Kitsap Physicians Service

FEDERAL TRADE COMMISSION
WASWINGTON, D.G. 20588
March 	26, 	1984
William C, 	Kopit, Esquire
Epstein, Becker, Borsody
and Green, P,C,
1140 19th Street, N,W,
Waskington, Dee, 	28035
Re: 	Request for Staff Advisory Opinion,
Kitsap Physicians Service
war 	MP, 	Kopltt
By letter of November 4, 1984, you have requested that the
Federal Trade -mission 	staff issue an advisory opinion con-
cerning two practices proposed 	to be undertaken by your client,
Kitsap P ysicians Service 	(hereinafter referred to as eKPSm or the
@Plane).I Specifically, you have asked;
(1) 	mether 	a nonprofit TPA-type ftE/10 which
is physician sponsored may 	include a
clause in its contracts with partici-
pating physicians, whereby such pkysi-
ctans agree not to offer any otber
health plan lower rates than those
offered to the Plan; and
( 2 ) 	Whether such an HMO may deny membership
In the plan to all 	[new] physicians in a
specific category in which 	the physician
to enrollee ratio is currently higher
than certain specified generally accept-
able standards.
Kitsap Physicians Service is a physician-sponsored, nonprofit
medical care prepapent plan operating in Ritsap, Jefferson, and
This letter reflects my 	views as an af f icial oE the Cornis-
sion" 	Bureau of Competition, 	Lt 	is not binding on the
Comission itself, 	-	See Section 1.3(c) 	of the Commissionts
Rules of Practice,8

M s o n c o u n t i e s 	i n 	t h e 	S t a t e of 	Washington. 	I t 	i s l i c e n s e d 	by 	t h e
S t a t e of 	Washington a s 	a 	" h e a l t h 	c a r e 	s e r v i c e c o n t r a c t o r , " 	w h o s e
o p e r a t i o n you d e s c r i b e a s 	t h a t 	o f 	a n 	i n d e p e n d e n t 	p r a c t i c e 	a s s o c i a -
t i o n - t y p e 	h e a l t h maintenance 	o r g a n i z a t i o n , 	RPS c o m p e t e s w i t h 	t h e
statewide B l u e Cross and 	Blue S h i e l d 	p l a n s , 	w h i c h 	o p e r a t e 	i n 	its
s e r v i c e a r e a , 	w i t h Group H e a l t h C o o p e r a t i v e o f 	P u g e t Sound 	(a
h e a l t h m a i n t e n a n c e o r g a n i z a t i o n ) , 	and w i t h 	coraraercial h e a l t h
i n s u r e r s , 	You 	s t a t e t h a t 	mS c u r r e n t l y 	c o v e r s 	a b o u t 	2 5 p e r c e n t 	of
t h e p p u l a t i o n o f 	its t h r e e - c o u n t y 	s e r v i c e a r e a 	( a p p r o x i m a t e l y
44,0 0 0 	e n r o l l e e s o u t of 	a 	w p u l a t i o n of 	a b u t 	175,000), 	By 	o u r
estimate from p u b l 	c l y a v a i l a b l e d a t a , 	its share of 	t h e p r i v a t e l y
i n s u r e d 	populationi 	is a p p r o x i m a t e l y 	33 p e r c e n t . 	According 	t o
your 	s u h i s s l o n , 	KPS h a s 	a 	m n o n 4 0 m i n a n t a g g r e g a t e m a r k e t 	sharem
s f 	area 	s u b s e t i b e m s .
