Norman Physician Hospital Organization — Factors Supporting Clinical Integration

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Bloomberg BNA Health Law Reporter - September 19, 2013

Clinical integration is a somewhat imprecisely defined concept in the health care industry. Lawyers and health care executives have identified components and elements of clinical integration and frequently ask how many of those components are required as part of a plan in order to pass antitrust muster. That’s the wrong legal and clinical purpose for developing a clinical integration plan. Clinical integration is a complex endeavor. It requires planning, expenditures, and implementation at multiple levels of medical practice. The purposes of the plan should be based on, and focus on, clinical objectives–improving quality of care, controlling costs, enhancing access to care, improving patient satisfaction, community health improvement – not the concern of joint contracting price negotiations, and refusals to deal.

The Federal Trade Commission issued a favorable advisory opinion to Norman Physician Hospital Organization on Feb. 13 regarding its clinical integration plan. This was the first guidance for clinically integrated health care provider networks since the passage of the Affordable Care Act in 2012 and the issuance of the joint FTC-DOJ Accountable Care Organization Antitrust Policy Statement in 2011. In the 21-page letter, which followed several years of formal and informal dealings correspondence, the FTC staff advised that it would not recommend enforcement action if Norman PHO, as an ancillary activity to its clinical integration plan, engaged in joint contracting activities with payers on behalf of its participating hospitals, clinics, and physicians.

The advisory opinion provides important guidance regarding antitrust considerations affecting clinical integration, which is an important component of the Obama Administration’s health reform legislation.

Background

Norman PHO was founded in 1994 by Norman Physicians Association and Norman Regional Health System as a physician-hospital organization that facilitated “messenger model” contracting between its participating health care providers and third-party payers. Norman Physicians Association was comprised of 280 physicians representing 38 specialty practice areas whose members hold medical staff appointments or clinical privileges at Norman Regional Health System hospital and clinics. Norman PHO is managed by a Board of Managers comprised of 11 representatives, three of whom are designated by Norman Regional Health System, and eight of whom are designated by Norman Physicians Association.

In 2006, Norman PHO changed its focus and embarked on a clinical integration plan. The Norman PHO Board of Managers initiated a detailed evaluation of the potential benefits of clinical integration and concluded that clinical integration would result in a number of benefits to patients, health care providers, and purchasers of health care services:

  • Improved care through the rapid electronic transfer of patient clinical information among the participating providers responsible for the diagnosis of illnesses, injuries, and diseases, along with collaborative development and implementation of treatment guidelines and plans.
  • Improved patient outcomes through the development, implementation, and monitoring of evidence-based clinical practice guidelines that reflect good practices. Guidelines established and actual performance would be benchmarked against Norman PHO participating physician and health care provider peers at the regional and national levels.
  • Improved utility of data resulting from Norman PHO’s ability to collect, analyze, and communicate information compiled from physicians, other health care providers, and payers.
  • Reduced cost of care through sharing of laboratory, imaging, and other tests and corresponding elimination of unnecessary duplication of these services.
  • Improved patient satisfaction through the elimination of repetitive completion of registration paperwork and timely provision of information regarding current treatments, resulting in more effective care management.
  • Improved quality by reduction in medical errors, better infection control rates, shorter hospital stays, lower hospital readmission rates, earlier disease detection, and better disease control procedures.
  • Improved patient access to care through immediate referrals, electronic patient file sharing, and e-prescribing.
  • Elimination of the need for payers to complete independent and redundant credentialing and peer review processes or to create, implement, and monitor independent and redundant quality improvement processes, all while improving provider participation.
  • Creation of a competitive advantage for payers and self-insured employers through documentation of enhanced outcomes, reduced cost, and increased patient satisfaction.
  • Positioning Norman PHO to participate more fully with Medicare and Accountable Care Organizations.

The clinical integration plan included a number of components, including many requirements and expectations of physicians:

  • Evaluation, selection, and purchase of a major new electronic medical records system, which was the cornerstone of the clinical integration plan.
  • Development of an electronic information interface, which allows for the two-way communication of clinical information between a physician’s office and hospital information systems, serving as a local “hub” for the coordination of patient data.
  • Development, implementation, and enforcement of evidence-based clinical practice guidelines.
  • Organizational restructuring, including staff reorganization, hiring of additional staff, and creation of new physician-led committees to support clinical integration under the direction of the Board of Managers to accomplish identified goals.
  • Broad physician participation and active involvement in meaningful ways, resulting in a “bottom up” approach, not a “top down” mandated approach.

