ABA Health eSource
September 2009 Volume 6 Number 1

Recent Developments for Physicians on the Antitrust Front
By Sidney S. Welch, Esq. and Meredith M. Burris, Esq., Arnall Golden Gregory LLP, Atlanta, GA

AuthorAuthorThe Federal Trade Commission (“FTC”) has issued two decisions in 2009 with implications for physician networks under the federal antitrust laws. On April 13, 2009, the FTC issued its third approval of a network, Tri-State Health Partners, Inc. (“Tri-State”) jointly negotiating with payers based on clinical integration, rather than financial risk. 1 On July 14, 2009, Alta Bates Medical Group, Inc. (“Alta Bates”), a 600-physician independent practice association (“IPA”) based in California, agreed to a consent order with FTC that settled allegations it violated federal antitrust law by fixing prices charged to health care insurers and engaged in an unlawful concerted refusal to deal with Kaiser Permanente Insurance Corporation (“Kaiser”). 2 These two recent decision add to and highlight the importance of FTC scrutiny of physician groups that lack sufficient clinical or financial integration to justify joint fee-for-service contracting activities. Physicians and their counsel should be aware that the FTC has indicated that it will continue to pursue these cases to prevent anticompetitive conduct in the healthcare industry.

Background. As physicians have experienced first hand, the federal antitrust laws prohibit unintegrated physicians from sharing pricing information or jointly negotiating with payers. In 1996, the FTC and the Department of Justice (“DOJ”), the two federal agencies vested with the enforcement of these laws (the “Agencies”), published joint statements of antitrust enforcement policy in healthcare (“Guidelines”). 3 The Guidelines introduced the concept of a “safety zone” for physician networks. The Agencies will not challenge networks that fall within this safety zone 4 absent extraordinary circumstances because they believe they are highly unlikely to raise substantial competitive concerns.

What is the Role of Clinical Integration? Clinical integration comes into the antitrust picture because it gives physician networks the opportunity to have their contracting conduct evaluated under the Agencies’ balancing test rather than being deemed illegal on its face. Clinical integration offers an alternative to the network’s need to bear financial risk through the provision of physician services through one of the following mechanisms: (1) a capitated rate; (2) a predetermined percentage of premium or revenue from payors; (3) the use of significant financial incentives (e.g., substantial withholds) for physicians who participate to achieve, as a group, specified cost-containment goals; or (4) the provision of a complex or extended course of treatment that requires the substantial coordination of care by physicians in different specialties offering a complementary mix of services, for a fixed, predetermined price, when the costs of that course of treatment for any individual patient can vary greatly due to the individual patient’s condition, the choice, complexity, or length of treatment, or other factors.

The difficulty in establishing networks that rely on clinical integration, rather than financial risk, and that pass antitrust muster, has been that they are costly to implement, often challenged by enforcement authorities, and closely scrutinized on an ongoing basis to determine whether the network actually puts into place the clinical integration factors. For any clinical integration program, the Agencies look for the following factors: m echanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care; s election of group physicians who are likely to further these efficiency objectives; and significant investment of capital, both monetary and human, in the necessary infrastructure and capability to realize the claimed efficiencies. The Agencies take the position that programs possessing these components benefit all constituents of the healthcare industry, including improving safety and quality of health care; providing cost efficiencies and savings; generating objective utilization data and patient data; allowing broader and more efficient physician access; and creating greater collaboration.

The Pre-2009 Landscape. The Tri-State opinion is the third approval of a clinical integration program by a physician contracting network. ( See also FTC Staff Letter regarding MedSouth, Inc. (February 19, 2002) 5 and the FTC Staff Letter regarding Greater Rochester Independent Practice Association, Inc. (September 17, 2007).) 6 However, see also the 2005 FTC Order in Brown & Tolland Medical Group, 7 and the FTC Staff Advisory Opinion regarding Suburban Health Organization (March 28, 2006), 8 finding the clinical integration programs insufficient to avoid antitrust concerns.)

In these predecessor opinions, the FTC outlined some common factors evidencing a successful clinical integration program, including the presence of information technology and clinical protocols, significant monetary and non-monetary investment on the part of the physician members, the use of financial incentives to ensure collective motivation among participating providers, inclusion of primary care and specialty physicians to coordinate patient care, maximization of in-network referrals; monitoring and enforcement of program requirements among physician participants, and the non-exclusive nature of the networks.

The Agencies have also issued other guidance on clinical integration prior to the Tri-State opinion. The factors examined in the Tri-State opinion closely track the questions the FTC and DOJ suggest ought to be asked of clinical integration programs in their report, “Improving Health Care: A Dose of Competition,” 9 published in 2004. This report provided a broad outline of some of the questions the Agencies are likely to ask when making an analysis. First, the Agencies will want to know what the physicians plan to do together from a clinical standpoint. Second, the Agencies will examine how the physicians expect to accomplish these goals. Third, what basis is there to think that individual physicians will actually attempt to accomplish these goals? Fourth, the Agencies will consider what results reasonably can be expected from undertaking these goals. Fifth, what does joint contracting with payors contribute to accomplishing the program’s clinical goals? Last of all, to accomplish the group’s goals, is it necessary (or desirable) for physicians to affiliate exclusively with one entity or can they effectively participate in multiple entities and continue to contract outside the group?

