FTC Staff Comment Before the Alaska House of Representatives Concerning The Threat of Consumer Harm Resulting From Physician Collective Bargaining Under Alaska S.B. 37

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Prepared Statement of the Staff of the
Bureau of Competition and the Office of Policy Planning
The Threat of Consumer Harm
Resulting from Physician Collective Bargaining
Under Alaska Senate Bill 37
Presented by R. Ted Cruz(1)
Director
Office of Policy Planning
Before The
Committee on Labor and Commerce
Alaska House of Representatives
March 22, 2002
I. Introduction
Madam Chairwoman and members of the Committee, I am Ted Cruz, Director of the Federal
Trade Commission's Office of Policy Planning. I am pleased to appear before you today to
present the views of the staff of the Bureau of Competition and the Office of Policy Planning
concerning Alaska Senate Bill 37, a bill that seeks to authorize competing physicians to engage
in collective bargaining with health plans over fees and other terms. The Commission has
opposed legislation before the U.S. Congress that would create an antitrust exemption for
physician collective bargaining, and the Commission staff has expressed similar concerns about
bills before state legislatures. We continue to believe that the behavior authorized by the
physician collective bargaining legislation would significantly increase health care costs and
harm consumers.
I will also present the views of the staff concerning whether the bill meets the legal test of the
state action doctrine. As you know, state economic regulation can immunize private parties from
federal antitrust liability, but only where the displacement of competition furthers a clearly
articulated policy of, and is actively supervised by, the state government. In the case of Senate
Bill 37, the level of government involvement described falls far short of the level of "active
supervision" required by the Supreme Court.

II. Physician Collective Bargaining
The Commission's opposition to legislation intended to create an antitrust exemption for
physician collective bargaining has historically focused on two fundamental points, both of
which are relevant to your consideration of Senate Bill 37:
(1) such legislation would likely harm consumers - an antitrust exemption would authorize price-
fixing by physicians, which could be expected to result in increased consumer costs and
decreased consumer access to care; and
(2) such legislation would not likely improve the quality of care - an antitrust exemption would
not likely improve patient care, and there are other, more effective means of addressing quality
of care issues that do not sacrifice the benefits of a competitive marketplace.
A. Consumer Harm
In testimony before Congress regarding a proposed federal antitrust exemption for physician
collective bargaining,(2) the Commission detailed the predictable impact on consumers that such
legislation would have:
Without antitrust enforcement to block price fixing and boycotts designed to increase health plan
payments to health care professionals, we can expect prices for health care services to rise
substantially. Health plans would have few alternatives to accepting the collective demands of
health care providers for higher fees. The effect of the bill…can be expected to extend to various
parties, and in various ways, throughout the health care system:
• 	Consumers and employers would face higher prices for health insurance coverage.
• 	Consumers also would face higher out-of-pocket expenses as copayments and other
unreimbursed expenses increased.
• 	Consumers might face a reduction in benefits as costs increased.
• 	Senior citizens participating in Medicare HMOs would face reduced benefits…
• 	The federal government would pay more for health coverage for its employees through
the Federal Employees Health Benefits Program and military health programs.
• 	State and local governments would incur higher costs to provide health benefits to their
employees.
• 	State Medicaid programs attempting to use managed care strategies to serve their
beneficiaries could have to increase their budgets, cut optional benefits, or reduce the
number of beneficiaries covered.
• 	State and local programs providing care for the uninsured would be further strained,
because, by making health insurance coverage more costly, the bill threatens to increase
the already sizable portion of the population that is uninsured.
These widespread effects are not simply theoretical possibilities. The record of antitrust law
enforcement sets forth the impact of collective 'negotiations' on the public. For example, as
described in the Commission's complaints, collective bargaining by anesthesiologists in

Rochester, New York, and by obstetricians in Jacksonville, Florida, forced health plans to raise
their reimbursement, and the result was increased premiums for the HMOs' subscribers.(3) Other
cases have challenged actions by associations of pharmacists who succeeded in forcing state and
local governments to raise reimbursement levels paid under their employee prescription drug
plans.(4) In one such case, an administrative law judge found that the collective fee demands of
pharmacists cost the State of New York an estimated $7 million.(5)
Prior Commission cases illustrate the types of physician conduct that have raised problems.
