FTC Staff Issues Favorable Clinical Integration Advisory Opinion That It Does Not Intend to Challenge Proposed Formation of Clinically Integrated Multi-provider Network


On February 13, 2013, the FTC issued an advisory opinion letter that it did not plan to challenge the proposed creation of the Norman Physician Hospital Organization (“Norman PHO”)—which includes approximately 280 participating physicians in various specialty practice areas, as well as Norman Regional Health System—and Norman PHO’s intent to “to engage in joint contracting with third-party payers on behalf of its participating physicians and hospitals.”  See FTC Norman PHO Advisory Opinion at 1-3.  Because “Norman PHO’s proposed activities contemplate horizontal combinations or pricing agreements only in the provision of physician services,” as well as having the potential to “generate significant efficiencies in the provision of physician services,” the FTC believes its activities “appear unlikely to unreasonably restrain trade.”  Id. at 1-2.  Further, Norman PHO’s “operations will not involve horizontal agreements among competing providers of inpatient hospital services, or outpatient hospital and ambulatory care services, because Norman Regional Health System is the only provider of such services that will participate in the network.”  Id. at 13.

In its opinion, the FTC states that the “proposed clinical integration program offers the potential to create a high degree of interdependence and cooperation among its participating physicians and to generate significant efficiencies in the provision of physician services.”  Id. at 1.  The letter also states that “Norman PHO’s proposed joint contracting appears to be subordinate to the network’s effort to improve efficiency and quality through the clinical integration of its participating physicians.”  Id.  Therefore, FTC staff decided that the proposed activities qualify for “rule-of-reason” analysis, which “determines whether the formation and operation of the joint venture may have a substantial anticompetitive effect and, if so, whether that potential effect is outweighed by any pro competitive efficiencies resulting from the venture.”  Id. at 13.

Though no market analysis was undertaken, the FTC observes that “Norman PHO appears to have the potential to exercise market power in the sale of its participating hospitals’ and physicians’ services.”  Id. at 12.  This concern, however, is alleviated by Norman PHO’s representations that it “will not attempt to force payers to contract with it,” and that it “represents that it will not limit the incentive or ability of its participating providers to participate in other network joint ventures or to contract directly with payers that do not wish to do business with Norman PHO.”  Id. at 14.

The letter concludes that Norman PHO’s proposed program “appears likely, on balance, to be pro-competitive or competitively neutral” and that “FTC staff has no present intention to recommend” any “enforcement action against Norman PHO or its providers.”  Id. at 18.  The letter does still warn that the “staff’s current enforcement view likely would change to the extent that, for whatever reason, Norman PHO’s actual operations deviate substantially from its proposal . . . or otherwise prove to have anticompetitive effects.”  Id. at 2.

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Reporter, Katy Lucas, Atlanta, +1 404 572 2822, klucas@kslaw.com.

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