Joint venture analysis and provider-controlled health care networks

Antitrust Law Journal

Volumn 66, Issue 1, 1997, Pages 127-166

  Miles, John J ^a  

^a Virginia and District of Columbia Bars ^*  (United States)

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EID: 21944455764     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (151)

1. See, e.g., FTC v. Butterworth Health Corp., 946 F. Supp. 1285 (W.D. Mich. 1996) (denying motion to enjoin hospital merger), aff'd per curiam without published opinion, 121 F.3d 708 (6th Cir. 1997) (opinion reprinted at 1997-2 Trade Cas. (CCH) ¶ 71,863).
2. For a helpful discussion of these looser models of integration, sometimes called "virtual mergers," see David Marx, Jr. & James H. Sneed, Antitrust Issues in Non-Merger Cooperative Arrangements, Prepared Remarks for National Health Lawyers Ass'n Antitrust in the Health Care Field Seminar (Feb. 13, 1997).
3. See generally Wisconsin v. Marshfield Clinic, 1997-1 Trade Gas. (CCH) ¶ 71,855 (W.D. Wis. 1997) (consent decree); Letter from Joel I. Klein, Acting Assistant Attorney General, Antitrust Division, to Donald H. Lipson (July 7, 1997) (Business Review Letter to Allentown, Pa., gastroenterology groups suggesting intent to challenge proposed physician practice merger).
4. For discussions of the various organizational forms, see GERALD R. PETERS, HEALTH CARE INTEGRATION: A LEGAL MANUAL FOR CONSTRUCTING INTEGRATED DELIVERY SYSTEMS 7-14 (1995);
5. Thomas L. Greaney, Managed Competition, Integrated Delivery Systems and Antitrust, 79 CORNELL L. REV. 1507 (1994).
6. See generally Capital Imaging Assocs. v. Mohawk Valley Med. Assocs., 996 F.2d 537, 544 (2d Cir. 1993) (IPA is a "combination" for § 1 purposes because member physicians "were independent practitioners with separate economic interests"). An interesting and important question not discussed here is under what circumstance might a joint venture or other less-than-fully-integrated organization be treated as a single entity for antitrust purposes so that § 1 is not applicable to its activities. For an interesting discussion, see the majority and concurring opinions in Chicago Prof'l Sports Ltd. Partnership v. NBA, 95 F.3d 593, 599-600, 601-06 (7th Cir. 1996) (noting that the NBA, a joint venture, might be treated as a single entity for some purposes but not for others).
7. As Chairman Pitofsky explained: The notion of leveling the playing field is used in a variety of ways, and sometimes to promote or justify arrangements that are inconsistent with antitrust principles. . . . . We frequently hear arguments about the need to level the playing field in the context of providers' dealings with health plans. We are told that buyers have an unfair advantage in negotiations with individual health providers, and they negotiate prices that are unfairly low. The argument continues that because individual providers are unable to effectively bargain, they are not adequately compensated and that consumers will eventually suffer because they will not receive adequate care. There actually may be two distinct playing field arguments presented here. One is a contention that the antitrust laws prevent providers from organizing provider-controlled plans that can compete on an equal footing with insurance companies. The second is a claim that the providers need to he ahle to hand together to exercise countervailing power in their negotiations with buyers, and that antitrust law should not interfere with such efforts aimed at equalizing bargaining power. It is important to recognize that these two types of level playing field arguments reflect two fundamentally different responses to concerns about large managed care plans. One response is to create a product that is designed to be more attractive to consumers and compete directly with insurer-controlled plans. The other involves responding to the perceived market power of buyers through the exercise of countervailing power. Robert Pitofsky, Chairman, Federal Trade Commission, Thoughts on "Leveling the Playing Field" in Health Care Markets, Prepared Remarks for the National Health lawyers Ass'n Antitrust in the Health Care Field Seminar (Feb. 13, 1997). Not surprisingly, Chairman Pitofsky rejects the "countervailing power" justification, as do other commentators, see generally LAWRENCE SULLIVAN, HANDBOOK OF THE LAW OF ANTITRUST § 75, at 204 (1977), and courts, see e.g., United States v. Alston, 974 F.2d 1206, 1214 (9th Cir. 1992).
8. United States Department of Justice & Federal Trade Commission, Antitrust Enforcement Policy Statements in the Health Care Area (1993), Statement 6, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,151.
9. United States Department of Justice & Federal Trade Commission, Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust (1991), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,152.
10. United States Department of Justice & Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (1996), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,153 [hereinafter Enforcement Statements].
11. See infra text accompanying notes 53-55, 89-93, 103-06.
12. For discussions of the revisions to Statements 8 and 9 of the Enforcement Statements and their likely effect, see Edward B. Hirshfeld, Interpreting the 1996 Federal Antitrust Guidelines for Physician Joint Venture Networks (1997) (unpublished manuscript on file with author);
13. Robert Kuttner, Physician-Operated Networks and the New Antitrust Guidelines, N. ENG. J. MED. 396 (Jan. 30, 1997);
14. John J. Miles, The Revisions to Statements 8 and 9: Nothing Radical But Very Helpful, ABA SECTION OF ANTITRUST LAW HEALTH CARE CHRON. (Oct. 1996).
15. See, e.g., Montana Associated Physicians, Inc., Dkt. No. C-3704 (FTC Jan. 13, 1997) (consent order), summarized at 5 Trade Reg. Rep. (CCH) ¶ 24,142; United States v. Health Choice, 1996-2 Trade Cas. (CCH) ¶ 71,606 (W.D. Mo. 1996) (consent decree and competitive impact statement); United States v. Woman's Hosp. Found., 1996-2 Trade Cas. (CCH) ¶ 71,561 (M.D. La. 1996) (consent decree and competitive impact statement); United States v. HealthCare Partners, 1996-1 Trade Cas. (CCH) ¶ 71,337 (D. Conn. 1996) (consent decree and competitive impact statement); United States v. Classic Care Network, Inc., 1995-1 Trade Cas. (CCH) ¶ 70,997 (E.D.N.Y. 1995) (consent decree). For a later enforcement action, see Mesa County Physicians Indep. Practice Ass'n, Dkt. No. 9284 (FTC complaint filed May 27, 1997), summarized at 5 Trade Reg. Rep. (CCH) ¶ 24,266.
16. Other issues that health care networks, such as those discussed here, can raise are (1) whether the network's exclusion or expulsion of providers wishing to participate raises significant antitrust risk, see Enforcement Statements, supra note 9, Statement 9(B) (2) (c), and Doctor's Hosp. v. Southeast Med. Alliance, 123 F.3d 301 (5th Cir. 1997) (exclusion of hospital from a PPO); and (2) whether network participants enter into any collateral agreements with unreasonably anticompetitive effects, or whether the network's activities have unreasonably anticompetitive spillover effects outside the network, id., Statement 8(B)(2) (Step 4).
