Maryland Medical Eye Associates

L'?\IIT%DSTATES OF AMERICA
FEDERAL TRADE COMMISSION
a'~SI-lll\iGlON.D C 	20580
Charles 	6 , Rosolio
Wosof i o 	and Silverman, 	P .A,
5 0 2 Washington Avenue
S u i t e 	3 2 0 , 	!Jottingham 	Centre
Towson, 	Maryland 	2 1 2 0 4
Bear 	Mr, Rosolio:
T h i s 	b e t t e r 	r e s p n ? s 	to y o u r 	request 	f a r 	a 	s t a f f 	advisory
opinion concerning 	t h e 	l e g a l i t y 	under 	t h e 	laws enforced 	by 	t h e
F e d e r a l 	Trade 	Commission 	of 	t h e 	f a r m a t i a n , 	m a r k e t i n g , 	and
o p e r a t i o n 	sf Marylan? 	EedicaP Eye A s s o c i a t e s , 	P e A . 	( A P ~ T R m ) ,	a
p r o f e s s i o n a l 	c o r p o r a t i o n , 	EmA 	i s 	owned 	by 	wine 	s h a r e h o l d e r s ,
a l l 	o p h t h a l m o l o g i s t s , 	p r a c t i c i n g 	i n 	t h e 	B a l t i m o r e , 	Maryland
m e t r o p o l i t a n 	a r e a ,
According 	t o 	t h e 	m a t e r i a l s accompanying your 	request, 	A
is 	a 	p r o f e s s i o n a l 	c o r p o r a t i o n 	formed 	for 	t h e 	purpose 	s f 	o f f e r i n g
@ cphthalmologic s e r v i c e s 	t o c e r t a i n 	c ' e f i n e d 	groups, 	s p e c i f i c a l l y ,
c o r p o r a t i o n s , 	la3or 	unions, 	ane Realth Maintenance Organizations
( " H M O s " ) 	i n 	t h e 	Baltimore 	m e t r o p l i t a n 	a r e a , 	-WEA will! j o i n t l y
market 	t h e 	s e r v i c e s 	of 	i t s members 	an8 s e r v e 	a s 	a 	r e f e r r a l 	c e n t e r
f o r 	consumers 	seeking ophtkalmologic s e r v i c e s , 	A 	will market
i t s e l f 	a s o f f e r i n g 	a 	f u l l 	range 	of 	eye s e r v i c e s 	a t 	a 	v a r i e t y 	of
l o c a t i o n s 	throughout 	t 5 e 	Baltimore 	a r e a ,
The 	nine 	p h y s i c i a n 	s h a r e h o l d e r s s f 	W S A make 	up 	f i v e
s e F a r a t e medical 	p r a c t i c e s 	l o e a t 	5 	i n 	+ i f f e r e n t a r e a s 	throughout
the 	B a l t i m o r e m e t r o p o l i t a n 	area.' 	S i x of 	t h e 	n i n e 	physician
s h a r e h o l d e r s 	i n 	m E A 	c u r r e n t l y 	p r a c t i c e 	i n 	two of 	t 3 e s e 	groups,
O n e 	group 	c o n s i s t s 	of 	four 	physicians 	a n d 	t 3 e 	o t h e r 	group
c o n s i s t s 	of 	two p h y s i c i a n s , 	T F e 	o t h e r 	t h r e e 	s h a r e h o l d e r s eacb
o p e r a t e 	s o l o p r a c t i c e s .
W E A 	d e f i n e s 	t i e 	Baltimore m e t r o p o l i t a n 	a r e a 	a s Baltimore
C i t y , 	Baltimore 	County, 	Anne Arundel Countyp ?3oward County,
and 	Glen 	E u r n i e , 	r:ary?an6,
our 	p h y s i c i a n s 	p r a c t i c e 	t o g e t 5 e r 	have 	o f i i c e s 	i n 	G l e n
Burnie, 	Rose?ale, 	Lockraven, 	an? Randallstown; 	two
p h y s i c i a n s 	w!-r 	~ r 3 c t i c et o g e t h e r 	have 	o f f i c e s 	i n L u t h e r v i l l e
an? 	ParkvilLe; 	3 - 5 	t k e t h r e e 	s o l o 	practitioners 	a r e 	l o c a t e d
r e s p e c t i v e l y 	1 - 	: _ - ? 2 1 4 , 	mowson, an2 P a r k v i l P e . 	The
d i s t a n c e s 	S e t . P D - 	c - s 	p!-ysicians8 o f f i c e s 	range 	from
approximate:. 	3 	- : l e s 	t 3 approximately 	4 0 	m i l e s 	from each.
