While all nine statements in the Statements of Antitrust Enforcement Policy in Health Care were re-issued by the Federal Trade Commission (FTC) and the Department of Justice (DOJ) on Aug. 28, only Statement 8 on physician network joint ventures and Statement 9 on multiprovider networks were actually revised.

The revisions to Statements 8 and 9 am intended to give health care providers greater flexibility in the creation of networks, and in part are an attempt to reverse a perceived “chilling effect” on the development of new and innovative provider networks. This effect occurred after release of the guidelines in their earlier forms.

In addition, the enforcement agencies continue to assert their willingness to provide guidance on network development through their respective expedited review processes, and they repeatedly highlight the numerous occasions when they have favorably evaluated networks that did not fall within the safety zone.

In some cases, the FTC and DOJ have determined that the structure of certain networks (those falling within Statement 8’s Physician Network Joint Venture Safety Zone) will be deemed consistent with antitrust law with little or no further analysis. It is important to ask that the enforcement agencies have clearly indicated in the revised statements that networks falling outside the safety zone are not necessarily unlawful. Indeed, many such networks are viewed as procompetitive.

The safety zone set forth in Statement 8 remains unchanged; it still requires that members of a physician network joint venture:

• Share substantial financial risk; and
• Comprise less than 30 percent of the physicians in a relevant physician market if the network is non-exclusive, or less than 20 percent of the physicians in the market if the network is exclusive.

However, the statement does expand the examples of shared substantial financial risk to include:

• Agreements whereby the network provides services for a predetermined percentage of premium or revenue, similar to capitation arrangements;
• Use of cost or utilization targets for the network as a whole, with the network’s members subject to significant financial rewards or penalties based on group performance; and
• Global fee or all-inclusive case rate arrangements in which the network assumes the risk that cost of the treatment provided may exceed the fee or rate paid.

Again, the enforcement agencies emphasize that the examples of shared substantial financial risk are not intended to be exhaustive, and they encourage networks that have developed alternative risk-sharing arrangements to take advantage of the available expedited review process.

The new Statement 8 also contains an expanded discussion of the analysis that will be used for those networks falling outside the safety zone. In cases in which a network fails to come within the safety zone because the number of is members exceeds the applicable percentage threshold, the enforcement agencies point to business review letters and advisory opinions that have approved the formation of networks exceeding that thresholds. The enforcement agencies indicate that approval of these networks underscores the notion that networks falling outside of the safety zone are not necessarily per se illegal.

In addition, the statement emphasizes that a network’s provider panel can exceed the applicable threshold percentage through the use of subcontracting physician arrangements. In these arrangements, the network contracts with non-member physicians in a manner such that there is a divergence of economic interest between the physician members of the network and the subcontracting physicians.

Prior to the reissuance of the new guidelines, the enforcement agencies had required provider-sponsored networks either to share substantial financial risk or utilize a cumbersome and inefficient “messenger model.”

The revised statement indicates that physician networks that do not share substantial financial risk in certain circumstances may be viewed as procompetitive where the network demonstrates that it is likely to create lower costs. For example, the statement provides that integration of a network through the use of an active and ongoing case management and quality improvement program that creates interdependence among the physicians to control costs and ensure quality may evidence sufficient integration to avoid per se illegality. The example goes on to indicate that such a program may:

• Establish mechanisms to monitor and control utilization of services so that costs are controlled and quality of care is assured:
• Selectively choose participants for the network who are likely to further such efficiencies; and
• Require a significant investment of time and resources (both capital and human) to create the necessary infrastructure to realize the desired efficiencies.

Since the revised statement provides only a single example of sufficient integration that does not involve shared financial risk, networks that do not parallel this example should proceed carefully. Additional guidance concerning non-risk-based integration is likely to be provided by the enforcement agencies in the future through business review letters and advisory opinions. Furthermore, it should be recognized Mat this form of non-riskbased integration will require the network’s members to make a significant capital investment to purchase a sophisticated information system and a further investment of time and effort to develop the necessary case management programs.

The revised statement contains three new examples that demonstrate how various networks falling outside of the safety zone will be analyzed? One provides an analysis of a physician network deemed procompetitive due to the creation of economic efficiencies although the members do not share substantial financial risk. A second illustrates that while a network in which physicians share risk in some network contracts does not fall within the safety zone, it nonetheless is subject to rule-of-reason analysis. Based on the scenario set forth in this second example, the relationship between the risk-sharing arrangements and the non-risk-sharing arrangement results in significant efficiencies, and the network’s activities are not deemed anticompetitive.