Price-fixing is one type of such conduct, and last year's Alaska Health Network, Inc.(6) case is a
prime example. In that case, the Commission alleged that competing physicians organized and
conspired to fix the prices and other competitively significant terms on which they would deal
with health plans in Fairbanks, Alaska. Another type of conduct is price-related group boycotts,
such as the one addressed in the M.D. Physicians of Southwest Louisiana, Inc.(7) case. There,
the Commission charged a group of competing physicians with conspiring not to deal with
certain third-party payers, as part of an unlawful enterprise designed to prevent managed care
contracts from taking hold in the Lake Charles, Louisiana region.
There is widespread agreement that horizontal agreements among competitors can raise the most
significant competitive concerns. The facilitation of naked horizontal price-fixing is among the
most serious of these concerns, as such conduct predictably and consistently results in substantial
consumer harm. Departing from the general rules of antitrust in such a competitively sensitive
area presents substantial risks that would not be offset by procompetitive gains from physician
collective bargaining.
The two arguments that have typically been presented to justify a departure from the general
rules of antitrust in this context are that, given health plan concentration, physician collective
bargaining would (1) increase patients' quality of care, and (2) allow physicians to bargain on a
more "level playing field." The former argument is based on a misunderstanding of both current
law and the effects of collective bargaining, as will be discussed in the next section.
The latter argument is more straightforward, but equally problematic. As the Commission
explained in its testimony before Congress:
Arguments that consumers would not be harmed by an antitrust exemption for collective
bargaining by independent health care professionals appear to rest on assertions that the [federal]
bill would balance the bargaining power between health care professionals and health plans.
These assertions, however, are incorrect. The bill would permit doctors to create monopolies. On
the health plan side of the ledger, the evidence does not support the suggestion that most (or even
many) areas have only one or two health plans.(8)
Furthermore, even if the assumption that physicians confront monopoly health plans were
correct, authorizing collusive conduct by physicians would not necessarily serve the interests of
consumers. The argument that physician collusion would merely counterbalance hypothetical
monopsony power by health plans implicitly assumes that collective bargaining would generate
physician fees no larger than the fees that would exist in a competitive market. However, there is
little reason to believe that a successful physician cartel would settle for fees at the competitive

level. If a health plan possessed actual market power, health care consumers could be doubly
harmed by physician collective bargaining, because they could be forced to pay the health care
plan's monopoly mark-up on top of the elevated fees charged by the physicians.
B. Quality of Care
Proponents of antitrust exemptions for physicians often suggest that greater physician bargaining
power against health plans would result in increased quality of care for patients. This claim fails
for two reasons: (1) physician collective bargaining has historically focused on physician
compensation, rather than patient care; and (2) current antitrust law already permits physicians to
work collectively on legitimate quality of care issues.
Immunizing collective bargaining imposes costs while providing little assurance that consumers'
interest in quality care will be served. As the Commission stated before Congress:
Collective bargaining rights are designed to raise the incomes and improve the working
conditions of union members. The law protects the United Auto Workers' right to bargain for
higher wages and better working conditions, but we do not rely on the UAW to bargain for safer
cars. Congress addressed those concerns in other ways.(9)
Moreover, discussions between physician groups and health plans are not illegal. Current
antitrust law permits doctors to collectively negotiate with health plans in various circumstances
in which consumers are likely to benefit. The Health Care Guidelines—jointly issued by the
Federal Trade Commission and the Antitrust Division of the Department of Justice - emphasize
physicians' ability under the antitrust laws to organize networks, and other joint arrangements, to
deal collectively with health plans and other purchasers.(10) In addition, through their
professional societies and other groups, health care professionals can jointly provide information
and express opinions to health plans.(11)
As the Commission explained in its congressional testimony :(12)
[T]he antitrust laws do not prohibit medical societies and other groups from engaging in
collective discussions with health plans regarding issues of patient care. Among other things,
physicians may collectively explain to a health plan why they think a particular policy or practice
is medically unsound, and may present medical or scientific data to support their views …(13)
The Commission has never brought a case based on physicians' collective advocacy with a health
plan on an issue involving patient care. Our cases have addressed instances in which physician
groups (1) negotiated collectively on fee levels or other price-related issues, or (2) collectively
refused to contract with plans, either to gain acceptance of their price-related demands or to
prevent or delay market entry by managed care plans generally. In all such cases, the
Commission has been very careful to make sure that its orders do not interfere with the
legitimate exchange of information and views between health plans and health care practitioners.