o t h e r . 	T h e e c - 1 % .3 , r e c t 	o v e r l a p 	is 	i n 	P a r k v i l l e , 	where 	t h e
two p a r t n e r s 	a n t 	o l e 	of 	the 	s o l o p r a c t i t i o n e r s 	each 	have 	an
o f f i c e . 	'

You have 	in8icated 	that opht3almologists may 	compete 	in two
separate product 	markets: 	medical 	and 	surgical eye care services
offered 	only 	by ophthalmologists and 	those eye services offered
by 	both 	ophthalmologists and optometrists. 	According 	to
statistics you provide?, 	there 	are approximately 	1 0 5 ophthal-
molsgktts 	and 	3.00 	optometrists 	in the Baltimore metrowlitan
area.' 	Basef 	o n 	these 	figures. 	MMEA's 	shareholders' 	market 	share
(bas d 	o n 	the number 	of 	competitors) 	in t h e 	Baltimore m e t r o p l i t a n
areaa 	in 	the ophthalmologic/aptometrie eye care market 	is
approximately 	four 	percent, 	m E A 	shareholders9market 	share
(based on the number 	of competitors) 	in the Baltimore
m e t r o w l i t a n 	area 	in the ophthalmaPsgie eye care market 	is
approximately nine percent, 	There are n o 	plans for additional
shareholders 	to join the corporation, an6 m E A anticipates tnat
its market 	shares in eaeh 	sf the product markets will remain at
their 	present 	Levels,
The 	affairs of 	the corporation w i l l 	be manage2 by 	its Roar%
o f Directors, 	wbich 	will 	consist 	of not fewer 	t h a n 	three share-
holders, 	The Board 	will 	elect 	the officers of 	the c o r m r a t i o n
each 	gear 	at 	its first meeting 	following the annual meeting 	of
share olders, 	The physician 	foun3ers of MMEA 	anticipated 	that
the corporation woui3-need approximately $100,000 to-begin
operation, 	and 	each 	shareholder 	is obligated 	to make 	a capital
contribution of 	five t5ousand 	dollars 	($5,000) an? 	to make 	a 	loan
to the corporation 	in 	the 	amount of 	five 	thousan? 	dollars
( $ 5 , 0 0 0 ) .
As a condition 	of 	t5eir 	becoming shareholders of 	the
corporation, eaeh 	physician 	is required 	to 	sign a Participation
Agreement, 	P m s u a n t 	to the Agreement, 	the physician 	agrees 	to
provide 	medically 	necessary ophtkalmologic 	services 	to
indivi2uals 	who 	are patients of m E A 	or 	who 	are participants 	in
health 	plans 	in whicf: ?*SEA is a 	participating 	member, 	W E A 	will
assist physicians 	in 	record 	keeping and 	other 	administrative
duties, 	E a c h 	of 	the 	physicians 	participating 	in MrjlEA will
continue t o maintain 	+ i s in2ividual ophthalmologic 	practice.
During 	a 	te1ep-o-e conversation, Dr. 	Friedel, one of 	the
physician 	share'cl'ers, 	state? 	that 	the 	figures were
obtained 	from 	t 	" 	~	'".r;?lanC! 	Society of Eye 	Physicians and 	Eye
Surseons,	-
e 	We 	assume 	for ~ - : ; : s o s 	of 	t5is advisory opinion that 	the
Baltimore metrcr-:.ran 	area 	as defined 	above 	is the 	relevant
geographic mar$?:.

141
Charles E l Rosolio
I t 	is anticipated 	that M E W 	patients will 	constitute a 	s9a19
percentage 	of 	each pkysicianPs total number 	of patients,
The 	p>ysician, 	as a consition of his participation, agregsl o maintain 	hospital 	privileges 	at 	an 	A-approve? 	hospital,
perform 	all services in aecsrlance with 	proper medical practice
and 	rules of professional 	conduct, and 	comply with 	a l l 	bY Laws,
rules and 	regulations, policies, 	and directives 	sf m ~ .
Physicians 	will 	be 	required 	to submit information to r n ~
regarding 	services 	provide6 	to MmA p a t i e n t s 	in t h e 	form sf
r e p r t s which 	set f o r t h 	statistical, medical, 	and 	patient data.
Such data will consist sf information r e g a r d i n g 	the service
performed, 	the 	reasons 	for the service p r f a r m e d , 	the date t h e
service was 	performed, the age of the patient, 	a n 8 	the total
charge 	to t h e 	patient. 	Nothing 	in the agreement will prohibit
p h y s i c i a n s 	from participating 	in other 	alternative delivery
systems or 	from giving 	them 	discounts greater 	t h a n 	those offered
W E A * 	In fact, many 	of 	the physicians ace presently
participating 	provilers 	in RMOs,
P W A 	will market 	its services throughout the Baltimore
metropolitan 	area. 	Consumers responCing 	to MMEA's 	marketing
efforts 	will 	be 	referred 	by $@TEA to the pkysician 	in their
area. 	Persons who 	are not 	covere? 	by contracts or 	arrangements
A 	will 	be patients of 	the 	in2ividual physicians and 	not
patients 	of m E A , 	In those 	instances, the physician w i l l 	charge
his 	normal 	fee, 	MmA 	will 	receive a 	fee, yet 	to be determined,
from 	the 	physician 	for 	each 	such 	referral,
A 	aiso expects 	to enter 	into contracts with 	corporations
and H 	in the area, 	A11 p a p e n t s 	for 	rvices 	provided 	to
IWEA 	patients 	will 	be 	made 	directly 	to 	A , 	W E A 	will 	then
5 	You 	stated duri-9 a 	telephone conversation 	t 3 a t 	d u r i n g 	the
first five years 	sf operation MMEA 	patients 	will p r o b a b l y
account 	for 	l s c s 	than 	ten percent 	of 	t 5 e 	total number 	of
patients 	seen "1.3211 	physician,
Physicians ma:, 	3'- 	- ? VUEA patients 	to a non-:IMEA 	approved
hospital 	in 	t h e 	0 - t 	of 	an 	emergency, but must 	notify b W A
-within 	24 hours. 	-.,:;re 	of 	a physician 	to give post-
emergency adrr:r:--- 	-otlficat.ion will 	result 	in denial of
_ - z r a ~ 	no 	recourse against 	the	payment 	to 	t h e 	p - 	- 	w i t 5
patient,
7 	A 	has 	n o t - y c i . 	'?,:el~pe$ 	any 	rules, regulations, policies,
or directiFs.

