Antitrust
ANTITRUST NO-ACTION LETTER

Number: NAL 98-01
Date: July 2, 1998
Subject: Proposed Dental Care Provider Networks

James Flanagan, Vice President
PREMIER DENTAL, INC.
1100 S.E. 10th Street
Deerfield Beach, FL 33221


RE: FLORIDA HEALTH CARE COMMUNITY ANTITRUST GUIDANCE ACT -- ANTITRUST NO-ACTION LETTER -- PROPOSED DENTAL CARE PROVIDER NETWORKS TO BE OPERATED IN CONNECTION WITH DISCOUNTED FEE-FOR-SERVICE DENTAL PROGRAM AND EMPLOYER SELF-FUNDED DENTAL MANAGED CARE PLANS


Dear Mr Flanagan:

On behalf of Premier Dental, Inc. ("Premier"), you have requested an antitrust no-action letter pursuant to the Florida Health Care Community Antitrust Guidance Act with respect to the proposed activities described below. Attorney General Butterworth has asked us to respond to your request.

In sum, this Office concludes that, under all the circumstances involved, the proposed activities are not likely to be anticompetitive in over-all effect. Accordingly, it is the present intention of this Office not to take antitrust enforcement action against Premier with respect to those activities as proposed.

You have advised that Premier Dental, Inc. is a for-profit Florida corporation. Premier is not an insurance company or a prepaid dental plan. Premier intends to avail itself of recent legislation that you advise will make it unnecessary, except as otherwise noted below, for Premier to obtain licensure from the Florida Department of Insurance with respect to the proposed activities.

You ask for guidance on two separate proposed activities. First, Premier plans to develop a discounted fee-for-service dental benefits program. The program will be marketed to individuals and groups. Premier will recruit persons engaged in the practice of general dentistry to participate on a nonexclusive basis in a network of participating providers. Premier's provider network will include not more than 20% of the general dentists practicing in any county. Each participating general dentist provider will enter into a standard written contract with Premier. The initial term of the contract will be one year; thereafter, the contract will be terminable by the provider upon 90 days' notice. Through the contract, the provider will agree to furnish certain dental services to persons who have enrolled in Premier's discounted fee-for-service dental benefits program on an individual or group basis. The provider will agree to be paid for those services, directly by his or her patient/enrollees, in accordance with a fee schedule. The rates reflected in the fee schedule will have been determined unilaterally by Premier. The rates will have been based upon Premier's analysis of market prices in the geographic area where the services are to be provided and its judgment about the price levels required to attract an adequate number of providers to its network. Premier's provider network will also include dental specialists in number great enough to adequately serve the program's enrollees. Specialists will agree to be paid for their services, directly by their patient/enrollees, according to a specified percentage discount off their usual and customary fees. Premier will not furnish any remuneration to any of the providers, and the providers will not furnish any remuneration to Premier. (Premier will collect certain fees from enrollees or their employers.) The providers will have no involvement in the operations of Premier, and will have no involvement in the development or marketing of the program.

Second, you advise that Premier plans to assist groups of medium and large employers develop capitated dental managed care plans for the benefit of their employees. These programs will be controlled and funded by the employer groups, and will be governed by the requirements of the federal Employee Retirement Income Security Act. Premier may also obtain licensure and serve as a third-party administrator for some of these plans. Premier will recruit and furnish the employers with panels of participating general and specialist dentists in essentially the same manner as described above. The general dentists participating in the plans will be compensated by a combination of (1) patient co-payments as provided in a dental schedule of benefits established unilaterally by Premier; and (2) capitation payments established unilaterally by Premier. Specialists will agree to be paid for their services according to a specified percentage discount off their usual and customary fees. Premier may disburse the capitation payments to the general dentistry providers on behalf of the employers, but will not otherwise furnish any remuneration to any of the providers. The providers will not furnish any remuneration to Premier. Premier will collect certain fees from the employers. The providers will have no involvement in the operations of Premier, and will have no involvement in the development or marketing of the dental managed care plans.

The proposed activities described above are not manifestly anticompetitive. Therefore, in evaluating their lawfulness under the Florida Antitrust Act and section 1 of the Sherman Antitrust Act, this Office will apply the rule of reason. In a rule of reason analysis, an agreement is deemed unlawful only if it is likely to result in an unreasonable restraint of trade -- that is, if, under the circumstances, its likely anticompetitive economic effects in a relevant market outweigh its likely procompetitive effects in that market.

None of the contractual relationships (i.e., Premier-provider, Premier-enrollee, Premier-group, Premier-employer) that will be created through Premier's proposed activities will necessarily result in an agreement between or among competitors (i.e., dental services providers). In particular, the proposed Premier-provider contracts appear merely to be arrangements made by Premier for the use and benefit of its enrollees in purchasing dental services. Premier's activities in this regard will be, at least for purposes of antitrust analysis, like those of one who buys for the account of a third party. Furthermore, Premier's networks will not be controlled by competing providers. Thus, the relationships created through the Premier-provider contracts (as well as the other contracts mentioned above) will be vertical, not horizontal, in nature.

