Home Oxygen & Medical Equipment Co

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IN THE MATTER OF HOME OXYGEN & MEDICAL EQUIPMENT CO. , ET AL. CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEe. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-353o. Complaint, Sept. 1994-- Decision, Sept. , 1994 This consent order prohibits, among other things, a California supplier of oxygen systems prescribed for home use from acquiring or granting, for ten years, an ownership interest in a firm that sells or leases oxygen systems in the relevant geographic market, if more than 25 percent of the pulmonologists in that market would be affiliated with the firm, and requires the respondents to notify the Commission if they acquire more than onc percent of a firm that sells or leases oxygen systems anywhere.

Appearances For the Commssion: Linda K. Badger, Kerry O' Brien and Jeffey A. Kluifeld.

For the respondents: David T. Alexander, Jackson, Tufts, Cole & Black San Francisco, CA.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Home Oxygen & Medical Equipment Co. , a limited partnership, Mitchell P. Tarkoff , Revels M. Cayton, M. , Robert I. Deutsch, M. , Leland G. Dobbs, M. , Fredric N. Herskowitz, M. , Jerrold A, Kram, M. R. Wayne Mall, M.D" Richard A. Nusser, M. , Joel H. Richert , John E. Sailer, M. , Herbert M. Schub, M, , Jamil S. Sulieman, M. , and T. Craig Williams, M. , individually and as partners, trading and doing business as Home Oxygen & Medical Equipment Company, hereinafter sometimes referred to as the respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

Complaint 118 P.Tc. DEFINITIONS PARAGRAPH I. For the purpose of this complaint, the following definitions shall apply:

A. Durable medical equipment or DME' means medical equipment sold, rented, or leased to customers for home use, DME includes, but is not limited to, ambulatory aids, wheelchairs, walkers hospital beds, commodes and respiratory therapy equipment, such as oxygen systems. "DME" encompasses all aspects of supplying DME, including, but not limited to, delivering and servicing the equipment, and rendering accompanying services to customers. B. Oxygen systems means DME used to service individuals who are unable to obtain adequate oxygen through independent breathing. Oxygen systems include, but are not limited to, oxygen gas contained in tanks; liquid oxygen stored in reservoirs and smaller portable containers; and electrically-operated oxygen concentrators. Oxygen systems" encompasses all aspects of supplying these oxygen systems, including, but not limited to, delivering and servicing the equipment, supplying oxygen content, and rendering accompanying services to customers, e. Discharge planner means any nurse, social worker, respiratory therapist, or other agent of a hospital or health care provider who arranges for the provision of DME or consults with or makes recommendations to patients being discharged from hospitals concerning potential suppliers of DME.

D. Hospital" means a health facility, other than a federallyowned facility, having a duly organized governing body with overall administrative and professional responsibility and an organized professional staff that provides 24-hour inpatient care, and whose primary function is to provide inpatient services for medical diagnosis treatment, and care of physically injured or sick persons with shortterm or episodic health problems or infirmities. "Hospital" includes any affiliate, subsidiary, or partnership in which the hospital holds a ten (10) percent or greater interest.

E. Pulmonologist means a medical professional who specializes in the diagnosis and treatment of pulmonary disease, regardless of whether the medical professional has been certified as a specialist in pulmonary disease. "Pulmonologist" does not include medical professionals who specialize in the diagnosis and treatment of pa- HOME OXYGEN & MEDICAL EQUIPMENT CO. , ET AL. 663 66t Complaint tients who would not use the type of oxygen systems defined herein such as patients suffering from allergies and pediatric patients requiring oxygen systems specially designed for children. F. Practicing means having staff privileges, including, but not limited to, active or courtesy staff privileges, at any hospital. RESPONDENTS PAR. 2. Respondent Home Oxygen & Medical Equipment Co" (hereinafter "Home Oxygen ) is a limited partnership organized existing and doing business under and by virtue of the laws of the State of California. It has its principal place of business at 2456 Verna Court, San Leandro, California, Respondent Mitchell P. Tarkoff, M. , is an individual who has been, and is now, a general partner of Home Oxygen. As such, he formulates, or participates in the formulation of, directs and controls the acts and practices of Home Oxygen, including the acts and practices set forth in this complaint. His place of business is located at 350 30th Street, Suite 526, Oakland, California. Respondent Revels M. Cayton, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 400 29th Street, Suite 419, Oakland, California.

Respondent Robert I. Deutsch, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 2070 Clinton A venue, Alameda, California. Respondent Leland G. Dobbs, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 350 30th Street, Suite 520, Oakland, California.

Respondent Fredric N, Herskowitz, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 350 30th Street, Suite 520, Oakland, California.

Respondent Jerrold A. Kram, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 350 30th Street, Suite 520, Oakland, California, Complaint 118 FTC. Respondent R. Wayne Mall, M. , is an individual who has been and is now, a limited partner in Home Oxygen. His place of business is located at 2000 Mowry A venue, Fremont, California. Respondent Richard A. Nusser, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 365 Hawthorne Avenue, Suite 202, Oakland California.

Respondent Joel H. Richert, M.D., is an individual who has been and is now, a limited partner in Home Oxygen. His place of business is located at 2557 Mowry Avenue, Suite 12, Fremont, California. Respondent John E. Sailer, M. . is an individual who has been and is now, a limited partner in Home Oxygen. His place of business was located at 13851 East 14th Street, Suite 302, San Leandro, California.