C h a r l e s E . 	Rosolio
d i s t r i b u t e 	p a p e n t s 	t o 	each 	physician 	based 	on 	t h e 	s e r v i c e s
performed, 	A 	percentage 	of 	t h e 	fee due 	t h e 	p h y s i c i a n s 	i s
withheld 	by 	F	m	W 	t o 	cover 	t h e 	expenses of 	o p e r a t i o n , 	W 	w i l l
o f f e r 	i t s 	s e r v i c e s 	t o c o r p o r a t 	s 	a t 	a 	percentage 	d i s c o u n t 	o f f
i t s 	p h y s i c i a n s ' 	normal 	f e e s . 	A 	w i l l 	o f f e r 	c e r t a i n - s e r v i c e s ,
s u c h 	a s 	eye 	examinations 	and 	e 	l a s s e s , 	on 	a 	c a p i t a t i o n 	b a s i s ,
nder 	t h e 	c a p i t a t i o n 	program, 	purchasers 	will 	pay 	a 	f i x e d 	f e e 	t o
A 	i n 	exchange 	f o r 	m E A * s 	omise 	t o provide 	t h e 	covered eye
v i c e s whenever 	needed, 	A 	w i l l 	a l s o e n t e r 	i n t o 	c o n t r a c t s
with H M O s , 	P h y s i c i a n s 	e l e c t i n g 	to p a r t i c i p a t e 	i n RPriBs will 	be
compensated 	for s e r v i c e s 	rendered 	to HEulg 	p a t i e n t s 	i n 	accordance
with 	a 	fee 	s c h e d u l e 	t o 	be 	adopted, 	T h e 	fee sckeeenle will 	be
determined 	by a 	committee made 	up s f 	shareholders of 	=A 	and
r e p r e s e n t a t i v e s 	s f 	t h e 	ME38, 	P h y s i c i a n s 	p a r t i c i p a t i n g 	i n B m
programs 	a l s o agree 	ta a 	p a t i e n t 	h o l d - h a r m l e s s 	p r o v i s i o n 	w i t h
respect 	t o 	a n y 	physician 	s e r v i c e s 	determined 	by 	t h e HMO
u t i l i z a t i o n 	committee 	not 	t o 	be medically necessary,
The 	law 	governing 	the p r o p s e d 	c o n d u c t 	is n o t 	e n t i r e l y
c l e a r , 	Nowever, 	Sase? on our 	reading 	of 	t h e 	Paw, 	as 	well 	a s our
c o n s i d e r a t i o n 	of 	t h e 	types 	of 	anticompeti t i v e 	e o n d u c t 	t h a t
warrant 	Commission 	a c t i o n , 	we 	a r e 	of 	t h e o p i n i o n 	t h a t 	t h e
@ formation, 	marketing, 	and o p e r a t i o n of 	W E A r 	a s 	p r o w s e d , 	is 	not
l i k e l y 	t o 	warrant 	c h a l l e n g e 	a s 	a 	v i o l a t i o n 	of 	t h e F e d e r a l Trade
Commission Act, 	or 	any p r o v i s i o n 	of 	the 	a n t i t r u s t 	laws 	enforced
b y 	t h e Commission, 8
The 	E.iE.IEA program 	contemplates 	t h a t 	p h y s i c i a n s 	w i l l 	be
j o i n t l y 	involved 	a s 	s h a r e h o l d e r s 	i n 	o p e r a t i n g 	W 	a n d 	t h a t
i n 	t u r n , 	will 	market 	i t s 	pkysiciansQservices 	and 	n e g o t i a t e
reimbursement,rates 	wi t k 	p u r c h a s e r s , 	P h y s i c i a n members 	of
w i l l 	be 	j o i n t l y 	involved 	i n 	s e t t i n g c a p i t a t i o n 	r a t e s 	f o r 	r o u t i n e
s e r v i c e s , 	a n d 	s e t t i n g 	t h e 	f e e schedule 	and 	d i s c o u n t s 	f o r 	s e r v i c e s
not 	o f f e r e d 	under 	t h e 	c a p i t a t i o n 	program, 	T h u s , 	t h e 	program 	w i l l
involve 	agreement 	among 	competing 	p h y s i c i a n s 	r e g a r d i n g 	t h e 	p r i c e s
a t 	w h i c h 	they 	w i l l 	o f f e r 	t h e i r 	s e r v i c e s 	t o 	some p a t i e n t s ,
H o r i z o n t a l 	agreements 	among 	c o m p e t i t o r s 	r e g a r d i n g 	t h e 	p r i c e
a t 	which 	t h o s e 	c o m p e t i t o r s 	w i l l 	s e l l 	t h e i r 	product 	or 	s e r v i c e s
a r e 	i n h e r e n t l y 	s u s p e c t 	u n d e r 	t h e 	a n t i t r u s t 	laws 	and 	a r e "among
t h o s e 	concerted 	a c t i v i t i e s 	t h a t 	t h e 	[Supreme] Court 	has 	held 	ta
' 	This a d v i s o r y 	c:-:nn 	i s 	l i m i t e d 	t o 	the 	proposed 	program
d e s c r i b e d 	i n 	5 c t L 	y o c r 	r e q u e s t 	f o r 	a n 	a d v i s o r y opinion 	and
i n 	your 	s u b m i c s : ~ n s . 	T t 	does 	not 	c o n s t i t u t e 	approval 	for
a c t i o n s 	t h a t m a r e 2 : f f e r e n t 	from 	t h o s e 	d e s c r i b e d , 	or 	f o r
those 	not 	?$ecif:ec! 	i n 	t h e 	r e q u e s t .