17. Enforcement Statements, supra note 9, Statement 8 (Introduction).
18. Id. ("The Agencies emphasize that it is not their intent to treat such networks either more strictly or more leniently than joint ventures in other industries . . . .").
19. PHILLIP E. AREEDA, ANTITRUST ANALYSIS: PROBLEMS, TEXT, AND CASES ¶ 224, at 270 (4th ed. 1988);
20. see also Richard W. Pogue, Antitrust Considerations in Forming Joint Ventures, 54 ANTITRUST L.J. 925, 925 (1986) ("In the broadest sense, virtually every commercial arrangement involving two or more firms can be called ajoint venture. The term, therefore, does not dictate the application of any single body of antitrust law.").
21. Robert Pitofsky, A Framework for Antitrust Analysis of Joint Ventures, 74 GEO. L.J. 1605, 1605 (1986) ("A joint venture could involve any business enterprise in which two or more persons collaborate to achieve some commercial goal - a definition that includes all of antitrust except perhaps, some single firm attempts to monopolize or monopolizing conduct.").
22. HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE § 5.2, at 185-86 (1994) ("Agreements among competitors that include some coordination of research, production, promotion or distribution are commonly referred to as 'joint ventures.' A joint venture is any association of two or more firms for carrying on some activity that each firm might otherwise perform alone.").
23. 7 PHILLIP E. AREEDA, ANTITRUST LAW ¶ 1478a, at 348 (1986) ("Although it lacks precise meaning or antitrust consequences, 'joint venture' usually refers to a research, production, or marketing enterprise created by several persons other than ordinary investors.").
24. Brodley defines ajoint venture as an integration of operations among two or more separate firms, in which the following conditions are present: (1) the enterprise is under the joint control of the parent firms . . . ; (2) each parent makes a substantial contribution to the joint venture; (3) the enterprise exists as a business entity separate from its parents; and (4) the joint venture creates significant new enterprise capability in terms of new productive capacity, new technology, a new product, or entry into a new market. Joseph Brodley, Joint Ventures and Antitrust Policy, 95 HARV. L. REV. 1521, 1526 (1982) (emphasis added). The Antitrust Division, in its prior international guidelines, noted that a "joint venture is essentially any collaborative effort of firms, short of a merger, with respect to [research and development], production, distribution, and/or the marketing of products or services . . . that typically achieves integrational efficiencies." U.S. Department of Justice, Antitrust Enforcement Guidelines for International Operations (1988) § 3.4, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,109 (emphasis added). The more recent international guidelines do not attempt to define joint venture or provide substantive analysis.
25. See U.S. Department of Justice, Antitrust Guidelines for International Operations (1995),
26. reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132.
27. HOVENKAMP, supra note 18, § 2.3c, at 74 ("Productive efficiency is most simply understood as a ratio of a firm's outputs to its inputs. A firm that produces a product valued at $100 and requires inputs valued at $80 is more efficient that a firm that produces a product valued at $100 but requires inputs valued at $90."). Agreements create efficiencies if they "coordinate production or distribution in order to increase productive efficiency by improving quality or lowering costs." Id. § 5.6c, at 233 n.21.
28. See generally M. Laurence Popofsky, Integration, Market Power, and Necessity: Guideposts for the Practitioner, 54 ANTITRUST L.J. 1141, 1142 (1985) ("no magic definition can capture their essence").
29. See, e.g., Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598 (1951) (agreement to suppress competition cannot be justified by labeling it a joint venture else every agreement to restrain competition would be so labeled) ; United States v. Columbia Pictures Indus., 507 F. Supp. 412, 429 (S.D.N.Y. 1980) (that defendants used a "joint venture vehicle" did not necessarily change the appropriate standard of analysis).
30. HOVENKAMP, supra note 18, § 5.2 at 186.
31. Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1 (1979) (BMI).
32. The Court explained: The extraordinary numbers of users spread across the land, the ease with which a performance may be broadcast, the sheer volume of copyrighted compositions, the enormous quantity of separate performances each year, the impracticability of negotiating individual licenses for each composition, and the ephemeral nature of each performance all combine to create unique market conditions for performance rights to recorded music. Id. at 14-15 (quoting Memorandum of the United States as Amicus Curiae at 10, in K-91, Inc. v. Gershwin Publishing Corp., 389 U.S. 1045 (1968)). The challenged blanket license was "an obvious necessity" because "individual negotiations [were] a virtual impossibility." Id. at 20.
33. Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982). Regardless of what one thinks about the analysis and result in Maricopa, the doctors could not have colorably argued that their price-fixing agreement was an "obvious necessity" or that "individual negotiations were a "virtual impossibility," as the price-fixing agreement in BMI was.
34. "In the language of economists, a joint venture may be efficient; it may increase output." Pogue, supra note 16, at 926. At first glance, it might seem paradoxical that a decrease in utilization is synonymous with an increase in output. Where, however, unnecessary utilization of resources is reduced, output measured in terms of healthful outcomes is not decreased. Rather, fewer resources are used to produce at least the same level of output, and quality may rise, which amounts to an increase in output.
35. Of course, this issue should not arise where none of the physicians in the network compete with each other. See, e.g., Letter from Joel I. Klein, Acting Assistant Attorney General, Antitrust Division, to Michael S. Weiden (Nov. 16, 1996) (Business Review Letter to RWHC Network, Inc.) ("Based upon your representation regarding the absence of competition among the Network's member hospitals, we conclude that the Network . . . is not likely to cause any anticompetitive effects.").
36. See generally Enforcement Statements, supra note 9; Statement 9(C) n.65; see also SULLIVAN, supra note 6, § 102 at 287-86 ("It . . . seems clear enough, in the absence of any claim of integration efficiencies of the kind which might be obtained where two or more competitors agree to hire a joint sales or service agent, that if the [sellers] negotiate concertedly with [buyers] over the price charged by the [sellers] on sales to the [buyers], the [sellers] would be violating the per se rule against concerted action by competitors affecting price").
37. BMI, 441 U.S. at 19-20 (noting that before a court can determine whether a practice literally constituting price fixing can be summarily condemned, the court must examine whether "the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output . . . or instead is one designed to 'increase economic efficiency and render markets more rather than less competitive.'"). In BMI, the challenged blanket license was "a necessary consequence of the integration necessary to achieve these efficiencies, and a necessary consequence of an aggregate license is that its price must be established." Id. at 21. In sum, "[j]oint ventures [are] not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all." Id. at 23.