Indeed, in the Commission's first litigated case involving collective negotiations by physicians -
Michigan State Medical Society - the opinion emphasized that the antitrust laws do not prohibit
health care providers' collective provision of information and views to health plans.(14) Specific

language was inserted in that order, and in subsequent orders, to make it clear that bans on
anticompetitive agreements among competing providers do not prohibit the provision of
information and views to health plans concerning any issue, including reimbursement. .(15)
Accordingly, blanket antitrust immunity for physician price-fixing is not necessary to protect
patient welfare.
III. The Alaska Bill
Nonetheless, Senate Bill 37, like its federal and state counterparts, seeks to confer antitrust
immunity with respect to collective physician conduct. To be sure, Senate Bill 37 also contains a
number of provisions designed to protect consumers from the potential harms arising from a
physician collective bargaining exemption. In some respects, these provisions resemble
protections contained in physician collective bargaining bills introduced in Texas and the District
of Columbia, on which the Commission staff also has commented.(16) As with the protections in
the Texas and District of Columbia bills, these provisions - addressing a health plan's market
power, the size of the physician bargaining group, and potential boycott conduct - do not
alleviate the risk of substantial consumer harm resulting from a collective bargaining exemption.
A. Minimum Threshold for Health Plan Market Power
Section (d)(1) of Senate Bill 37 states that physicians may "collectively negotiate with a health
benefit plan the items described in (b)" - including fees or prices - provided that the health
benefit plan has "substantial market power." "Substantial market power" is defined as "more than
15 percent of the market share." Id. at § (s)(4). Alternative formulas by which market power may
be measured are set forth in Sections (f)(1) and (f)(2).
This market power screen is unlikely to guard against consumer harm.
First, the screen does not apply to all collective bargaining by physicians, or even to all price-
related bargaining. Rather, it applies only to certain kinds of price-related matters. For example,
the market share screen does not apply to negotiations concerning the formulation and
application of reimbursement methodology. Id. at § (a)(6). The method a health plan uses to
calculate its payments to providers for particular services, however, can have a direct and
significant impact on the ultimate price that providers receive for their services, and thus such
matters are also "price" terms. Moreover, even collective bargaining over other, more clearly
"non-price" issues in a health plan contract can have a substantial effect on the ultimate costs
paid by consumers.
Second, there are significant problems with the concept of health plan market power as defined
in the bill. As the Commission staff noted in its comment on the District of Columbia bill:
Market power is, simply put, the power to raise prices above competitive levels, or in the case of
buyers, the ability to reduce prices below competitive levels. Market share can indicate market
power, but only if based upon a properly defined market. Even if the bill's categories correctly

identified relevant markets, a 15% market share…is not a level ordinarily assumed to constitute
market power.(17)
Although the Alaska bill's definition of "substantial market power" is not entirely clear, one thing
is certain: it does not define antitrust markets in a legal or economic sense. For example, it uses
as a proxy for a relevant geographic market the health plan's "service area," but this area does not
necessarily correspond to a proper relevant antitrust geographic market, and could serve to
overstate the market share of the plan.
Furthermore, by setting the market power threshold at a 15 percent market share, the bill would
authorize anticompetitive behavior by physicians in many situations in which the health plan
would not in fact possess market power. Indeed, 15 to 20 percent is below the level courts
typically require before upholding a finding of market power.(18) Finally, the bill does not take
into account that even a plan with a large share of a market might be constrained from exercising
market power if new entry by competing plans is easy.