Respondent Herbert M. Schub, M.D., is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 2070 Clinton A venue, Alameda, California. Respondent Jamil S, Sulieman, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 550 South Beretania Street, Honolulu, Hawaii. Respondent T. Craig Wiliams, M. , is an individual who has been, and is now, a limited parlner in Home Oxygen. His place of business is located at 1385 J East 14th Street, Suite 302. San Leandro California.

PAR. 3. The relevant product market is the market for the sale rental, or lease of oxygen systems.

PAR. 4. The relevant geographic market is Alameda County, California, excluding the southeast portion of Alameda County referred to as the "Tri-Valley" area. The Tri-Valley area includes the cities of Livermore, Dublin and Pleasanton. PAR. 5. Since May 18, 1984, Home Oxygen has been engaged in the purchasing, offering for sale, rental or lease of DME, including oxygen systems and related products, to the public in the relcvant geographic market.

PAR. 6. The respondents Mitchell P. Tarkoff, M,D" Revels M, Cayton, M. , Robert I. Deutsch, M. , Leland G. Dobbs, M. Fredric N. Herskowitz, M. , Barr R. Horn, M. , Jerrold A. Kram , R. Wayne Mall, M. , Richard A. Nusser, M. , Joel H. Richert, M. , John E, Sailer, M, , Herbert M, Schub, M. , Jamil S. Sulieman, M.D., and T. Craig Williams, M.D., (collectively the HOME OXYGEN & MEDICAL EQUIPMENT CO., ET AL. 665 661 Complaint pulmonologist respondents ) are now, or have been at times relevant to this complaint, pulmonologists practicing their profession within the relevant geographic market.

PAR. 7. The pulmonologist respondents have held staff positions or have had staff privileges at one or more of the following hospitals located in the relevant geographic market; Alameda Hospital, located in Alameda, California; Highland Hospital, located in Oakland, California; Humana Hospital, located in San Leandro, California; Merritt! Peralta, located in Oakland, California; Physician Community Hospital, located in San Leandro, California; Providence, located in Oakland, California; or Washington Hospital located in Fremont, California.

JURISDICTION PAR. 8, The acts and practices of respondents alleged in this complaint are and have been in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act. THE INDUSTRY PAR, 9. Patients hospitalized with certain forms of lung, heart and other disease are unable to obtain sufficient oxygen from their normal breathing. Upon discharge from a hospital, physicians may prescribe oxygen for these patients for home use. Because oxygen is considered a drug under Food and Drug Administration regulations, oxygen for medical use can be provided to patients only pursuant to a physician s prescription.

PAR. 10. Oxygen systems vary in many respects, including, but not limited to: the type of system, the level and quality of service accompanying the equipment, and price. Patients requiring oxygen systems usually possess incomplete knowledge about oxygen systems or the companies that provide oxygen systems. As a result, patients seldom have a preference for a particular oxygen system supplier and rely on hospitals, discharge planners, health care professionals, and other individuals knowledgeable about DME to make a selection on their behalves.

PAR. II. In general, patients requiring oxygen systems receive the services of pulmonologists or of hospital respiratory therapy departments under the supervision of pulmonologists. As a result, Complaint 118 P, pulmonologists have the ability to influence the choice of which oxygen systems supplier services these patients through a variety of means.

ACTS OR PRACTICES PAR, 12. In 1984, Home Oxygen was formed to engage in the sale, rental or lease of oxygen systems to patients, PAR. 13, Partnership interests in Home Oxygen were offered primarily to hospitals and pulmonologists. PAR. 14. A majority of the pulmonologists practicing in the relevant geographic market joined as partners in Home Oxygen. In all, approximately sixty (60) percent of the pulmonologists in the relevant geographic market were investors in Home Oxygen or practiced in groups consisting of one or more of the pulmonologist respondents, Respondents ' market position was further enhanced because several of the pulmonologist respondents served as medical directors of respiratory therapy departments at hospitals in the relevant geographic market.

EFFECTS PAR. 15. Through the aggregation of competitors in the market for the provision of pulmonary services alleged in paragraphs twelve through fourteen, Home Oxygen has achieved a market share of approximately sixty (60) percent in the relevant market. PAR. 16. As a consequence of the conduct alleged in paragraphs twelve through fourteen, a barrier to entry has been created in the relevant market.

PAR. 17. As a consequence of the conduct alleged in paragraphs twelve through fourteen, free and open competition has been inhibited in the relevant market.

VIOLATIONS PAR. 18. Home Oxygen has acquired and maintained market power in the relevant market through the acts and practices set out and alleged in paragraphs twelve through fourteen. These alleged acts and practices of the respondents constitute unfair methods of competition in or affecting commerce in violation of Section 5 of the HOME OXYGEN & MEDICAL EQUIPMENT CO., ET AL. 667 661 Decision and Order Federal Trade Commission Act, 15 U.se. 45, The acts or practices or the effects thereof, are Jikely to continue or recur in the absence of appropriate relief, DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with a copy of a draft of complaint which the San Francisco Regional Office proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge the respondents with violation of the Federal Trade Commission Act; and The respondents, their attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated suchas alleged in such complaint, or that the facts as alleged in complaint, other than jurisdictional facts, are true and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, and having received a comment from the respondents describing how the respondents divested assets in conformance with the terms of the proposed order and had received therefore a minority stock interest of less than one (I) percent of the outstanding voting stock in a publicly held company, and the Commission having determined that retention of the divestiture provisions would nonethclcss require respondents to divest said stock interest, and also having determined that such divestiture of said stock interest is not necessary to effectuate the remedy in this matter and that the divestiture provisions therefore can be deleted, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its Decision and Order 118 P.Tc. complaint, makes the following jurisdictional findings and enters the following order;

I. Respondent Home Oxygen & Medical Equipment Co. (hereinafter "Home Oxygen ) is a limited partnership organized, existing and tking business under and by virtue of the Jaws of the State of California. It has its principal place of business at 2456 Verna Court San Leandro, California.