38. Enforcement Statements, supra note 9, Statement 8(B)(1).
39. United States v. Addyston Pipe & Steel Co., 85 F. 271, 282 (6th Cir. 1898), modified and aff'd, 175 U.S. 211 (1899): [N]o conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract. . . . [To be lawful,] the contract must be one in which there is a main purpose, to which the covenant in restraint of trade is merely ancillary. . . . The main purpose of the contract suggests the measure of protection needed, and furnishes a sufficiently uniform standard by which the validity of such restraints may be judicially determined. In such a case, if the restraint exceeds the necessity presented by the main purpose of the contract, it is void.
40. Brunswick Corp., 94 F.T.C. 1174 (1979) (to be ancillary, the restraint must be limited to those activities invariably arising out of dealings among the venturers, or necessary and of no broader scope than necessary to make the joint venture work), aff'd sub nom. Yamaha Motor Co. v. FTC, 657 F.2d 971, 981 (8th Cir. 1981) (restraint must be "'reasonably necessary' to the purpose" or have a "substantial relation" to the "legitimate purpose of the joint venture").
41. Los Angeles Mem. Coliseum Comm'n v. NFL, 726 F.2d 1381, 1395 (9th Cir. 1984) (ancillary restraint is one subordinate and collateral to another legitimate transaction and necessary to make that transaction effective).
42. General Leaseways, Inc. v. National Truck Leasing Ass'n, 744 F.2d 588, 595 (7th Cir. 1984) (for a restraint to be ancillary, there must be some "organic connection" between the restraint and the cooperative needs of the joint venture; here, there was "no reason . . . that cooperation requires that members be forbidden to compete with each other").
43. Polk Bros., Inc. v. Forest City Enters., 776 F.2d 185, 189 (7th Cir. 1985) (restraint is ancillary when accompanied by new production or products and is part of a larger endeavor whose services it promotes; basic question is whether the challenged agreement "contribute[s] to the services of a cooperative venture that promises greater productivity and output").
44. National Bancard Corp. v. VISA U.S.A., Inc., 779 F.2d 592, 601 (11th Cir. 1986) (a restraint is ancillary if it is "reasonably necessary to obtain a legitimate commercial objective . . ., has no substantial anticompetitive impact, and is no broader than necessary to accomplish its procompetitive goals"; also noting that "[t]he question is whether the restraint is necessary for the existence of the product").
45. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986): To be ancillary, and hence exempt from the per se rule, an agreement must be subordinate and collateral to a separate, legitimate transaction. The ancillary restraint is subordinate and collateral in the sense that it serves to make the main transaction more effective in accomplishing its purpose. Of course, the restraint imposed must be related to the efficiency sought to be achieved. If it is so broad that part of the restraint suppresses competition without creating efficiency, the restraint is, to that extent, not ancillary.
46. SCFC ILC, Inc. v. Visa U.SA., Inc., 36 F.3d 958, 970 (10th Cir. 1994) ("What we ask under section 1 is whether the alleged restraint is reasonably related to [the joint venture's] operation and no broader than necessary to effectuate the association's business. . . . That is, is [it] 'subordinate and collateral . . . [making] the main transaction more effective in accomplishing its purpose.'"). For an excellent discussion of both ancillary restraint and joint venture analysis, see the decision by Professor Thomas Kauper in Arbitration Between First Texas Sav. Ass'n & Fin. Interchange, Inc., 55 Antitrust & Trade Reg. Rep. (BNA) 340, 349-51 (Aug. 25, 1988).
47. Pitofsky, supra note 17, at 1611. Commissioner Azcuenaga of the FTC has expressed the same thought: "The central questions arising in connection with ancillary restraints are whether they are reasonably necessary to the operation of the venture and whether they are broader than necessary." Mary L. Azcuenaga, Commissioner, Federal Trade Commission, Integrated Joint Ventures, Prepared Remarks for ABA Section of Antitrust Law Annual Meeting, at 2 (Aug. 7, 1995). Professor Hovenkamp explains that to determine whether a restraint is ancillary, "consider (1) whether the restraint is necessary to make the joint venture function, (2) whether the restraint is broader than it need be to accomplish its purpose, and (3) whether the threat to competition is significant." HOVENKAMP, supra note 18, § 5.2b4 at 191.
48. Robert F. Leibenluft, Assistant Director, Bureau of Competition, Federal Trade Commission, Antitrust Analysis of Hospital Networks and Shared Service Arrangements, Prepared Remarks for AHA Legal Counsel Seminar, at 3 (Oct. 10, 1996).
49. See generally Joseph Rattan & David A. Balto, Analyzing Joint Ventures' Ancillary Restraints, ANTITRUST, Fall 1993, at 14: Assessment of the procompetitive potential turns on whether the restraint is reasonably necessary for the efficiencies sought to be achieved by the restraint. A restraint is reasonably necessary if it is "substantially related to the efficiency enhancing or procompetitive purposes" of the venture and the efficiencies cannot be obtained through means that are less restrictive of competition. (footnotes omitted);
50. see also ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 266 (1978) (an ancillary restraint is "subordinate to the main transaction," "contribute[s] to its efficiency," and is "no broader than the need it serves"); SULLIVAN, supra note 6, § 77 at 208 (defining ancillary restraint as a "restraint which is a necessary consequence of some degree of integration of distribution functions").
51. See, e.g., National Bancard Corp. v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1253 (S.D. Fla. 1985) (profits and losses not shared), aff'd, 779 F.2d 592 (11th Cir. 1986); cf. Pitofsky, supra note 17, at 1616 (NCAA decision did not involve substantial risk sharing or pooling of capital).
52. Enforcement Statements, supra note 9, Statement 8(B)(1) (emphasis added).
53. See Comments of the American Medical Association on the Need for Revisions to the Statements of Enforcement Policy and Analytical Principles Relating to Heath Care and Antitrust of the United States Department of Justice and the Federal Trade Commission at 33-34 (June 21, 1996) ("the only forms of economic integration that [are] recognized for physician joint ventures are the assumption of insurance risk").
54. See, e.g., Mark D. Whitener, Deputy Director, Bureau of Competition, Federal Trade Commission, Antitrust, Medicare Reform and Health Care Competition, Prepared Remarks for American Enterprise Inst. (Dec. 5, 1995) ("we are open to the possibility that joint pricing might be shown to be reasonably ancillary to a provider network that involves integration other than the type of risk sharing discussed in the policy statements"); but cf. Mark J. Horoschak, Assistant Director, Bureau of Competition, Federal Trade Commission, Recent Developments in the FTC's Antitrust Program for Health Care, Prepared Remarks for National Health Lawyers Ass'n (Feb. 16, 1995) ("To avoid per se condemnation under the antitrust laws, the providers' price agreement must be ancillary to an integrated joint venture. The integration in turn must take the form of a sharing of substantial financial risk.") (emphasis added).
