Kitsap Physicians Service

Bureau of Competrtion
FEDERAL TRADE COMMISSION
Public Rctcrence B-a-ch 	WASHINGTON. D C ~~
May 	2 2 , 	1984
R e : 	R e q u e s t 	f o r 	S t a f f 	Advisory O p i n i o n .
K l t s a p 	P h y s i c i a n s 	S e r v i c e
Dear 	ME, 	K o p i t :
We h a v e 	r e v i e w e d 	t h e 	p o i n t s 	you 	r a i s e 	i n 	y o u r 	l e t t e r 	o f 	May 	1,
a n d 	f i n d 	t h a t 	t h e y 	d o 	n o t 	l e a d 	u s 	t o 	a 	d i f f e r e n t 	c o n c l u s i o n 	c o n -
c e r n i n g 	o u r 	a b i l i t y 	ta 	i s s u e 	a 	s t a f f 	a d v i s o r y o p i n i o n 	c o n c e r n i n g
K p S t s p r o p o s e d 	p o l i c y . 	We d o w i s h , 	h o w e v e r . 	t o 	u n d e r s c o r e 	c e r t a i n
p o i n t s 	i n c l u d e d 	i n o u r 	e a r l i e r 	l e t t e r , 	w h i c h 	may 	h e l p 	t o 	e x p l a i n
o u r 	d e c i s i o n .
F i r s t , 	w h i l e w e were 	u n a b l e 	t o 	c o o c l u d e 	i n . o u r 	n a r c h 	2 6
l e t t e r 	t h a t 	t h e 	po1ic:y 	p r o p o s e d 	by 	KPS was 	l a w f u l , 	w e 	e x p r e s s l y
n o t e d 	t h a t 	w e were 	n o t 	c o n c l u d i n g 	t h a t 	t h e 	p o l i c y 	would 	v i o l a t e
t h e 	a n t i t r u s t 	l a w s . 	R a t h e r , 	w e 	p o i n t e d 	o u t 	t h a t 	s u c h a 	p o l i c y ,
w h i l e c l e a r l y h a v i n g 	t h e 	e f f e c t 	of 	e x c l u d i n g 	new 	p h y s i c i a n s 	from
KPS a n d , 	d e p e n d i n g 	upon 	KPS's 	m a r k e t 	p o w e r , 	p o s s i b l y 	h a v i n g 	t h e
e f f e c t o f 	d i s c o u r a g i n g 	or 	p r e c l u d i n g 	new 	e n t r y 	by 	p h y s i c i a n s 	t o
t h e 	a r e a , 	n e v e r t h e l e s s 	m u s t 	b e 	a n a l y z e d 	f o r 	b o t h 	its p r o c o m p e t i -
t i v e 	and 	a n t i c o m p e t i t i v e 	e f f e c t s 	u n d e r 	t h e 	r u l e o f 	r e a s o n . 	I n
y o u r 	c u r r e n t 	l e t t e r 	you 	r a i s e 	s e v e r a l 	p o i n t s 	r e g a r d i n g 	t h e 	l i k e l y
d e g r e e 	of 	KPS's 	m a r k e t 	p o w e r , 	a n d 	h e n c e 	a n y 	a n t i c o m p e t i t i v e
e f f e c t s 	t h a t 	m i g h t 	r e s u l t 	f r o m a d o p t i o n o f 	t h e 	p r o p o s e d 	p o l i c y .
However, 	y o u r 	d i s c u s s i o n o f 	t h e s e 	p o i n t s 	u n d e r s c o r e s 	t h e 	d e b a t -
a b i l i t y o f 	t h i s 	i s s u e , 	a n d 	s e r v e s 	t o 	r e i n f o r c e 	o u r 	b e l i e f 	t h a t
t h i s 	is 	t h e 	t y p e 	o f 	- 	b e	d e t e r m i n a t i o n 	t h a t 	c a n n o t ' a p p r o p r i a t e l y

- 2 -
. . . -
@ made 	in the context of an advisory opinion, but 	rather 	requires a
more comprehensive factual inquiry as part of .a full-blown rule of
reason analysis of the policy.
Similarly, we believe 	that an assessment of 	the market power,
if any, of KPS -- a firm that your 	information shows has a 25%
market 	share overall, and which we estimate covers approximately
33% of 	the privately insured population; a firm which a federal
district court recently concluded to be the area's ndominant
(slip ope at 231,
I hope that this explanation helps 	to clarify for you the
reasons that we were unable to provide you with a favorable staff
advisory opinion concerning KPS" 	proposed policy.
In addition I would 	like to clarify an apparent misinterpre-
.tation of our letter of March 	26. 	Your 	letter of May 	1 states 	(at
If I can be of further assistance to you, please 	let me 	know.
Sincerely,
Assistant Director
Blue Cross v. 	Kitsap Physicians Service, 1982-1 Trade
@ 	g s . 	(CCH) 	64,588 at 73,205 	(W.D. 	Wash. 	1981).
Hyde v. 	Jefferson Parish Hospital District No. 	2,