[Federal Register Volume 80, Number 203 (Wednesday, October 21, 2015)]
[Notices]
[Pages 63787-63790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26690]
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FEDERAL TRADE COMMISSION
[File No. 141 0025]
Keystone Orthopaedic Specialists, LLC and Orthopaedic Associates
of Reading, Ltd.; Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis to Aid Public Comment describes both the
allegations in the draft complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.
DATES: Comments must be received on or before November 16, 2015.
ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/keyorthoconsentconsent online or on
paper, by following the instructions in the Request for Comment part of
the SUPPLEMENTARY INFORMATION section below. Write ``Keystone
Orthopaedic Specialists, LLC.,--Consent Agreement; File No.141-0025''
on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/keyorthoconsentconsent by following the
instructions on the web-based form. If you prefer to file your comment
on paper, write ``Keystone Orthopaedic Specialists, LLC.,--Consent
Agreement; File No.141-0025'' on your comment and on the envelope, and
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610
(Annex D), Washington, DC 20580, or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT: Robert Canterman (202-326-2701),
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC
20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34,
notice is hereby given that the above-captioned consent agreement
containing consent order to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of thirty (30) days. The
following Analysis to Aid Public Comment describes the terms of the
consent agreement, and the allegations in the complaint. An electronic
copy of the full text of the consent agreement package can be obtained
from the FTC Home Page (for October 15, 2015), on the World Wide Web,
at http://www.ftc.gov/os/actions.shtm.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before November 16,
2015. Write ``Keystone Orthopaedic Specialists, LLC.,--Consent
Agreement; File No.141-0025'' on your comment. Your comment--including
your name and your state--will be placed on the public record of this
proceeding, including, to the extent practicable, on the public
Commission Web site, at http://
[[Page 63788]]
www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the
Commission tries to remove individuals' home contact information from
comments before placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which . . . is privileged or confidential,'' as discussed in Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR
4.10(a)(2). In particular, do not include competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/keyorthoconsentconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
If you file your comment on paper, write ``Keystone Orthopaedic
Specialists, LLC.,--Consent Agreement; File No.141-0025'' on your
comment and on the envelope, and mail your comment to the following
address: Federal Trade Commission, Office of the Secretary, 600
Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580,
or deliver your comment to the following address: Federal Trade
Commission, Office of the Secretary, Constitution Center, 400 7th
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. If
possible, submit your paper comment to the Commission by courier or
overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before November 16, 2015. You can find more
information, including routine uses permitted by the Privacy Act, in
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Analysis of Agreement Containing Consent Order To Aid Public Comment
I. Overview
The Federal Trade Commission has accepted, subject to final
approval, an Agreement Containing a Consent Order (``Consent
Agreement'') with Keystone Orthopaedic Specialists, LLC (``Keystone''),
and Orthopaedic Associates of Reading, Ltd. (``Orthopaedic
Associates'') (together ``Respondents''). The Consent Agreement settles
charges that Respondents violated Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15
U.S.C. 45.
The Consent Agreement has been placed on the public record for 30
days to receive comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission will review the Consent Agreement and the comments
received, and will decide whether it should withdraw from the Consent
Agreement, modify it, or make it final.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement. The analysis is not intended to constitute an
official interpretation of the Consent Agreement or to modify its terms
in any way. Further, the Consent Agreement has been entered into for
settlement purposes only and does not constitute an admission by
Respondents that they violated the law or that the facts alleged in the
Complaint (other than jurisdictional facts) are true.
II. Background and Market Structure
Nineteen orthopedists affiliated with six independent orthopedic
practices in Berks County, Pennsylvania, merged to form Keystone in
January 2011 (the ``Merger''). One of those practices is Respondent
Orthopaedic Associates, and the other five practices are Advanced
Orthopaedics of Reading, Arthritis & Joint Replacement Center of
Reading, P.C., Berkshire Orthopedic Associates, Inc., Commonwealth
Orthopaedic Associates, Inc., and Reading Neck and Spine Center, P.C.
