• On May 31, Federal Trade Commission Chairman Deborah Platt Majoras named Maureen Ohlhausen to be Director of the agency’s Office of Policy Planning. Ohlhausen, who has served as the Office’s Acting Director since July 2004, will head efforts to assist the Commission to develop and implement long-range competition and consumer protection policy initiatives and will advise staff on cases raising new or complex policy and legal issues. Ohlhausen joined the FTC in September 1997, and was appointed Deputy Director of the Office of Policy Planning in 2003. She has been responsible for advocacy and policy analysis on both competition and consumer protection issues, including the regulation of the professions, restrictions on advertising, antitrust immunities, and e-commerce. She was a principal author of the FTC staff report “Possible Anticompetitive Barriers to E-Commerce: Contact Lenses.” She also contributed significantly to several FTC staff comments to the U.S. Food and Drug Administration concerning food advertising and First Amendment issues.

• On May 27, the Commission authorized the filing of a joint amicus brief with the U.S. Department of Justice in the matter of Volvo Trucks North America v. Reeder-Simco GMC, Inc., No. 905 (U.S. Supreme Court). The brief concerns a case in which the Court is considering an Eighth Circuit decision holding that a manufacturer violates Section 2(a) of the Robinson-Patman Act, 15 U.S.C. Sec. 13(a), when it offers different wholesale prices to its dealers when they are not in direct competition with each other to resell the products in question to the same retail customers. The Commission vote authorizing the filing of the joint amicus brief was 5-0. The joint brief argues that the Robinson-Patman Act should not be stretched to forbid a manufacturer from achieving certain efficiencies by offering some dealers less favorable terms not in competition with the favored dealers. It urges that the judgment of the Eighth Circuit be reversed.

• On May 26, Commissioner Orson Swindle submitted his resignation as Commissioner of the Federal Trade Commission, effective June 30, 2005, or immediately upon the arrival of his replacement, if that is earlier. He indicated that:

“Working on behalf of American consumers and businesses to protect and promote a competitive and fair marketplace is a worthy cause. Through the diligent enforcement of antitrust and consumer protection laws, the FTC makes a difference in the daily lives of all Americans. Our country is fortunate to have the Commission and its energetic, intelligent, and dedicated staff, which is committed to outstanding public service. The ideals of freedom and service to our country have been the guideposts for my life. Being a part of the FTC has been a most enjoyable continuation of my quest to make a difference with my life. It has been an enormous privilege for me to work with the FTC team.”

• On May 25, Federal Trade Commission announced that it closed its investigation into Shell Oil Products US’s (“Shell”) decision, announced in October 2004, to close its petroleum refinery in Bakersfield, California. Shell sold the refinery to Big West of California, LLC, a wholly owned subsidiary of Flying J., Inc., which intends to keep it operational. The FTC opened its investigation in March 2004, based on concerns that Shell was shutting the refinery to reduce capacity in refined petroleum products in an attempt to raise gasoline prices in California. The Commission found no evidence to substantiate this concern. In voting 5-0 to close its investigation, the Commission issued a separate statement. In the statement, it said, “After a thorough review of the evidence obtained during the investigation, the Commission has unanimously concluded that there would have been no basis under the antitrust laws for challenging the closing of the refinery even if it had not been sold. Indeed, we found that there was strong evidentiary corroboration of Shell’s stated reasons for closing the refinery. There was no evidence supporting a conclusion that Shell possessed, acquired, or exercised market power in any way . . . Nor was there any evidence suggesting collusion between Shell and any other person to close the refinery.”

• On May 25, Federal Trade Commission Principal Deputy General Counsel John Graubert presented the Commission’s testimony on new entry into hospital competition before the U.S. Senate’s Subcommittee on Financial Management, Government Information, and International Security of the Committee on Homeland Security and Governmental Affairs. The testimony focused on the effects of entry by single-specialty hospitals. Graubert prefaced his testimony by describing the Commission’s experience in the area of health care competition, specifically citing the FTC’s recent report, issued jointly with the U.S. Department of Justice, entitled “Improving Health Care: A Dose of Competition.” The report, which was released in July 2004, examined the state of the health care marketplace in the United States and the role of competition, antitrust, and consumer protection in satisfying Americans’ preference for a high-quality, cost-effective health care system.

