Lake Tahoe Physician Group to Settle FTC Charges that They Conspired to Fix Prices and Limit Choice for Consumers

North Lake Tahoe Medical Group, Inc. (Tahoe IPA) -- a for-profit corporation that comprises at least 70 percent of all physicians practicing in the North and South Lake Tahoe areas -- has agreed to settle Federal Trade Commission charges that it restrained competition among physicians by fixing or increasing the prices that are paid for physician services, and deprived third-party payers, their subscribers, and patients, of the benefits of competition among physicians. The FTC alleged that the result of this anticompetitive behavior has harmed consumers in the North and South Lake Tahoe areas. The settlement would prevent Tahoe IPA from illegal price-fixing and other types of conduct that harms consumers, but allow it to engage in legitimate activities that have the potential to benefit consumers.

Tahoe IPA has 91 physicians who practice in the Lake Tahoe Basin in California, an area including North and South Lake Tahoe in the mountains near the Nevada border. Tahoe IPA is based in Truckee, California. According to the FTC's complaint, Tahoe IPA members agreed to restrain competition by concertedly delaying the entry into the market of managed care; engaging in collective negotiations over prices with payers; and refusing to deal with Blue Shield of California when it did not comply with the Tahoe IPA's demands.

Specifically, the complaint alleges that Tahoe IPA:

• conspired to fix the prices and other terms under which its members dealt with third-party payers;

• conspired to prevent or delay the entry into the North Lake and South Lake Tahoe areas of managed care;

• refused to participate, individually or collectively, in HMO plans offered by Blue Shield, Hometown Health Plan, Foundation Health Plan, St. Mary's Health Plan, and other third-party payers attempting to do business in the Tahoe basin;

• engaged in collective negotiations to fix prices and other competitively significant terms with all payers seeking to enter the North and South Lake Tahoe areas;

• maintained an exclusivity clause in its "Provider Participation Agreement" and encouraged its members to deal with third-party payers only through Tahoe IPA; and

• coerced payers into accepting IPA fee schedules and minimum reimbursement rates.

In addition, the FTC alleged that Tahoe IPA leaders stated that payers must accept the IPA's price terms if they wanted to contract with IPA members; and also attempted to coerce Blue Shield to raise its level of fee-for-service reimbursement to IPA physicians.

The proposed consent agreement to settle the FTC's charges, announced today for public comment, would prevent illegal activity as alleged in the complaint but would allow Tahoe IPA to engage in legitimate joint conduct. Paragraph II of the order would prohibit Tahoe IPA from, among other things, engaging in collective negotiations on behalf of its members; restricting its members from dealing with third-party payers through an entity other than Tahoe IPA; exchanging information among physicians about the terms or conditions of reimbursement; and encouraging or pressuring others to engage in any activities prohibited by the order.

Paragraph II of the proposed consent order would stop illegal price-fixing and other types of conduct that harms consumers, but still allow Tahoe IPA to engage in legitimate activities that have the potential to benefit consumers. The order would not prevent Tahoe IPA from engaging in conduct that is reasonably necessary to operate any "qualified risk-sharing joint arrangement" -- one in which the physicians share substantial financial risk and which also must be non-exclusive in name and fact -- or any "qualified clinically integrated joint arrangement" - arrangements in which the phsyicians 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. Nevertheless, to protect against the recurrence of the allegedly illegal activity, Tahoe IPA must provide prior notification to the Commission before entering into any qualified clinically integrated joint arrangements.

In accordance with the Statements of Antritust Enforcement Policy in Health Care, issued jointly by the FTC and the Department of Justice, these provisions are designed to ensure that physicians have the latitude to achieve efficiencies through a variety of arrangements.

Paragraph III requires that Tahoe IPA terminate the membership of all physicians who refused to deal (or who gave notice of their intent to refuse to deal) with Blue Shield as a result of Tahoe IPA's encouragement. Tahoe IPA, however, would not have to terminate: (1) physicians who refused to deal but attempt in good faith to reparticipate in Blue Shield for six months, and (2) physicians who rescind their notices of refusal to deal and continue to participate in Blue Shield for at least six months. Paragraph III is intended to encourage physicians to reparticipate in Blue Shield.

Finally, Tahoe IPA must notify its members and certain third parties about the order and amend its "Provider Agreement" so that it complies with the order. For the next five years, Tahoe IPA would be required to publish and distribute copies of the complaint and order to its members.

The Commission vote to accept the proposed settlement for public comment was 4-0, with Commissioner Orson Swindle concurring in part and dissenting in part. In a separate statement, Commissioner Swindle said that Paragraph III of the proposed order is not needed. "Prior to the refusal to deal with Blue Shield alleged in the complaint," Swindle said, "the Tahoe IPA physicians who participated in Blue Shield had their own sufficient market incentives to participate. With the cessation of the refusal to deal and the prohibition in Paragraph II on future refusals to deal, these market incentives should revive." According to Swindle, because market incentives should result in reparticipation in Blue Shield, "there is no reason to add a layer of government intervention intended to achieve the same result."

In a separate statement, Chairman Robert Pitofsky, joined by Commissioners Sheila F. Anthony and Mozelle W. Thompson, said that given the conduct alleged in the complaint and its anticompetitive effects, the Commission respectfully disagreed with Commissioner Swindle. "Section III of the proposed order is a modest, but appropriate, step to reverse the harm caused by Tahoe's illegal conduct," Pitofsky said. "With a large percentage of area doctors withdrawing from its plan through an illegal boycott," Pitofsky stated, "Blue Shield no longer offered adequate services to its members." Where the action has already succeeded, something more is needed to restore competition that was eliminated through the anticompetitive conduct, Pitofsky said. "Insufficient relief in this case could increase the likelihood of similar conduct arising in other markets." Tahoe IPA is primarily responsible for the boycott and should take steps to make clear to its membership that they are free to make a unilateral decision on whether to continue dealing with Blue Shield, Pitofsky noted.

"In cases where illegal conduct has caused serious harm," Pitofsky said, "the remedy should aim to undo the damage when reasonably possible. The objective of the proposed order in this case is to restore competition that has been lost through the illegal activities of Tahoe IPA and its members. Section III of the proposed order is an appropriate limited measure designed to accomplish this traditional antitrust remedial objective," Pitofsky concluded.

An analysis of 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 consent agreement, and the analysis of the proposed consent order to aid 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.

(FTC File No. 981 0261)