55. Enforcement Statements, supra note 9, Statement 8(B)(1) n.36 ("The Agencies' analysis will focus on the efficiencies likely to be produced by the venture, and the relationship of any price agreements to the achievement of those efficiencies, rather than on whether the venture creates a product that can be labeled 'new' or 'different.'").
56. Maricopa, 457 U.S. at 356 (suggesting that where the venture sells a "different product," the "joint venture[ ] . . . is regarded as a single firm").
57. The revised Statements specifically list: (1) capitation, by which the network is paid a sum certain per subscriber regardless of the amount of services actually provided; (2) acceptance by the network of a percentage of the premium paid by the subscriber to the third-party payer; (3) a withhold, by which the payer or network withholds a portion of the fees due participating providers and returns it to them only if the network meets certain predetermined resource use or cost containment goals; (4) the network's subjecting its participants to financial penalties or rewards depending on whether the network meets certain predetermined cost or utilization goals; and (5) use by the network of "global fees" or "case rates," by which the network is paid a fixed amount for particular complex procedures. Enforcement Statements, supra note 9, Statement 8(A) (4) and Statement 9 (A).
58. See generally Horoschak, supra note 47, at 8: Why is risk sharing important? The answer is simple: risk sharing can create a disincentive for individual providers to maximize their revenues through increasing the number of services rendered. When the provider group bears substantial economic risk, each member of the group has a direct stake in the success of the group as a whole, and therefore has an incentive to assure that all members practice high quality medicine and avoid unnecessary utilization of services.
59. Messenger arrangements, by which a network "messenger" receives contract offers from third-party payers and passes them on to network participants who decide individually whether to contract with the payer (thus avoiding a horizontal price-fixing agreement), are discussed at Enforcement Statements, supra note 9, Statement 9(C). For a more detailed discussion, see Robert W. McCann, Theory and Reality in the Revised DOJ-FTC Enforcement Guidelines for Provider Networks, in HEALTH LAW HANDBOOK 1997 239, 246-51 (A. Gosfield ed., 1997).
60. Enforcement Statements, supra note 9, Statement 8(B)(1).
61. Id. at Statement 8, Example 1, explains in part: [Participating physicians in an IPA intend] to reduce costs while maintaining and improving the quality of care, and thus to attract more managed care patients to their practices. The IPA will implement systems to establish goals relating to the quality and appropriate utilization of services by IPA participants, regularly evaluate both individual participants' and the network's aggregate performance with respect to those goals, and modify individual participants' actual practices, where necessary, based on those evaluations. The IPA will engage in case management, preauthorization of some services, and concurrent and retrospective review of inpatient stays. In addition, the IPA is developing practice standards and protocols to govern treatment and utilization of services, and it will actively review the care rendered by each doctor in light of these standards and protocols. There is a significant investment of capital to purchase the information systems necessary . . . [ , and the] IPA will provide payers with detailed reports on the cost and quantity of services provided, and on the network's success in meeting its goals. . . . The doctors . . . will continue actively to monitor care provided through the IPA. Network participants who fail to adhere to the network's standards and protocols will be subject to remedial action, including the possibility of expulsion from the network.
62. Leibenluft, supra note 42, at 6.
63. Enforcement Statements, supra note 9, Statement 8(B)(1).
64. Commissioner Azcuenaga recognized this in explaining, "I would warn against spending too much time examining the mechanics of how a joint venture is integrated and too little time considering the efficiency aspects of the venture and its significance to competition given the particular circumstances in which the venture is formed." Azcuenaga, supra note 41, at 6.
65. Professor Greaney described the situation well: Less clear, of course, is how much clinical integration is required. This is likely to be a point of contention and debate in the coming years. It is no secret that many networks are formed primarily for the purpose of achieving leverage in the market and only incidentally for realizing whatever efficiencies might be possible. As one practitioner experienced in the field described the problem, many clients ask him, "How much integration do we have to have to get this network approved?" The implication is that the group is anxious to do the minimum amount the Agencies require to demonstrate "integration" so that they can realize whatever power their united bargaining position can achieve. Antitrust law should insist that to avoid per se treatment, price-fixing must be ancillary to integration, not vice versa. Thomas F. Greaney, Much Ado About Networks, 29 J. HEALTH & HOSP. L. 307, 309 (1996) (emphasis added).
66. One commentator correctly notes that in counseling joint venture clients, the place to start is with the venture's objectives: The first logical step in joint venture formation is to identify the business objectives of the client or clients, and then sort out the permissible from the impermissible. A typical business[person], being human, initially will seek everything he [or she] can in an arrangement with a competitor. . . . Agreement with the client on what are proper objectives of a joint venture, and what objectives are improper or create substantial legal risk, can save much time, grief, and misunderstanding later. Pogue, supra note 16, at 942; see also SULLIVAN, supra note 6, § 70 at 192 ("[i]t is now well settled that in price fixing cases, no question whatsoever is to be asked about defendants' power if their purpose is to fix prices"). While there might be some question about whether an anticompetitive purpose or intent by itself, when coupled with an agreement, is sufficient for a § 1 violation, there is no question about the relevance of purpose or intent in helping to show potential effect. See, e.g., Appalachian Coals, Inc. v. United States, 288 U.S. 344, 372 (1933) (explaining that intent, although not determinative of a violation by itself, aids in interpreting facts and predicting consequences).
67. Azcuenaga, supra note 41, at 4: "[C]ommentators have examined the case law in vain to discover a test of integration and they have noted the difficulty in reconciling the decisions of the Supreme Court" (citing Popofsky, supra note 22, at 1142 ("One looks in vain for a test of integration in the decided cases.")).
68. Pitofsky, supra note 17, at 1623 (noting that "the assumption [is] that higher levels of integration are likely to be associated with more substantial efficiencies"). Cf. Roscoe B. Starek, III, Commissioner, Federal Trade Commission, Beyond the Health Care Policy Statements: Where Do We Go from Here?, Prepared Remarks for 30th Annual Institute on Health Care Antitrust Developments, at 6 (Nov. 1, 1996) ("assessments of . . . integration are just proxies for the fundamental antitrust inquiry into whether a restraint is (1) reasonably necessary to the attainment of the procompetitive objectives of the arrangement and (2) likely to create procompetitive benefits").
69. Pitofsky, supra note 17, at 1623 ("except in rare cases, it is almost impossible, at least at the present stage of economic learning, to quantify efficiencies"); HOVENKAMP, supra note 18, § 5.6b at 231 ("courts are not capable of measuring . . . efficiency").
70. Cf. Pitofsky, supra note 17, at 1614 ("Courts and commentators have rarely examined the level of integration, or the level of efficiency, of particular joint ventures. Once the arrangement was 'characterized' as a joint venture and not a cartel - that is, some integration was present - it has been assumed that substantial efficiencies were present.").