The Tri-State Decision. Tri-State is a Maryland physician-hospital organization (“PHO”) comprised of Washington County Hospital and more than two hundred physician members. Tri-State offers a clinical integration program to provide coordinated care, whereby physicians will be subject to performance requirements, including adherence to clinical practice guidelines. Participating physicians are required to: make financial and personal contributions towards the program’s success, including working on committees and helping to monitor peer performance and modifying any performance deficiencies; use other providers in the network for referrals; follow best practice standards in meeting individual and group performance goals and benchmarks; and utilize a web-based health information technology system, including electronic health records, to identify potential for improved care and patient outcomes. The network is non-exclusive.

The FTC found that the integration among the participating physicians appeared to have the potential to result in significant efficiencies, both in terms of cost and quality. The joint negotiation of contracts appears to be “subordinate and reasonably related to Tri-State’s members’ ... integration through the proposed program, and appears reasonably necessary to achieve the potential efficiencies of that program.” 10 The FTC concluded that Tri-State is unlikely to “attain, increase, or exercise market power for itself or its participants as a result of implementing the proposed program.” 11 The letter cautions that any evidence of exercise of such market power or other anticompetitive activities could raise antitrust concerns and result in revocation of the opinion.

The Alta Bates Consent Order. In the Alta Bates matter, the FTC alleged that Alta Bates organized collective negotiations of the fee schedules for fee-for-service contracts with preferred provider organizations (“PPOs”). Specifically that the IPA proposed, rejected, and countered offers to insurers without consulting with its individual physician members; counseled physician members against dealing with payors on an individual basis; and transmitted the health plans’ offers to individual physician members only after Alta Bates unilaterally approved the negotiated fees.The FTC focused on the absence of any clinical or financial integration of the IPA’s members that could justify the alleged collective activity. Accordingly, although the final consent order bars Alta Bates from engaging in collective bargaining of fees for medical services and concerted refusals to deal, it does not prevent the IPA from participating in legitimate qualified risk-sharing or clinically-integrated joint arrangements.

The Significance of Tri-State and Alta Bates. Commenters have expressed some concern that the Tri-State opinion stands for the proposition that physicians must partner with hospitals in order to attain true clinical integration. Rather, from the Agencies’ opinions, it appears clear that these decisions are made on a case-by-case basis, are very fact dependent, and require a clear showing of an actual and significant commitment of time, money, and infrastructure on the part of the participating physicians. The Alta Bates consent order highlights this fact.

What’s Ahead on the Clinical Integration Front for Physicians? As a reflection of how seriously the Agencies have taken this concept of clinical integration, on May 29, 2008 the Agencies hosted a full day open door forum on the topic of clinical integration alone. 12 The open door forum reviewed the Agencies’ activities on clinical integration, federal government initiatives to improve healthcare delivery by collaboration among providers; private initiatives to improve healthcare delivery by collaboration among providers; payor perspectives on initiatives to improve healthcare delivery by collaboration among providers; and healthcare services research on initiatives to improve healthcare delivery by collaboration among providers. The forum is just one example of the federal government’s interest in and promotion of clinical integration. These concepts have and will continue to crop up in initiatives from the federal government such as the federal Demonstration Projection on bundled hospital-physician payments.

Physicians should continue to exercise extreme caution in their joint activities, particularly if some question exists as to the physicians’ integration. As recently as 2007, the FTC Commissioner announced that the FTC’s message is not getting through and that physicians are still engaging in conduct that the Agencies consider illegal. The Commissioner remarked that “to deter this type of conduct, it may be necessary for the enforcement Agencies to undertake stricter remedies … than they have in the past.” 13 Clearly, physicians and their joint activities remain a focal point of the Agencies’ attention.

1 Available at http://www.ftc.gov/os/closings/staff/090413Tri-Stateaoletter.pdf
2 Available at http://www.ftc.gov/os/caselist/0510260/090714abmgdo.pdf
3 Available at http://www.ftc.gov/bc/healthcare/industryguide/policy/index.htm

The safety zone essentially is where “the Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services, or (b) wages, salaries, or benefits of health care personnel, if the following conditions are satisfied:

(1) the survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);

(2) the information provided by survey participants is based on data more than 3 months old; and

(3) there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.” Guidelines at Statement 8.

5 Available at http://www.ftc.gov/bc/adops/medsouth.shtm
6 Available at http://www.ftc.gov/bc/adops/gripa.pdf
7 Available at http://www.ftc.gov/os/adjpro/d9306/040511dod9306.pdf
8 Available at http://www.ftc.gov/os/2006/03/SuburbanHealthOrganizationStaffAdvisoryOpinion03282006.pdf
9 Available at http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf
10 Supra note 1, at 14.
11 Id. at 37.
12 The materials from the forum can be accessed at http://www.ftc.gov/bc/healthcare/checkup/index.shtm
13 Text of speech available at http://www.ftc.gov/speeches/rosch/070917clinic.pdf

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