~ O U D sutrrsissisn 	s t a t e s 	t h a t 	WS h a s 	participation agreements
with 	2 0 1 p h y s i c i a n s , 	representing mare t h a n 	95 p e r c e n t 	s f 	a 1 1
p h y s i c i a n s 	i n 	t h e Plan" 	khre-county 	s e r v i c e 	a r e a , 	The 	nmber 	of
p h y s i c i a n s p r a c t i c i n g 	i n KPS" 	sseevice a r e a h a s 	i n c r e a s e d by a b u t
50 p e r c e n t 	since 1977, 	a 	rate m s u b s t a n t l a l l y g r e a t e r a 	t h a n 	t h e
r a t e s f 	i n c r e a s e 	i n t h e area" 	s p u l a t i o n d u r i n g t h a t 	p e r i o d ,
P a r t i c i p a t i n g p h y s i c i a n s 	a r e n o t 	p r o h i b i t e d 	from p a r t i c i p a t i n g 	i n
a n y o t h e r 	h e a l t h 	p l a n . 	P a r t i c i p a t i n g p h y s i c i a n s 	also a r e a t 	r i s k
for cost 	o v e r r u n s o f 	t h e P l a n 	where 	t h e 	t o t a l 	costs o f
s e r v i c e s p r o v i d e d 	e x c e e d 	t h e 	P 	r e v e n u e s 	from s u b s c r i b e r 	p r e -
m i u s ) 	" t h r o u g h 	a 	p r o 	r a t a 	s y s t e m which 	p e r m i t s 	r e d u c t i o n s 	i n 	t h e
amount p a y a b l e 	t o p h y s i c i a n s e m 	A s 	a 	h e a l t h 	m a i n t e n a n c e 	o r g a n i z a -
t i o n , 	KPS a p p a r e n t l y 	is c o n t r a c t u a l l y 	a n d 	l e g a l l y o b l i g a t e d 	t o
p r o v i d e c o v e r e d m e d i c a l 	s e r v i c e s 	t o 	its 	s u b s c r i b e r s , 	n o t m e r e l y 	t o
pay 	f o r 	s u c h 	s e r v i c e s .
W i t h 	r e g a r d 	to y o u r 	f i r s t q u e s t i o n , 	c o n c e r n i n g 	KPS" 	p r o p o s e d
u s e o f 	a 	"most f a v o r e d 	n a t i o n e 	c l a u s e 	i n 	its p a r t i c i p a t i o n a g r e e -
ment 	w i t h mearber 	p h y s i c i a n s , 	w e 	are u n a b l e 	t o o f f a r 	a n o p i n i o n 	ae
t h i s 	time, 	p u r s u a n t 	t o S e c t i o n l , l ( b ) 	of 	t h e C o m i s s i o n % 	R u l e s 	o f
P r a c t i c e , 	s i n c e " t h e 	sme or 	s u b s t a n t i a l l y 	t h e 	sme c o u r s e of
a c t i o n 	(by a n o t h e r 	e n t i t y ] 	is u n d e r 	i n v e s t i g a t i o n 	. . . ."
w i t h 	r e g a r d 	to t h e 	s e c o n d q u e s t i o n , 	b a s e d 	o n o u r 	a n a l y s i s o f
t h e 	a v a i l a b l e 	i n f o r m a t i o n , 	t h e r e 	is c o g n i z a b l e d a n g e r 	t h a t 	c l o s i n g
o f f 	a c c e s s 	t o p a r t i c i p a t i o n 	i n KPS 	f o r 	a d d i t i o n a l 	p h y s i c i a n s 	i n
v a r i o u s m e d i c a l 	s p e c i a l t i e s would, 	o n b a l a n c e , 	h a v e 	s u b s t a n t i a l
a n t i c o m p e t i t i v e 	e f f e c t s , 	mile w e 	h a v e 	n o t , 	o f 	c o u r s e , 	d e t e r m i n e d
t h a t 	a d o p t i o n of 	t h e p r o p o s e d 	r e s t r i c t i o n would 	be u n l a w f u l , 	w e
are n o t 	a b l e 	t o p r o v i d e 	you w i t h 	a n a d v i s o r y o p i n i o n a p p r o v i n g 	t h e
p r o p o s e d c o n d u c t ,
T h i s 	e x c l u d e s 	t h e 	u n i n s u r e d 	a n d 	t h o s e 	p e r s o n s 	c o v e r e d 	u n d e r
g o v e r n m e n t a l programs 	s u c h as Medicare, 	Medicaid, 	and
CHAMPUS.