Respondent Mitchell P. Tarkoff, M. , is an individual who has been, and is now, a general partner of Home Oxygen. His place of business is located at 350 30th Street, Suite 526, Oakland, California. Respondent Revels M, Cayton, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 400 29th Street, Suite 419, Oakland, California. Respondent Robert I. Deutsche, M.D" is an individual who has been, and is now, a limited partner in Home Oxygen, His place of business is located at 2070 Clinton A venue, Alameda, California. Respondent Leland G, Dobbs, M, , is an jndividual who has been, and is now, a limited partner in Home Oxygen, His place of business is located at 350 30th Street, Suite 520, Oakland, California. Respondent Fredric N. Herskowitz, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 350 30th Street, Suite 520, Oakland, California.

Respondent Jerrold A. Kram, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 350 30th Street, Suite 520, Oakland, California.

Respondent R. Wayne Mall, M.D., is an individual who has been, and is now, a limited partner in Home Oxygen, His place of business is located at 2000 Mowry A venue, Fremont, California. Respondent Richard A. Nusser, M.D" is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 365 Hawthorne A venue, Suite 202, Oakland California.

Respondent Joel H. Richert, M.D" is an individual who has been and is now, a Jimited partner in Home Oxygen. His place of business is located at 2557 Mowry Avenue. Suite 12, Fremont, California. Respondent John E. Sailer MD. is an individual who has been and is now, a limited partner in Home Oxygen. His place of business HOME OXYGEN & MEDICAL EQUIPMENT CO.. ET AL. 669 661 Decision and Ordcr was located at 13851 East 14th Street, Suite 302, San Leandro California.

Respondent Herbert M. Schub, M. , is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 2070 Clinton A venue, Alameda, California. Respondent Jamil S. Sulieman, M. , is an individual who has been, and is now, a limited partner in Home Oxygen, His place of business is located at 550 South Beretania Street, Honolulu, Hawaii. Respondent T. Craig Williams, M.D., is an individual who has been, and is now, a limited partner in Home Oxygen. His place of business is located at 13851 East 14th Street, Suite 302, San Leandro California, 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER As used in this order, the following definitions shall apply: A. Durable medical equipment or DME' means medical equipment sold, rented, or leased to customers for home use. DME includes, but is not limited to, ambulatory aids, wheelchairs, walkers, hospital beds, commodes and respiratory therapy equipment, such as oxygen systems. "DME" encompasses all aspects of supplying DME, including, but not limited to, delivering and servicing the equipment, and rendering accompanying services to customers. B. Oxygen systems means DME used to service individuals who are unable to obtain adequate oxygen through independent breathing. Oxygen systems include, but are not limited to, oxygen gas contained in tanks; liquid oxygen stored in reservoirs and smaller porlable containers; and electrically-operated oxygen concentrators. Oxygen syslems" encompasses all aspects of supplying these oxygen systems, including, but not limited to, delivering and servicing the equipment, supplying oxygen content, and rendering accompanying services to customers.

e. Hospital" means a health facility, other than a federallyowned facility, having a duly organized governing body with overall Decision alld Order 118 P,T.c. administrative and professional responsibility and an organized professional staff that provides 24-hour inpatient care, and whose primary function is to provide inpatient services for medical diagnosis, treatment, and care of physically injured or sick persons with short-term or episodic health problems or infirmities. "Hospital" includes any affliate, subsidiar, or partnership in which the hospital holds a ten (10) percent or greater interest. D. Medical professional" means any individual who is licensed by the State of California as a Medical Doctor. E. Pulmonologist means a medical professional who specializes in the diagnosis and treatment of pulmonary disease, regardless of whether the medical professional has been certified as a specialist in pulmonary disease. "Pulmonologist" does not include medical professionals who specialize in the diagnosis and treatment of patients who would not use the type of oxygen systems defined here- , such as patients suffering from allergies and pediatric patients requiring oxygen systems specially designed for children. F. Practicing means having staff privileges, including, but not limited to, active or courtesy staff privileges, at any hospital. G. Relative means an individual who is related to the individual, as father, mother, son, daughter, brother, sister, uncle, aunt, great aunt, great uncle, first cousin, nephew, niece, husband, wife, grandfather, grandmother, grandson, granddaughter. father-in-law, motherin-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law stepfather, stepmother, slepson, stepdaughter, stepbrother, stepsister half-brother, half-sister, or who is the grandfather or grandmother of the spouse of the individual.

H. Own or Ownership interest means any and all stock share, capital, equity or other interest, asset, property, license, lease or other right or privilege, tangible or intangible, whether obtained or held, directly or indirectly, through any relative, employee or agent or through any corporate or other device. I. Affiliated with" means having an ownership interest in the entity or being a member of the same group practice as an investor in the entity, J. Relevant geographic market means Alameda County, California, excluding the south-east portion of Alameda County referred to as the "Tri-Valley" area. The Tri-Valley area includes the cities of Livermore, Dublin and PJeasanton. HOME OXYGEN & MEDICAL EQUIPMENT CO" ET AL. 671 66! Decision and Order K. Service area means the geographic area in which an entity engages in the sale, rental, or lease of oxygen systems. II.