(``Keystone Component Practices''). The Keystone Component Practices
became divisions of Keystone after the Merger.
Before the Merger, competition among orthopedists in Berks County
was robust. At that time, 25 orthopedists in 11 independent practices
competed to provide orthopedic physician services. The Merger
substantially eliminated this competition by combining 19 out of 25, or
76 percent, of the orthopedists practicing in Berks County into one
practice. Only six other orthopedists remained as competitors. After
the Merger, the Keystone orthopedists ceased to do business through
their respective independent practices and began doing business
exclusively through Keystone. Three years after the Merger, in 2014,
six orthopedists left Keystone and resumed doing business as
Orthopaedic Associates for business reasons independent of the
Commission's investigation.
III. The Relevant Markets
The relevant line of commerce in which to analyze the Merger's
effects is the provision of orthopedic physician services. Orthopedic
physician services include surgery and other services provided by
physicians who specialize as orthopedists to treat injuries and
diseases of the musculoskeletal system.
The relevant geographic market in which to assess the competitive
effects of the Merger is Berks County, Pennsylvania. Patients in Berks
County generally do not leave the county to obtain orthopedic physician
services, and health plans are unable to serve their members in Berks
County without including Berks County orthopedists in their provider
networks.
IV. Effects of the Merger
Before the Merger, the Keystone Component Practices competed with
each other, and health plans could form a network with some of the
Keystone Component Practices. The Merger eliminated this competition
and created
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a dominant orthopedic practice in Berks County. After the Merger,
Keystone negotiated prices with health plans on behalf of all the
previously competing Keystone Component Practices, and health plans
could not offer a commercially marketable network that would appeal to
Berks County residents without Keystone. Thus, Keystone gained
substantial market power through the Merger, which it used to raise
prices with most health plans with coverage in Berks County.
V. Entry
Recruiting new orthopedists to Berks County is difficult,
expensive, and time intensive. Neither entry by new practices nor
expansion by the remaining practices following the Merger has been
timely or sufficient to offset the actual anticompetitive harm from the
Merger. Nor is future entry to be timely, likely, or sufficient to do
so.
VI. Efficiencies
The Merger has not produced merger-specific efficiencies sufficient
to offset the actual anticompetitive harm from the Merger.
VII. The Decision and Order
The proposed Decision and Order (``Order'') is designed to maintain
competition in the relevant market, including by prohibiting future
anticompetitive consolidation, and by allowing health plans to cancel
and renegotiate the contracts they entered with Keystone after the
Merger was consummated.
In evaluating the remedies in the proposed Order, it is important
to note that market conditions have changed since the 2011 Merger.
Market concentration levels are lower now than after the Merger was
consummated in 2011 due to orthopedists leaving Keystone. Most
significantly, for reasons independent of and pre-dating the
Commission's investigation, six orthopedists separated from Keystone in
2014 and resumed doing business separately and independently as
Orthopaedic Associates. Following the separation, Orthopaedic
Associates has become a major player in the market with eight
orthopedists. Keystone, in contrast, currently has 11 orthopedists,
down from 19 when the Merger was consummated.
Had Orthopaedic Associates remained a part of Keystone, the
Commission likely would have sought divestiture. As it is, the unique
circumstance of Orthopaedic Associates' separation from Keystone for
business reasons pre-dating the Commission's investigation resulted in
structural changes that factored into the Commission's decision not to
pursue further structural relief. But a recombination of the two groups
could raise serious antitrust concern. Therefore, the proposed Order is
designed to maintain competition in the relevant market by, among other
things, preserving the Orthopaedic Associates' separation, and by
allowing health plans to avail themselves of current market conditions
by renegotiating existing Keystone contracts. Orthopaedic Associates is
a named Respondent because its orthopedists helped form Keystone and
benefitted from Keystone's post-merger price increases. Moreover,
putting Orthopaedic Associates under Order is necessary to obtain
appropriate relief, as discussed below.
Paragraph II of the proposed Order preserves Orthopaedic
Associates' separation by requiring Keystone and Orthopaedic Associates
to obtain prior approval from the Commission before acquiring any
interest in each other.