  He defined three main points the FTC considers essential in its examination of new entry into hospital competition: 1) vigorous competition can have important benefits in the hospital arena, just as it has in the multitude of markets in the U.S. economy that rely on competition to maximize consumer welfare; 2) when new firms threaten to enter a market, incumbent firms may seek to deter or prevent that new competition. Such conduct is by no means unique to health care markets; it is a typical reaction of incumbents to possible new competitors; and 3) policymakers must consider the extent to which regulatory distortions may affect competition among hospitals and other firms. For example, although entry by single-specialty hospitals and ambulatory surgical centers has provided consumer benefits, Medicare’s administered pricing system has substantially driven the emergence of such hospitals and centers. Next, Graubert presented a general overview of the new types of firms that are now entering to compete with hospitals, from single-specialty hospital (such as those focusing only on pediatrics) to ambulatory surgery centers. He then described the Certificates of Need Program, including responses by incumbent hospitals to proposed entry by single-specialty hospitals. Finally, he addressed cross-subsidization and the influence of government purchasing on the development of competition in the hospital arena, stating that Medicare’s administered pricing system has encouraged the entry of single-specialty hospitals and ambulatory surgical centers. He testified that both types of entities tend to compete away the profits that general hospitals use to cross-subsidize unprofitable care. Cross-subsidization and competition are at odds, he said, and reliance on cross-subsidies (as opposed to direct subsidies) to ensure access to health care makes the availability of such care contingent on the location in which care is provided, the wealth and insurance status of those receiving care, and the uncompetitiveness of the market for hospital services.

• On May 24, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice issued a letter urging the Governor of Missouri to veto House Bill 174, because it would change current law to restrict the ability of Missouri real estate professionals to offer customized real estate services. The agencies expressed concern that the enactment of House Bill 174 would reduce consumer choice and cause Missouri consumers to pay more for real estate services.

  Currently, Missouri home sellers can choose between a traditional, full-service package of real estate brokerage services and a fee-for-service option that allows home sellers to purchase individual services from an à la carte menu. If the bill becomes law, then customers will be forced to purchase potentially unwanted additional services. For example, in Missouri, home sellers have the option to purchase the service of listing their property on the local multiple listing service separately without also having to purchase the broker’s negotiation service. If House Bill 174 is enacted, however, real estate professionals entering into exclusive brokerage agreements with their clients would have to provide a state-mandated minimum service package that includes many duties associated with negotiating a property sales contract. Because most multiple listing services in Missouri require a broker to have an exclusive brokerage agreement before real estate professionals may list properties, Missouri consumers in those areas will be adversely affected by this proposed change in the law.

  The joint FTC/DOJ letter said that the bill would likely harm competition in two ways. First, consumers who live in areas where real estate professionals are required to enter into exclusive brokerage agreements before they can post listings on the MLS will have to purchase these additional services and can expect to pay more. Second, without competition from fee-for-service brokers, the prices for traditional, full-service packages will likely increase. The governor of Missouri has until July 16, 2005 to veto House Bill 174. Under Missouri law, the governor must veto the bill for it not to become law. Should the governor not veto the bill, it will become effective on August 28, 2005.

• On May 20, the Commission received a petition from the Dow Chemical Corporation (“Dow”) requesting approval of certain amendments to the “Ineos Agreement,” which is incorporated into the decision and order allowing the 2001 merger of Dow and Union Carbide. The final order in this matter contained terms designed to remedy the anticompetitive effects of the merger in markets that included ethanolamines and methyldiethanolamines (“MDEA”). The order required Dow to divest to its global ethanolamines business to Ineos, and Dow’s business related to the sale of MDEA sold under the Gas Spec trade name. On February 12, 2001, Dow divested the Dow Global Ethanolamines Business and the Dow Gas Spec MDEA Business to Ineos, in accordance with the terms of the order’s “Ineos Agreement.”