Norman PHO’s position was that its goals for clinical integration could best be achieved with certain core elements:

  • A unified electronic medical record would link each participating physician and health care provider, offering the potential for improved patient care, reduction in waste, reduction in medical errors, better assessment of care, and enhanced communication among practitioners.
  • All participating physicians and health care providers participate in meaningful and ongoing improvement activities, including developing and utilizing clinical practice guidelines, monitoring patient care outcomes, and sharing data.
  • The organization holds physicians and other health care providers accountable for achieving efficiencies in providing care, continuously assessing care in an effort to improve care processes and reduce waste.
  • All participating physicians and health care providers demonstrate a significant commitment of time and financial resource.
  • All participating physician and health care providers are required to participate in all agreements with payers.

As part of its initiative, Norman PHO hired four full-time staff members for electronic medical records management and training, rewrote its Physician Participation Agreement to increase physician involvement and facilitate contracting on behalf of member physicians, developed an electronic interface system, restructured its staff and operations, and started extracting data in anticipation of monitoring utilization and clinical quality.

Antitrust Law Implications

Under a traditional antitrust analysis, joint contracting activities by otherwise competing physicians and health care providers may violate federal antitrust laws. To the extent those activities included price negotiations with third parties, they may involve illegal price-fixing. The FTC acknowledged that Norman PHO’s clinical integration plan may produce pro-competitive effects.

The FTC concluded that Norman PHO’s plan appeared likely, on balance, to be pro-competitive or competitively neutral. The FTC generally acknowledged that Norman PHO’s clinical integration plan offered 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. Also, the FTC concluded that, although joint contracting by physicians generally constitutes price-fixing, which is a per se violation of the antitrust laws, Norman PHO qualified for “rule-of-reason” analysis. Significantly, Norman PHO’s proposed joint contracting would be reasonably necessary, ancillary, and subordinate to its principal goals and efforts to improve efficiency and quality through the clinical integration of its participating physicians. The FTC further stated that the Norman PHO’s proposed activities appeared unlikely to unreasonably restrain trade based on a number of factors.

The FTC observed that interdependence is a key determinant of clinical integration. Norman PHO’s plan involved three key features: setting quality goals, monitoring adherence to those goals, and rewarding success and policing failure in achieving those goals. Each of those requires interdependence. First, clinical practice guidelines and protocols will be chosen, identified, and determined by Specialty Advisory Groups and committees comprised of all specialists in the same specialty area. This is inherently cooperative and requires interdependence. Many patients with diseases with be co-managed by two or more physicians (such as a diabetes patient co-managed by a family practice physician, an endocrinologist, and a nephrologist), so that successfully meeting identified goals will necessarily require cooperation.

Compliance Challenges

Monitoring adherence to goals is an expensive and time-consuming task. This will be performed by the Norman PHO Quality Assurance Committee. The cost and resources needed for the quality assurance to perform this function can only reasonably be borne as a group. It is simply not viable for each physician or participating provider to perform this function independently or to self-monitor (and in any case, available information might not be consistently evaluated if performed independently). Interdependence, collaboration, and cooperation are essential to the process. Additionally, monitoring a large number of physicians and patients can only reasonably be accomplished and achieved through use of an electronic medical record. Practically, it is not workable for each physician or physician’s office to maintain and use a different electronic medical record. The resources needed for technology support and interfaces among a host of different formats would be problematic. The most viable option is a single system under the direction of a single organization with centralized management functioning to provide tech support, training, and monitoring of success in achieving goals. Norman PHO will fulfill that need, but only if the members work together as a single cooperative and interdependent group.

The policing function likewise requires interdependence and cooperation. Norman PHO can only monitor and police its members through mutual consent. If the members are not willing to work together, the likelihood of success will be severely impacted. That supports, justifies, and validates Norman PHO’s position that the failure to participate, cooperate, and comply with its standards will result in loss of membership. Norman PHO will undertake marketing in the future as an organization, and not as a means of promoting any one member. This assists in working together and evidences interdependence. Further, to whatever extent Norman PHO may negotiate contracts with shared cost savings, Norman PHO will pass through the costs savings and resulting profits to its members. This will certainly require careful cooperation among members.

