In the view of the FTC and the Justice Department, competing health care providers can contract jointly with third-party payers only if the providers integrate clinically (or financially) so that gains in efficiency and quality of care counterbalance any resulting price increases. The FTC has filled in the blanks as to what constitutes adequate clinical integration in an episodic series of staff advisory opinions issued to requesting providers.

This past month, in the most recent such opinion, the FTC gave a green light to Norman Physician Hospital Organization (“Norman PHO”), located in Norman, Oklahoma, to begin joint contracting with payers on behalf of its participating physicians. In January, by contrast, the Justice Department sued and obtained a consent order against the Oklahoma State Independent Chiropractic Physicians Association, whose members did not integrate but still negotiated jointly with payers—the equivalent of illegal price-fixing. 

In the same state in the space of about a month, the two Oklahoma organizations thus became object lessons in what to do and what not to do to accomplish lawful joint contracting under the antitrust laws.

Originally established to facilitate “messenger model” contracting—under which a third-party, or messenger, receives offers from payers and conveys them to participating physicians for each to accept or reject—Norman PHO proposed a number of significant organizational changes to clinically integrate and thus justify the proposed joint contracting. The proposed organization changes included:

• Establishing a Specialty Advisory Groups responsible for developing and periodically updating clinical practice guidelines;
• Forming a Mentor’s Committee to oversee global improvement planning, including approval of clinical practice guidelines, monitoring or implementation, and enforcement of adherence to the guidelines;
• Creating a Quality Assurance Committee with broad responsibility for establishing the measures for individual and group performance benchmarking, monitoring individual and group compliance with the network’s standards, and administering corrective actions as necessary, including implementing financial withholds or penalties, and expulsion of participating physicians from the network in extreme cases of noncompliance;
• Hiring new employees to support the clinical integration program, including a Direct of Quality Assurance, and several full-time staff members for electronic records management and training, data extraction, and other activities relating to the network’s use of its new electronic platform; and
• Launching a new electronic platform that each participating physician is required to (1) invest in, use, and maintain, and (2) make available practice data and medical records for the network’s use in connection with developing, reviewing, and enforcing the clinical practice guidelines.

Besides investing in the new electronic platform, each participating physician also is required to enter in to a revised Participating Practitioner Agreement that, among other things: (1) commits each physician to participate in the development, implementation, and enforcement of the network’s clinical practice guidelines; (2) makes ongoing financial contributions in the form of “withholds” from reimbursements made to them by payers who contract with Norman PHO, to support the network’s clinical integration activities, and (3) requires all participating physicians to participate in any contract between Norman PHO and a payer. According to Norman PHO, the latter requirement is designed to enable the network to provide “a stable and identifiable roster of physicians and facilitate in-network referrals,” and thereby “increas[e] patient volume and harness[] network effects and economies of scale, while providing efficiencies and reducing transaction costs to both physicians and [p]ayers.”

Based on Norman PHO’s representations, the FTC staff determined the proposed joint contracting “appears to be subordinate to the network’s efforts to improve efficiency and quality through the clinical integration of its participating physicians.” Notably, the FTC staff recognized joint contracting has the potential to bring about higher reimbursement rates without corresponding benefits (for example, greater efficiency, improved care, and, ultimately, lower costs for network patients), but identified several representations by Norman PHO that mitigated its concerns.

Most significantly, the FTC staff noted that (1) under the terms of the Participating Practitioner Agreement, network participants will be allowed to contract on an individual basis (that is, outside the network) or through other networks with payers who, for whatever reason, do not wish to contract with Norman PHO and (2) Norman PHO will not attempt to force payers to contract with it (such as by instructing or encouraging participating providers to refuse to contract individually with payers who do not wish to deal with Norma PHO, thus forcing those payers to contract with the network to maintain adequate provider panels). Norman PHO also stated that it would “make it clear to payers and participating providers that the network is non-exclusive, and will counsel participating providers about the antitrust concerns associated with concerted refusals to deal.”

Acknowledging its responsibility for operating an antitrust-compliant network, Norman PHO represented “it will ensure that its legitimate business activities do not lead to improper conduct or ‘spillover effect’”—like the network’s participating physicians agreeing to reject any contractual proposal containing reimbursement rates that are lower than the rates established by the network for its clinically integrated program. Norman PHO also stated it “will provide antitrust counseling and training to ensure its participating providers do not collectively set their terms of dealing with payers that choose not to contract with the network,” and it “will utilize appropriate mechanisms to prevent improper disclosure of competitively sensitive information among competing providers.”

With more than 20 full-time antitrust lawyers in our Washington, D.C. office alone (more than 40 firm wide), we have the depth and experience to handle the most challenging transactions, including the formation of joint purchasing and selling arrangements. If you have any questions regarding this recent decision, or would like to learn more about our antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557, or Lee H. Simowitz, lsimowitz@bakerlaw.com or 202.861.1608.