It is ordered That, for a period of ten (10) years from the date of this order, no respondent shall grant or acquire, with or without valuable consideration, an ownership interest in any entity engaged in the sale, rental, or lease of oxygen systems in the relevant geographic market if, after such grant or acquisition, more than twentyfive (25) percent of the pulmonologists who practice in the relevant geographic market would be affiliated with the entily. It is further ordered That, for a period of ten (10) years from the date this order becomes final, the individual respondents shall notify the Commssion within thirty (30) days after acquiring, either directly or indirectly, or through any corporate or other device. any ownership interest in an entity engaged in the sale, rental, or lease of oxygen systems. Such notification shall include: (a) An identification of all owners of the entity; (b) An identification of any pulmonologist practicing in the entity s service area or intended service area who has an ownership interest in the entity;

(c) A list of all pulmonologists who practice in the entity service area or intended service area;

(d) A description of the products or services offered, or to be offered by the entity;

(e) A copy of the entity's offering memorandum and/or prospectus; and (f) An identification of the entity s location, including the location of any and all of the entity s parent organizations, and subsidiaries.

Respondents shall comply with requests by the Commission staff for additional information within fifteen (15) days of service of such requests.

Decision and Order 118 P. Provided, however, that nothing in this order shall require notice for acquisitions of voting securities of any publicly traded company involved in the sale, rental, or lease of oxygen systems unless, as a result of such acquisition, the respondent would hold more than one (I) percent of such company.

IV.

It is further ordered That the respondent Home Oxygen shall: A. Within thirty (30) days from the date this order becomes final distribute a copy of the complaint and order to each managerial employee;

B. For a period of five (5) years from the date this order becomes final, distribute a copy of the complaint and order to each new managerial employee within thirty (30) days of the entrance of such employee to employment;

e. For a period of five (5) years from the date this order becomes final, distribute a copy of the complaint and order to each new partner within thirty (30) days of the entrance of such partner to the partnership.

It is further ordered That:

A. Within sixty (60) days from the date this order becomes final each respondent shall file with the Commission a verified written report of compliance with this order;

B. One year from the date this order becomes final and annually thereafter for nine (9) years, each respondent shall file with the Commssion a verified written report of compliance with this order. VI.

It is further ordered, That respondent Home Oxygen, upon written request of the staff of the Federal Trade Commission, made to Home Oxygen, for the purpose of determining or securing compliance with this order, and subject to any legally recognized privilege shall permit duly authorized representatives of the Commission: HOME OXYGEN & MEDICAL EQUIPMENT CO. , ET AL. 673 661 Dissenting Statement A. Reasonable access during Home Oxygen s offce hours, in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda, reports, and other records and documents in Home Oxygen s possession or control that relate to any matter contained in this order; and B. An opportunity, subject to Home Oxygen s reasonable convenience, to interview general partners or employees of Home Oxygen, who may have counsel present, regarding such matters. VII.

It is further ordered, That respondent Home Oxygen notify the Commission at least thirty (30) days prior to any proposed organizational change, such as dissolution, assignment or sale resulting in the emergence of a successor organization, or any other change in the organization that may affect compliance with the obligations arising out of the order.

Commissioner Azcuenaga and Commissioner Starek dissenting. DISSENTING STATEMENT OF COMMISSIONER MARY L. AZCUENAGA Today the Commission issues three consent orders minus the divestiture requirements that were in the orders as published for public comment. By way of explanation, the Commission states that the respondents, by letter, assert that they "divested assets in conformance with the terms of the proposed order(s)" and that the Commission has determined that retaining the divestiture requirement is not necessary to effectuate the remedy" in these matters. ' In fact the respondents have not divested "in conformance" with the proposed orders, and the sale that the respondents made does not accomplish the remedy that the Commission sought or otherwise cure the alleged competitive problem. The revised orders are inconsistent with the complaints on which they are based, they are inconsistent with the proposed orders that were published for comment, and finally, they are internally inconsistent. Although I voted for the 1 Prior to !caving the Commission, former Commissioner Owen and funner Commissioner Yao registered their votes in the affirmative for the Complaint and the Decision and Order in this matter. I Decision and Order in each matler at 2. Dissenting Stalement 118F.TC 2 I do not join proposed orders that were published for comment today s decision.

The theory of violation in each of the three Home Oxygen cases as,alleged in the complaints is that ownership of a home oxygen supplier by the majority of pulmonologists in a particular market enables the home oxygen supplier to create barriers to entry (i, through patient referrals by the owner-pulmonologists and the resulting inability of another oxygen supplier to obtain referrals from pulmonologists) and to inhibit competition in the home oxygen market To remedy the alleged violations, the orders that were accepted for public comment required divestitures to reduce the number of pulmonologists owning interests in a single home oxygen company "such that no greater than 25% of the pulmonologists practicing in the relevant geographic market are affiliated with" anyone home oxygen company.

During the public comment period, counsel for the respondentpulmonologists informed the Commission that the doctors had sold their home oxygen companies to a large, publicly-held, medical supply company (which I will call Newco), in exchange for shares in that company! The pulmonologists in effect traded their interests in their local home oxygen partnerships for interests in a large corporation. The Commission today decides that the sale to Newco obviates the need for the divestitures that were required under the orders. The argument, as I understand it, is that the doctors hold a decidedly minor percentage of Newco (less than 1%) and that the small size of their ownership share somehow cures the competitive concerns described in the complaints 5 I disagree. The theory of violation in these cases does not turn on control by the physicians of the home oxygen suppliers or on the percentage of each home oxygen supply company owned by the doctors. Instead 2 A copy of my concurring statement of November! , 1993, is attached and incorporated by reference. The concerns I expressed in that statement continue. J Paragraphs 12- J 7 of the complaints.

