North Lake Tahoe Medical Group, Inc.

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

NORTH LAKE TAHOE MEDICAL GROUP, INC., a corporation.

File No. 981-0261

AGREEMENT CONTAINING CONSENT ORDER TO CEASE AND DESIST

The Federal Trade Commission ("Commission") having initiated an investigation of certain acts and practices of North Lake Tahoe Medical Group, Inc. ("Tahoe IPA"), hereinafter sometimes referred to as "proposed respondent," and it now appearing that proposed respondent is willing to enter into an agreement containing an order to cease and desist from those acts and practices, and providing for other relief,

IT IS HEREBY AGREED by and between Tahoe IPA, by its duly authorized officer and its attorney, and counsel for the Commission that:

1. Proposed respondent North Lake Tahoe Medical Group, Inc. is a corporation organized, existing, and doing business under and by virtue of the laws of the State of California, with its office and principal place of business located at P.O. Box 2466, Truckee, California 96160. North Lake Tahoe Medical Group, Inc., also has traded and done business as North Lake Tahoe IPA, North Lake IPA, and Tahoe IPA.

2. Proposed respondent admits all the jurisdictional facts set forth in the draft of complaint here attached.

3. Proposed respondent waives:

(a) Any further procedural steps;

(b) The requirement that the Commission's decision contain a statement of findings of fact and conclusions of law;

(c) All rights to seek judicial review or otherwise to challenge or contest the validity of the order entered pursuant to this agreement; and

(d) Any claim under the Equal Access to Justice Act.

4. This agreement shall not become part of the public record of the proceeding unless and until it is accepted by the Commission. If this agreement is accepted by the Commission it, together with the draft of complaint contemplated thereby, will be placed on the public record for a period of sixty (60) days and information in respect thereto publicly released. The Commission thereafter may either withdraw its acceptance of this agreement and so notify the proposed respondent, in which event it will take such action as it may consider appropriate, or issue and serve its complaint (in such form as the circumstances may require) and decision, in disposition of the proceeding.

5. Proposed respondent shall submit within thirty (30) days of the date that proposed respondent signs this agreement, and every thirty (30) days thereafter until the order becomes final, a report, pursuant to § 2.33 of the Commission's Rules, signed by the proposed respondent setting forth in detail the manner in which the proposed respondent is complying and will comply with the order when and if entered. Such reports will not become part of the public record unless and until the accompanying agreement and order are accepted by the Commission for public comment.

6. This agreement is for settlement purposes only and does not constitute an admission by proposed respondent that the law has been violated as alleged in the draft of complaint here attached, or that the facts as alleged in the draft complaint, other than jurisdictional facts, are true.

7. This agreement contemplates that, if it is accepted by the Commission, and if such acceptance is not subsequently withdrawn by the Commission pursuant to the provisions of § 2.34 of the Commission's Rules, the Commission may, without further notice to proposed respondent, (1) issue its complaint corresponding in form and substance with the draft of complaint here attached and its decision containing the following order to cease and desist in disposition of the proceeding and (2) make information public in respect thereto. When so entered, the order shall have the same force and effect and may be altered, modified, or set aside in the same manner and within the same time provided by statute for other orders. The order shall become final upon service. Delivery by the U.S. Postal Service of the complaint and decision containing the agreed-to order to proposed respondent's address as stated in this agreement shall constitute service. Proposed respondent waives any right it may have to any other manner of service. The complaint may be used in construing the terms of the order, and no agreement, understanding, representation, or interpretation not contained in the order or the agreement may be used to vary or contradict the terms of the order.

8. By signing this agreement containing consent order, proposed respondent represents that the full relief contemplated by this agreement can be accomplished. Proposed respondent has read the proposed complaint and order contemplated hereby. Proposed respondent understands that once the order has been issued, it will be required to file one or more compliance reports showing that it has fully complied with the order. Proposed respondent agrees to comply with the terms of the proposed order from the date it signs this agreement. Proposed respondent further understands that it may be liable for civil penalties in the amount provided by law for each violation of the order after the order becomes final.

ORDER

IT IS ORDERED that, for the purposes of this order, the following definitions shall apply:

A. "Tahoe IPA" means North Lake Tahoe Medical Group, Inc., its directors, officers, employees, agents, representatives, predecessors, successors, and assigns; and its subsidiaries, divisions, groups, affiliates controlled by Tahoe IPA, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.

B. "Payer" means any person that purchases, reimburses for, or otherwise pays for all or part of any health care services for itself or for any other person. Payer includes, but is not limited to, any health insurance company; preferred provider organization; prepaid hospital, medical, or other health service plan; health maintenance organization; government health benefits program; employer or other person providing or administering self-insured health benefits programs; and patients who purchase health care for themselves.

C. "Person" means both natural persons and artificial persons, including, but not limited to, corporations, unincorporated entities, and governments.