* C h a r l e s E s Rosolio
be 	w i t h i n 	t h
a n t i c o m p e t i t i v e ' 	and 	very 	l i k e l y without 	"redeeming 	v i r t u e , ' "
a t 	9 . 	T h u s , 	while naked 	h o r i z o n t a l p r i c e 	r e s t r a i n t s 	by
c o m p e t i t o r s 	a r e 	s e unlawful, 	such 	t r e a t m e n t 	i s 	not
a p p r o p r i a t e 	where, 	e z n 	though 	p r i c e s 	a r e 	L i t e r a l l y 	l i x e ? 	among
c o m p e t i t o r s , 	t h e 	s e t t i n g of 	t h e 	p r i c e s 	is 	a n c i l l a r y t o 	a 	j o i n t
v e n t u r e 	t h a t 	i s 	likely to be 	procompetitive 	because 	i t 	c r e a t e s 	a
new product 	or 	market 	or 	achieves 	e f f i c i e n c i e s 	otherwise
u n a t t a i n a b l e ,
Three Supreme Court 	e a s e s a r e particuParPy 	r e l e v a n t 	t o
a n a l y s i s of 	t h e 	A 	p l a n , 	I n 	t h e 	Court 	d e c l i n e d 	to a p p l y
e 	t r e a t m e n t 	t o 	a 	j o i n t 	1.i 	ing arrangement 	pursuant 	&a
n 	a s s o c i a t i o n 	of 	competing 	composers, 	a u t h o r s , 	and 	music
producers 	e s t a b l i s h e d 	p r i c e s 	a t 	which 	t h e 	members"musicsl 	w o r k s
would 	be 	l i c e n s e d . 	The Court 	foune 	t h a t 	t h e 	p a r t i c u l a r 	n a t u r e 	s f
t h e 	product 	-- 	copyrighted music 	-- 	and 	t h e 	v i r t u a l 	i m p s s i b i l i t y
@ 	of 	i n d i v i d u a l 	use 	n e g o t i a t i o n s 	or 	p o l i c i n g 	of 	t h e 	unauthorized
use 	of 	c o p y r i g h t e ? m a t e r i a l s 	r e q u i r e 8 	use 	of 	a blanket 	l i c e n s i n g
concept, 	encompassing 	an 	agreement 	a s 	t o 	p r i c e , 	i f 	t h e r e 	was 	t o
be 	a market 	a t 	a l l 	for 	the 	product. 	I d , 	a t 	l e - 2 1 , 	2 3 , 	T h e 	Court
concluded 	t h a t 	the 	5 l a n k e t 	l i c e n s i n g z r a n g e m e n t 	had 	" c e r t a i n
uniaue 	c h a r a c t e r i s t i c s , " 	and 	c r e a t e d , 	" t o some e x t e n t , 	a
d i f f e r e n t p r o d u c t , " 	-	~ 	d 	,a t 	2 2 ,
F u r t h e r 	guidance 	was 	provided 	5y t h e 	Court 	i n Arizona 	v,
4 5 7 U . 5 , 	3 3 2 	(2982)
t i c u l a r l y 	r e l e v a n t 	t o M F E A ' s
the 	Supreme Court 	held 	a s 	s e unlawful
a 	group of 	competing 	physi 	s T a d
j o i n t l y 	a g r e e d , 	through 	f o u n d a t i o n s f o r 	medical 	c a r e , 	on maximum
p r i c e s 	a t which 	they would 	s e l l 	t h e i r 	s e r v i c e s 	t o 	s u b s c r i b e r s of
h e a l t h 	i n s u r a n c e 	programs 	"approve2" 	by 	t h e 	f o u n d a t i o n s , 	The
foundations 	f o r medical 	c a r e 	a l s o reviewed 	t h e 	n e c e s s i t y 	and
a p p r o p r i a t e n e s s 	of 	treatment 	reneered 	by 	i t s 	members 	f o r
s u b s c r i b e r s , 	and 	a c t e ? 	a s 	an 	" i n s u r a n c e 	a d m i n i s t r a t o r , " 	i n
determining 	t h a t 	no 	new 	product 	was 	Seing 	s o l d 	through 	t h e
comSination 	t h e Court 	s t a t e d 	t h a t 	" [ % ] h e f o u n d a t i o n s were 	not
analogous 	t o p a r t n e r s k i ~ sor 	o t h e r 	j o i n t 	arrangements 	i n 	which
persons 	who would 	otyer-disc 	be 	c o m p e t i t o r s 	pool 	t h e i r 	c a p i t a l 	and
:hare 	t h e 	r i s k 	o f 	loss s s 	well 	a s 	b p p o r t u n i t i e s 	f o r 	p r o f i t . " 	-	I d
* a t 	356. 	Absent 	pooling 	o f 	c a p i t a l 	a n d 	r i s k 	s h a r i n g 	" [ t l h e i r
combination 	has 	merely 	? e r x i t t e d 	them 	t o 	s e l l 	t h e i r 	s e r v i c e s 	t o
c e r t a i n 	customers 	a t 	flxei! p r i c e s 	and 	arguably 	t o 	a f f e c t 	t h e
p r e v a i l i n g 	market 	p r i c e o f 	medical 	c a r e . " 	I d . 	The Court 	i n