4 Letter from David T. Alexander , Esq.. to FTC, Jan. 18, 1994 (counsel for Home Oxygen & Medical Equipment Co. and individual doctors): letter from Robert J. Enders, Esq. , to FTC, Jan. J 4 !994 (counsel for Homecare Oxygen & Medical Equipment Co. and individual doctors). 5 See Jettcefram Rohert J. Enders, Esq" to the FTC, JaI. 14, 1994, at 3. According to Mr. Enders. the sale of the home oxygen compal1Y to "a publicly traded company should alleviate concerns of the Commission and its staff about pulmonologist comrol, through ownership. in entities engaged in the sale, rental or lease of oxygen systems." .

HOME OXYGEN & MEDICAL EQUIPMENT CO. , ET AL. 675 661 Dissenting Statement the concern was the aggregation in a single oxygen supply company of ownership interests of a majority of pulmonologists in the relevant geographic market. The required divestiture was to reduce the number of pulmonologists having an ownership interest in anyone home oxygen supplier. The sale of the home oxygen companies to Newco is unresponsive to the concern underlying the complaints because the ownership interests of some 60% or more of the pu1monologists in the market still are aggregated in a single company, The individual doctors may have reduced incentives to refer patients to Newco, if the financial rewards of stock ownership are less than those of partnership interests.' The relative incentives might be important to a doctor who held both Newco shares and a home oxygen partnership, but, as I understand it, the doctors' entire partnership interests have been converted to Newco shares and the home oxygen partnerships no longer exist as separate entities. A doctor who owns an interest in Newco probably will have greater incentives to refer patients to Newco than to a company in which he or she does not own an interest.

The resolution accepted by the Commission today -- sale by the respondents of their companies to Newco in exchange for Newco shares, in lieu of divestiture to reduce the number of doctors affiliated by ownership with a single oxygen supply company -- is inconsistent with the theory of violation alleged in the complaints, because the sale to Newco does not reduce the number of doctors affliated by ownership with a single oxygen supply company. For the same reason, the resolution accepted by the Commission is inconsistent with the remedial provisions of the orders that were published for comment and does not remedy the competitive problem. The Commission s decision also is internally inconsistent because each of the orders accepted today expressly bars the respondent-pulmonologists from granting or acquiring an interest in any home oxygen supplier -- if that would result in an affliation with the supplier of more than 25% of pulmonologists in the geographic 6 Before Newco, a majority of pulmonologists in each of two adjacent markets owned interests in two different home oxygen supply companies. Now, a majority ofpulmonologists in the two adjacent markets combined own interests in one home oxygen supply company, Newco. With its acquisition of the home oxygen companies, Newco has acquired the market power that the respondents allegedly had aggregated.

The home oxygen companies wcrc partnerships, and Newco IS a publicly held corporation. We have no information about actual gains to the doctors from either form of ownership on which to base a comparative analysis.

Concuning Statement 118 P, market' -- at the same time that it accepts the sale to Newco, which is precisely the same conduct. As a result, in each of the orders accepted today, the Commission both sanctions the arrangement resulting from the sale to Newco (i. , a home oxygen company in which more than 25% of pulmonologists have an ownership interest) and prohibits any action to create the same arrangement in the future. The public will need the wisdom of Solomon to discern what these orders portend for future enforcement.

I dissent.

(The following statement was issued in November 1993, when the orders as then proposed were published for public comment.) CONCURRING STATEMENT OF COMMISSIONER MARY L. AZCUENAGA Although I have joined in the Commission s decision to accept these consent agreements for public comment, I have reservations about the usefulness of the orders to which the respondents have consenled and about the advisability, on the basis of the information we have, of charting the new territory that these cases represent. Here, I believe, sufficient evidence exists to satisfy the statutory standard of reason to believe the law has been violated but precious little more. As I have said before, the truncated record on which consent agreements ordinarily are based leaves something to be desired as a basis for establishing new Commission policy, Antitrust analysis, as we know it today, requires a search for understanding of markets, an understanding that, experience shows, may be founded on elements that lie well below the surface of what even those in a particular industry may readily comprehend. See , Broadcast Music. Inc. v. CBS 441 U.S. 1 (1979). It is easy to underestimate the difficulty of showing justifications that are cognizable under the antitrust laws and sufficient to defend against the application of novel antitrust theories, The Commission may not be as well positioned as the parties to identify and understand justifications for the challenged conduct. Yet the parties may be ill- Paragraph II of each of the orders bars the respondents from granting or acquiring " ownership interest in any entity engaged in the sale, rental. or lease of oxygen systems. . . if. . . more than twenty-five percent of the pu!monoJogists practicing in the relevant geographic market would be affiliated with the entity. " Thus, Paragraph II of the orders would har the very transfer that the Commission today sanctions.

, HOME OXYGEN & MEDICAL EQUIPMENT CO. . ET AL. 677 661 Statement equipped to undertake the esoteric analytic endeavor that modern antitrust law may demand. When neither the parties nor the Commission fully comprehends the justifications ignorance leads straight to condemnation Chicago Professional Sports Limited Partnership v. NBA 961 F.2d. 667, 676 (7th Cir. 1992), and condemnation without understanding may lead to consumer harm. It is useful, indeed, advisable for the Commission to continue to evaluate new factual situations and to develop new theories under Section 5 of the Federal Trade Commission Act to remedy anticompetitive effects. But it is well, in doing so, to keep in mind the admonition of the court in Chicago Professional Sports Limited Partnership v. NBA 961 F.2d. at 676, that "(eJxplanations of problematic conduct take time to develop and more time to test. . . . Understanding novel practices may require years of study and debate.