Third, in practice, the market share screen appears unlikely to provide any limitation at all. That
is because the bill would create a presumption that a health plan has substantial market power
(Section (f)), unless the health plan persuades the Attorney General that it does not meet the 15
percent threshold. It seems unlikely that a health plan would seek to offer such proof, however,
because the kind of price-related collective bargaining to which the market share screen applies
can occur only if the health plan agrees to engage in such negotiations. See Section (d)(3). Thus,
it appears that a health plan could simply decline to negotiate with physician collective
bargaining groups, without making any showing regarding market share.
In addition, it should be noted that the bill's restrictions on collective fee negotiation to situations
where the health plan consents to such negotiations would offer only limited protection to
consumers. Such a restriction could limit certain kinds of anticompetitive effects, by preventing
groups without health plan consent from engaging in even preliminary bargaining activities (such
as physicians entering into agreements on the fee levels to be sought) that could facilitate
anticompetitive agreements with respect to physicians' individual dealings with health plans.
Nonetheless, a variety of risks remain. First, although participation is voluntary, some health
plans may feel compelled to deal with a group if it includes most of the physicians in a particular
specialty or many physicians with large numbers of loyal patients. Second, even absent any
implicit coercion, in some circumstances a health plan may find it less troublesome to simply
accede to price-setting by physicians and then pass the higher costs on to consumers. In either
case, such behavior presents a risk not only to the enrollees of the particular plan in question, but
also to other consumers, because a group of physicians organized to bargain with one health plan
could more easily collude in its dealings with other health plans that eschew collective
bargaining.
B. Limitations on Size of Physician Negotiating Group
Section (g)(6) of the Senate Bill 37 states that an authorized third party "may not represent more
than 30 percent of the market of practicing physicians in the geographic service area or proposed
geographic service area if the health benefit plan has less than a five percent market share." In

addition, Section (g)(7) authorizes the Attorney General to limit the percentage of practicing
physicians represented by an authorized third party. However, the Attorney General may not
impose a limit of "less than 30 percent of the market of practicing physicians" and may not
impose any limit at all if "the market of practicing physicians…consists of 40 or fewer
individuals." Id.
These limitations on the size of the physician group authorized to collectively bargain are also
unlikely to adequately protect consumers. First, the 30 percent limitation applies only in those
cases in which the health plan has a very small share of the (potentially ill-defined) market.
Furthermore, the 30 percent limit appears to contemplate a percentage of all physicians and, if
so, it would not necessarily prevent aggregation of a large portion of the physicians in a given
specialty. Given the high level of specialization among physicians, and the fact that different
medical specialty services often are not substitutable, the relevant market for antitrust purposes
may be a particular specialty or specialties rather than physicians as a whole. And just as
individual specialties may constitute different product markets, relevant geographic markets may
differ by specialty.
C. Exclusion of Physician Boycott Conduct
Section (m) of the bill states that the antitrust exemption for physician collective bargaining does
not extend to boycott conduct. Specifically, Section (m) states that no provision of the bill should
be construed as authorizing "competing physicians to act in concert in response to a report issued
by an authorized third party related to the authorized third party's discussion or negotiations with
a health benefit plan." It further notes that authorized third parties "shall" inform physicians of
Section (m) and "warn them of the potential for legal action against those who violate state or
federal antitrust laws." Id.
Although this provision is likely to prevent Senate Bill 37 from being used as legal cover for
explicit boycott threats, it does not protect consumers from all boycott-related concerns arising
from physician collective bargaining. As the Commission has previously observed, collective
negotiations can by their very nature convey an implicit threat that, if the health plan does not
agree to terms acceptable to the physician group as a whole, it will be prevented from
successfully negotiating agreements with the members of the group separately.(19) Furthermore,
by immunizing agreements among competing physicians on the fees and other terms they will
accept from health plans, the bill facilitates coordinated conduct - such as collusive refusals to
deal - that, even though not immune, would be difficult to detect and prosecute.