a l s o 	foun? 	t ? a t 	t h e 	f i x i n g 	of 	p r i c E by 	t h e 	competing

a	r4
Charles E I Rosolio
physicians 	was 	not necessary 	to the achievement of the purported
goals of 	the foundations, 	I?, 	at 	352-54, 356.
venture 	required 	some horizontal 	restraint, 	In that ease, the
Court 	considered 	the legality of 	restrictions on psiee 	and output
of televised 	college football games, 	found that 	t h e marketing 	and
sale of 	league s p r t s 	inherently required 	some k 0 r i z o n t a P
agreement among competitors, and 	d e t e r m i n e d 	t k a t 	rule-sf-reason
analysis was appropriate to consider 	t h e 	l e g a l i t y of p a r t i c u l a r
restraints, 	The Court 	f o u n d , 	however, that 	the challenged
restraints on price 	and output were 	not 	integral 	to the
legitimate and procompetitive g o a l s 	of the NCAA 	in offering
televised 	college football, 	Under 	the rule of reason, the C o u r t
rejecte2 petitionera' 	profferee 	justifications and found the
restraints illegal, 	While 	recognizing 	that a j o i n t 	selling
arrangement may 	"makle] possible 	a new product b y 	reaping
otherwise unattainable 	efficiencies," 	the Court found that the
NCCA 	had 	failed 	to demonstrate 	such efficiencies. 	NCAA, 	468 U . S .
at 	1131 quoting 	4 5 7 	U,S, 	at 	365 	(Powell,
dissenting),
In assessing whether 	a price 	restraint 	purporting 	to serve a
joint 	venture 	is appropriate 	for 	rule of 	reason rather than
-	se analysis, 	it 	is impartant to examine whether 	the participants
have 	integrates their 	businesses 	through 	financial contributions
and 	risk 	s5aring 	in a manner 	that 	caul? warrant 	joint pricing,
See 	, , 4 5 7 	U.S. 	at 	356.	P
A 	p3ysicians 	have 	partially 	integrated 	their 	services Sy
pooling 	their 	capital and 	by 	sharing in the 	risks of 	the
venture, 	Each 	physician 	will 	contribute 	SfO,OBO 	toward 	the
venture 	an6 will 	participate 	in a capitation program 	with 	respect
to certain eye 	services, and a 	fee-for-service program 	with
respect 	to other 	services,
Under 	the capit3tlgn program 	the physicians 	jointly bear 	the
risk 	tkat patient 	utilization 	will 	exceed 	the 	amount 	receive2 by
WEA. 	If overutilization 	is caused 	by one physician, all the
9 	Once 	the Court 	a n 	agreement 	not 	to compete 	in terms of
price 	or 	output, 	,.ts "rule of 	reason" analysis was limited
to consideratis- 2: 	t h e 	Zeefen?antls justifications 	for 	the
challenged 	restr2--ts. 	In 	t3e absence of 	a 	valid
justification, t-e "JCAA- 	conduct was deeme? 	to be 	unlawful
without proof 	c h r t s 	market 	power, 	NCAA, 	468 U . S . 	at 	110,
115, /

Charles E, RasoPio
physician members 	receive 	less reimbursement, 	Each 	physician
thus has an 	incentive 	to h o l d 	down utilization of 	their own
services 	as well 	as those of 	the other members, 	Thus, there
appears 	to be 	substantial risk sharing with 	respect to sarvices
offered 	under 	the capitation program,
The physicians 	in 	A 	will be 	reimbursed 	for other eye
services o n 	the basis of 	a 	fee schedule or on the 	basis sf their
a c t u a l 	charges minus 	a discount determined 	by 	A * 	Although
t h e r e 	i s 	less 	integration w i t h 	respect 	to the 	services n o t
offered 	under 	the capitation program, 	t h i s 	aspect of the program
grapriate 	for rule of 	reason analysis, 	As 	stated
treatment 	is not 	appropriate where the setting of
illary and 	reasonably related to a joint venture 	or
new p r o d u c t ,
The ,WEB physician 	shareholders appear 	to be 	creating 	a
legitimate joint venture 	rather 	than engaging 	in naked