4
RPS is a joint venture 	of competing fee-foreservice physi-
cians that operates an independent practice association-type
health maintenance organization, 	Under t h e Comission- 	Enforce-
ment Policy with Respect to Physician Agreements 	to Control
Medical Prepapent P l a n s n 	(Sept, 25, 1981) 	(hereinafter
mEnEoreement Policy Statement"), 	KBS" 	eexcLusion of new p h y s i c i a n s
in various specialties would constitute a concerted refusal to
deal with competitors by 	the physicians controlling a "partially
integrated planew 	Enforcement Policy Statement at 23-24, 27, 	On
its face, a concerted refusal to deal with new entrants by an
organization of 95 per cent sf a market" 	participants is
inherently suspect, requiring close antitrust scrutiny, 	Consis-
tent with the Enforcement Policy Statement, we have analyzed the
propsed 	conduct under 	the antitrust rule of 	reason, because inde-
pendent evidence of a predominantly anticompetitive puspse 	is
absent and t h e c x c l u s i s n may p l a u s i b l y 	be related 	to the effective
operation sf 	the plan,
Using rule-of-reason analysis, we have attempted to assess
any likely anticompetitive effects of the policy 	in light of the
nature o f 	the restraint and the degree, 	if any, sf KPS% 	market
pwer. 	IJnder the RPS propsal, non-member physicians in various
specialties -- especially those considering entry, and new
entrants in the KPS market area -- would be foreclosed from access
to patients covered by KPS, 	As noted above, these patients
reportedly represent approximately 25 percent of the area" 	pop-
ulation and, by our estimate, approximately onethird of the
area" 	residents with private health insurance,3
You state in your letter that KPS is "non-dominant" in its
market, 	Although the available information does not clearly
establish either the existence or absence of market power, it does
suggest that participation in KPS may be sufficiently important or
essential that barring new physicians from KPS would 	effecti ely
discourage or prevent entry by many of them into the marketaS 	If
so, the effect of the propsed 	pLicy would 	be to protect the
physicians who now participate in RPS from competition by new
KBS9s markgt share in recent years has been much higher, but
has fallen in the last few years.
In October, 1981, a federal district court concluded in an
antitrust lawsuit that "KPS is the dominant heaLth care
insurerm in its service area, that it had an "entrenched
psition," and that "[tlhe 	financial benefits of KPS member-
ship are substantial," 	Blue Cross v. 	Kitsap Physicians
Service, 1982-1 Trade Cas, 	(CCH) 164,588 at 73,205, 73,208
(W.D, 	Wash. 	1982). 	Anticompetitive effects could be very
substantial if KPS has market power, 	Enforcement Policy
Statement at 27; Virginia Academy of 	ical Psychologists
v. 	Blue Shield of Virginia, 624 F,2d 	476 	(4th Cir, 19801,
, 450 U . S , 	916 	(1981).

e n t r a n t p h y s i c i a n s 	n o t 	only for 	KPS p a t i e n t s , 	b u t 	for 	a l l 	t h e
p a t i e n t s 	i n 	t h e m a r k e t , 	By 	d e t e r r i n g 	new 	e n t r y , 	t h e 	rule 	could
a l s o l i m i t 	t h e 	s u p p l y of p h y s i c i a n s 	a v a i l a b l e 	t o p a r t i c i p a t e 	i n
competing 	h e a l t h 	c a r e o r g a n i z a t i o n s 	t h a t 	f a c e d i f f i c u l t y 	i n
a t t r a c t i n g a d e q u a t e 	numbers 	of 	p h y s i c i a n s 	i n 	t h e 	area 	i n t o t h e i r
p r o g r m s , 	I n 	p a r t i c u l a r , 	t h e s e 	plans 	may h a v e 	d i f f i c u l t y 	recruit-
i n g p h y s i c i a n s 	t o t h e a r e a 	b e c a u s e 	t h e y p r o b a b l y c a n n o t g e n e r a t e