I have voted to publish the consent agreements for comment but remain mindful of these concerns.

STATEMENT OF COMMISSIONER ROSCOE B. ST AREK, II Nearly eleven months ago, over my dissent, the Commission accepted consent agreements with three groups of pulmonologists practicing in two counties in the eastern San Francisco Bay Area. Further analysis of these matters in the intervening months has not provided me with reason to believe that respondents' conduct violated Section 5 of the Federal Trade Commssion Act. Therefore, I cannot agree with the Commssion s decision to issue the complaints and the modified final versions of the consent orders. I have continued to evaluate these matters with great care and an open mind since the Commission accepted the consent agreements. Nevertheless, I remain unpersuaded of the theory on which these cases rely. That theory -- stated with breezy imprecision in paragraphs 12 through 18 of the complaints -- appears to be that: A majority (in fact, approximately 60 percent) of the pulmonologists in each relevant geographic market' were investors in Home Oxygen and Homecare Oxygen;

1 The complaints define the geographic markets as most of Alameda County for Home Oxygen and Contra Costa County and a portion of Alameda County for Homecare Oxygen Statement 118 P.Tc. The "market position" of each respondent group was "further enhanced" because several Home and Homecare pulmonologists served as medical directors of the respiratory therapy departments at some hospitals in the relevant markets; The "aggregation of competitors" embodied by these pulmonologist-owned firms gave Home and Homecare some sort of power in an allegedly relevant market for "the sale, rental, or lease of oxygen systems" in Alameda and Contra Costa Counties; This "conduct" -- by which I presume the Commssion means the aggregation of competitors" into Home and Homecare and the further enhance(ments" of "market position" stemming from departmental directorships -- resulted in the creation of barriers to entry into the oxygen systems market and the inhibition of free and open competition" in that market; and The alleged "acts and practices" allowed Home and Homecare to acquire and maintain "market power" and constitute unfair methods of competition, in violation of Section When this chain of assertions is distilled, the essential claim -- the one on which liability under Section is predicated -- is that ownership of an oxygen systems company by a majority of a county pulmonologists suffced to confer market power in the oxygen systems business, Yet as I noted in my earlier dissent in this case (mJarket power is not necessarily created when a majority share of a relevant market is attained. Market power is defined as ' the ability profitably to maintain prices above competitive levels for a significant period of time. "" One of my problems with the case is that neither the information gathered in this investigation nor the pro- 2 Inconsistencies between the Home and Homecarc complaints give rise to ambiguities about this claim. Whereas the Homccarc complaint (paragraph 15) alleges that the " aggregation of competitors in the market for the provision of pulmonary services" gave Hornccare "market power" in the market for oxygen systems, the complaint against Home (paragraph 15) and the separate complaint against certain Home pulmonologists (paragraph 15) merely assert that this "aggregation of competitors" gave Home "a market share of approximately sixty (60) percent" in that market. Only in paragraph 18 do the latter two complaints aver that Home somehow "acquired and maintained market power in the relevant market." (The Homecare complaint contains a similar paragraph. 3 Statement of Commissioner Roscoe B. Starek. 11 ("Statement ) at 2 (quoting S. Depanmcnt of Justice and Federal Trade Commission, Horizontal Merger Guidelines, Section 0. 1, 4 Trade Reg. Rep. (CCH) paragraph 13, 104 (1992)). That Statement, which is attached hereto, also noted the Commission s formulation of the test for market power in a previous Section case: "The test for market power depends on an the relevant characteristics of a market: the strength and capacity of current competitors; the potential for enlry; the historic intensity of competition; and the impact of the legal or natural environment, to name just a few. General Foods Corp., 103 FTC 204 , 345 (1984). HOME OXYGEN & MEDICAL EQUIPMENT CO. , ET AL. 679 661 Statement posed complaints themselves persuasively explain how a majority share of pulmonology practice in Alameda and Contra Costa Counties, as "enhanced" by certain owners' leadership roles in some hospitals' respiratory therapy departments, gave rise to market power in oxygen systems.

The complaints' treatment of conditions of entry into oxygen systems ilustrates (but by no means exhausts) the infirmities of the majority s approach. Rather than set forth a credible theory of entry barriers, the complaints charge -- in tautological fashion -- that " barrier to entry has been created" purely and simply "(a)s a consequence of" the ownership structure of Home and Homecare. This says nothing about the diffculties facing prospective entrants or about the success rates of firms that operate in the markets independently of the Home and Homecare organizations, and thus leaves unanswered the question whether Home or Homecare possesses market power.

I also note that the consent orders do nothing to deal with the actual conduct that must constitute the other key component (in addition to "market power ) of the majority s theory in this case. I allude, of course, to "self-referral " a commonly encountered phenomenon in the medical field, Self-referral is a complex subject that requires considerable further analysis, and thus I am relieved that the orders do not prohibit self-referral but simply limit the market share of the respondent pulmonologists associated with an entity providing home oxygen. Although physician ownership of ancillary services may create an incentive to refer for services that are not medically necessary, I noted in my previous dissent that "it is critical to distinguish between the potential for anticompetitive harm and the potential for inappropriate or excessive referrals resulting from physician ownership. Regardless of market share or market power, physicians sometimes may make inappropriate treatment referrals to facilities in which they have a financial interest. While real consumer injury can I noted in my previous dissent that "an exercise of market power (on the par of ajoint venture such as Home or HomecareJ is possible only when the coordination of activities within such a venture insulates the participating physicians from outside competition sufficiently that they are able to raise prices or reduce services. (paragraphs For example, in some C35CS, an exercise of market power may be possible if enough of the market is aggregated through the joint venture so that there is insufficient remaining market demand to sustain viable competitors. That clearly is not the case here. " Statement at 4. Indeed, my earlier dissent noted the substantial number of competing oxygen system firms outside the Home and Homccarc organizations in Alameda and Contra Costa Counties and the absence of evidence that any of those competitors suffer from competitive weaknesses. Jd. at 3. \ . . . . . . Statement 118 FTC. result from such ' self-referral,' this behavior is not by itself actionable under the antitrust laws, . , , (WJe should be careful to distinguish anti competitive behavior from other forms of imperfect market performance,'" In short, any injury involving self-referral that does not also flow from an exercise of market power is not "antitrust injury.

