One of the most frequently asked questions since the U.S. Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice issued the 1996 update of their Statements of Antitrust Enforcement Policy in Health Care (Enforcement Policy Statements) has been, "How much and what type of ‘clinical integration’ of otherwise independent physicians’ practices is required before they can collectively negotiate fees with payors?" Without clinical or financial integration, collective negotiation of fees exposes competing physicians in a network to serious risk of price fixing claims. Until now, the only guidance on clinical integration was contained in the Enforcement Policy Statements as follows:
Physician network joint ventures that do not involve the sharing of substantial financial risk may also involve sufficient integration to demonstrate that the venture is likely to produce significant efficiencies. Such integration can be evidenced by the network implementing an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality. This program may include: (1) establishing mechanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care; (2) selectively choosing network physicians who are likely to further these efficiency objectives; and (3) the significant investment of capital, both monetary and human, in the necessary infrastructure and capability to realize the claimed efficiencies.
On February 19, 2002, the FTC staff issued an advisory opinion approving a proposal by MedSouth, Inc., a physician independent practice association (IPA), to integrate partially, but not financially, its member physicians’ practices and to enter into contracts with payors for the sale of the IPA physicians’ services on a fee-for-service basis. Based upon a comprehensive review of the IPA’s proposed integration plan and its promise to operate as a non-exclusive network (that is, participating physicians will be available to contract with payors individually), the FTC staff concluded that the IPA’s program "appears to involve partial integration among MedSouth physicians that has the potential to increase the quality and reduce the cost of medical care that physicians provide to patients" and "the joint contracting appears to be sufficiently related to, and reasonably necessary for, the achievement of the potential benefits to be regarded as ancillary to the operation of the venture" such that it would not constitute price fixing.
MedSouth is a physician-controlled IPA that includes competing primary care and specialist physicians who practice in the south Denver, Colorado area and have staff privileges at one of the three hospitals located in that area. The IPA consists of 432 physicians, including 101 primary care physicians (family practitioners, general internists and pediatricians) and 331 specialists in 39 specialties. The IPA’s primary care physicians make more than 90 percent of their referrals to the specialists in the IPA, who also treat patients referred from physicians outside the IPA.
The IPA is not accepting new practices, though it does allow new physicians who join practices that are MedSouth members to participate in the IPA. In fact, MedSouth expects some of its physician members to terminate their participation in the IPA before the clinical integration program is implemented. Finally, MedSouth is, and will continue to be, a non-exclusive network.
Proposed Clinical Integration Program
The proposed integration program contains several features that are intended to result in lower costs, higher quality and more efficient delivery of physician care. While not yet implemented, the stated goals are:
- To integrate the provision of primary and specialty services so they are delivered in a coordinated fashion.
- To integrate the coordinated physician services with a clinical resource management program that involves the sharing of patient clinical information, development and implementation of practice protocols as well as oversight and reporting of physicians’ performance relative to preestablished benchmarks. This goal has been implemented to improve patient outcomes, decrease the use of physician resources and provide the IPA with a competitive advantage over other physician practices.
- To offer payors a network in which all physicians have agreed to participate and in which the physicians will work together to improve care as well as to compete with other physicians.
Consistent with the Enforcement Policy Statement’s requirement that a clinically-integrated physician network involves a significant capital investment in the infrastructure, the IPA has developed a program that will include a web-based electronic clinical data record system that will enable MedSouth physicians to access and share clinical information relating to their patients. Additionally, the IPA will adopt and enforce clinical practice guidelines and performance goals relating to the quality and appropriate use of services provided by MedSouth physicians. All physicians who will be contracting with payors through MedSouth will be required to participate in these programs.
More specifically, MedSouth physicians will be able, through the web-based clinical data record system, to access and exchange clinical information relating to patients, such as lab reports, office visit information, treatment plans and prescription information. This system will be capable of aggregating data over time from multiple physicians and, prospectively, may also include data relating to hospital discharges and procedures. Of course, each physician’s practice will have to acquire the hardware necessary to use the system.
MedSouth is also developing clinical protocols that cover the majority of the IPA’s physicians’ patient population. At least 48 guidelines are under development, with up to 100 to 150 planned for the future. These guidelines are anticipated to cover 80 to 90 percent of the diagnoses that are prevalent in the IPA physicians’ practices. MedSouth physicians will be trained on the implementation of the protocols relevant to their practices.
Finally, the proposed integration program includes the development of network utilization and quality goals (or benchmarks) so the performance of individual physicians and the network as a whole can be measured vis-à-vis the benchmarks. The IPA will employ a medical director to implement this part of the program in conjunction with the IPA’s Clinical Integration Committee and to ensure physician compliance with the established benchmarks.