for 	t h e i r 	p a r t i c i p a t i n g 	s p e c i a l i s t s 	s u f f i c i e n t p a t i e n t 	volume 	f o r
a 	f u I p r a c t i c e , 	i f 	t h e s e p r a c t i t i o n e r s 	a r e n o t 	a l l o w e d 	t o j o i n
KPS. f Because 	t h e p r s p s e d 	r e s t r a i n t 	may 	be 	s u b s t a n t i a l l y 	a n t i c s m -
p e t i t i v e 	i n 	some respects, 	we have 	a t t e m p t e d 	under 	t h e 	r u l e 	of
s e a s o n 	t o assess 	its c o u n t e r v a i l i n g 	j u s t i f i c a t i o n s , 	Tn t h a t
r e g a r d , 	a r e s t r a i n t may be 	j u s t i f i e d , 	n o t w i t h s t a n d i n g 	its anticom-
p e t l t i v e 	a s p e c t s , 	i f 	it 	is c a p a b l e af 	i n c r e a s i n g 	t h e e f f e c t i v e n e s s
of 	KPS as a competitor and 	is no broader 	t h a n necessary 	for 	t h a t
purwse*
One stated 	j u s t i f i c a t i o n 	is t h a t 	t h e 	r e s t r i c t i o n 	a d d r e s s e s
p r o b l e m s of 	management 	and p h y s i c i a n c o m i t m e n t 	t o P l a n objectives
c a u s e d 	by 	an " e x c e s s i v e m n m b e r 	of 	p a r t i c i p a t i n g 	p h y s i c i a n s , 	You
s t a t e t h a t h a v i n g 	too many p h y s i c i a n s makes 	it d i f f i c u l t 	Eor 	t h e
P l a n 	t o p e r f o r m 	e f f e c t i v e u t i l i z a t i o n 	r e v i e w om 	to d e m o n s t r a t e 	t o
p h y s i c i a n s 	t h a t 	t h e i r 	economic 	i n t e r e s t s a r e commensurate w i t h
t h o s e o f 	RPS. 	T h i s 	j u s t i f i c a t i o n 	h a s 	some p l a u s i b i l i t y 	a s 	t o
h e a l t h 	p l a n s 	i n g e n e r a l , 	It is d i f f i c u l t , 	however, 	t o g i v e 	sub-
s t a n t i a l w e i g h t 	t o 	t h i s 	r a t i o n a l e 	when 	p r o f f e r e d 	by 	a 	p l a n 	t h a t
a p p a r e n t l y w i l l c o n t i n u e 	t o r e p r e s e n t 	a n d p e r m i t 	p a r t i c i p a t i o n by
v i r t u a l l y 	a l l o f 	t h e c u r r e n t m a r k e t 	p a r t i c i p a n t s , 	b u t 	p l a n s 	to
e x c l u d e 	a l l -- a n d o n l y -- new e n t r a n t s 	i n v a r i o u s 	s p e c i a l t i e s ,
~ l t k o u g hit 	c a n n o t 	c o n c l u s i v e l y 	be 	d e t e r m i n e d 	by 	u s 	o n 	t h e 	i n f o r -
m a t i o n p r e s e n t e d , 	t h e 	p r o p o s e d 	p o l i c y may be 	b o t h o v e r b r o a d , 	i n
its d i s c r i m i n a t o r y treatment 	of 	new e n t r a n t s , 	a n d 	u n d e r i n c l u s i v e ,
i n s o f a r 	as 	t h e 	P l a n 	is s e e k i n g 	t o promote 	e f f e c t i v e 	u t i l i z a t i o n
r e v i e w and 	less c o s t l y p r a c t i c e p a t t e r n s , 	S p e c i f i c a l l y , 	t h e p m e
lposal w i l l 	e x c l u d e 	a l l new p h y s i c i a n s , 	r e g a r d l e s s 	o f 	t h e i r 	i n d i -
v i d u a l 	cost c o n s c i o u s n e s s , 	u t i l i z a t i o n 	p a t t e r n s 	or 	o t h e r 	p r a c t i c e
c h a r a c t e r i s t i c s , 	w i t h o u t 	n e c e s s a r i l y 	s t r e n g t h e n i n g 	u t i l i z a t i o n
c o n t r o l s 	r e g a r d i n g 	t h o s e 	p h y s i c i a n s 	a l r e a d y 	p a r t i c i p a t i n g 	i n 	t h e
P l a n 	n o r 	c o n d i t i o n i n g 	t h e i r 	c o n t i n u e d p a r t i c i p a t i o n 	i n t h e 	P l a n on
a d h e r e n c e 	t o s t r i c t e r 	u t i l i z a t i o n 	c o n t r o l s . 	Nor 	d o e s 	t h e P l a n
a p p e a r 	t o be 	t a k i n g o t h e r 	s t e p s 	t h a t w i l l 	r e d u c e p a r t i c i p a t i o n 	so
as 	t o a c h i e v e a material d i f f e r e n c e 	i n P l a n o p e r a t i o n s , 	Under 	t h e
c i r c u m s t a n c e s , 	w e do n o t 	b e l i e v e 	t h a t 	t h i s 	a r g u m e n t c o u l d 	j u s t i f y
t h e p r o p s e d 	e x c l u s i o n a r y p l i c y .