I would of course support a challenge to an ancilary services joint venture if the facts unearthed in the investigation demonstrated that the venture was likely to have the requisite anticompetitive effects. In the matters before us, however, the complaints do not set forth a coherent theory of anticompetitive effects. I therefore respectfully dissent.

ATTACHMENT STATEMENT OF COMMISSIONER ROSCOE B, STAREK, II I respectfully dissent from the Commission s decision to accept for public comment the consent orders in these matters. The challenged conduct does appear to have the potential to be anticompetitive. Under the rule ofreason, however, the evidence presented does not indicate that the conduct of the respondents was anticompetitive or that it is likely to have been anticompetitive. Therefore, I do not 5 Id.

at 3-4 (footnote omitted). My dissent continued: "If patients seldom question their physicians ' refcITals, physicians could profit from directing patients to home oxygen providers in which they have an ownership interest. But any such ' vertical control' that physicians have does noi necessarily result in any horizontal market power of the ancillary ventures in which they have an interest. Id. at 4.

AI/antic Richfeld Co. USA Petroleum Co. 495 C.S. 328, 334 (1990); Cargill, fnc. v. Monfort of Colorado. Inc. 479 U.S. 104 , 109- 10 (1986); Brunswick Corp. Pueblo Bowl- Mat, Inc., 429 L. 477 489 (1977), 7Notwithstanding" my concJuslOn that no orders should be Issued, I agree with the maJomy inasmuch as it decided to delete the divestiture requirements from the final orders, for the reasons set forth in the third paragraph of the preamble to each Decision and Order. The challenged conduct must be analyzed under the rule of reason. The arrangements at issue cannot be characterized as naked restraints of trade subject to summar condemnation, and thus the rule of reason applies. See NCAA 1'. Board of Regents 468 , C.S. 85 , 103 (1984). The joint DOJIFC Health Care Enforcement Guidelines indicate that the antitrust agencies will apply a rule of reason to conduct falling outside of well defined "safety zones." Statements of Antitrust Enforcement Policy in the Health Care Area, Department of Justice and Federal Trade Commission. September 15 , J993, at 10- 11. 36. The six policy statements of these Guidelines do not explicitly cover the type' of conduct at issue here physician-owned ancillary joint ventures. In any case, the arrangements here most likely would fall outside of any safety zonc similar to those defined in the Guidelines, because they appear to have market shares of about 60% in their respective markets. , HOME OXYGEN & MEDICAL EQUIPMENT CO. . ET AL. 681 661 Statement have reason to believe that the respondents have violated Section 5 of the FTC Act, as the complaints allege. The complaints name two limited parnerships and 28 pulmonologist partners in these ventures. The complaints allege that the respondents have "acquired and maintained market power" (paragraph 18) as a consequence of the fact that a "majority" of the pulmonologists in each of the two areas in which the two partnerships operate are partners in the ventures (paragraph 14). I am concerned that this might be read to imply that the Commission will take enforcement actions against physician-owned ancilary joint ventures simply because participating physicians constitute a majority of those practicing in the relevant market, without regard to the ventures effects or likely effects on the market.

The complaints do not challenge, and the consent agreements do not prohibit self-referral" of patients to entities owned by the respondent physicians.' However, the Analysis of Proposed Consent Order to Aid Public Comment states that the respondents were able to "acquire and maintain market power" because "pulmonologists have the ability to influence the choice of oxygen suppliers to service patients needing oxygen at home," Because pulmonologists make referrals to providers of home oxygen services, they do have the ability to influence their patients' choice of oxygen suppliers. But this "influence" does not necessarily equate to or result in any market power.

Market power is the focus of the Commission s analysis of physician-owned ancilary joint ventures. In fact, the very violation alleged in the complaints in these matters is that the ventures acquired and maintained market power." Market power is not necessarily created when a majority share of a relevant market is attained. Market power is defined as "the ability profitably to maintain prices above competitive levels for a significant period of The President recently signed legislation prohibiting physicians from self-referral of Medicare patients for several categories of services, including those services provided by the respondents. Omnibus Budget Reconciliation Act of 1993, Pub. L. No 103-66, ch. 2, Section 5074. Because the vast majority of home oxygen services apparently are sold to Medicare patients, it may be the case that virtually no home oxygen provider would be willing to maintain physician ownership that would cut itself off from the vast majority of market demand. If that is the case, Commission action on this matter is moot. However, I am not certain that this is true, and more importantly, this case might he viewed as precedent for Commission actions outside of the services covered by the recent legislation. Statement 118 P.Tc. time,") Within the context of a case under Section 5 of the FTC Act the Commission has argued that:

The test for market power depends on all of the relevant characteristics of a market: the strength and capacity of current competitors; the potential for entry; the historic intensity of competition; and the impact of the legal or natural environment, to name just a few. 4 Here, the two limited partnerships each have approximately 60% market shares in the respective counties in which they operate. Assuming, arguendo that the alleged product and geographic markets are relevant antitrust markets, these market shares alone do not justify an inference of market power. In addition to the respondents the evidence indicates that there are nine competing sellers of home oxygen in Alameda County, and eight competing sellers in Contra Costa County, Some of these firms have market shares of about 10%. If these other firms suffer from substantial competitive weakesses that prevent them from offering the same quality of services or the same low prices as the respondents, the respondents might be able to exercise market power through their joint ventures. I have not seen evidence that any of these competitors have such competitive weaknesses.