  Through its petition, Dow has requested that the Commission approve an amended “GAS/SPEC Supply Agreement,” under which Dow supplies Ineos with GAS/SPEC solvent, solvent additive, and solvent MDEA. Ineos has agreed to this amendment, whose purpose, according to the respondent is “to secure maximum availability of GAS/SPEC and solvent MDEA products to Ineos at fair prices and to reduce any unnecessary financial burden on Ineos.” In addition, Dow has requested Commission approval of an amendment to the “EO Supply Agreement,” under which Dow supplies Ineos with ethylene oxide (“EO”) used to make ethanolamines at Ineos’ plant in Plaquemine, Louisiana. This amendment also has been approved by Ineos, and would, according to respondent, “secure continuing maximum availability of EO to Ineos and limit the impact of future EO supply interruptions (if any) at Dow’s Plaquemine EO plant.”

  The Commission is accepting public comments on the petition for 30 days, until June 18, 2005, after which time it will determine whether to approve it.

• On May 19, San Juan IPA, Inc., a physicians’ independent practice association operating in northwestern New Mexico, agreed to settle Federal Trade Commission charges that it orchestrated and carried out agreements among its member doctors to set the price that they would accept from health plans, to bargain collectively to obtain the group’s desired price terms, and to refuse to deal with health plans except on collectively determined price terms. The effect of this conduct, the FTC states, was higher prices for medical services for the area’s consumers. The consent order settling the FTC’s charges would prohibit the association from collectively negotiating with health plans on behalf of its physicians and from setting their terms of dealing with such purchasers. San Juan IPA does business in the Farmington, New Mexico, area, which is in the northwestern corner of the state. San Juan IPA’s 120 physician members constitute approximately 80 percent of the doctors practicing independently in and around the Farmington area.

  According to the Commission’s complaint, San Juan IPA restrained competition among physicians in northwestern New Mexico by orchestrating and implementing agreements among its member physicians to fix prices and other terms on which they would deal with health plans, and to refuse to deal with such payors except on collectively determined terms, in violation of Section 5 of the FTC Act. As a result of its activities, San Juan IPA was able to force many health plans to raise the fees paid to its member physicians, thereby raising the cost of medical care in the Farmington area. The FTC complaint states that the IPA created no efficiencies that would make such conduct beneficial for Farmington consumers.

  The Commission’s proposed consent order is designed to eliminate the illegal anticompetitive conduct alleged in the complaint. It would prohibit San Juan IPA from entering into or facilitating agreements between or among physicians: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payor, including, but not limited to price terms; 4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than one involving San Juan IPA. The consent order permits the IPA to undertake certain kinds of joint contracting arrangements – “qualified risk-sharing joint arrangements” and “qualified clinically integrated joint arrangements” – terms that are defined in the order. These are types of arrangements in which physician participants engage in joint activities to control costs and improve quality by managing the provision of services, and any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

• On May 12, the Federal Trade Commission and the Antitrust Division of the Department of Justice issued a joint letter urging the Alabama State Senate to reject House Bill 156, because it would change current law to restrict the ability of Alabama real estate professionals to offer customized real estate services. The agencies expressed concern that the passage of the bill would reduce consumer choice and likely cause Alabama consumers to pay more for real estate services.

  Currently, Alabama home sellers can choose between a traditional, full-service package of real estate brokerage services and a fee-for-service option that allows home sellers to purchase individual services from an à la carte menu. If House Bill 156 is enacted, however, real estate professionals who agree to list home owners’ property for sale would be forced to provide a state-mandated minimum service package that includes many duties associated with negotiating a property sales contract. Alabama consumers would be adversely affected by this proposed change of law because they would be forced to purchase additional services that they may not want or need.

  The joint FTC/DOJ letter to the Alabama Senate said that the bill would likely harm competition in two ways. First, consumers who want to hire a broker to list their property on the multiple listing service will have to purchase additional services that they may not want or need, which will likely cost more. Second, without competition from fee-for-service brokers, the prices for traditional, full-service options will likely increase. The Alabama Senate is considering whether to pass House Bill 156 on May 16, 2005, or sometime shortly thereafter. If passed, the bill would become effective on the first day of the third month following its passage and approval by the Governor of Alabama.