71. Enforcement Statements, supra note 9, Statement 8(B)(1).
72. See, e.g., Southbank IPA, Inc., 114 F.T.C. 783 (1991).
73. Enforcement Statements, supra note 9, Statement 8(B)(1). Sham networks are "arrangements among physicians that have taken the form of networks, but which in purpose or effect were little more than efforts by their participants to prevent or impede competitive forces from operating in the market." Id. They exhibit little, if any, economic integration and thus hold out little, if any, prospect of generating efficiencies.
74. See generally Greaney, supra note 58, at 309: The Agencies' rationale for emphasizing the need for substantial clinical integration . . . is as follows. It is necessary to assure that the network takes steps to effectively bond providers to each other in a common enterprise in order to assure that the arrangement truly has within its grasp realizing the promise of heightened efficiencies, which, after all, is the basis for allowing coordinated action in the first place. This analysis is entirely consistent with the case law and appears to be no different from the analysis traditionally applied to joint ventures in other industries.
75. See Enforcement Statements, supra note 9, Statement 8, Example 2. For an example applying the analysis, see Letter from Robert F. Leibenluft, Assistant Director, Bureau of Competition, Federal Trade Commission, to George A. Cumming, Jr. (July 17, 1996) (FTC Staff Advisory Opinion to Mayo Medical Laboratories).
76. NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984).
77. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985).
78. BMI, 441 U.S. at 5.
79. Id. at 23.
80. Id. at 21. Elsewhere in the opinion, the Court noted that the district court had found that "direct negotiation . . . is available and feasible," id. at 6, but the Court explained that "[i]ndividual sales transactions are quite expensive," id. at 20.
81. Cf. id. at 5 ("it was impossible for the many individual copyright owners to negotiate with and license users and to detect unauthorized uses"; rather, "[a] middleman with a blanket license was an obvious necessity if the thousands of individual negotiations, a virtual impossibility, were to be avoided").
82. Maricopa, 457 U.S. at 352 ("Even if a fee schedule is therefore desirable, it is not necessary that the doctors do the price fixing.").
83. Id. at 353.
84. Id. at 353-54 ("no reason to believe that any savings that might accrue from this arrangement would be sufficiently great to affect the competitiveness of these kinds of insurance plans").
85. Id.
86. Most attorneys probably would agree with Commissioner Starek's observation that "it is far from certain that the current Court would apply the same analysis and reach the same result if presented with a more challenging and equivocal physician network case [than Maricopa]." Roscoe B. Starek III, Commissioner, Federal Trade Commission, Reinventing Health Care Antitrust Enforcement, Prepared Remarks For Antitrust Common Ground Conference (May 17, 1996).
87. Professor Sullivan appears to believe that the restraint must be essential, noting that "the price restraint must arise inevitably from the integration. . . . If the integration is to be permitted at all, the consequent reduction in price competition must be tolerated. SULLIVAN, supra note 6, § 77 at 208; see also id. at 206 ("the elimination of price competition . . . must result directly from the partial integration").
88. NCAA, 468 U.S. at 101.
89. Id. at 110 (an otherwise "naked restraint . . . requires some competitive justification"), 113 (defendant has a "heavy burden of establishing an affirmative defense which competitively justifies this apparent deviation from the operations of a free market").
90. Id. at 117 ("The specific restraints on football telecasts that are challenged . . . do not . . . fit into the same mold as do rules defining eligibility of participants, or the manner in which members of a joint enterprise shall share the responsibilities and the benefits of the total venture.").
91. Northwest Stationers, 472 U.S. at 296 (emphasis added).
92. Id. n.7 (emphasis added).
93. See decisions cited supra notes 33-40.
94. Enforcement Statements, supra note 9, Statement 8(B)(1). Statement 8 notes later that "[t]he Agencies' analysis will focus on . . . the relationship of any price agreements to the achievement of those efficiencies." Id. at n. 36.
95. Id.
96. Indeed, a former FTC Bureau of Competition Assistant Director for Health Care stated this clearly in 1992, before any guidelines were issued: Establishing that the joint venture involves a productive integration is, after all, only half of the burden; it also must be established that the restraint imposed on the venturers is reasonably necessary to the attainment of the claimed efficiencies. . . . There is simply no logical connection between a price agreement and many of the activities that PPOs typically, and quite properly, engage in, such as claims administration and utilization review. These activities may produce real, cognizable efficiencies, and as such may justify incidental restrictions on competition among participants that are necessary to these particular activities. But they do not justify a horizontal price agreement. . . . I do not rule out the possibility that circumstances may exist in which some horizontal price agreement is reasonably necessary to the operation of a plan that would have, on balance, a procompetitive effect on the market, but we would need a specific factual showing of why the price agreement was necessary and what relationship it bore to particular competitive benefits. Mark J. Horoschak, Assistant Director, Bureau of Competition, Federal Trade Commission, Antitrust Perspectives on Joint Ventures Among Health Care Providers, Prepared Remarks for ABA Section on Antitrust Law Annual Meeting (Aug. 11, 1992).
97. But cf. Starek, supra note 61, at 8 ("My own view - a view guided by the Supreme Court in BMI - is that health care networks may indeed be invented in which transaction cost savings outweigh any effect of anticompetitive harm.").
98. For a similar view, see McCann, supra note 52, at 246: From the standpoint of traditional antitrust law, it is difficult to understand how the Agencies reached the conclusion that integration through utilization management would legitimize joint pricing and contract negotiation. Traditional joint venture analysis holds that embedded agreements (e.g., on price) must be necessary to the achievement of the productive efficiencies of the venture. Providers who come together to perform UM/QA [utilization management/quality assurance] clearly need to engage in some forms of joint activity, such as sharing utilization and cost data. While the development of a common fee schedule may be convenient in terms of marketing a UM/QA network, it is far from clear that joint pricing is an essential attribute of a functional UM/QA organization. (Footnote omitted.)
99. This, together with potential transaction cost savings, seems to be the thesis of Clark Havighurst, Are the Antitrust Agencies Overregulating Physician Networks?, 8 LOY. CONSUMER L. REP. 78, 78 (1995-96). Professor Havighurst argues: [u]nless such a venture qualifies as a sham rather than as a legitimate effort to reduce marketing and other transaction costs, . . . it is not an appropriate candidate for condemnation under the venerable principle that price fixing is illegal per se. Nonetheless, current antitrust enforcement policy appears to give too little credence to the possibility that a physician network controlled by physicians might yield marketing efficiencies that more than offset any loss of competition among the joint venturers themselves. Thus, he would apply the rule of reason to all networks other than shams, regardless of whether the networks exhibited financial or clinical integration to "allow a physician network a chance to show that procompetitive effects predominate." Id. at 82.