The Premier-provider agreements are not likely to have substantial anticompetitive vertical effects. The provider agreements will be nonexclusive. Only a small proportion of area general dentists will participate in the networks as providers. And, regulatory and capital-related barriers to entry by firms that might compete with Premier are low. These combined factors make it unlikely that the relationships created through the provider agreements will foreclose other, competing, dental networks from access to the inputs (general dentistry services) they will need in order to enter or remain in the markets Premier serves. These factors also make it unlikely that Premier will acquire market power either as a seller of dental care financing programs or as a "purchaser" of general dentistry services in any relevant geographic market.

Moreover, by selecting the structure it has, Premier has minimized the risk that its activities will facilitate agreements, among members of the provider panels, having the effect of restricting "price or other significant terms of competition among the provider members of the network[s]" in their non-network activities. No provider will be involved in Premier's contracting or other operations, and all decisions about pricing and other terms relating to the services to be provided to enrollees are to be made unilaterally by Premier without discussion with any of the panel providers. Furthermore, because such a small proportion of area dentists will participate as network providers, any attempt by them to fix prices likely will be defeated by market forces. Thus, it is unlikely that Premier's programs could be used successfully by the participating providers as vehicles for coordinating the prices or other terms of their services.

The activities Premier proposes appear to offer several potential procompetitive effects, which include (1) facilitating the entry of new and innovative dental care financing products in Florida markets, with the consequent expansion of consumer choice there; and (2) improving health care consumers' access to dental care, at more affordable prices.

Weighing these potential procompetitive justifications and effects against possible anticompetitive effects, it appears that, on balance, the activities Premier proposes are not likely to have a substantially adverse effect upon competition in any relevant market. Accordingly, based upon the information you have provided and the specific facts presented thereby, it is the present intention of this Office not to take antitrust enforcement action against Premier with respect to those activities.

This letter expresses this Office's present enforcement intention only. It applies only to the proposed activities described in your written request, as summarized above. This Office reserves the right to bring enforcement action in the future if Premier's engagement in the proposed activities should prove anticompetitive in purpose or effect.

Sincerely,

___________________
Patricia A. Conners
Chief, Antitrust Section

___________________
Kimberly L. King
Assistant Attorney General


ENDNOTES

  1. § 408.18, Fla. Stat. (1997).
  2. This Office expresses no opinion as to lawfulness of Premier's proposed activities under any insurance or employee benefits law.
  3. Premier's arrangements with providers will not limit the providers' freedom to contract with other health care provider networks or insurance plans.
  4. Ch. 542, Fla. Stat. (1997). Section 542.18, Florida Statutes (1997), provides: "Every contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful."
  5. Section 1 of the Sherman Act provides in part: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1 (1994).
  6. See All Care Nursing Service, Inc. v. High Tech Staffing Services, Inc., 135 F.3d 740, 746 (11th Cir. 1998) ("a presumption exists that the circumstances of a case will be looked at in the light of the rule of reason standard and will not be deemed per se unreasonable"); Levine v. Central Fla. Medical Affiliates, Inc., 72 F.3d 1538, 1546 (11th Cir. 1996) ("Agreements that do not fit within an established per se category are analyzed under the ‘rule of reason,' i.e., courts will engage in a comprehensive analysis of the agreement's purpose and effect to determine whether it unreasonably restrains competition"), cert. denied, 117 S. Ct. 75, 136 L. Ed. 2d 34 (1996); Brillhart v. Mutual Medical Ins., Inc., 768 F.2d 196, 201 n.2 (7th Cir. 1985) ("This circuit has held that provider agreements should be subjected to a rule of reason analysis rather than a per se analysis under the antitrust laws").
  7. See, e.g., F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 448 (1986) (a "conspiracy among dentists to refuse to submit x rays to dental insurers for use in benefits determinations" constituted an unreasonable restraint of trade).
  8. See Group Health & Life Ins. Co. v. Royal Drug Co., 440 U.S. 205, 214 (1979) (characterizing agreements between Blue Cross and various pharmacies for the provision of drugs as "merely arrangements for the purchase of goods and services by Blue Shield"; McCarran-Ferguson Act's exemption for the "business of insurance" therefore did not apply).
  9. See Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922, 926 (1st Cir. 1984) (Blue Shield's activities -- providing health insurance for physician services through Participating Physician's Agreements that banned "balance billing" -- were "like those of a buyer") (Breyer, J.), cert. denied, 471 U.S. 1029 (1985).
  10. For purposes of this letter, we have assumed that the relevant geographic markets are each of the counties of Florida, and that the relevant product market is dental care financing programs. This Office will conduct a more complete rule of reason analysis, without such assumptions, in determining whether to bring enforcement action should it later appear that the proposed activities have been anticompetitive in purpose or effect.
  11. Levine, 72 F.2d at 1549 (citation omitted).