
Carlsbad area are members of CPA.
7. Carlsbad is in southeastern New Mexico. The closest
major cities to Carlsbad are Roswell, New Mexico, 76 miles to the northwest
of Carlsbad; El Paso, Texas, 162 miles to the southwest; and Lubbock, Texas,
179 miles to the northeast. To be competitively marketable in the
Carlsbad area, a payor's health insurance plan must include in its physician
network a large number of primary care physicians and specialists who practice
in the Carlsbad area.
8. Physicians often contract with payors to establish
the terms and conditions, including price terms, under which the physicians
will render services to the payors' subscribers. Physicians entering into such
contracts often agree to lower compensation in order to obtain access to
additional patients made available by the payors' relationship with insureds.
These contracts may reduce payors' costs and enable them to lower the price
of insurance, and thereby result in lower
medical care costs for subscribers to the payors' health insurance plans.
9. Absent agreements among competing physicians on the
terms, including price, on which they will provide services to enrollees in
payors' health care plans, competing physicians decide individually whether
to enter into payor contracts to provide services to their subscribers or enrollees,
and what prices they will accept pursuant to such contracts.
10. 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 in the Carlsbad
area 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 2003 RBRVS").
11. Competing physicians sometimes use a "messenger" to
facilitate the establishment of contracts between themselves and payors in
ways that do not constitute or facilitate an unlawful agreement on prices and
other competitively significant terms. Such a messenger may not, however,
consistent with a competitive model, negotiate prices and other competitively
significant terms on behalf of the participating physicians. Nor should a messenger
facilitate the physicians' coordinated responses
to contract offers by, for example, electing not to convey a payor's offer to
them based on the messenger's opinion on the appropriateness, or lack thereof,
of the offer.
V. CPA WAS FORMED TO, AND DID, COLLECTIVELY NEGOTIATE HIGHER FEES
12. In July 1998, Drs. Baggs and Syed and two other physicians
organized CPA. In February 1999, it was incorporated as a for-profit corporation
and formally named the "Carlsbad
Physician Association." CPA was formed to negotiate contracts for physician services between CPA
physician members and payors. A "position statement" that CPA created to describe itself asserts that
CPA's primary goal is "to negotiate contracts between physicians and employers,
administrators independent of influence from any Health [sic] care organization
or facility." Similarly, at
a May 12, 1999, meeting of CPA's Board, Dr. Secora stated that among CPA's main goals was to
"[n]egotiate favorable reimbursement for physicians."
13. CPA's physician members each pay $500 annual membership
dues. A physician becomes eligible to participate in CPA's contracts by entering
into a "Participating Physician
Agreement" with the organization.
14. Through Executive Director Moore, the Board, and
the Contract Committee, CPA negotiates with payors on the prices and other
contract terms pursuant to which CPA's members will provide medical care to
subscribers of payors' health plans. CPA does not transmit any payor's
contract offer to the members for their individual acceptance or rejection unless
the Contract Committee approves the terms of the contract. Indeed, CPA told
the public that it was operating as a
legitimate messenger when, in fact, it repeatedly refused to messenger contract
offers that it deemed deficient and engaged in collective price negotiations
and refusals to deal.
15. Once the Contract Committee and Executive Director
Moore negotiate payor contract terms acceptable to them, they present the contract
to the general membership for a vote of approval; if approved, the Board signs
it. Thereafter, CPA's members decide whether to opt into or
out of the contract. CPA's Contract Committee and Board make recommendations
to members about which offers the physicians should accept collectively, and
the general membership usually follows these
recommendations. At general membership meetings, CPA's members jointly decide
whether to allow payor contracts to renew automatically, and whether to allow
contract negotiations with payors to
move forward. At CPA's general membership meetings, the physicians frequently
decide collectively the prices to demand from payors, and to terminate contract
negotiations with those payors perceived
to be making low proposals.
16. All Physician Respondents are or were members of
CPA's Contract Committee and Board and participated in negotiations with payors
over prices. On behalf of Physician Respondents and the entire CPA membership,
Executive Director Moore actively bargains over price
and other contract terms with payors, and dictates to payors the minimum compensation
which CPA's members will contract.
17. CPA's members, including Physician Respondents,
refuse to entertain offers made to them individually, hindering payors' efforts
to establish competitive physician networks in the Carlsbad area. Due to CPA's
large share of the physicians in the Carlsbad area, its bargaining power
with payors is substantial, with the result that payors have repeatedly acceded
demands for supracompetitive fees for all CPA members.