100. 776 F.2d 185, 190 (7th Cir. 1985) (one venturer would not participate absent the restraint because otherwise the other venturer could free ride; thus, "the restrictive covenant made the cooperation possible"). But cf. SULLIVAN, supra note 6, § 77 at 208 (rejecting as a justification "that firms participating in the integration insisted upon the price restraint as a condition to integrating").
101. See Los Angeles Mem. Coliseum, 726 F.2d at 1395-98; see also Mark D. Whitener, Acting Deputy Director, Bureau of Competition, Federal Trade Commission, Combination and Collaboration in Health Care Markets: Antitrust as a Constraint in a Time of Change, Prepared Remarks for Charles River Assocs. (Apr. 28, 1994) (restraint may be ancillary "if the efficiencies cannot be attained through less restrictive means").
102. Rothery, 792 F.2d at 227 ("lower courts should not calibrate degrees of reasonable necessity").
103. SCFC 36 F.3d at 970.
104. Pitofsky, supra note 17, at 1620: The point is not that joint ventures should be found illegal if the same or similar efficiencies can be achieved in a less restrictive manner. As several courts have noted, that formulation is too demanding since it would place joint venture organizers at the hazard that others might come along later and think of some method of achieving similar efficiencies in a manner that is somewhat less restrictive. But when efficiencies are offered to justify what would otherwise be anticompetitive restrictions, it is essential to discount those efficiencies where they could be achieved with a substantially lesser level or the complete absence of the restraint.
105. See, e.g., Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 56 (2d Cir. 1997) (in rule of reason cases, after defendant provides a procompetitive justification for an agreement shown to have anticompetitive effects, plaintiff must show that the same benefits could have been achieved through less restrictive means).
106. Enforcement Statements, supra note 9, Statement 8(B)(2) (Step Three) (emphasis added).
107. For a discussion of the reasons this is true, see Statement of Robert Pitofsky, Chairman, Federal Trade Commission, Before the Committee on the Judiciary, U.S. House of Representatives (Feb. 27, 1996) (opposing enactment of H.R. 2925).
108. Cf. Enforcement Statements, supra note 9, Statement 9(A) ("the types of clinical integration and efficiencies available to physician network joint ventures may not be relevant to all multiprovider networks").
109. AREEDA, supra note 19, ¶ 1508a, at 403.
110. FTC Staff Advisory Opinion to Mayo Medical Laboratories, supra note 68.
111. Letter from Robert F. Leibenluft, Assistant Director, Bureau of Competition, Federal Trade Commission, to John A. Cook (Jan. 29, 1997) (FTC Staff Advisory Opinion to Mobile Health Resources, L.L.C.).
112. Id. at 7-8. Although the network intended to contract primarily on a capitated basis (as in the Mayo Labs letter) and its fee-for-service contracts would involve some unidentified level of withhold, the letter's discussion indicates that the level of clinical integration by itself might be sufficient to render the agreement on a fee schedule ancillary. The staff, for example, stated that "we do not determine whether the participating providers would share substantial risk through the proposed . . . risk-withhold arrangements." Id. at 6 n.10.
113. Letter from Robert F. Leibenluft, Assistant Director, Bureau of Competition, Federal Trade Commission, to David V. Meany (May 14, 1997) (FTC Staff Advisory Opinion to Yellowstone Physicians, L.L.C.). As important as the programs mentioned in the text, the letter also indicates that the network would hire a medical director, analyze particular problem cases, develop a medical management system to track utilization data and monitor compliance, and modify members' utilization behavior.
114. Enforcement Statements, supra note 9, Statement 8(B)(2).
115. National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1978) (applying, in effect, a quick-look version of the rule of reason: "While this is not price fixing as such, no elaborate industry inquiry is required to demonstrate the anticompetitive character of such an agreement").
116. FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986).
117. FTC v. Superior Ct. Trial Lawyers Ass'n, 493 U.S. 411, 433 (1990) (finding a naked restraint but considering (and rejecting) justifications, and noting that the per se rule is like a "statutory command[]").
118. Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990) (per curiam) (applying a strict per se rule).
119. For helpful discussions of the rule of reason and the different frameworks that have evolved, see generally Kattan & Balto, supra note 43, at 13; James A. Keyte, The Quick Look Rule of Reason, ANTITRUST, Summer 1997, at 21;
120. Lawrence A. Sullivan, The Viability of the Current Law on Horizontal Restraints in COLLABORATION AMONG COMPETITORS 675 (Eleanor M. Fox & James T. Halverson eds., 1991); SULLIVAN, supra note 6, §§ 63-72 at 165-97.
121. Joseph F. Winterscheid & James H. Thompson, Developments in the Rule of Reason Analysis of Horizontal Restraints: The FTC, DOJ and Supreme Court Approaches, in COLLABORATION AMONG COMPETITORS, supra, at 761.
122. Professional Engineers, 435 U.S. at 692.
123. One court provided an apt description: "The per se rule is the trump card of antitrust analysis. When the antitrust plaintiff successfully plays it, he need only tally his score." United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1363 (5th Cir. 1980) (also describing the per se rule as a "conversation-stopper").
124. BMI held that because the per se rule does not apply unless the practice "facially appears to be one that would always or almost always tend to restrict competition and decrease output, . . . instead of one designed to 'increase economic efficiency,'" 441 U.S. at 19-20, the court might have to consider justifications before determining whether to apply the per se rule or rule of reason, even if the agreement is of a type to which the per se rule traditionally had applied. Maricopa ostensibly returned to the strict per se/rule of reason dichotomy, stating that "[t]he anticompetitive potential inherent in all price fixing agreements justifies their facial invalidation even if procompetitive justifications are offered for some." 457 U.S. at 351. It is difficult to reconcile the analytical frameworks used in BMI and Maricopa but not their results, given the overwhelming transaction cost efficiencies present in the former but not the latter. Even in Maricopa, however, the Court implicitly considered the defendant's proffered justifications. NCAA dealt with both the appropriate standard of analysis and application of the rule of reason once it was determined that the rule of reason applied. The Court applied the rule of reason because some restraints were necessary for the defendant's product to be offered at all. But under the rule of reason, where the agreement was among competitors and directly affected output and price, it could be summarily condemned, even absent a showing of market power, if the defendants could not prove their efficiency-justifications, if those justifications were not related to the restraint involved, or if the justifications were invalid as a matter of law. This version of the rule of reason is sometimes called the "quick-look" version. See Chicago Prof'l Sports Ltd. Partnership v. NBA, 961 F.2d 667, 674 (7th Cir. 1992) (absent "sound justifications, the court condemns the practice ado, using the 'quick look' version of the rule of reason"). Northwest Stationers, like BMI and NCAA, noted that in some situations, some restraints are necessary if the product is to be offered at all and that, therefore, as in BMI and NCAA, the restraint could not be condemned under the strict per se rule. Perhaps more important, it held that because restraints of the type there (a group boycott rather than an agreement among competitors not to compete) were "not characteristically likely to result in predominately anticompetitive effects," at a minimum a plaintiff would have to show market power before the restraint then could be summarily condemned. Northwest Stationers, 472 U.S. at 296, 298; see also Retina Assocs. v. Southern Baptist Hosp., 105 F.3d 1376, 1381 (11th Cir. 1997) (per curiam) (per se rule is inapplicable even if boycotters have market power "absent some demonstration that the practice at issue historically leads to anticompetitive effects"). The agreement in Indiana Federation of Dentists was an agreement not to compete by refusing to supply x-rays to payers for cost containment purposes. The Court refused to apply a strict per se rule for several reasons, including that the "economic impact of [the] practice is not immediately obvious." 476 U.S. at 459. It then, however, applied an NCAA "quick look"-type rule of reason, noting that the defendant had to justify the restraint and that the plaintiff did not have to prove market power since the restraint was a form of horizontal agreement not to compete. Perhaps most importantly, the Court held that even if an effect on competition had to be proved, "[s]ince the purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, 'proof of actual detrimental effect, such as a reduction of output' can obviate the need for an inquiry into market power, which is but a 'surrogate for detrimental effects.'" Id. at 460-61.