restraints, 	lVeVlEA 	will market 	itself as offering 	a 	f u l l 	range of
a eye services at a variety of locations throughout 	the Baltimore
area. 	Corprations and other 	organizations considering
purchasing 	eye care for their 	employees may 	be 	intereste8 in
providers offering 	full coverage 	in a v a r i e t y 	of 	locations,
Since these physicians could 	not offer 	this program 	individually,
they have 	p o l e d 	their capital and their services 	in or8er 	to
reach a group of purchasers different 	from the patients 	to whom
they are able to market 	their 	serviees on an 	individual basis,
Thus, 	the EilPlIEA plan 	seems analogous 	to 	the situation in BML 	where
t h e 	Court 	f o u n d 	that 	a new product was 	being offered,
1
Tn 	sum, unlike 	the venture 	in 	MMEA appears
to involve 	significant 	integration among 	its physician 	share-
holders, 	They have made 	capital contributions 	and 	assumed 	a
degree of 	risk and created a 	product 	none of 	them 	could 	produce
alone, 	Joint price 	setting appears 	to be 	a n 	integral part of 	the
plan, 	We therefore believe 	the 	restraint should 	be 	analyzed
under 	the rule of reason, 	We 	thus look at the PMEA 	plan 	to see
whether, on balance, 	the anticompetitive 	effects of 	the
arrangement outweigh the procompetitive 	benefits,
The essential 	inquiry of any restraint on competition 	is
"whether or 	not 	the challenged 	restraint enhances competitionWR
NCAA, 	468 U.S. 	at 	1 0 4 . 	U e r e we 	are concerned with 	the effect of	P
the restraint on 	competit:a~ among 	the participants 	and 	the
effect of 	the restraint 	:-c3raetition market 	wide. 	We 	have
e concluded 	that while 	t h e 	"YEA 	blan may 	eliminate 	some

m 	Charles E e Wosolio
competition m s n g 	the participants, 	this appears to be more than
offset 	by 	its procompetitive 	aspects,
The 	A 	plan 	does 	not appear 	likely to substantially
restrict 	eomptition 	in the market, 	First, the plan'affeets 	o n l y
a 	small percentage af the physicians' 	total patients, 	an
physicians w i l l 	continue 	to c o m p t e with 	r e s w c t to non-
patients. 	Second, W E A 	participants do not a p p a r 	to have
sufficient market 	power 	to affect the market 	price 	for eye
services 	in the Baltimore metropolitan 	a r e a , 	nor 	does the
restriction sf output appear 	to be 	a 	r e a l i s t i c d a n g e r ,
M~reoveE", 	W 	may 	enhance 	c m p e t i t i s n 	by offering a package
af 	services to 	chasers sf eye care 	services that coul? 	not be
offered 	by 	the physicians 	individually, 	Thus, the m 	A 	p l a n
appears 	to be offering 	a new product 	in camptition with other
eye care providers 	which 	is likely 	to create i n c e n t i v e s to
increase price 	and 	service compt i tion throughout 	the Baltimore
metropolitan 	area. 	As 	the Supreme Court noted 	in 	r 	" a
restraint 	in a limited aspect of 	a market may 	a c t 	enhance
a market 	competitionen 	N C M , 468 U , S , 	at 184,
This office retains the right 	to reconsider 	the questions
involved 	and, with 	notice 	to the requesting 	party, 	to rescind or
revoke 	its opinion 	if 	implementation sf the p r o p s e d 	program
results in substantial anticompetitive effects, if the program 	is
used 	for 	improper purposes, or 	if 	it would 	be 	in the public
interest 	to do so, 	Finally, as P 	am sure you are aware, the
above 	legal advice 	is 	that of 	staff sf 	the Bureau of Competition
only, 	Under 	the Commissionqs Rules of Practice 5 	I , % ( c ) ,the
Commission 	i s n o t bound 	by 	this advice and 	reserves the 	right 	to
rescind 	it at a 	later 	time and 	take such action 	as the public
interest may 	require.
