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Rochester Network Antitrust Advisory Opinion – Clinical Integration

Rochester Network Antitrust Advisory Opinion – Clinical Integration

Under the federal antitrust laws, agreements between competing providers regarding pricing of services or collaborative efforts regarding negotiation of fees constitute per se illegal price fixing.  However, physician network joint ventures can be analyzed under a less stringent rule of reason analysis if the networks are substantially economically integrated into organizations that create enhancements in efficiency.  If physician organizations are substantially integrated to achieve pro-competitive benefits, the less stringent rule of reason analysis will be used to analyze the activity of the network that engages in joint price negotiations.  Many arrangements that would be per se illegal under the antitrust laws may be deemed to be legal to the extent that they create substantial efficiencies and provided that they do not involve a large share of the physicians in the market so that they do not significantly reduce competition.

One example of the application of the substantial integration requirements to a physician provider network was summarized in a 2007 advisory opinion from the Federal Trade Commission to and independent practice association  located in Rochester, New York.  The Rochester Network included 717 total physicians representing 41 specialty and sub-specialty areas.  Approximately 25% of the providers were primary care physicians and 75% represented specialists and sub-specialists.

The FTC found that the Rochester Network planned to sufficiently integrate the network members to create additional efficiencies in the local health care market.  The FTC states that the joint contracting with payers on behalf of the various network members are subordinate, reasonably related to, and reasonably necessary to implement the plan to integrate.  It also found that the number of physicians involved was not enough so that the network would be able to attain or exercise market power and therefore there would not be significant anti-competitive effects on the market.  The FTC’s advisory opinion stated that given these factors, it does not intend to bring enforcement actions against the Rochester Network.

The factors that the FTC looked at to determine that the Rochester Network was substantially integrated are particularly instructive.  In order to elucidate these factors, it is necessary to describe further some of the structural aspects of the Rochester Network that the FTC considered important in making its determination.  It is important to note that each network and the programs that they develop in order to create an integrated network will be different.  At the same time, we can broadly examine the types of programs that the Rochester Network implemented and which were found by the FTC to be integrative and create a network that would not likely result in anti-competitive impact on the market.  One factor that the FTC found particularly helpful was the creation of programs to obtain and analyze data regarding the care provided to patients and the performance of physicians.  This was coupled with a requirements that physicians within the network agreed to refer patients to other network members except in unusual circumstances.  The information that this provides to the network is essential for the network’s monitoring and oversight activities and for achieving potential efficiencies in the delivery of care.

The Rochester Network also created a well organized Care Management Service that included case management, disease management and pharmacy management programs, which the network planned to continue to expand to include additional disease states.  The network uses this program to identify patients who have not received care set forth in their guidelines for these disease states and to focus on patients in areas that lead to high costs, high utilization, chronic disease, co-morbid diagnosis, and under-utilization of services, such as preventive care.

In order to accomplish its clinical integration goals, the network formed a Clinical Integration Committee and Specialty Advisory Groups, both which included physician members of the network,  in order to develop and modify guidelines in various patient care areas and involving various disease states.  The network also included a network education program to keep network physicians informed of program requirements and solicited feedback from network physicians to help the network assess the need for revisions to the guidelines.

Physician members of the network agree to be bound by the various aspects of the network programs including agreeing to provide information to the network, is to follow the program protocols and cooperate with case and disease management procedures, and to be subject to educational and disciplinary requirements of the network.  The network also included technological integration, including a central clinical information system that includes a variety of information on patients.  The network also created a system to monitor the level of physician usage of the technology systems. The Rochester Network also created a Quality Assurance Council to perform peer review of individual providers and adherence to program requirements.  Network physicians agreed to be available to serve terms on the committee. The Rochester Network also created systems to assess the extent to which the program requirements result in improving the quality and cost-effectiveness, and reduce population costs.  The network established a system to monitor process measures and outcome measures to monitor improvements in quality and cost reduction.

The advisory opinion provides much more detail on the various programs that the Rochester Network created and that the FTC found to be evidence that the network was and integrated network that would not create anti-competitive effects on the market, in spite of joint negotiation on price and other areas with payers for health care services.

In its advisory opinion, the FTC looked to the joint FTC and Department of Justice Statement of Antitrust Enforcement Policy in Health Care.  The Joint Statement identifies ways that physician networks that do not involve the sharing of financial risk may be able to establish that they are sufficiently integrated and produce substantial efficiencies.  The Joint Letter states that integration can be shown by implementing active and ongoing programs to evaluate and modify practice patterns and by creating a high degree of interdependence and cooperation in order to control costs and ensure quality.

The Joint Letter illustrates some of the elements that may be involved in these programs in order to demonstrate this type of functional integration including (1) creating mechanisms to monitor and control utilization and costs and quality of services provided, (2) methods to selectively choose providers who are likely to achieve quality and cost standards, (3) significant monetary and human investment in the creation of the infrastructure that is aimed at creating efficiencies. The FTC analyzed the Rochester Network under each of the standards set forth in the Joint Letter and concluded that the network is both intended and structured to produce substantial integration among its participating providers and that the program appeared to have a potential to result in significant efficiencies in the cost and quality in the delivery of medical services.

 Having determined that the Rochester Network meets the test of being substantially integrated, the FTC went on to determine whether the joint contracting and negotiation aspects of the network related and subordinate to, and reasonably necessary for the creation of efficiencies and fulfillment of program goals.  Inherent in this analysis is the position that not all networks that are financially or structurally integrated meet antitrust scrutiny.  There must be a demonstrated necessity for the joint contracting and price negotiation activities.  These activities must be demonstrated to be necessary to achieve the goals of the programs that are created with the objective of controlling costs and creating efficiencies.

 The analysis of when joint contracting activity will be considered to be merely ancillary to the overall goals of the physician networks so that they pass antitrust scrutiny will be covered in detail in a subsequent post.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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