UNITED STATES OF AMERICA In the Matter of Institutional Pharmacy Network, a corporation; Evergreen Pharmaceutical, Inc., a corporation; NCS HealthCare of Oregon, Inc., a corporation; NCS Healthcare of Washington, Inc., a corporation; United Professional Companies, Inc., a corporation; and White, Mack and Wart, Inc., a corporation. Docket C-____ COMPLAINT The Federal Trade Commission, having reason to believe that the Institutional Pharmacy Network; Evergreen Pharmaceutical, Inc.; NCS Healthcare of Oregon, Inc.; NCS Healthcare of Washington, Inc.; United Professional Companies, Inc.; and White, Mack and Wart, Inc., herein after sometimes referred to as respondents, have violated and are violating the Federal Trade Commission Act and that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: 1. Respondent Institutional Pharmacy Network (“IPN”) is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Oregon with its office and principal place of business located at 1300 SW 5th Avenue, Suite 2300, Portland, Oregon 97201. 2. Respondent Evergreen Pharmaceutical, Inc. ("Evergreen"), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Washington with its office and principal place of business located at 12220 113th Avenue, NE, Kirkland, Washington 98034. 3. Respondent NCS Healthcare of Oregon, Inc. ("NCS of Oregon"), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Ohio with its office and principal place of business located at 2725 Columbia Blvd., Portland, Oregon 97211. 4. Respondent NCS Healthcare of Washington, Inc. ("NCS of Washington"), is a corporation organized, existing, and doing business under and by virtue of the laws of the state of Ohio with its office and principal place of business located at 13035 Gateway Drive, Seattle, Washington 98168. 5. Respondent United Professional Companies, Inc. ("UPC"), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware with its office and principal place of business located at 3724 West Wisconsin Avenue, Milwaukee, Wisconsin 53208. 6. Respondent White, Mack & Wart, Inc., doing business as ProPac Pharmacy ("ProPac"), is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Oregon with its office and principal place of business located at 11620 NE Ainsworth Circle, Portland, Oregon 97220. 7. IPAC Pharmacy ("IPAC") was a corporation organized, existing, and doing business under and by virtue of the laws of the State of Oregon. On or about July 31, 1996, after the occurrence of the events alleged in Paragraphs 18-20, Respondent NCS of Oregon purchased the pharmacy business of IPAC. 8. Clinical Health Systems ("Clinical") was a corporation organized, existing, and doing business under and by virtue of the laws of the State of Washington. On or about November 1, 1996, after the occurrence of the events alleged in Paragraphs 18-20, Respondent NCS of Washington purchased the pharmacy business of Clinical. 9. The respondents named in Paragraphs 2 through 6 herein (sometimes referred to as "institutional pharmacy respondents") provide institutional pharmacy services in Oregon. 10. Clinical, Evergreen, IPAC, ProPac, and UPC formed IPN and have been its only members. 11. The institutional pharmacy respondents are engaged in the business of providing pharmacy services to institutional care facilities, such as nursing homes. Institutional pharmacies provide specialized services, including providing medications in single dose packages, maintaining an “emergency box” at the client facility with drugs for use in emergency situations, and providing consulting and quality assurance services to institutional care facilities. 12. IPN engages in substantial activities that further its members' pecuniary interests. By virtue of its purposes and activities, IPN is a corporation within the meaning of Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44. 13. The general business practices of IPN and its members, including those practices herein alleged, are in or affect "commerce" within the meaning of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. 14. Except to the extent that IPN and its members have restrained competition as alleged herein, IPN’s members have been, and are now, in competition among themselves and with other providers of institutional pharmacy services in Oregon. Absent agreements among competing pharmacies on the price and other terms on which they will provide services to third-party payers, competing pharmacies decide individually whether, and at what price, to enter into contracts with such payers. 15. The State of Oregon created the Oregon Health Plan (“OHP”) in 1994 to provide health care to Medicaid recipients and other needy Oregonians. Under OHP, the state contracts with Fully Capitated Health Plans (“Plans”), which are managed care organizations that receive a fixed payment to care for OHP patients. The Plans in turn contract with providers, including hospitals, physicians, retail pharmacies, and institutional pharmacies. OHP covers about half of all institutional care patients in Oregon. 16. IPN neither provides new or efficient services, nor enables its members to provide new or efficient services. Moreover, IPN members do not share risk. Instead, IPN provides a vehicle for its members to reach collective decisions on the prices that the institutional pharmacies will seek from the Plans. 17. The institutional pharmacy members of IPN have agreed among themselves, and IPN has acted as a combination of those institutional pharmacies, and has combined with them, to engage in collective negotiations over price and other terms with the Plans and thereby to fix the fees they charge the Plans. In so doing, IPN and its institutional pharmacy members have fixed, stabilized, or increased the price of institutional pharmacy services and otherwise restrained competition among institutional pharmacies in Oregon. 18. The institutional pharmacy members of IPN together provide pharmacy services for approximately 80 percent of the patients that receive institutional pharmacy services in Oregon. Their purpose in agreeing to negotiate collectively has been to maximize their resulting leverage in bargaining over reimbursement rates with the Plans. Indeed, even before forming IPN, they saw “an advantage to negotiate from strength for reimbursement” because they recognized that competition among themselves would drive down reimbursement rates. 19. IPN has contracted with three Plans. Pursuant to each of those contracts, each Plan pays IPN members a higher rate than it pays institutional pharmacies that are not IPN members and that did not negotiate collectively with that Plan. 20. IPN also attempted to contract with at least four other Plans. Clinical, Evergreen, IPAC, ProPac, and UPC agreed that, before conducting individual negotiations, each member would give IPN time to attempt to negotiate a contract. Pursuant to this agreement, the pharmacies negotiated separately with three of the Plans only after IPN failed to reach an agreement on behalf of the group. IPN also negotiated with a fourth Plan that is by far the largest purchaser of institutional pharmacy services for OHP patients. Although this Plan sought to deal with Clinical, Evergreen, IPAC, ProPac, and UPC individually, the pharmacies largely refused to respond and instead approached the Plan as a group. After months of attempting to negotiate individually with the institutional pharmacy members of IPN, and under pressure to implement pharmacy arrangements for institutional care patients under OHP, the Plan began negotiating with IPN. As a result of these negotiations, the Plan agreed to pay higher rates to IPN members than it had agreed to pay other institutional pharmacies. 21. Respondents’ actions as alleged herein have had and have the purpose, tendency, and capacity, among other effects:
22. The combinations or agreements and the acts and practices described above constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act. The acts and practices, as herein alleged, are continuing and will continue in the absence of the relief herein requested. WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this _____ day of ____________, 1998, issues its complaint against said respondents. By the Commission. SEAL Donald S. Clark |