Statement of Commissioner Orson Swindle Concurring in Part and Dissenting in Part

in Tahoe Health System, Inc., File No. 981-0261

The Commission has accepted a consent agreement in this matter that includes a novel remedy I do not support. North Lake Tahoe Medical Group, Inc. ("Tahoe IPA"), the respondent, engaged in negotiations on behalf of its member physicians to obtain from third-party payers prices that were discounted no more than 10 percent below their usual fees. Blue Shield, a third-party payer, refused to accede to Tahoe IPA's demands, leading Tahoe IPA to successfully encourage many of its members no longer to participate as physicians for Blue Shield. Other third-party payers that were considering offering HMO products in the Lake Tahoe area responded to Tahoe IPA's demands by deciding not to enter.

I agree that there is reason to believe that Tahoe IPA's conduct violated Section 5 of the FTC Act. To remedy these violations, Paragraph II of the proposed consent order contains typical provisions that would prohibit Tahoe IPA from entering into any agreement to (1) negotiate on behalf of physicians with any payer or provider for physician services, or (2) refuse to deal with any payer or provider. I support the relief in Paragraph II because it is necessary to prevent Tahoe IPA from engaging in unlawful conduct that is identical or similar to that alleged in the proposed complaint. Both the Commission's complaint and the relief prescribed by Paragraph II make it clear to Tahoe IPA's members that they must make unilateral decisions as to whether to deal with Blue Shield.

The proposed consent order, however, also contains a novel -- and questionable -- remedy. 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.

I do not believe that Paragraph III is needed. Prior to the refusal to deal with Blue Shield alleged in the complaint, 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. With the return of these incentives, the Tahoe IPA physicians who refused to deal presumably would choose once again to participate in Blue Shield even without the burdens imposed by Paragraph III.⁽¹⁾

The majority believes that government action beyond these market incentives is needed to make this market work better in the future. I disagree. Because Tahoe IPA physicians on their own have sufficient incentives to return to Blue Shield, there is no reason to add a layer of government intervention intended to achieve the same result.

I dissent as to Paragraph III of the proposed consent order.

1. Twenty physicians have agreed to reparticipate in Blue Shield, while four have not. All this demonstrates is that physicians have reparticipated in Blue Shield while Paragraph III is in effect. It does not establish that Paragraph III was a cause of this reparticipation, or that market incentives would not have caused the physicians to reparticipate in the absence of Paragraph III.