D. "Physician" means a doctor of allopathic medicine ("M.D.") or a doctor of osteopathic medicine ("D.O.").

E. "Participating physician" means any physician: (1) who is a stockholder, owner, or member of Tahoe IPA; (2) who has agreed to provide services through Tahoe IPA; or (3) whose services have been offered to any payer through Tahoe IPA.

F. "Provider" means any person that supplies health care services to any other person, including, but not limited to, physicians, hospitals, and clinics.

G. "Qualified risk-sharing joint arrangement" means an arrangement to provide physician services in which: (1) all physicians participating in the arrangement share substantial financial risk from their participation in the arrangement through: (a) the provision of physician services to payers at a capitated rate, (b) the provision of physician services for a predetermined percentage of premium or revenue from payers, (c) the use of significant financial incentives (e.g., substantial withholds) for its participating physicians, as a group, to achieve specified cost-containment goals, or (d) the provision of a complex or extended course of treatment that requires the substantial coordination of care by physicians in different specialties offering a complementary mix of services, for a fixed, predetermined payment, where the costs of that course of treatment for any individual patient can vary greatly due to the individual patient's condition, the choice, complexity, or length of treatment, or other factors; (2) any agreement on prices or terms of reimbursement entered into by the arrangement is reasonably necessary to obtain significant efficiencies through the joint arrangement; and (3) the arrangement does not restrict the ability, or facilitate the refusal, of physicians participating in the arrangement to deal with payers individually or through any other arrangement.

H. "Qualified clinically integrated joint arrangement" means an arrangement to provide physician services in which: (1) all physicians participating in the arrangement participate in active and ongoing programs of the arrangement to evaluate and modify the practice patterns of, and create a high degree of interdependence and cooperation among, the physicians participating in the arrangement, in order to control costs and ensure quality of the services provided through the arrangement; (2) any agreement on prices or terms of reimbursement entered into by the arrangement is reasonably necessary to obtain significant efficiencies through the joint arrangement; and (3) the arrangement does not restrict the ability, or facilitate the refusal, of physicians participating in the arrangement to deal with payers individually or through any other arrangement.

I. "Reimbursement" means any payment, whether cash or non-cash, or other benefit received for the provision of physician services.

II.

IT IS FURTHER ORDERED that Tahoe IPA, directly or indirectly, or through any corporate or other device, in connection with the provision of physician services in or affecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. § 44, cease and desist from:

A Entering into, adhering to, participating in, maintaining, organizing, implementing, enforcing, or otherwise facilitating any combination, conspiracy, agreement, or understanding to:

1. Negotiate on behalf of any physicians with any payer or provider for physician services;

2. Deal, or refuse to deal, with any payer or provider;

3. Determine or influence any terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payer or provider, including, but not limited to, terms of reimbursement; or

4. Restrict the ability of any physician to deal with any payer or provider individually or through any arrangement outside Tahoe IPA.

B. Exchanging, or facilitating the exchange of, information among physicians concerning the terms or conditions, including reimbursement, on which any physician is willing to deal with payers.

C. Encouraging, advising, pressuring, inducing, or attempting to induce any person to engage in any action that would be prohibited if the person were subject to this order.

PROVIDED that nothing in this order shall be construed to prohibit any agreement or conduct by Tahoe IPA that is reasonably necessary to form, facilitate, manage, operate, or participate in:

a. A qualified risk-sharing joint arrangement; or

b. A qualified clinically integrated joint arrangement, if Tahoe IPA has provided the prior notification(s) as required by this paragraph (b). Such prior notification must be filed with the Secretary of the Commission at least thirty (30) days prior to forming, facilitating, managing, operating, participating in, or taking any action, other than planning, in furtherance of any joint arrangement requiring such notice ("first waiting period"), and shall include for such arrangement the identity of each participant; the location or area of operation; a copy of the agreement and any supporting organizational documents; a description of its purpose or function; a description of the nature and extent of the integration expected to be achieved, and the anticipated resulting efficiencies; an explanation of the relationship of any agreement on prices, or terms of reimbursement, to furthering the integration and achieving the expected efficiencies; and a description of any procedures proposed to be implemented to limit possible anticompetitive effects resulting from such agreement(s). If, within the first waiting period, a representative of the Commission makes a written request for additional information, Tahoe IPA shall not form, facilitate, manage, operate, participate in, or take any action, other than planning, in furtherance of such joint arrangement until thirty (30) days after substantially complying with such request for additional information ("second waiting period") or such shorter waiting period as may be granted by letter from the Bureau of Competition.

PROVIDED FURTHER, that nothing in this order shall prevent the Tahoe IPA from refusing to transmit any information to less than all of its participating physicians. Notwithstanding this proviso, the IPA shall not require, as a condition of transmitting information to participating physicians or for any other reason, that any offer by a payer or provider be made to all participating physicians or to any particular physician.

III.

IT IS FURTHER ORDERED that Tahoe IPA shall:

A. Within five (5) days after the date this agreement is signed by Tahoe IPA, provide to Blue Shield of California the names and addresses of all participating physicians, and request from Blue Shield of California the names of all participating physicians who either have terminated participation, or have given notice of intent to terminate future participation, in any Blue Shield of California health plan at any time between January 1, 1998, and the date this agreement is signed by Tahoe IPA.