The 	key 	stated 	j u s t i f i c a t i o n 	f o r 	t h e p r o p o s e d 	w l i c y 	is t h a t
r e d u c i n g 	t h e number 	o f 	p a r t i c i p a t i n g 	p h y s i c i a n s 	a v a i l a b l e t o RPS
S e e B l u e Gross 	v. 	K i t s a p P h y s i c i a n s 	S e r v i c e ,	- 	, n o t e 	4
a t 	73,208; 	E n f o r c e m e n t 	P o l i c y 	S t a t e m e n t 	a t 	2 5 ,

p a t i e n t s 	t o a n 	R a p p r s p r i a t e w r a t i o w i l l 	r e s u l t 	i n 	lower 	u t i l i z a -
t i o n 	a n d 	t h u s 	lower premiums, 	You 	e x p l a i n 	t h a t 	t h e G r a d u a t e
H e d i c a l E d u c a t i o n ~ a t i o n a l ,A d v i s o r y 	Comi t t e e s t u d y 	('GmNFnCm)
i n d i c a t e s 	t h a t 	8 4 	is 	t h e 	@ a p p r o p r i a t e mn m b e r 	of 	p h y s i c i a n s , 	drawn
from v a r i o u s 	s p e c i a l t i e s , 	f o r 	a c o r n u n i t y o f 	44,000 	p e o p l e ,
A p p l y i n g 	t h i s 	d o c t o r - p a t i e n t 	r a t i o 	t o KPS% 	44,000 	p e r s o n 	e n r o l l -
ment m a k e s 	8 4 t h e 	" a p p r o p r i a t e ' 	s i z e 	f o r 	its p a n e l 	o f 	p a r t i c i p a t i n g
p h y s i c i a n s , 	you 	sulsnrit, 	r a t h e r 	t h a n 	t h e 2 0 1 t h a t 	RPS now h a s ,
However, 	RPS9s p r o w s e d 	a p p l i c a t i o n 	of 	t h e 	f i g u r e s you 	s t a t e a r e
drawn 	from t h e W N A C 	s t u d y seems questions le, e v e n 	a s s u i n g 	t h a t
t h e G m N A C s t u d y r e c o r n e n d a t i o n s 	ace saund, 9
First, 	t h e mNX 	s t u d y ' s 	eonelusisns r e l a t e 	ts t h e p h y s i c i a n
t o p p u l a t i o n 	r a t i o s 	a n d 	u t i l i z a t i o n 	r a t e s 	within g e o g r a p h i c
market 	areas, 	and n o t 	to s u c h 	ratios OP 	rates w i t h i n 	a particular
insurance or 	p r e p a m e n t 	p r o g r a m 	KPSQ 	stransfen 	of 	these conclu-
s i o n s 	from o n e c o n t e x t 	t o a n o t h e r 	is q u e s t i o n a b l e 	b t h 	i n c o n c e p t
and a p p l i c a t i o n , 	Second, 	e v e n 	i f 	t h e y are g e n e r a l l y 	u s e f u l 	for
t h e 	k i n d 	of 	p u r p s e c o n t e m p l a t e d 	by KPS, 	it d o e s n o t 	a p p e a r 	t h a t
t h e GmNAC r e c o r n e n d a t i o n s 	provide 	s u p p r t 	for, 	or 	even 	are
c o n s i s t e n t 	w i t h , 	i n p l e m e n t a t i o n of 	t h e p r s w s e d 	restraint on 	t h e
f a c t s h e r e ,
w i t h 	r e g a r d 	t o 	t h e 	f i r s t w i n k , 	t h e G m N X 	report 	e s t i m a t e s
a p p e a r 	t o r e f l e c t 	a n a s s e s s m e n t 	o f 	t h e 	e f f e c t s o f 	p h y s i c i a n
b e h a v i o r 	i n a n 	e n t i r e market 	a r e a , 	which 	m i g h t 	d i f f e r 	s u b s t a n -
t i a l l y 	from p h y s i c i a n 	b e h a v i o r 	w i t h i n 	a p a r t i a l l y 	i n t e g r a t e d 	p r e -
p a i d 	m e d i c a l 	c a r e 	p l a n 	w i t h 	some u t i l i z a t i o n 	c o n t r o l s and 	some
a s s u m p t i o n o f 	r i s k 	by p a r t i c i p a t i n g 	p h y s i c i a n s , 	Thus, 	i t seems
w h o l l y 	s p e c u l a t i v e 	t o assunre 	t h a t 	r e d u c i n g 	p h y s i c i a n 	p a r t i c i p a t i o n