18. Prices for physician services in New Mexico, on average,
range from 120% to 150% of RBRVS. Through collective negotiations and threatened
refusals to deal, Respondent CPA's physician members have successfully contracted
for the highest prices in the state, with prices
ranging from 160% to 200% of RBRVS.
A. BLUE CROSS & BLUE SHIELD
OF NEW MEXICO
19. Blue Cross & Blue Shield of New Mexico is
a payor doing business in the Carlsbad area. Blue Cross started contract
negotiations with CPA in September 1999. The Board rejected Blue Cross' initial
offer, without transmitting it to the individual physician members of CPA for
their unilateral acceptance or rejection.
20. In December 1999, Blue Cross responded with a new
offer that was higher than its original offer but far below CPA's demand. At
a January 4, 2000, Board meeting, the Board members unanimously rejected that
proposal. Following that meeting, Dr. Secora prepared a letter to
Blue Cross, on behalf of CPA's members, rejecting Blue Cross' latest offer.
21. In January 2000, CPA invited two Blue
Cross representatives to a meeting of CPA's Board to negotiate the contract.
After that meeting, Blue Cross submitted another contract offer to the
Board, this time with even higher prices than what it previously offered. Through
Executive Director Moore, however, the Board rejected this offer and advised
Blue Cross of CPA's demand for still
higher prices, to which Blue Cross ultimately agreed. The Board also demanded
that Blue Cross agree to contract terms that guaranteed that payments to
CPA physicians would not decline. Executive
Director Moore and Drs. Secora and Syed jointly presented this demand to Blue
Cross on the collective behalf of CPA's members. Blue Cross agreed to this
demand, and the contract that the
parties signed on March 1, 2000, included the language that CPA demanded. Through
negotiations that Executive Director Moore and Dr. Secora led, CPA eventually
received prices substantially in
excess of 20% above Blue Cross' initial offer.
B. PRESBYTERIAN HEALTH PLAN
22. Presbyterian Health Plan is a payor doing business
in the Carlsbad area. CPA began contract negotiations with Presbyterian in
December 1998. In July 1999, the Board and Contract Committee agreed that Presbyterian's
proposal on prices for its commercial plan was
unacceptable. CPA did not transmit Presbyterian's proposal to the members.
Instead, it instructed Executive Director Moore to make a counter-proposal
of 180% of RBRVS for non-surgical codes and
200% for surgical codes. Presbyterian rejected that offer and did not contract
with CPA at that time. Instead, for services provided to subscribers in the
Carlsbad area, Presbyterian either paid billed
charges or amounts agreed upon under contracts with certain individual physicians.
23. In April 2002, CPA and Presbyterian reentered contract
negotiations. On May 1, 2002, Executive Director Moore required that Presbyterian
offer CPA's members uniform prices set at 210% of RBRVS for surgical codes
and 190% of RBRVS for non-surgical codes. This was an 81%
increase over the amount Presbyterian paid in the Carlsbad area the previous
year. Presbyterian counter-proposed a contract containing lower prices, but
Executive Director Moore, in a May 20,
2002, letter, rejected that offer on behalf of CPA's members.
24. In June 2002, Presbyterian proposed to contract with CPA's members at 125% of
RBRVS for surgical codes and between 115% and 135% for various non-surgical codes. Dr. Dara
made a motion at a general membership meeting on July 18, 2002, that CPA reject Presbyterian's
latest offer. The motion was unanimously approved.
25. In September 2002, Presbyterian raised its offer
to CPA to an amount equal to 122% of RBRVS for non-surgical codes and 148%
of RBRVS for surgical codes. At the September 25, 2002, Contract Committee
Dr. Zizza moved to recommend that the general membership
reject Presbyterian's new proposal. Dr. Purpura seconded the motion, and it
was approved by the Contract Committee. The general membership subsequently
rejected Presbyterian's proposal, based
upon the Contract Committee's recommendation. In October 2002, Executive Director
Moore informed Presbyterian's Contracts Manager that, to continue negotiations
with CPA, Presbyterian's
offer on price had to be higher - - "MUCH HIGHER." Currently, Presbyterian does
not contract with
CPA for its commercial plan in the Carlsbad area.
