First Look will be a network of optical firms (and of local optical firm networks developed by individual members of First Look) organized to respond to requests for proposals ("RFPs") for employer contracts for optical and vision care services to be rendered to covered individuals living in an area larger than that served by any one provider. Sixteen optical firms currently are "Master Network Members" ("MNMs") of First Look. With one exception involving a partial overlap in the service areas of two members, these firms provide services in different geographic areas from one another. All members provide both eye exams and optical goods, either through ownership by licensed optometrists or through employment or contractual arrangements with optometrists.
First Look is structured so that individual MNMs, rather than the network as a whole, negotiate specific payer contracts. The MNMs will agree among themselves on a Reimbursement Schedule of discounted prices for exams, frames, and lenses, according to which they will be paid by other MNMs for services rendered, pursuant to contracts between any MNM and an employer, to consumers residing within the services areas of the non-contracting MNM. The contracting MNM will bill employers and pay providers for all services rendered under a particular contract.
Each MNM also will establish a local network of providers within its assigned area of responsibility. These local network providers will contract individually with the single MNM that covers the area, and will be paid at the Reimbursement Schedule rate. Each local network will be subject to quality and service standards established by the MNMs, to a peer review program for monitoring "costs, utilization, and quality" of service, and to a patient grievance resolution procedure. All affiliations with the network will be nonexclusive.
"We have analyzed under the rule of reason the agreement among the MNMs on the Reimbursement Schedule," the FTC staff said in a letter responding to a request for an advisory opinion from First Look’s counsel. "MNM’s will not agree among themselves on the prices at which they will sell to managed care plans, but only on the prices at which they will be reimbursed by one another for services rendered pursuant to contracts negotiated by any MNM.
An MNM could not prepare a bid on a multi-area contract without knowing what it will have to pay for services rendered by other providers. Thus, any incidental competitive effect of the agreement is reasonably necessary in order for the participants to be able to compete for the business of multi-area employers. The agreement appears to be no broader than necessary to accomplish that result; there are no anticompetitive collateral agreements and payers remain free to deal with network providers individually if they prefer to do so," the staff letter said.
The FTC staff advisory opinion, signed by Robert F. Leibenluft, Assistant Director for Healthcare at the FTC, noted that the information available did not permit a detailed analysis of the likely competitive effect of the network in particular markets. "However," the letter said, "the arrangement among MNMs as proposed does not appear likely to permit members to coordinate their actions in ways that would result in higher prices to buyers in any market."
The FTC staff also evaluated the local network agreements under the rule of reason. First Look asserted that there will be no collective agreements among members of local area networks; instead there will be bilateral agreements between the MNM and each local network member. In many cases, those local members will be competitors of the MNM. According to the staff advisory, "... we regard the agreement as one among horizontal competitors on prices at which network members will be paid by the MNM for services rendered under the MNM’s contracts. As proposed, those agreements appear to be reasonably necessary to create the national network First Look seeks to establish. Moreover, the agreement appears to be no broader than reasonably necessary to effectuate that purpose."
The staff advisory cautioned however, that "because you have not provided any information about the identity or competitive significance of members of local networks, or about the local optical services markets in which network providers compete, we have not been able to analyze the likely competitive effect of the local area networks. It is, of course, possible that this structure could, if network members had power in local markets, be used to restrict competition.... If a local network has anticompetitive effects in any market, we reserve the right to bring an enforcement action."
NOTE: The letter sets out the views of the staff of the FTC's Bureau of Competition, as authorized by the Commission's Rules of Practice. It has not been reviewed or approved by the Commission. As the Commission's rules explain, the staff's advice is rendered "without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding."
Copies of the staff advisory opinion are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.