With the implementation of its clinical integration plan, Norman PHO intends to operate as a clinically integrated, centrally managed joint venture offering substantial market efficiencies and facilitating innovation in the delivery of health care services to patients. Through its electronic medical records system, proposed clinical practice guidelines, active physician participation, broad physician involvement on committees, monitoring and enforcement processes, substantial financial and “sweat equity” commitments, Norman PHO should operate in a manner that creates a high degree of interdependence, interaction, and cooperation among participating physicians and health care providers in order to improve access to care, enhance quality of care, control costs, and improve patient satisfaction. Norman PHO has created an infrastructure of pooled resources, has approved and is beginning to monitor and establish protocols and evidence-based clinical practice guidelines, and has formulated a plan that should result in delivery of improved quality of care in a more efficient manner that the participating physicians and health care providers could not otherwise achieve independently.

Physician Participation Key

Broad physician participation is another key determinant of clinical integration. Perhaps one of the biggest mistakes would be to try to replicate the Norman PHO plan, copy the Norman PHO physician agreement, or duplicate the Norman PHO model. Health care markets are different and vary based on a number of characteristics, such as the nature, size, and demographics of the market; needs of the community; factors affecting access to care; number of primary care physicians, specialists, inpatient facilities and other types of health care facilities; transportation routes; special needs populations; service area employers; regulatory environment; available insurers, health plans, payers, and coverage; and a host of other factors. Attempting to replicate Norman PHO’s plan and documents would indicate a lack of broad physician participation by an organization in developing and implementing and organization-specific clinical integration plan, and it may reveal a deficiency in interdependence and collaboration among the participating health care providers.

The Norman PHO Plan is organization specific. It allows the participants to re-position their services to align with local, regional, and national market trends, as well as offer transparency in quality and cost in order to demonstrate better outcomes and successfully compete in a value-based purchasing environment. It facilitates meaningful use by participating hospitals, physicians, and others of a fully integrated and coordinated electronic medical record. It bears the commitment from medical leadership to share outcomes data — peer to peer — and evaluate the findings in a coordinated and quality-focused manner. It presents an opportunity for medical leadership to intervene and make improvements where outcomes data reveal that quality is not at targeted or required levels. Also, it ensures that medical leadership will receive continuing and useful training, education, and support to successfully manage high integration and top quality challenges.

Finally, the proposed collective negotiations with payers, including price negotiations, are subordinate, ancillary, and reasonably necessary to achieve substantial efficiencies arising from clinical integration. Joint negotiation through Norman PHO will ensure that a sufficient, stable, and identifiable number of physicians across multiple specialties will continue to participate in the network. It will facilitate in-network referrals and ensure adequate patient volume to benefit from economies of scale and incentivize physician involvement. It will allow participating physicians the opportunity to reduce transaction costs, including costs of legal review, that are incidental to the contracting process, in part offsetting the substantial time and financial investment made in connection with Norman PHO participation. Additionally, collective negotiations will allow Norman PHO to offer a single, comprehensive, integrated network, allowing for pricing in the aggregate, instead of separate contracts. Finally, Norman PHO will take steps to limit any anticompetitive “spillover” effects from the joint contracting, such as antitrust compliance training and coordinated physician agreements with regard to non-network payers.

Conclusion

This was the first FTC opinion on a clinical integration model in a number of years. The timing–several years after the enactment of the transformational health reform legislation and the implementation by CMS of rules for establishing accountable care organizations–makes this regulatory green light particularly significant. It confirms that the antitrust regulatory authorities are willing to accept clinical integration as an alternative to significant financial integration. It provides excellent regulatory guidance regarding components of clinical integration that will be expected and viewed favorably. Even though Norman PHO’s plan contained a number of uncertain and undeveloped elements, the willingness of the FTC to pass favorably demonstrates that antitrust regulators are not going to create legal barriers to innovative approaches that create interdependence among health care providers whose goals are to improve quality and enhance efficiency in providing care to patients. Nevertheless, the cautionary statements contained in the advisory opinion make it evident that the agencies will continue to act as watchdogs and impose safeguards to prevent anticompetitive effects in the health care sector when warranted.

This article is reproduced with permision from BNA's Health Law Report, 22 HLR 1401, 9/19/13.
Copyright © 2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com


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