C. UNITED HEALTH CARE
26. United Health Care is a payor doing business
in the Carlsbad area. CPA and United began contract negotiations in December
1998, and continued to negotiate price and other contract terms over the course
of two years. CPA's Board and Contract Committee often made
recommendations on the prices that CPA's Executive Director should demand from
United. CPA's Board and Contract Committee proposed prices substantially
higher than United's offers, without
transmitting United's proposals to individual members. As a result, in October
complained to CPA that it was committing "FTC violation(s)."
27. At the culmination of these negotiations, in June
2000, Executive Director Moore, under Board and Contract Committee direction,
insisted that United pay 160% of RBRVS for non-surgical codes and 185% for
surgical codes, or else CPA would not deal with United. United gave in to this
demand and, on September 1, 2000, entered into a uniform group contract with
28. In April 2002, the Contract Committee, including
Drs. Schenck, Secora, Purpura, and Zizza, demanded, through Executive Director
Moore, substantial increases in the prices United paid to CPA members. CPA
stood firm in its demands from United through the Spring and
Summer of 2002. At a May 15, 2002, meeting, the general CPA membership unanimously
passed Dr. Dara's motion, which Dr. Baggs seconded, to threaten United with
termination of its contract unless
United increased the prices paid to CPA's members and reinstated a CPA member
into the United network. At a meeting on July 18, 2002, over which Dr. Zizza
presided, CPA's general membership
unanimously agreed with Dr. Dara's call for the termination of CPA's contract
with United, due to its failure to accept CPA's collectively demanded terms.
Soon thereafter, Executive Director Moore sent
a letter to United, terminating CPA's contract. After a United representative
requested that each CPA physician furnish United with an individual termination
letter, Executive Director Moore provided each
of the physician members with a copy of a letter of termination to sign and forward
to United. All but
six of the participating CPA physicians submitted that letter.
29. United does not have a contract with CPA, and it
now pays the subset of CPA members with whom it has individual contracts the
highest prices in United's New Mexico network.
D. OTHER PAYORS
30. CPA has orchestrated collective negotiations with
all other payors that do business, or attempted to do business, in the Carlsbad
area. With the assistance of the Board and Contract Committee, Executive Director
Moore negotiated with these payors on price, making
proposals and counter-proposals as well as accepting or rejecting offers without
transmitting them to physician members for their individual acceptance or rejection.
CPA's members collectively accepted
or rejected these payor contracts, and refused to deal with these payors individually.
Due to CPA's dominant market position in the Carlsbad area, such tactics have
been highly successful. CPA has been
able to extract far higher prices from these payors than what they pay other
physicians in New Mexico.
VI. RESPONDENTS HAVE ENGAGED IN RESTRAINTS OF TRADE
31. Acting as a combination of competing physicians,
the Physician Respondents, through CPA and in conspiracy with Executive Director
Moore, have restrained competition by, among
a. facilitating, negotiating, entering into, and implementing agreements among
themselves and other members of CPA on price and other competitively
b. refusing to deal with payors except on collectively agreed-upon terms; and
c. negotiating uniform prices and other competitively significant terms in payor
contracts for CPA's members, and refusing to submit payor offers to CPA
members that do not conform to CPA's standards for contracts.
VII. THERE ARE NO SIGNIFICANT EFFICIENCIES IN RESPONDENTS' CONDUCT
32. Respondents' joint negotiation of fees and other
competitively significant terms has not been, and is not, reasonably related
to any efficiency-enhancing integration.
VIII. RESPONDENTS' ACTIONS HAVE HAD SUBSTANTIAL ANTICOMPETITIVE
33. Respondents' actions described in Paragraphs 12 through
31 of this Complaint have had, or tend to have, the effect of restraining trade
unreasonably and hindering competition in the provision of physician services
in the Carlsbad area in the following ways, among others:
a. price and other forms of competition among Physician Respondents and other
physician members of CPA were unreasonably restrained;
b. prices for physician services were increased; and
c. health plans, employers, and individual consumers were deprived of the benefits
of competition among physicians.
34. The combination, conspiracy, acts, and practices
described above constitute unfair methods of competition in violation of Section
5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Such combination, conspiracy,
acts, and practices, or the effects thereof, are continuing and will continue
recur in the absence of the relief herein requested.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this
thirteenth day of June, 2003, issues its Complaint against Respondents CPA, William J. Baggs, M.D.,
Srichand S. Dara, M.D., Glen Moore, James J. Purpura, D.O., Deborah J. Schenck, M.D., Charles L.
Secora, M.D., Majid A. Syed, M.D., and Richard L. Zizza, M.D.
By the Commission.
Donald S. Clark