Introduction
The Antitrust Division of the United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) released a revised version of their “Statements of Antitrust Enforcement Policy in Health Care” (“Guidelines”) on August 28, 1996. While all nine Statements contained in the Guidelines were reissued, only Statement 8 on physician network joint ventures and Statement 9 on multiprovider networks were revised. A seemingly subtle, but very significant, change has occurred in federal antitrust/health care policy as a result of the reissuance of the Guidelines. The Agencies have broadened the concept of legitimate provider integration to include “clinical integration”, as well as integration premised upon substantial financial risk. 2 While it is far too soon to know the full impact that this change in federal policy will have upon the development of provider networks, it is fair to conclude that clinical integration may very change quite dramatically the types of provider networks proliferating in this country.
Summary
The revisions to Statements 8 and 9 are intended to give health care providers greater flexibility in the creation of networks. The revisions emphasize that these Statements provide guidance on the analysts that the FTC and DOJ (“enforcement agencies”) will use to evaluate provider networks; they are not intended to set forth the only examples of lawful networks. In some cases, the enforcement agencies 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. Importantly, 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. In addition, the enforcement agencies continue to assert their willingness to provide guidance on network development through their respective expedited review processes and repeatedly highlight the numerous occasions when they have favorably evaluated networks that did not fall within the Safety Zone.
Revisions to Statement 8 on Physician Network Joint Ventures
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% of the physicians in a relevant physician market if the network is non-exclusive or less than 20% of the physicians if the network is exclusive.
However, the Statement expands 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 or benefit 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 processes.The new Statement 8 also contains an expanded discussion of the analysis that will be used for those networks falling outside be Safety Zone. In cases where a network fails to come within the Safety Zone because the number of its members exceeds the applicable percentage threshold, the enforcement agencies point to the Business Review Letters and Advisory Opinions that approve the formation of networks exceeding these thresholds. The enforcement agencies indicate that approval of these networks underscores the notion that networks falling outside of the Safety Zone are not 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.Clinical lntegration3
Prior to the reissuance of the Guidelines, the enforcement agencies had required provider-sponsored networks either to share substantial financial risk or utilize a “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 use of an active and on-going 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 that this form of non-risk based 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.Lastly, the revised Statement contains three new examples that demonstrate how various networks failing 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 a network in which physicians share risk in some network contracts does not fall within the Safety Zone but nevertheless 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 arrangements results in significant efficiencies, and the network’s activities are not deemed anticompetitive. The third example describes a network of physicians that do not share substantial financial risk. The network does not result in significant efficiencies and is clearly a cover for anti-competitive activity. The example indicates that such a network will be treated as per se illegal price fixing.Revisions to Statement 9 on Multiprovider Networks
Most of Statement 8’s expanded analysis also is 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 unable 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 physician networks to be unlawful; it simply is a recognition that the numerous types of these networks makes generalization impractical.The revised Statement 9 contains the significant analytical changes contained in Statement 8, including- (i) the additional examples of shared substantial financial risk,
- (ii) a discussion of the procedures that the enforcement agencies will use to evaluate such networks, and
- (iii) an indication that multiprovider networks that create significant efficiencies may be viewed as procompetitive even though the members do not share substantial financial risk or use a “messenger model.”
The first example discussed is 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, pre-admission 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.2. Hospital/Physician Joint Venture with All-inclusive Rate for Specific Services
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.3. Rural PHO with 100% Medical Staff Participation
In the third example, a PHO is formed in a rural community. The PHO contains all the physicians on the rural hospital’s medical staff in response to competition from providers in a large city nearby that provide a wide range of services. In this scenario, the providers share substantial risk through a significantly discounted fee schedule with a 20% 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 non-exclusive 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.4. PHO “Messenger Model” Arrangements
The final example discusses a PHO in which the physicians use a “messenger model” in contracting with payors, 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 payors 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 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 other 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 payors. 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.Conclusion
The revisions to Statements 8 and 9 illustrate that the enforcement agencies we are well aware of the rapid development of new and innovative types of health provider networks and therefore are reluctant to curtail such development. Most importantly, 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 procompetitive. The enforcement agencies have demonstrated a willingness to allow the Guidelines to expand and 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.ENDNOTES1. Robert M. Langer is a member of the Board of Editors of the ANTITRUST REPORT. He is a partner in the Hartford office of Wiggin & Dana and head of the firm’s Antitrust and Trade Regulation Practice Group. Mr. Langer served previously as the Assistant Attorney General in charge of both Antitrust and Consumer Protection for the State of Connecticut and as Chair of the Multistate Antitrust Task Force of the National Association of Attorneys General from 1990-92.2. It will be very important for health care/antitrust practitioners to remain current on the extent to which the DOJ and FTC in Business Review Letters and Advisory Opinions interpret clinical integration. Additionally, it is equally important for such practitioners to remain current on the role of the states in this area. It was, of course, a state that brought the definitive case regarding the outer limits of legitimate provider integration in the health care field. Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982). See, e.g., R. Langer, A Practitioner’s Guide to State Antitrust Health Care Issues, ANTITRUST, Fall 1995 (ABA) at 32; see also R. Langer, The States Will Continue To Be Central Players In The Development of Antitrust Policy, ANTITRUST REPORT 3 (May 1993 Matthew Bender); R. Langer, The Maturation Of Coordinated Activity By State Attorneys General, ANTITRUST REPORT 7 (Sept. 1994 Matthew Bender); R. Langer, Cutting Edge Issues in State Antitrust and Consumer Protection Enforcement, ANTITRUST REPORT 3 (Dec. 1995 Matthew Bender).3. For a thoughtful analysis of clinical integration, see M. Horoschak, Antitrust Guidance for Health Care Providers Enters a New Phase, ANTITRUST, Fall 1996 (ABA) at 28.