IV. State Action Immunity
Under the judicially-created "state action" doctrine, a state may override the national policy
favoring competition only where it expressly decides to govern aspects of its economy by state
regulation rather than market forces. A state may not simply authorize private parties to violate
the antitrust laws .(20) Instead, it must actually substitute its own active control for the discipline
that competition would otherwise provide. To that end, the state legislature must clearly
articulate a policy to displace competition with regulation, and state officials must actively
supervise the private anticompetitive conduct .(21)

Senate Bill 37 faces severe difficulties under the "active supervision" prong of that test. In order
for state supervision to be adequate for state action purposes, state officials must "have and
exercise ultimate authority over the challenged anticompetitive conduct."(22) Senate Bill 37 falls
far short of providing the "pointed reexamination"(23) of private anticompetitive conduct
necessary to confer antitrust immunity.
The Supreme Court has made it clear that the active supervision standard is a rigorous one,
designed to ensure that an anticompetitive act of a private party is shielded from antitrust liability
only when "the State has effectively made [the challenged] conduct its own."(24) Active
supervision requires that the state exercise "sufficient independent judgment and control so that
the details of the rates or prices have been established as a product of deliberate state
intervention, not simply by agreement among private parties."(25) In this instance, the bill does
not appear to provide the Attorney General with the means to exercise sufficient independent
judgment and control.
Lack of Active Supervision
The regulatory scheme established by Senate Bill 37 endeavors to provide state supervision of
physician collective bargaining by authorizing the Attorney General to approve or disapprove:
(1) the composition of a physician collective bargaining group, (2) a brief report on any proposed
collective negotiations, and (3) a contract that was the subject of collective bargaining. The
Attorney General's role is limited in significant respects, however, making it unlikely that the
regulatory scheme would be found to provide the level of active supervision required to confer
antitrust immunity.
1. Review of Composition of Physician Groups
The power to approve or disapprove the composition of a physician collective bargaining group
is provided by Section (g)(7). This provision states that the Attorney General may limit the
percentage of physicians represented by an authorized third party, but that the limitation "may
not be less than 30 percent of the market." Furthermore, the Attorney General "shall" consider
the potential competitive benefits and anticompetitive effects described in Sections (k) and (l).
The Attorney General has no power to impose such limitations when the market of practicing
physicians consists of "40 or fewer individuals."
The Supreme Court has emphasized that active supervision requires that state officials "have and
exercise power to review particular anticompetitive acts of private parties and disapprove those
that fail to accord with state policy."(26) The Attorney General's limited review of bargaining
groups at the formation stage, under Section (g)(7), would not amount to active supervision of
"particular anticompetitive acts." Indeed, in a market of "40 or fewer individuals," the Attorney
General has no authority whatsoever to review the composition of physician groups. This
loophole may be particularly significant in a state like Alaska which, due to its population and its
large geographic area, may have a large number of physician specialty markets consisting of 40
or fewer providers.

2. Review of "Brief Report" on Proposed Negotiations
The power to approve or disapprove a "brief report" on any proposed collective negotiations is
provided by Section (h)(1)(B). This provision appears to provide the Attorney General with
authority to disapprove proposed negotiations if the physician group is found to be "not
appropriate to represent the interests involved in the proposed negotiations."(27) It is unclear,
however, what authority this actually would confer, or how the Attorney General could make
such an assessment on the basis of the limited information that the third party representative is
required to submit. The report would describe the proposed subject matter of the negotiations
and a statement of the expected efficiencies or benefits, but it would not supply a wide variety of
information that would enable the Attorney General to assess the likely competitive effects of the
negotiations. Further, there is no provision for the Attorney General to require submission of
additional information, nor any mechanism by which to receive input from other physicians,
affected health plans, or patients.
3. Review of Collectively Negotiated Contracts
The power to approve or disapprove a contract that was the subject of collective bargaining is
provided by Sections (i) and (j). Section (i) states that the Attorney General "shall" either
approve or disapprove a contract "within 30 days after receiving the reports required under (h)."
During that brief period of time, the Attorney General is to attempt to ascertain whether "the
competitive and other benefits of the contract terms outweigh any anticompetitive effects." Lists
of competitive benefits and anticompetitive effects that the Attorney General "may" consider are
provided in Sections (k) and (1), respectively.
