Pharmacy Association in Puerto Rico and its Former President Agree to Settle Price Fixing Charges

The Asociacion de Farmacias Region de Arecibo ("AFRA") and Ricardo Alvarez Class ("Alvarez") (together referred to as "respondents"), have agreed to settle Federal Trade Commission charges that they fixed prices and engaged in an illegal boycott in order to obtain higher reimbursement rates for pharmacy goods and services under Puerto Rico's government managed care plan for the indigent. AFRA is an association of approximately 125 pharmacies operating in northern Puerto Rico, and Alvarez is a pharmacy owner in Manati, Puerto Rico, and one of AFRA's officers. Under the settlement, AFRA's members would be prohibited from jointly negotiating prices or other economic terms for pharmacies and jointly boycotting, threatening to boycott, or refusing to provide pharmacy goods and services to any payer or provider.

According to the FTC, the respondents were concerned about the contract terms under which they would participate in the "Reform," Puerto Rico's program to provide medical, pharmaceutical, and dental services to the indigent. The Administracion de Seguros de Salud ("ASES"), the public corporation responsible for implementing the Reform, has divided Puerto Rico into regions, soliciting for each region bids from payers to provide services for the residents. After reviewing bids from several payers, ASES selected Triple-S to administer the North Region of the Reform beginning April 1, 1995. The North Region consists of the municipalities of: Arecibo, Barceloneta, Camuy, Ciales, Florida, Hatillo, Lares, Manati, Morovis, Quebradillas, Utuado, and Vega Baja. The combined population of these municipalities is 434,000, of whom 260,000 are beneficiaries of the Reform.

The FTC's complaint alleges that AFRA, whose members are located in the North Region of the Reform, was formed on November 22, 1994, as a vehicle for its members to jointly negotiate with health plans, and that each AFRA member agreed that AFRA would serve as its bargaining agent. In January 1995, AFRA began negotiating with Triple-S the terms under which AFRA members would participate in the Reform. AFRA sought and obtained increased compensation for its members and required Triple-S to contract with all AFRA members who were interested in providing services. When, in March 1996, Triple-S lowered the fees paid to pharmacies, AFRA threatened to withhold its members' services unless Triple-S changed its fee schedule and increased reimbursement to AFRA members. Thereafter, Triple-S acceded to AFRA's demands. The new fee schedule amounted to a 22 percent increase over the March 1996 fee schedule. The complaint alleges further that Alvarez, who served as AFRA's president from its inception until March 1997 and is currently its treasurer, provided the leadership necessary to unite otherwise competing pharmacies, and directed AFRA's efforts to set prices and other terms for participation in the Reform by its members.

According to the complaint, by fixing the compensation upon which pharmacies would participate in the Reform, the respondents raised the cost of pharmacy goods and services to be provided to the beneficiaries of the Reform and thereby deprived the Commonwealth of Puerto Rico, payers, and consumers of the benefits of competition among pharmacies.

The proposed settlement, announced today for a public comment period, would prohibit the respondents from concertedly:

• negotiating on behalf of any pharmacies with any payer or provider;

• refusing to deal, boycotting, or threatening to boycott any payer or provider;

• etermining any terms, conditions, or requirements upon which pharmacies will deal with any payer or provider, including, but not limited to, terms of reimbursement; or

• estricting the ability of pharmacies to deal with payers individually or through any arrangement outside of AFRA.

Notwithstanding these provisions, the agreement would permit the respondents to engage in conduct that is reasonably necessary to operate (a) any "qualified risk-sharing joint arrangement," or (b) upon prior notice to the Commission, any "qualified clinically integrated joint arrangement." For purposes of the order, a "qualified risk-sharing joint arrangement" must satisfy two conditions: (a) participating pharmacies must share financial risk and (b) the arrangements must be non-exclusive, both in name and in fact. A "qualified clinically integrated joint arrangement" includes arrangements in which the pharmacies undertake cooperative activities to achieve efficiencies in the delivery of clinical services, without necessarily sharing substantial financial risk. These arrangements also must be non-exclusive.

The proposed settlement would permit Alvarez to negotiate with any payer or provider on behalf of pharmacies that he owns, and would permit Alvarez to negotiate on behalf of pharmacies that he operates pursuant to a contract, provided that he submits written notice and a copy of the contract to the Commission within 10 days of entering into such contract and refrains from negotiations with any payer or provider for at least 30 days after providing such notice.

The proposed order also would require that AFRA distribute copies of the order and accompanying complaint, as well as certified Spanish translations, to each person who, at any time since November 22, 1994, has been an officer, director, manager, employee, or participating pharmacy in AFRA, and to each payer or provider, who at any time since November 22, 1994, has communicated any desire, willingness, or interest in contracting for pharmacy goods and services with AFRA members.

The proposed settlement also imposes certain reporting requirements in order to assist the Commission in monitoring compliance with the order.

The Commission vote to accept the proposed settlement for comment was 4-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, the proposed settlement, and an analysis of the settlement to aid in public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. MEDIA CONTACT: Howard Shapiro Office of Public Affairs 202-326-2176   STAFF CONTACT: William J. Baer Bureau of Competition 202-326-2955

(FTC File No. 981 0153) (afra)

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(FTC File No. 981 0153)