125. See generally Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 462 (1992) (tying arrangements violate § 1 if the seller of the tying product has appreciable power in that market); Jefferson Parish Hosp. No. 2 v. Hyde, 466 U.S. 2, 12-14 (1984); cf. PSI Repair Servs., Inc. v. Honeywell, Inc., 104 F.3d 811, 815 n.2 (6th Cir.) (noting the merging of the per se and rule of reason standard in recent years and, after explaining that plaintiff must prove defendant's market power, stating that "[s]uch an extensive inquiry is hardly the stuff of per se analysis"), cert. denied, 117 S. Ct. 2434 (1997).
126. See generally Northwest Wholesale Stationers, 472 U.S. at 296-98 (proof of market power a threshold requirement before concluding that a group boycott is anticompetitive).
127. Retina Assocs., P.A. v. Southern Baptist Hosp., 105 F.3d 1376, 1381 (11th Cir. 1997) (per curiam).
128. See, e.g., Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1367 n.9 (3d Cir. 1996); United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993); Denny's Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217, 1221 n.6 (7th Cir. 1993); Chicago Prof'l Sports Ltd. Partnership v. NBA, 961 F.2d 667, 674 (7th Cir. 1992). In International Association of Conference Interpreters, 5 Trade Reg. Rep. (CCH) ¶ 24,235 (FTC Feb. 19, 1997), the FTC explained that the rule of reason contemplates a flexible inquiry examining a challenged restraint in the detail necessary to understand its competitive effect. . . . Thus, the inquiry need not be conducted in great depth and elaborate detail in every case, for sometimes a court may be able to determine the anticompetitive character of a restraint easily and quickly by what has become known as a "quick look" review. Id. at 24,058. Often, there are two quick looks: a first to determine whether any plausible efficiency justifications exist for the agreement - the ancillary restraints analysis discussed before - and a second to determine if the agreement's effect on competition can be determined without a full-blown rule of reason analysis.
129. perhaps the best explanation of this is Professor Hovenkamp's: In fact, all legal analysis is "per se" to one degree or another. The per se rule says that once we know a certain amount about a practice we can pass judgment on its legality without further inquiry. The difference between a "per se" and "rule of reason" standard lies in how much we need to know before we can make that decision. A rational decision maker will collect information, beginning with that which is the most relevant and easiest to gather, until he reaches a point at which the marginal cost of acquiring more information exceeds its expected marginal return. In this case, the "marginal return" is the increased accuracy of the final decision. If the cost of obtaining certain information is very high, and the chance is small that it will make the final decision more accurate, the rational decision maker will not seek the additional information. Even in a so-called rule of reason case, however, the parties will not produce all the marginally relevant information. They will produce sufficient information to satisfy some judicially created presumptions - for example - that a defendant with 90% of the market has monopoly power. . . . In sum, every inquiry is cut off at some point; the label "per se" simply refers to a class of situations where we find it appropriate to cut the inquiry off at a relatively early stage. HOVENKAMP, supra note 18, § 5.6b, at 228 (footnotes omitted). For similar thinking, see 7 AREEDA, supra note 19, ¶¶ 1508-11, at 403-436.
130. Some of most important and best examples are Joel I. Klein, Acting Assistant Attorney General, Antitrust Division, A Stepwise Approach to Antitrust Review of Horizontal Agreements, Prepared Remarks for ABA Section of Antitrust Law, at 4-8 (Nov. 7, 1996); the FTC's decisions in Massachusetts Board of Registration in Optometry, 110 F.T.C. 549, 604 (1988), and in California Dental Association, 5 Trade Reg. Rep. (CCH) ¶ 24,007 (FTC Mar. 25, 1996) (interestingly criticized in Roscoe B. Starek III, Commissioner, Federal Trade Commission, The Federal Trade Commission's Current Enforcement Policies with Emphasis on Actions Against Associations, Prepared Remarks for Bar Association of the District of Columbia, at 11-14 (Feb. 12, 1997)); HOVENKAMP, supra note 18, § 5.6c, at 233; and 7 AREEDA, supra note 19, ¶¶ 1502, at 371-72, 1507b, at 397-98, and 1511, at 428-30.
131. This "actual detrimental effects test," which comes from Indiana Federation of Dentists and is creeping into more and more rule of reason cases, see, e.g., Levine v. Central Fla. Med. Affiliates, 72 F.3d 1538, 1551 (11th Cir.), cert. denied, 117 S. Ct. 75 (1996), seems very "loosey-goosey" and dangerous. Extremely difficult and confusing economic and legal problems arise in proving that any reduced output or supracompetitive prices or profits (which themselves are complex to establish and interpret) resulted from the agreement in question. Cf. Blue Cross & Blue Shield v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995) (noting the danger of inferring monopoly power from "higher prices" or "a high rate of return").
132. A number of relatively recent cases specifically provide the plaintiff with the choice of proving the requisite anticompetitive effects by either direct or circumstantial evidence, as the text indicates. See, e.g., Retina Assocs., P.A. v. Southern Baptist Hosp., 105 F.2d 1376, 1383 (11th Cir. 1997); Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1367 (3d Cir. 1996); K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 128-29 (2d Cir. 1995); Flegel v. Christian Hosp., 4 F.3d 682, 688-89 (8th Cir. 1993).