These provisions have two principal defects that are likely to vitiate the active supervision
required by the state action doctrine: (1) the Attorney General is presented with insufficient
information, and (2) the Attorney General is given insufficient time. Additionally, a provision
requiring a written decision for both contract approvals and disapprovals would help to ensure
that adequate information is both sought and reviewed.
(a) Insufficient Information
In order for state action immunity to apply, Supreme Court precedent requires the State to
"undertake[] the necessary steps to determine the specifics of the ratesetting scheme."(28) Senate
Bill 37 falls far short of providing the information necessary for state officials to make such a
determination. Moreover, what little information is provided is all at the initiative of third
parties. The bill does not authorize the Attorney General to request or gather specific additional
information of any kind.(29)
The "brief report" would contain the "proposed subject matter" of the negotiations and one
party's "explanation of the [expected] efficiencies or benefits." Notably absent from the "brief
report" is a wide variety of information that would assist the Attorney General in assessing the
likely competitive effects of the negotiations. An Attorney General armed with greater
information - including, for example, information concerning product and geographic market
definition, current price levels, availability of substitutes, or ease of entry for new competing

physicians - would, of course, be better able to make appropriate determinations. An equally
troubling omission from the process is any mechanism by which to receive input from other
physicians, affected health benefit plans, or patients. Indeed, the process provides no notice to
any of these groups, and so no means for them even to be aware of the potential value of their
input.
To attempt to ascertain credibly whether "the competitive and other benefits of the contract terms
outweigh any anticompetitive effects" - the core stated criterion of the Attorney General's review
- without sufficient data, or adequate input from other parties, would be extremely difficult.
Making judgments about competitive effects is the Commission's core function. To carry out this
function, the Commission employs a large staff of lawyers and economists, who rely on
information gathered from the careful review of a complete documentary record and interviews
of numerous key witnesses. "Active supervision" need not necessarily entail the same exhaustive
examination but, at the very least, it should constitute a pointed and meaningful review.
In addition, Section (h)(3) requires an authorized third party to provide the Attorney General
with all communications "to be made to physicians" related to negotiations. This requirement,
however, omits at least four additional categories of potentially critical competitive information:
(1) communications from physicians to authorized third parties, (2) communications from
authorized third parties to health plans, (3) communications between physicians, and (4)
communications between authorized third parties.
It is worth noting that the core conduct at issue here, naked price-fixing among horizontal
competitors, is deemed to be per se illegal precisely because the law presumes that in almost no
circumstances imaginable will the benefits "outweigh any anticompetitive effects."(30) To be
able to attempt such a judgment, the Attorney General needs to be able to review the relevant
information.
(b) Insufficient Time
The law of active supervision requires that the Attorney General have and exercise "independent
judgment and control" sufficient to render the challenged conduct effectively that of the State
and not that of private parties. Yet Section (i) allows only 30 days for the Attorney General to
review the facts and render a decision about the anticompetitive effects of a given contract. The
time period is mandatory ("shall either approve or disapprove…within 30 days") and there is no
provision for extension.(31) It is by no means clear that the Attorney General could complete the
"pointed reexamination" required to immunize the underlying physician conduct in such a short
time.
V. Transparency
Section (i) of Senate Bill 37 provides that "[i]f the contract is disapproved, the attorney general
shall furnish a written explanation of any deficiencies along with a statement of specific remedial
measures that would correct any identified deficiencies." Notably, the bill contains no
complementary provision requiring a written decision to approve a proposed contract. A written
decision, expressly considering the potentially anticompetitive implications of a proposed

contract and attempting to quantify the consumer impact and expected effect on consumer prices,
would serve a number of salutary purposes. First, it would inform affected parties of the levels at
which prices were being fixed, and so provide an opportunity for comment or challenge as to the
appropriateness of those levels. Second, it would help inform the public of the likely impact of
the proposed contract on their health care costs.
Under the current draft, an explanation is required only when the Attorney General disapproves a
contract. From a consumer perspective, however, disapproval of a contract is the less troubling
result. Disapproval indicates that market forces will continue to govern, whereas approval
indicates that they will be temporarily suspended, with a potentially adverse impact on price and
access. It is the latter situation that more clearly warrants an explanation and is more properly
subject to consumer scrutiny.