• On May 10, Magellan Midstream Partners, L.P. (“Magellan”) filed a petition requesting the Commission’s approval of the proposed divestiture of certain assets recently acquired from Shell Oil Company (“Shell”). Under the terms of the FTC’s consent order concerning Magellan’s acquisition of certain pipeline and terminal assets from Shell, Magellan is required to divest a gasoline terminal located in Oklahoma City, Oklahoma. Through this application, Magellan is requesting Commission approval to divest the former Shell Oklahoma City Terminal, as that asset is defined in the order, to TransMontaigne, Inc. The FTC will accept public comments on the proposed divestiture for 30 days, until June 8, 2005, and thereafter will decide whether to approve it.

• On May 3, the Commission received a petition to reopen and set aside a final consent order in the matter concerning Lafarge S.A.’s (“Lafarge”) 2001 merger with Blue Circle Industries P.L.C. (“Blue Circle”). Under the terms of the order, the companies were required to divest Blue Circle’s cement business serving the Great Lakes Region; Blue Circle’s cement business in the Syracuse, New York area; and Blue Circle’s lime business in the southeast United States. In its petition, Lafarge has requested that the Commission set aside certain ongoing obligations under the order that are ancillary to the divestiture of Blue Circle’s lime business, as Lafarge is no longer involved in the production or sale of lime in the United States. The Commission is accepting comments on the petition for 30 days, until May 31, 2005.

• On May 2, the Federal Trade Commission announced a consent order settling charges that an independent practice association, representing two orthopaedic groups in Cincinnati, Ohio, violated antitrust laws by jointly negotiating contracts regarding the rates its physician members would charge health plans and other payors for their services. Under the terms of the order, New Millennium Orthopaedics, LLC (“NMO”) will be disbanded and its two constituent groups will be prohibited from similar collective bargaining in the future. The consent order settles the Commission’s complaint against the following respondents: NMO; Orthopaedic Consultants of Cincinnati, Inc., d/b/a Wellington Orthopaedics & Sports Medicine (“Wellington”), and Beacon Orthopaedics & Sports Medicine (“Beacon”). NMO is a single-specialty independent practice association that consists of two orthopaedic physician groups – Wellington and Beacon. Both Wellington, which has 22 orthopaedic physician members, and Beacon, which has 10, provide surgical and nonsurgical orthopaedic services in and around Cincinnati.

  The FTC alleged that in 2002, Wellington and Beacon formed NMO to act as their negotiating agent with health plans. Through NMO, the two groups agreed on prices to propose to health plans for all of the services their physicians provided. In August 2002, NMO representatives sent letters to the four major health plans in Cincinnati proposing an arrangement that would implement a guaranteed base fee schedule and bonus scheme for NMO’s participating physicians. The agreed-upon bonus scheme would reward all NMO physicians with higher base rates if NMO, as a whole, met established performance targets for increasing the percentage of surgical procedures performed by some NMO physicians at ambulatory surgery centers (“ASC”s). The bonus scheme targeted only one aspect of the practices of some NMO physicians – outpatient surgery. Thus, the measured change in the physicians’ behavior was limited to the movement of patients to ASCs. Nevertheless, all NMO physicians, including non-surgeons, would receive higher reimbursement rates as a result of the joint negotiations. The Commission also alleges that NMO performed no role in enhancing the ability of the physicians to increase the number of procedures performed at ASCs instead of at hospitals..

  The complaint alleges that, while one of the health plans agreed to NMO’s terms, three others did not. Nevertheless, NMO continued to attempt to negotiate with the other plans into 2004. NMO enforced its joint negotiation efforts with one of the three resistant health plans by refusing to deal with it except under a contract that was favorable to the group. Both Wellington and Beacon later jointly terminated their individual agreements with the health plan at the direction of NMO’s board of directors to pursue contracts through NMO.

  The Commission’s consent order is designed to prevent the illegal anticompetitive conduct alleged in the complaint. In addition to requiring the dissolution of NMO, it specifically prohibits the respondents from entering into or facilitating agreements between or among any health care providers: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payor, including, but not limited to price terms; 4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than NMO. Certain kinds of agreements, however, are excluded from the general ban on joint negotiations, including “qualified risk-sharing joint arrangements” or “qualified clinically integrated joint arrangements.” As defined in the order, a “qualified risk-sharing joint arrangement” must satisfy two conditions. First, all physician participants must share substantial financial risk through the arrangement and thereby create incentives for the physician participants jointly to control costs and improve quality by managing the provision of services. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com