Paragraph III requires Keystone and Orthopaedic Associates to
obtain prior approval from the Commission before either practice may
acquire another orthopedic practice located in Berks County. Keystone
and Orthopaedic Associates also must obtain prior approval before
entering into any employment, membership, or other agreement of
affiliation with an orthopedist who during the prior year provided
services in Berks County.
The proposed Order also prohibits Keystone and Orthopaedic
Associates from engaging in illegal concerted activity apart from
merging or acquiring other practices in Berks County. Under the
Horizontal Merger Guidelines, mergers may harm competition where a
``market shows signs of vulnerability to coordinated conduct.'' In this
case, the Commission is concerned that the effects of this consummated
merger could linger because of the close ties developed between
Keystone and Orthopaedic Associates. Keystone and the orthopedists
affiliated with Orthopaedic Associates jointly negotiated with payors
and shared price information for over three years before the
Orthopaedic Associates orthopedists left Keystone. Therefore, Paragraph
IV includes provisions prohibiting certain joint activity among
competing orthopedists who are members of or employed by Keystone or
Orthopaedic Associates in order to limit the risk of coordination.
Paragraph IV.A prohibits Keystone and Orthopaedic Associates from
jointly negotiating or refusing to deal with payors, and from engaging
in this conduct with other orthopedists in Berks County. Paragraph IV.B
prohibits Keystone and Orthopaedic Associates from facilitating
exchanges of information among orthopedists concerning whether, and on
what terms, to contract with a payor. Paragraph IV.C bars attempts to
engage in any action prohibited by Paragraphs IV.A or IV.B. Paragraph
IV.D proscribes inducing anyone to engage in any action prohibited by
Paragraphs IV.A through IV.C.
Certain kinds of agreements that do not raise antitrust concerns
are excluded from the general bar on joint negotiations. Paragraph IV
does not preclude Keystone or Orthopaedic Associates from engaging in
conduct that is reasonably necessary to form or participate in
``qualified risk-sharing'' or ``qualified clinically-integrated'' joint
arrangements, as defined in the Order. Paragraph V requires Keystone
and Orthopaedic Associates to notify the Commission before initiating
certain contacts regarding contracts with payors pursuant to these
joint arrangements. Paragraph V also sets out the information necessary
to satisfy the notification requirement.
Paragraph VI imposes other notification obligations on Keystone and
Orthopaedic Associates and requires the termination of certain
contracts that were entered into after the Merger. Paragraphs VI.A and
VI.B require Keystone and Orthopaedic Associates to distribute the
Complaint and Order to their respective orthopedist members and
personnel identified in the Order, and to each payor that they have a
record of having been in contact with since January 1, 2010.
Paragraph VI.C requires Keystone and Orthopaedic Associates to
terminate, without penalty, any existing contracts with payors for the
provision of orthopedic physician services at the earlier of a written
request from a payor to terminate or the earliest termination or
renewal date under the contract. Paragraph VI.C also allows a payor to
extend a contract beyond the termination or renewal date for a period
of no longer than one year from the date the order becomes final to
allow payors sufficient time to renegotiate contracts with Keystone and
Orthopaedic Associates. The contract termination requirement allows
payors to avail themselves of current conditions in renegotiating
contracts, where Keystone is no longer the dominant provider. Paragraph
VI.D requires Keystone and Orthopaedic Associates to distribute payor
requests for contract termination to their respective orthopedist
members. Paragraph VI.E requires Keystone and Orthopaedic Associates to
provide new
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orthopedists, payors, and various personnel not previously receiving a
copy, a copy of the Order and the Complaint.
Paragraphs VII, VIII, and IX impose various obligations on Keystone
and Orthopaedic Associates to report or provide access to information
to the Commission to facilitate the monitoring of compliance with the
Order. Finally, Paragraph X provides that the Order will expire in 10
years from the date it is issued.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2015-26690 Filed 10-20-15; 8:45 am]
BILLING CODE 6750-01-P