* * *
In sum, the proposed antitrust exemption for physician collective bargaining is likely to result in
increased consumer costs and threatens to reduce access to care. Furthermore, the risk of
consumer harm does not appear to be offset by any substantial procompetitive benefits or
increased quality of care.
Parties claiming immunity under the state action doctrine bear the burden of establishing their
entitlement to such immunity. If the Alaska Legislature were to enact a bill that fails to provide
for the level of active supervision required by Supreme Court precedent, physicians relying on
the bill's provisions to confer antitrust immunity would risk exposure to potentially significant
financial liability for their actions.
Endnotes:
1. This written statement represents the views of the staff of the Bureau of Competition and of
the Office of Policy Planning of the Federal Trade Commission. It does not necessarily represent
the views of the Commission or of any individual Commissioner. The Commission has,
however, voted to authorize the Bureau of Competition and the Office of Policy Planning to
provide this testimony. My responses to any questions are my own.
2. Testimony of Federal Trade Commission before the House Judiciary Committee on H.R. 1304
(June 22, 1999) ("FTC Testimony on H.R. 1304") at 5-6 available at
<http://www.ftc.gov/os/1999/06/healthcaretestimony.htm> (Attachment A) (footnotes 3-5 in
original).
3. Southbank IPA, Inc., 114 F.T.C. 783 (1991) (consent order); Rochester Anesthesiologists, 110
F.T.C. 175 (1988) (consent order).
4. See, e.g., Baltimore Metropolitan Pharmaceutical Assoc., Inc. and Maryland Pharmacists
Assoc., 117 F.T.C. 95 (1994) (consent order); Pharmaceutical Society of the State of New York,
Inc., 113 F.T.C. 661 (1990) (consent order).

5. See Peterson Drug Company, 115 F.T.C. 492, 540 (1992). See also Pharmaceutical Society of
the State of New York, Inc., 113 F.T.C. 661 (1990) (consent order).
6. Docket No. C-4007, 2001 WL 443471 (F.T.C. April 25, 2001) (consent order).
7. Docket No. C-3824, 1998 WL 566834 (F.T.C. August 31, 1998) (consent order).
8. FTC Testimony on H.R. 1304, supra note 2, at 6-7.
9. FTC Testimony on H.R. 1304, supra note 2, at 10.
10. See Statements of Antitrust Enforcement Policy in Health Care, 4 Trade Reg. Rep. (CCH) ¶
13,151 (Aug. 1996) ("Health Care Guidelines") available at <http://www.ftc.gov/reports/
hlth3s.pdf>. The Health Care Guidelines discuss "messenger model" arrangements designed to
minimize the costs associated with the contracting process.
11. See, e.g., Schachar v. American Academy of Ophthalmology, 870 F.2d 397 (7th Cir. 1989);
Statements 4-5 of Health Care Guidelines, supra note 10.
12. FTC Testimony on H.R. 1304, supra note 2, at 7-8 (footnotes 13-15 in original).
13. [The Health Care Guidelines] create an antitrust safety zone for health care providers'
collective provision of non-fee-related information to health plans. . . . [See Statement 4 of
Health Care Guidelines, supra note 10.]
14. 101 F.T.C. [191,] at 302-09 [(1983)].
15. Id. at 314; see also Southbank IPA, 114 F.T.C. 783 (1991) (consent order); Rochester
Anesthesiologists, 110 F.T.C. 175 (1988) (consent order).
16. Letter to the Texas Legislature on Senate Bill 1468 (May 13, 1999) available at <
http://www.ftc. gov/be/v990009.shtm > (Attachment B); Letter to the District of Columbia
Office of Corporation Counsel on Bill No. 13-333 (Oct. 29, 1999) ("District of Columbia
Letter") available at < http://www.ftc. gov/be/rigsby.shtm > (Attachment C).