Medicare patients, who apparently comprise the vast majority of patients purchasing home oxygen services, might be less price sensitive than third-party payers such as HMOs, and thus might appear to be vulnerable to anticompetitive behavior. Medicare s restrictive reimbursement policies may severely limit suppliers' potential ability to exercise market power. But it is doubtful that these policies eliminate the possibility of an exercise of market power in these markets.

It sometimes has been argued that physician ownership can create an incentive to refer for financial gain for services that are not 3 u.s. Department of Justice and Federal Trade Commission, Horizontal Merger Guidclines (J 992), reprinted in 4 Trade Reg. Rep. (CCH) paragraph 13104, Section 0. 1 ("Sellers with market power also may lessen competition on dimensions other than price, such as product quality, service, or innovation.

4 General Foods Corp. 103 Frc 204, 345 (1984) 5 In fact, OTIC major third-party payer in the region purchases home oxygen primarily from one of the respondents' ventures in one county. while in the other county it purchases home oxygen primarily from one of the respondents ' competitors. While hardly dispositive on this issue . this suggests that this major customer considers the available services of the respondents' competitors to be of acceptable and comparable quality and price HOME OXYGEN & MEDICAL EQUIPMENT CO. . ET AL. 683 661 Statement medically necessary. But it is critical to distinguish between the potential for anti competitive harm and the potential for inappropriate or excessive referrals resulting from physician ownership. Regardless of market share or market power, physicians sometimes may make inappropriate treatment referrals to facilities in which they have a financial interest While real consumer injury can result from such self-referral " this behavior is not by itself actionable under the antitrust laws. Of course, this does not mean that anticompetitive behavior could not occur in these markets. But we should be careful to distinguish anticompetitive behavior from other forms of imperfect market performance.

If patients seldom question their physicians ' referrals, physicians could profit from directing patients to home oxygen providers in which they have an ownership interest. But any such "vertical control" that physicians have does not necessarily result in any horizontal market power of the ancillary ventures in which they have an interest. An ancillary venture can enable the participating physicians to coordinate some of their competitive activities. But an exercise of market power is possible only when the coordination of activities within such a venture insulates the participating physicians from outside competition sufficiently that they are able to raise prices or reduce services.

For example, in some cases, an exercise of market power may be possible if enough of the market is aggregated through the joint venture so that there is insufficient remaining market demand to sustain viable competitors. That clearly is not the case here. The evidence is at best ambiguous as to whether these ventures, which have been in operation since 1984, have had any anticompetitive effect.

Physician-owned ancillary joint ventures have a potential to accomplish significant cost savings that can be passed on to consumers in the form of lower prices and higher quality of care. Physicians frequently may be in the best position to recognize a potential demand for an ancillary medical service in their community, to back 6 The potential problem of inappropriate referrals made fof financial gain is no! limited to instances in which physicians have financial interests in facilities, equipment, or service providers that arc physically or legally separate from their primary practices. The potential problem is present whenever a physician performs both diagnosis and treatment. Patients and third-pary payers have limited information about whether treatments arc medically necessary, and thus physicians frequently have some degree of discretion to recommend treatments that arc not necessary Statement lib F, up this perception with their own capital, and to operate and monitor the venture s performance. Clearly physicians and hospitals could have more control over the quality of a service by owning a supplier of that service than by merely writing a prescription. Evidence that physician investors frequently are passive with respect to the operation of these companies does not dismiss the potential of these ventures to accomplish substantial efficiencies. Of course, the respondents' large scale and market share may not be necessary to achieve the potential effciencies of such arrangements. But even incontrovertible evidence that these firms did not gain additional effciency by growing to their current size would be relevant only after a determination that the firms had acted anticompetitively.

The orders continue to allow self-referral, and only limit the market share of the respondent pulmonologists associated with an entity providing home oxygen. Thus, the remedy does not address any harm that might result from the mere fact of self-referral.' The order also would allow effciencies from self-referral to occur, but it is far from clear that the restructuring of the two ventures required under the orders would preserve all of the effciencies that they may have been able to accomplish. Thus it may be the case that the orders reduce efficiency, do not reduce market power, and also fail to address any real harm to consumers that might result from self-referral. The overriding reason to cast my vote against the acceptance of these consents is the precedential effect of discouraging physicians and hospitals from forming ancillary ventures, particularly in circumstances in which it may be important to achieve a high market share in order to gain efficiencies, or even to be able to introduce a service that benefits consumers in the area. Thus, enforcement actions should be limited to conduct for which anticompetitive harm is demonstrable or highly likely to occur. Because that burden has not been met, J respectfully dissent from the Commission s actions in these matters.

7 As I noted above. self-referml by itself is not actionable under the antitrust laws. Thus it is appropriatc that any such perceived haml is not addressed, in an order resolving the allegations in these complaints.

CERTAIN HOME OXYGEN PULMONOLOGISTS , ET AL. 685 685 Complaint