i n KPS w i l l 	a f f e c t 	t h e i r 	p r a c t i c e p a t t e r n s 	so a s 	t o r e d u c e 	KPS9s
costs, 	Moreover, 	o n a v e r a g e , 	a KPS doctor 	p r e s m a b l y 	s p e n d s o n l y
a b o u t 	25 p e r c e n t o g h i s or 	h e r 	time t a k i n g c a r t o f 	KPS p a t i e n t s ,
s i n c e v i r t u a l l y 	a l l 	t h e area" 	c u r r e n t d o c t o r s p a ~ t i c i p a t ei n KPS
a n d 	it c o v e r s a b u t 	25 p e r c e n t 	of 	t h e area p p u l a t i o n , 	Thus,
u n l e s s 	KPS e n v i s i o n s 	its p h y s i c i a n s 	s e k v i n g RPS e n r o l l e e s 	a l m o s t
e x c l u s i v e l y 	a n d n o t 	t r e a t i n g many o t h e r p a t i e n t s 	(and you 	h a v e
i n d i c a t e d 	n o s u c h p l a n s ) , 	it would 	a p p e a z 	t h a t 	i f 	8 4 p h y s i c i a n s ,
working 	f u l l - t i m e , 	are, 	by GmNAC" 	c o m p u t a t i o n s , 	' a p p r o p r i a t e m
f o r 	a c o r n u n i t y w i t h 	a p s p u l a t i o n 	of 	4 4 , 0 0 0 , 	t h e n 	t h e 	m a p p r o p r i -
a t e m number 	of 	p a r t i c i p a t i n g p h y s i c i a n s 	s p e n d i n g a b u t 	a 	f o u r t h of
t h e i s 	t i m e w i t h KPS p a t i e n t s 	and 	t h e 	rest 	af 	t h e i r 	time w i t h other
-	S e e 	R e p o r t 	of 	t h e G r a d u a t e Medical E d u c a t i o n
N a t i o n a l 	A d v i s o r y 	Conunittee to 	t h e S e c r e t a r y , 	U , S , 	- p a r t -
ment 	o f 	H e a l t h 	and Human S e r v i c e s 	(19801,
The GHENAC 	s t u d y 	recommendations 	were g e n e r a l l y 	t e n t a t i v e 	i n
n a t u r e 	and 	t h e i r 	a c c u r a c y 	a n d 	u s e f u l n e s s 	h a s 	been 	ques-
t i o n e d , 	You d o n o t 	c i t e t o p a r t i c u l a r 	r e f e r e n c e s 	i n 	t h e
G m N A C 	s t u d y 	a s 	t h e 	s o u r c e 	f o r 	t h e 	p l a n n e d 	KPS p h y s i c i a n -
p o p u l a t i o n 	r a t i o s ,

patients would be well over 280 and could be as many as four times
84, or 336 -- 	far more doctors than D S now has, 	Or, from another
perspective, contrary to your assertion that there is a pro lem of
@over-concentration of physicians in the RPS service areaem$ the
~ p u l a t i o nof 175,000 i n 	that three-county area apparently would
need an increase in physician supply, perhaps t s well over 300, in
the Rappropriaten physician-patient ratio under
NAC guidelines as you describe them, 	Conse-
quently, it is not clear why reducing, in the way KPS propses,
the nurnber of physicians treating KP% patients ~ouldresult in
utilization by RPS enrollees at a lesser, "appropriateR rate under
NA\C 	study, so long as the participating doctors continue to
compete in the broader market,
As to t h e 	second p i n t 	noted 	alaave, 	KPS may 	be 	assming, 	i n
adopting the GmNAC study" 	suggested physician to patient ratios
fot comunitles, that EllPS enrollees and physicians make up a sepa-
rate cornunity so that their utilization behavior occurs apart
from, and unaffected by the rest of 	the medical care market in
KPSSs service area, 	This could be true to some extent if RPS
enrollees were restricted to using only KPS p a r t i c i p a t i n g 	physi-
cians and RPS participating physicians treated only or almost only