B. Within ten (10) days after Tahoe IPA has received from Blue Shield of California the names and addresses requested in accordance with Paragraph III.A. of this agreement, give notice of the requirements of Paragraph III.C. of this agreement to any participating physician who either has terminated participation, or has given notice of future intent to terminate participation, in any Blue Shield of California health plan at any time between January 1, 1998, and the date this agreement is signed by Tahoe IPA.

C. Within twenty (20) days after Tahoe IPA has received from Blue Shield of California the names and addresses requested in accordance with Paragraph III.A. of this agreement, terminate the participation in Tahoe IPA of any physician who either has terminated participation, or has given notice of intent to terminate future participation, in any Blue Shield of California health plan at any time between January 1, 1998, and the date this agreement is signed by Tahoe IPA, unless any such physician:

1. who has terminated participation in any Blue Shield of California health plan, attempts in good faith to reestablish such participation for a period of at least six (6) months thereafter, or

2. who has given notice of intent to terminate future participation in any Blue Shield of California health plan, rescinds in writing such notice and continues such participation for a period of at least six (6) months thereafter.

IV.

IT IS FURTHER ORDERED that Tahoe IPA shall:

A. Within thirty (30) days after the date on which this order becomes final:

1. Distribute by first-class mail a copy of this order and the complaint to each participating physician, officer, director, manager, and employee, and to each payer enumerated in Attachment A to this order; and

2. Revise the Provider Services Agreement so that it is in conformance with the provisions of this order.

B. Terminate any agreement or contract with any payer for the provision of physician services that does not comply with Paragraph II. of this order at the earlier of: (1) the termination or renewal date (including any automatic renewal date) of such agreement or contract; or (2) receipt of a written request from a payer to terminate such agreement or contract.

C. For a period of five (5) years after the date this order becomes final:

1. Distribute by first-class mail a copy of this order and the complaint to each new participating physician, officer, director, manager, and employee within thirty (30) days of his or her admission, election, appointment, or employment; and

2. Annually publish in an official annual report or newsletter sent to all participating physicians, a copy of this order and the complaint with such prominence as is given to regularly featured articles.

IT IS FURTHER ORDERED that Tahoe IPA shall file verified written reports within sixty (60) days after the date this order becomes final, annually thereafter for five (5) years on the anniversary of the date this order becomes final, and at such other times as the Commission may by written notice require, setting forth in detail the manner and form in which it has complied and is complying with the order. In addition to any other information that may be necessary to demonstrate compliance, Tahoe IPA shall include in such reports: (1) information identifying each payer that has contacted Tahoe IPA for the purpose of contracting for physician services, the terms of any contract the payer was seeking with Tahoe IPA, and Tahoe IPA's response to the payer; (2) information sufficient to describe the manner in which participating physicians share financial risk in each qualified non-exclusive risk-sharing arrangement in which they participate; and (3) copies of the minutes of Tahoe IPA's annual meetings.

VI.

IT IS FURTHER ORDERED that Tahoe IPA shall notify the Commission at least thirty (30) days prior to any proposed change in Tahoe IPA, such as dissolution, assignment, sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in Tahoe IPA that may affect compliance obligations arising out of this order.

VII.

IT IS FURTHER ORDERED that, for the purpose of determining or securing compliance with this order, Tahoe IPA shall permit any duly authorized representative of the Commission:

A. Access, during office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda, calendars, and other records and documents in the possession or under the control of Tahoe IPA relating to any matter contained in this order; and

B. Upon five (5) days' notice to Tahoe IPA, and without restraint or interference from it, to interview officers, directors, or employees of Tahoe IPA.

VIII.

IT IS FURTHER ORDERED that this order shall terminate twenty (20) years from the date this order becomes final.

Signed this _____ day of _______________, 1998.

NORTH LAKE TAHOE MEDICAL GROUP, INC.
J. Christden Richards, M.D.
President

COUNSEL FOR NORTH LAKE TAHOE MEDICAL GROUP, INC.: Joel Goldman

COUNSEL FOR FEDERAL TRADE COMMISSION: Paul J. Nolan; Matthew D. Gold; Kerry O'Brien; Daniel Kotchen

APPROVED:

David R. Pender
Deputy Assistant Director
Bureau of Competition

Jeffrey Klurfeld
Director
San Francisco Regional Office

Richard Feinstein
Assistant Director
Bureau of Competition

Willard K. Tom
Deputy Director
Bureau of Competition

William J. Baer
Director
Bureau of Competition

Attachment A

Admar Corporation

Barton Memorial Hospital

Blue Shield of California

Blue Cross of California

CCN

First Health (Affordable Healthcare)

Health Net

Hometown Health Plan

Interplan Corporation

Multiplan

MMC/Cigna

Mutual of Omaha

PacifiCare

School Insurance Group

St. Mary's Health Network

Tahoe Forest Hospital

USA MCO