The third example describes a network of physicians that does not result in significant efficiencies and is clearly a cover for anticompetitive activity. The example indicates that such a network will be treated as per se illegal price fixing.

No Meaningful Safety Zones

Most of the expanded analysis in revised Statement 8 is also contained in the revised Statement 9 on multiprovider networks. Again, due to the ongoing development of a wide variety of provider networks, the enforcement agencies indicate that they are still unable – as with the 1994 guidelines – to set forth a meaningful safety zone in this area. However, this should not be interpreted to mean that multiprovider networks are more prone than provider networks to be unlawful; it simply is a recognition that the numerous types of these networks make generalization impractical.

The revised statement includes four hypothetical examples of multiprovider networks and an illustration of the analysis that will be used by the enforcement agencies when reviewing such networks. Unlike Statement 8, the original version of Statement 9 did not contain illustrative examples.

The first example discussed is that of a physician-hospital organization (PHO) in which the physician members do not share substantial financial risk. Instead, the PHO is intended to create substantial efficiencies (i.e., reduced costs and improved quality of care) through use of case management systems, preadmission authorization, and concurrent and retrospective review of care. In addition, the PHO has, through a significant investment of capital, purchased information systems necessary to gather data that will be used to monitor, evaluate, and compare instances of patient care so that these efficiencies can be achieved.

The enforcement agencies’ analysis of this network results in a determination that the network is procompetitive and would not be challenged.

The second example describes a joint venture between a hospital and its oncologists (and related health care providers) to deliver certain services on a global fee or all-inclusive rate basis. The joint venture bears the risk that these rates will be sufficient to cover the cost of rendering the necessary services. The providers are to be paid on a fee-for-service basis, with a withhold that will be used to cover unanticipated losses on the case rate.

The enforcement agencies indicate that this network is an example of one that shares substantial financial risk and therefore is analyzed under the rule of reason. The analysis indicates that the arrangement likely would be procompetitive and would not be challenged.

In the third example, in response to competition from providers in a large nearby city that provide a wide range of services, a PHO is formed in a rural community and contains all the physicians on the rural hospital’s medical staff. In this scenario, the providers share substantial risk through a significantly discounted fee schedule with a 20 percent withhold.

While the number of physicians in the PHO exceeds the percentage thresholds for physician network joint ventures, the enforcement agencies indicate that they are unlikely to challenge its formation. Although the network has indicated that it is nonexclusive and its physicians would consider joining other managed care plans, there currently are no competing plans. Nevertheless, the enforcement agencies indicate that they would not challenge such a venture unless, at the time competing plans enter the market, the physicians refuse to participate.

The final example discusses a PHO in which the physicians use a “messenger model” in contracting with payers, as opposed to sharing substantial financial risk. The example sets forth four structural options for the messenger model arrangement, three of which are not likely to be challenged by the enforcement agencies. The fourth option, in which an agent negotiates prices with payers on behalf of the physician members in an attempt to obtain the best prices for all participants, is viewed as a per se unlawful price agreement. The PHO, in this option, does not create substantial efficiencies and the arrangement with the agent is viewed by the enforcement agencies as a means to facilitate collusion on price terms.

The remaining three options illustrate scenarios in which an agent is used to collect information from individual providers without sharing that information among the competing providers. The agent then independently develops parameters of acceptable fees that each provider would be willing to accept, and presents these parameters to individual payers. The enforcement agencies’ analysis of these options indicates that none of the options evidence a horizontal agreement among the physicians on price and therefore are unlikely to be challenged.

The revisions to Statements 8 and 9 illustrate that the DOJ and the FTC are well aware of the rapid development of new and innovative types of health provider networks and are reluctant to curtail such development. Most important, the recognition by the enforcement agencies that networks can create efficiencies that benefit competition using methods other than shared substantial financial risk supports the conclusion that the safety zone and the examples set forth in the statements should not be viewed as a definitive list of the only arrangements that will be considered acceptable.

The enforcement agencies have demonstrated a willingness to allow the guidelines to expand and to adapt to the changing health care industry while at the same time protecting competition. Therefore, providers should consider availing themselves of the enforcement agency review process with respect to networks that fall outside the safety zone and do not parallel the examples of procompetitive networks set forth in the guidelines.