KPS enrollees, 	You have indicated no such plans, 	Viewed 	this
moreoever, to achieve KPS% 	stated goals of utilization
Fzgbction and cost control, it presumably would 	have to reduce its
complement of participating physicians to 84 or at least to that
general range, assming the accuracy and usefulness of the GmNAC"
study's 	figures for KPS's 	purposes. 	A participation freeze or
relatively small reduction in the nlgaber of participating physi-
cians would 	leave substantial @excess capacityw in the KPS 	system,
presmably 	resulting in the same overutilization problem KPS hopes
to address by its propsal, 	The propsal to close merabership in
KnS 	to new physicians, abaent a prograna to rapidly and radically
reduce participation mong current me&ers, 	appears incapable of
advancing significantly KPS% 	sstted goal of reducing participa-
tion so as to reduce any associated excess utilization of ser-
vices.
As to RPSQstated 	justifications, therefore, while cost-
contaiment is a legitimate, efficiency enhancing function of RPS,
the propsed 	@restraintM -- the closing of membership to new
physicians -- does not appear cdpable of achieving such efficiency
to any meaningful degree, and 	in what it does do, seems broader
and more restrictive in its treatment of new physicians than is
necessary in order to promote E(nS0s stated long-term goal,
There is, we emphasize, no inherent likelihood of antitrust
illegality in limitations on physician participation in health
Letter from William G. 	Ropit to Mr. 	Timothy J. 	Muris,
Director, Bureau of Competition, Federal Trade Comission
(November 4, 1983) at 7 n.12,

plans, 	There 	is, however, 	a s t r i k i n g difference between 	KPS and 	a
h e a l t h 	maintenance 	aeganization or 	other 	plan 	that is not prs-.
vider-.csntrolled, 	that has always had 	a 	l i m i t e d 	p h y s i c i a n 	p a n e l ,
or 	t h a t 	has a much 	smaller market 	shame, 	A n t i t r u s t 	analysis of
membership 	Limitations by 	s u c h a group Is v e r y 	likely 	to have
quite different 	results with 	regard ts the likelihood that 	the
restraint would 	predominantly 	serve a legitimate business p u r p s e
withoue 	undue 	e x c l u s i o n a r y 	e f f e c t ,
I n s u , based 	an the a v a i l a b l e 	f a c t s 	i n 	t h i s particular
situation, 	there 	appears 	to be a r e a l i s t i c p s s i b l l i t y 	that s u b
seantial anticompetitive e f f e c t s could 	r e s u l t 	from 	fmwsition of
t h e 	promsed 	freeze o n p h y s i c i a n 	participation 	i n KPS for various
medical 	specialties, 	Moreover, 	It 	i s uncertain whether 	t h e
r e s t r a i n t would 	h a v e offsetting procompetitive effects, 	because 	i t
does not appear 	r e a s o n a b l y 	related t o t h e achievement 	sf s u b s t a n -
tial cost 	s a v i n g s 	nor does 	it appear t b s t 	t h e 	r e s t r a i n t 	is n o
broader 	t h a n 	necessary 	to promote 	legitimate cost+ontsiment
objectives 	of 	the p l a n , 	We 	are, 	therefore, 	unable 	to provide 	you
w i t h 	an advisory opinion that t h e prowsed 	participation 	restric-
tion would 	not violate the antitcust laws,
Sincerely,
Arthur 	N, Lerner
Assistant 	Director