MedSouth’s Proposal to Negotiate Contracts with Payors
MedSouth wants to offer the services of its participating physician members to payors and to negotiate and execute fee-for-service contracts with payors on behalf of IPA members. Put differently, the IPA will "negotiate price and other contract terms on behalf of physician members." Although the IPA will offer its members’ services to payors as a package, the network will be de facto and de jure non-exclusive.
FTC’s Analysis of the Proposal
The FTC staff reviewed MedSouth’s proposal using the analytic framework articulated in the Enforcement Policy Statement relating to physician network joint ventures. First, the FTC staff concluded that the IPA’s proposal to negotiate fee-for-service contracts on behalf of its members should be analyzed under the rule-of-reason, not the per se rules. While noting, "[S]tanding alone . . . joint negotiation of price terms by non-integrated, competing physicians would constitute an agreement among the physicians not to compete on price and would be illegal per se," the FTC staff said that such treatment is inappropriate and "rule of reason [analysis] is warranted when the joint negotiation of price is reasonably related to an efficiency-enhancing integration of the participants’ economic activity and is reasonably necessary to achieve the procompetitive benefits of that integration." Because the FTC staff found that the IPA’s program appears capable of creating substantial partial integration of its physician members’ practices and producing efficiencies in the form of higher quality or reduced costs for patient care rendered by the network physicians, it used the rule of reason to evaluate its legality under the antitrust laws.
Second, the staff evaluated the proposed integration program and the likely efficiencies or procompetitive benefits that it would generate. The FTC staff had no difficulty finding, based upon careful consideration of the details of the IPA’s proposal, that the proposed integration program was designed to facilitate and increase communication and cooperation among the IPA’s physicians, both in the treatment of patients and in modifying the regular practice patterns of IPA physicians. The IPA’s physicians have pooled their resources and expertise to identify common standards of care and have created significant integration and interdependence among their practices (even though they are not sharing a substantial financial risk). Significantly, the FTC staff noted that "mere adoption of a clinical information system by itself, without the other programs that MedSouth intends to implement, would not suffice to establish that otherwise competing members of a physician network have integrated their practices in a manner or to an extent that joint negotiation of prices could be deemed ancillary to an efficiency-enhancing joint venture."
The next issue, the relationship of collective negotiation of prices to the production of efficiencies, was characterized as a "crucial question." The FTC staff concluded that the price agreement embodied in the joint negotiation of contracts for services to be provided subject to the entire proposed integration program appears to be reasonably related to the integration among MedSouth members and reasonably necessary for the IPA to achieve the procompetitive benefits it seeks.
Finally, the FTC staff attempted to balance the potential procompetitive benefits of the proposed clinical integration program against its likely anticompetitive effects. The issue was framed as follows: "[W]hether, taking into account both potential procompetitive and anticompetitive effects, the arrangement is likely to harm competition by increasing the ability or incentive of the participants to raise price above¾ or reduce output, quality, service, or innovation below¾ the level that likely would prevail in the absence of the agreement." Because the IPA’s program has not been implemented, the FTC staff could not predict either the procompetitive benefits or the anticompetitive effects that will result from its operation. This inability did not deter the FTC staff, however, from concluding, on balance, that the proposed program "appears to have the potential to improve the quality and effectiveness of health care services . . . and . . . to provide important benefits to consumers."
Although the FTC staff approved MedSouth’s proposal, it cautioned that if "MedSouth’s member physicians are able to use collective power to force payers to contract with the network or to pay higher prices, then absent evidence that substantial efficiency benefits outweighed likely anticompetitive effects, we likely would recommend that the Commission bring an enforcement action." The FTC staff promised to monitor the IPA’s operations and the behavior of its member physicians to ensure that the IPA’s implementation of the proposed integration program and collective negotiation of contracts with payors does not result in significant anticompetitive effects.
It is not surprising that the first "pure" clinical integration proposal approved by the FTC staff was a comprehensive, multi-faceted program that incorporated each of the three elements identified in the Enforcement Policy Statements. The favorable response that the IPA received to its proposal demonstrates that the FTC staff is prepared, under the right circumstances¾ as the Enforcement Policy Statements suggest¾ to treat substantial clinical integration as the functional equivalent of substantial financial risk sharing.
We now know one type of clinical integration program that will pass muster under the Enforcement Policy Statements. Since no two physician networks will be identical, however, each physician network proposal that intends to rely solely on substantial clinical integration to justify collective fee negotiations with payors will have to be reviewed carefully and thoroughly on its own merits. In the final analysis, the devil will be in the details of the development of the program to achieve clinical integration and its actual implementation.