133. Although the balancing process makes good sense theoretically, it is impossible to implement with any precision in real life. Professor Hovenkamp explains: When one expected consequence is zero and the other positive, the court may reach a reasoned decision. But if both consequences are positive, the court is unlikely to be able to assign weights that will permit balancing. We sometimes hear the deceptively simple proposition that all the court needs to do is balance efficiency effects against the anticompetitive effects and see which way the scale tips. But courts are not capable of measuring either efficiency or power over price with anything approaching scientific accuracy. Most such judicial measurements are simply hunches, based on several presumptions about the nature and effects of certain practices. HOVENKAMP, supra note 18, § 5.6b, at 231; see also 7 AREEDA, supra note 19, ¶ 1507, at 394 ("Because both theory and data are usually insufficient, and because quantification in terms of a common denominator is usually impossible, balancing will inevitably be crude."); Pitofsky, supra note 17, at 1615 ("efficiencies are difficult to quantify, and even more difficult to 'trade off' against anticompetitive effects").
134. Klein, supra note 121, at 5.
135. 5 Trade Reg. Rep. (CCH) ¶ 24,007 (FTC Mar. 25, 1996), aff'd, California Dental Ass'n v. FTC, No. 95-70409, 1997 U.S. App. LEXIS 28882 (9th Cir. Oct. 22, 1997).
136. Id. ¶ 24,235 (FTC Feb. 19, 1997).
137. 110 F.T.C. 549 (1988). In Mass. Board the FTC put forth the following three-step analytical framework: First, we ask whether the restraint is "inherently suspect" [because it is] the kind that appears likely, absent an efficiency justification, to "restrict competition and decrease output[.]" . . . If the restraint is not inherently suspect, then the traditional rule of reason, with attendant issues of market definition and power must be employed. But if it is inherently suspect, we must pose a second question: Is there a plausible efficiency-justification for the practice? . . . Such an efficiency defense is plausible if it cannot be rejected without extensive factual inquiry. . . . But if the efficiency justification is plausible, further inquiry - a third inquiry - is needed to determine whether the justification is really valid. If it is, it must be assessed under the full balancing test of the rule of reason [but if not, it can be condemned] under the rule of reason without further inquiry . . . . Id. at 604.
138. First, the FTC stated that "[w]hen an activity falls into a per se category, the individual agreement . . . is thought beyond justification in the sense that any . . . proffer of procompetitive justifications for the practice, will generally not be considered." CDA, 5 Trade Reg. Rep. (CCH) at 23,786. But shortly thereafter, the opinion explains that "[t]he examination of a practice, however, does not inevitably come to rest after it has been identified as falling into the category of per se unlawful bans on price competition," id. at 23,790, based perhaps on what the decision refers to as "possible adjustments under the decision in BMI," id. at 23,786.
139. Id. at 23,796-97.
140. Id. at 23,790-91.
141. See supra note 120.
142. The FTC noted that "courts generally will not consider arguments that such conduct is . . . procompetitive," 5 Trade Reg. Rep. (CCH) at 24,050 (emphasis added), and dropped a "but see" footnote to BMI with a parenthetical that a "price agreement that was essential to the market availability of the product [is] renewed under the rule of reason," id. at 24,051 n.13.
143. See Roscoe B. Starek III, Commissioner, Federal Trade Commission, Antitrust and Trade Associations at the FTC, Prepared Remarks for Chicago Bar Ass'n (Apr. 16, 1997).
144. This seems particularly important because Commissioners Azcuenaga and Starek disagreed with the majority's analysis in CDA. CDA, 5 Trade Reg. Rep. (CCH) at 23,802 (Azcuenaga, Comm'r, dissenting), 23,815 (Starek, Comm'r, concurring in part and dissenting in part). Commissioner Starek also disagreed with the analysis in Conference Interpreters, id. at 24,067 (Starek, Comm'r, concurring in part and dissenting in part).
145. Enforcement Statements, supra note 9, Statement 8(B)(2) (Steps 1-4).
146. W. Statement 8(B)(2). It might seem as though, by this stage of the analysis, the restraint already should have been declared ancillary and thus "reasonably necessary." This language might mesh the issue in BMI, i.e., the appropriate standard, with the primary issue in NCAA, i.e., how to apply the rule of reason if it is the appropriate standard.
147. Statement 8 also contains a significant discussion about the role of physician incentives, which seems more confusing than helpful.
148. The Fifth Circuit recently explained that [a] critical element in analyzing the antitrust impact of PPO actions is the level of competition among
149. An interesting example is the Department of Justice's business review letter to Children's Healthcare, P.A., a proposed network of pediatricians in southern New Jersey. Letter from Anne K. Bingaman, Assistant Attorney General, Antitrust Division, to Steven J. Kern (Mar. 1, 1996). In that letter, after rejecting the network's proposed product and geographic market definition as too narrow, the Antitrust Division noted that the network would include between 50% and 75% of the primary care pediatricians in the relevant market. Combined with the fact that, contrary to the network's assertions, there was evidence that the network likely would be exclusive, this market share convinced the Antitrust Division that the network, if implemented, would be able to exercise market power. See also Letter from Anne K. Bingaman, Assistant Attorney General, Antitrust Division, to Tad R. Callister (Mar. 8, 1996) (Business Review Letter to Orange Los Angeles Medical Group, Inc.) (anesthesia network including five of six groups in the relevant market and implementing exclusivity provisions would be likely to exercise market power).
150. Enforcement Statements, supra note 9, Statement 8(A). If a physician network meets the requirements of either of Statement 8's two safety zones, the agencies promise not to challenge the network "absent extraordinary circumstances." The substance of the safety zones highlights the tradeoff between the percentage of competing physicians participating in the network and whether the network is exclusive. Under the first safety zone, which applies to exclusive networks, the network is safe from challenge, assuming its participants share substantial financial risk, if 20% or less of competing physicians are participants. The second safety zone, that for nonexclusive networks, is similar, except that 30% or less of competing physicians may participate and the network will remain safe from challenge.
151. Cf. Greaney, supra note 58, at 310: The difficult task of evaluating when a network with a substantial share of providers in any relevant market constitutes a threat to competition [because of the providers' or the network's market power] remains unresolved and the Statements do not shed much light on how the Agencies will analyze this important issue. The quandary here is that the percentage of market physicians participating in a network is a highly imperfect gauge of that network's market power. Physicians may be members of numerous other networks, entry by other physicians may be easy, or doctors in competing networks may have available considerable extra hours ("excess capacity"). In such circumstances, participation percentages over-estimate the network's power. On the other hand, the network . . . may have few competitors doing meaningful managed care in the market or may be comprised of physicians with superior reputations, office locations, or other advantages. In such a case, the participation percentage may well underestimate the network's market power.