Sincerely,
Assistant Director

LAW OFFICES
Roso~~o	AND SIEVE
SUITE*^^^, NOS"TINGI.-IAM C E N m E
502 WASNINCION AVENUE
TOWISON, M R W N D 212W
(301j 339-7100 	ROCKVlLLE OFFICE
SIE*N 	8.S I L V E W A N 	SOiTE 510
J O H N P. EVANS 	5515 S E C U P U M L A N E
J E F F a V M. K O T Z 	ROCKVIUE, MARYLZND 20852
D E B 0 W I - I A. Z G 0 m K I August 	19, 	1986 	(301) 231-7250
Seeretaw of the Federal Trade Comission
6 	Pennsylvania Avenue, 	N,W,
RC)OBI 392
Washington, D - C D 	20580
Bear Sir/Madaten:
Rewest is hereby made f o r your office to issue ern sdvissrlg
opinion 	which 	examines 	the 	proposed 	business 	conduct 	of 	Magyland
Medical 	Eye 	Associates, 	P.A. 	(@E"IEilEdaS) to 	deternine 	whether 	said
conduct will 	be considered a conspiracy ts monopolize the practice
sf ophthalmology i n the Baltimore metropolitan area i n vialation of
Title 15 United States Code Annotated, sections I and 2. 	BLn advisory
opinion from your Conuraission is necessary because the matter involves
a substantial or novel westion of f a c t 	and 	law for which there is
no 	elear 	Comission 	sr 	court precedent 	and 	the 	subject matter 	sf
the 	revest and 	eonse~entpublication 	af 	Comissiow 	advice 	1s sf
significant publie 	interest, 	This rewest 	is being made 	on behalf
of the n i n e 	stocklcloPders af 	P/e3EA who 	are as 	follows: 	Arnold 	Alper,
M I D I , 	Stanley mernick, M , D , , 	Richard 	Balcer, 	M , B , , 	George 	Duncan,
H.D., 	Samuel Friedel, M , D , , 	Joyce Lamlein, M,B,, 	Rodney Ortel, H.D,,
Ronald Seff, M.D., 	Martin Schuman, M , D I
Maryland 	Medical 	Eye 	Associates, 	P . A . , 	is 	a 	Maryland
grcsfessiowal 	corporation which 	was 	incorporated an June 	11, 1986,
The carporation was famed for the purpose of engaging in the licensed
practice of ophthalmology. 	24sre specifically, the business purpose
of the corporation is to offer ophthalmic services to defined groups,
such as employees of corporations in the Baltimore Metropolitan A r e a ,
%he 	corporate charter provides 	for a 	Board 	of 	Bisectors
consisting 	of 	three 	directors* 	This 	nurnber 	can 	be 	increased but
shall never be Less than three, 	The Baard 	i s empowered to authorize
the issuance of shares of the corporate stock of any class or classes,
AUG 	21 1986

L4W OFFICES
ROSOLlO AND S~LVERMN,P.A.
Secretaq sf me
Federal Trade C o m i s s i o n
Aumst 	19, 3986
Page m a
The 	Board 	also may 	classify 	or 	reclassify any 	unissued 	shares 	by
fixing 	or 	altering 	them 	in 	such 	respects 	as 	voting 	powers 	and
dividends* 	The 	c s q o r a t e 	chartar 	also provides that 	there may 	be
no Less than f o u r 	( 4 ) 	stscMslders,
The 	total 	n 	e 	of 	shares 	of 	capital 	stock 	which 	is
authorized to be issued is One Hundred Thousand 	(100,000) 	shares of
cornon strack, 	F i f t y Thousand ( 5 0 , 0 8 0 ) 	shares i s Class A C Q ~ O I Istock
wfth 	a par value o f 	One Dollar 	( $ 9 , 8 6 ) 	and 	Piety Thousand 	(50,QoOg
shares is Class B esmon stock with a par value sf One Dollar ($1.BdB),
elass A 	stocOrl;iolders will have a11 voting rights and powers; whereas
Class 	E3 	sloekl"lslders wiZL 	have 	no 	voting 	sights 	far 	any 	p u ~ s s e ,
No 	holders of any 	shares of 	stsek shall have 	any preemptive rights
to purchase any shares sf the e o q o r a t e stock, 	All 	sf the nine 	(9)
stoekfiolders listed herein are or will 	be 	owplers of 	Class A 	stoek,
with each omingi Owe Hundred 	(100) shares, 	For the issuance sf 	such
@ 	stock, each stockholder is obligated to make a capital contribution
of 	Five 	Thouand 	Dollars 	($5,000.80) 	and 	to 	make 	a 	loan 	La 	the
csqoration in the amount of Five Thousand Dollars ($5,000,00),
As 	previously 	indicated, 	m E A 	currently 	has 	nine
stockkolders who are ophthalmologists licensed to practice medicine
in 	the 	State 	sf 	Maryland, 	EaElEA 	is 	a 	pnofessiona% 	eorporatican
organized 	under 	Title 	5 	(Subtitle 	1) 	of' 	the 	Corporations 	and
Associations Article 	sf the Annotated 	Code 	of 	Maryland 	and, 	thus,
is 	precluded 	from having 	any 	shareholder 	that 	is 	not 	a 	licensed
ophthalmologist. 	The corporation is physician-controlbed as a result
of 	statutory mandate and 	for no other reason, 	A n 	affinaative vote
of two-thirds (2/3) of the stocuolders entitled to vote is required
for 	such 	actions 	as 	election 	of 	new 	directors, 	amendment of 	the
charter, merger 	or 	consolidation of 	the 	corporation, issuance of
shares of s t o e k of any class, sale or transfer or all or substantially
all 	aS the property 	or assets of the corporation, participation by
the corporation in a 	share exchange, and voluntary 	or 	involuntary
l i w i d a t i a n , 	dissolution or winding up of the corporation,
As 	a 	condition 	of 	their 	becoming 	stoeW.lolders 	of 	the
corporation, the ophthalmologists [physician] are 	required to sign
a Participation Agreement, 	Pursuant ts the Agreement, the physician

LAW OFFICE5
ROSOL~OAND SILVERMN,g. A.