17. District of Columbia Letter, supra note 16, at 3-4.
18. Although the federal courts have not identified a precise market share figure that constitutes
market power, the guidance they have provided strongly suggests that 15 to 20 percent is not
sufficient. In Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984), for example, the
Supreme Court rejected the possibility that the defendant hospital had market power in spite of
the fact that it serviced roughly 30 percent of the relevant market. Subsequent opinions from
lower courts have tended to adhere to this 30 percent "rule of thumb." See, e.g., United States v.
Eastman Kodak Co., 63 F.3d 95 (2d Cir. 1995) (30 percent share of U.S. photocopying market
too small to give rise to inference of market power); New York v. Anheuser-Busch, Inc., 811 F.
Supp. 848 (E.D.N.Y. 1993) (40 percent market share insufficient to show market power in light

of low barriers to entry); Manufacturer's Supply Co. v. Minnesota Mining & Manufacturing Co.,
688 F. Supp. 303 (W.D. Mich. 1988) (25.8 percent market share insufficient to show market
power).
19. See Alaska Healthcare Network, Inc., Docket No. C-4007, 2001 WL 443471 (F.T.C. Apr. 25,
2001) ("Payors believed that they could not go around [Alaska Healthcare Network] to contract
individually with physicians in Fairbanks, and thus that they had no alternative but to reach
agreement with AHN or to give up their planned entry into Fairbanks."). See also Michigan State
Medical Society, 101 F.T.C. 191, 296 n.32 (1983) ("the bargaining process itself carries the
implication of adverse consequences if a satisfactory agreement cannot be obtained"); Preferred
Physicians Inc., 110 F.T.C. 157, 160 (1988) (consent order) (threat of adverse consequences
inherent in collective negotiations).
20. See Parker v. Brown, 317 U.S. 341, 351 (1943) ("a state does not give immunity to those
who violate the Sherman Act by authorizing them to violate it, or declaring that their action is
lawful").
21. See California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 92 (1980).
22. Patrick v. Burget, 486 U.S. 94, 100 (1988).
23. Midcal, 445 U.S. at 105-06.
24. Patrick, 486 U.S. at 106.
25. Federal Trade Commission v. Ticor Title Insurance Co., 504 U.S. 621, 634-35 (1992).
26. Id. at 634 (emphases added).
27. The Attorney General may not approve the report if: (1) the group of physicians "is not
appropriate to represent the interests involved in the negotiations" (a provision seemingly
redundant with Section (g)(7), discussed above), or (2) the proposed negotiations "exceed the
authority granted in this chapter." If either of these conditions is satisfied, the Attorney General
"shall" enter an order "prohibiting the collective negotiations from proceeding."
28. Ticor, 504 U.S. at 638.
29. Courts have tended to reject claims of state action immunity where state officials lacked
sufficient information to conduct a meaningful review of the private conduct. See, e.g., Ticor
Title Insurance Co. v. Federal Trade Commission, 998 F.2d 1129, 1140 (3d Cir. 1993) (finding
lack of state supervision where Connecticut never obtained necessary information that would
have enabled it to assess the appropriateness of filed rates). In contrast, courts have tended to
accept such claims where the review included hearings and an opportunity for potentially
affected parties to be heard. See, e.g., TEC Cogeneration Inc. v. Florida Power & Light Co., 76
F.3d 1560 (11th Cir.), amended in part, 86 F.3d 1028 (11th Cir. 1996) (rates determined by
Public Service Commission rulemaking and subject to extensive agency proceedings); DFW

Metro Line Services v. Southwestern Bell Telephone, 988 F.2d 601, 606-07 (5th Cir. 1993)
(Public Utility Commission conducted both broad-based ratemaking proceedings and
adjudications of specific complaints about the reasonableness of rates); Lease Lights, Inc. v.
Public Serv. Co., 849 F.2d 1330, 1334-35 (10th Cir. 1988) (state held public hearings to assess
reasonableness of rates).
30. See Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982) (holding naked
horizontal price-fixing among physicians to be per se illegal).
31. In addition, the current legislative draft is ambiguous as to when the 30-day clock
commences. Section (i) allows 30 days from receipt of "the reports required under section (h),"
without specifying which report - the "brief report," the "copy of all communications," or the
contract itself.