Bay Area Preferred Physicians

manattmanatt I phelps I phillips
October 18, 2002
VIA FEDERAL EXPRESS
Donald Clark
Secretary, Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Room H177
Martin J. Thompson
Direct Dial: (714) 371-2530
E-mail: mthompson@manatt.com
Client-Matter: 24698-030
Washington, D.C. 20580 ------- _j
Re: 	Staff Advisory Letter Request
Dear Mr. Clark:
This request for a staff advisory letter is submitted on behalf of six county medical
societies located in adjacent counties in or near the San Francisco Bay area of Northern
Califomia.1 These societies propose to create a messenger-model physician network, tentatively
named Bay Area Preferred Providers ("BAPP"). This request is submitted pursuant to 16 CFR
§ 1.1 and with reference to the August, 1996 Statements of Antitrust Enforcement Policy in
Healthcare, Statement No.8.
BACKGROUND
Numerous physician networks seeking to serve portions of Northern California have
failed during recent years. 2 These were typically delegated model IP As accepting capitation, and
discovering too late that their costs exceeded their revenues. As a result of the disappearance of
these IP As from the market, portions of Northern California appear to be underserved by
physician networks adequate to offer sufficient contracting opportunities for physicians seeking
to participate in managed care arrangements.
The sponsors ofBAPP have concluded that a messenger-model network with geographic
coverage co-extensive with the seven counties represented by the sponsors (possibly adding
Santa Clara as well) may create efficiencies for the payors that access the market through this
network and may create contracting opportunities for physicians who choose to participate.
1 Alameda-Contra Costa, San Mateo, San Francisco, Sonoma, Napa and Solano.
2 See Exhibit A, attached.
650 Town Center Drive, Suite 1250, Costa Mesa, California 92626 Telephone: 714.371.2500 Fax: 714.371.2550
Los Angeles I Mexico City I Monterrey I Orange County 1 Palo Alto 1 Sacramento 1 Washington, D.C.
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manattmanatt 1 phelps 1 phillips
Donald Clark
October 18, 2002
Page 2
STRUCTURE AND OPERATION
The sponsors propose to organize BAPP as a California nonprofit mutual benefit
corporation. Each sponsor will elect two directors and physician participation in BAPP will be
entirely non-exclusive. The physician members of each sponsoring society will be invited to
participate, and participating physicians will be required to provide funding for BAPP through
application fees and periodic assessments as necessary to cover costs. BAPP will credential its
participating physicians consistent with standards established by the National Committee on
Quality Assurance, saving payors and providers the cost and time inherent in re-credentialing.
BAPP will function as a traditional messenger-model network. It will employ an
individual who will serve as an agent or "messenger". This person will not be permitted to
attempt to negotiate or otherwise influence pricing of services. BAPP will solicit minimum
acceptable reimbursement levels from individual physicians or fully-merged physician groups.
BAPP will develop a fee schedule depicting numbers of physicians offering to contract at
different pricing levels. BAPP will maintain the confidentiality of this information with respect
to the participating providers, and communicate the information to payors. BAPP will be
authorized to bind participating providers to contracts at or above their minimum acceptable
rates.
BAPP will communicate to the participating providers each payor offer. Contracts will
be administered by BAPP only when 50% or more of the participating providers accept offers
from a given payor. With the consent of the payor in question, BAPP members will be given the
opportunity to opt in to BAPP contracts that they initially rejected. Where less than 50% of the
participating providers accept the offer of a given payor, BAPP will distribute the proposed
contract to all BAPP providers, allowing the payor to seek to negotiate arrangements with
individual providers or groups independently ofBAPP.
Information may be communicated by BAPP to participating providers about a given
contract when requested, but any such information will be limited to objective information about
specific contract terms. BAPP will make no recommendations encouraging or discouraging
participating providers from accepting the terms of a given contract.
ANTICIPATED PARTICIPATION
Attached as Exhibit B is a chart setting forth the number of active practicing physicians
within each of the counties covered by the BAPP sponsors, the number of actively practicing
physicians who are members of each such sponsor, and the number of physicians currently
expected to participate in BAPP from each such county. The anticipated level of participation is
derived from internal polling by each of the sponsors, and does not represent a firm commitment
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manattmanatt I phelps I phillips
Donald Clark
October 18, 2002
Page 3
to participate by those responding affirmatively, nor a firm commitment not to participate by
those responding in the negative. It is, however, believed to be a reasonably reliable prediction
of the level of participation. Although membership in each of the sponsoring societies is open to
all physicians practicing within the county in question, the chart also indicates that total
participation in county medical societies is generally not high, particularly in the larger counties.
The sponsoring societies have concluded that there are no geographic regions within their
respective counties and no medical specialties that have disproportionately high representation or
are likely to achieve participation rates significantly different from the county as a whole.
CONCLUSION
The sponsors ofBAPP are aware that the messenger model does not lend itselfto
placement within the antitmst safety zone set forth in Statement No. 8 of the Statements of
Antitrust Enforcement Policy in Healthcare. Nevertheless, they believe that a review of the
market conditions as described above (which they belie ve are readily verifiable) and the business
plan for BAPP as it currently exists, leads to the conclusion that BAPP has the potential to create
a valuable addition to the healthcare market place in the greater San Francisco Bay area. T he
sponsors are also aware that their status as county medical societies may cause some level of
concern over the possible influence which they may have over the participating physicians. The
sponsors submit, however, that the business plan for BAPP as described herein creates
reasonable protection against any material anti-competitive risk.
The sponsors request a staff advisory letter, to confirm that staff perceives no inherent
violation of the Federal Trade Commission Act in the structure, sponsorship or operations of
BAPP as described above.
Sincerely,
~/~
Martin J. Thompson
cc: 	Health Care Division
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