Seerstaw oh a e
Federal 	Trade Comisslon
A u w s t 	19, 	1986
Page Three
agrees 	ts 	provide 	medically 	necessaq 	i 	s 	in 	the 	area 	of
sphaalmolow 	to 	individuals 	who 	are patients s f 	mm, 	Mm 	will
assist 	the 	physician 	in 	record 	keeping 	and 	other 	administrative
duties, 	Each of the ophthalmologists who are participating in this
venture as 	stocmolders, 	as well 	as p a ~ i c i g a l i n gphysicians, have
their o m 9apbthalmo2sgie p r a c t i c e s t b a t t h e y h a v e p r e ~ i ~ ~ s ~ y d e v e ~ ~ p e d
and 	intend 	to 	continue 	to 	maintain 	such 	practices, 	It 	is 	-us
anticipated 	that 	the 	patients 	seen 	by 	the 	ophthalmologists 	as
par-lieipating 	physicians 0% 	will constitute a small percentage
of 	the 	togal 	R 	i a n t s 	seen 	and 	treated 	by 	m e
sphthalmsloqist Ln his/her 	overall practice,
The physician, as a condition sf h i s participation, agrees
to mee 	criteria 	adopted by 	maintain hospital privileges
at 	an 	approved 	hospital, 	g 	all 	senices 	i n 	aee~rdanee
with proper medical practice and a l e s sf professional eonduet, 	and
comply with mles and regulations ofr/LZYIEA, 	1E"urtkemsre,t h e p h y s i c i a n
is required to s\;abmitinfomation to bllMEA regarding semiees provided
to mEhi patients in the f o m of reports which set forth statistical,
medical and patient data,
a"ksESl?aEAphysieianwill becompensated forsemices r r d e s e d
to 	A 	patients 	in 	accordance with 	the 	PilP/IEA 	fee 	schedule to be
adopted. 	In no 	event 	shall 	a 	physician bill 	or seek esrnpensation
from any 	patient 	f o r 	senices provided by 	the physician 	for which
premiums have been paid 	ta m E A , 	Although a precise fee schedule
has yet ko be adopted and may vary with particular types sf eontracts
and entities, it is intended that such Sees will be competitive with
ather physicians and groups similarly situated in the marketplace,
The physician is r e q u i r e d t s m a i n t a i n p r a f e s s i o n a l liability
insurance 	in 	an 	amount 	of 	no 	less 	than 	One 	Million 	Dollars
($1,000,000-00)per i n e i d e n t a n d T h r e e F I i l l i o n Dollars ( $ 3 , 6 0 0 , 0 0 0 0 0 0 )
per 	a n n u , 	Proof of 	such 	insurance coverage shall 	be furnished ta
upon request,
Each 	physician 	is deemed to be an independent contractor
and not an employee of the corporation, 	The physician is responsible
f a r 	the papent 	of 	any 	and 	all 	taxes, retirement, benefits 	or 	any
other payaents 	for or 	on 	his 	behalf, 	m E A 	shall 	be 	pemitted 	to
use 	Lhe 	physieianNs name 	in the Pist of physicians under contract
with M E A ,

LAW OFFICES
ROSOLIQ AND SILVE
SecretaPy 0% the
Federal 	Trade Coaaxnissisn
A u w s t 	19, 1986
Page Frs\ar
The pslgrsician 	is parertlitted to terninate h i s contract with
by giving 	Q ~ B	Ymundre 	(f20) days8 written notice of
2s 	intention 	mbna&e 	terninate the agreement 	with
any physician provided 	it Aa 	use 	f o r 	such 	h e m i n a t i o n 	and
gives 	the physician ten 	(10) days' 	written notice. 	In the event c f
ternination of the agreement by 	Paysicfan or 	the physician
is prohibited 	from 	ssl$cr?fting 	patients 	f 	period 	o f 	owe
hundred 	aighty 	(%80) days 	after the date of 	tamlnation. 	Bowever,
this does n o t preclude a 	ciaa From e o n t i m i n g %cs 	treat patients
who w a r e not patients of
The 	A e i e l e s 	sf 	Incowsration, 	B y - U w s , 	Participation
Agreements 	and 	other 	documanto 	are 	available 	f o r 	inspection upon
If 	f can be 	sf any 	Gurmer 	assistance to you, please 	do
at hesitate $0 contact me,
C E R / l eb
ec: 	Samuel Friedel, M,B.
Rodney Ortel, M,B,
Martin 	Schumaa, M.D,