The Federal Trade Commission and the Department of Justice have modified their views on what constitutes price fixing by integrated delivery systems. Recently released enforcement policy statements indicate that joint agreements on price between competing providers will not necessarily constitute price fixing, even without risk sharing, if the system is sufficiently integrated.
The enforcement policy statements indicate that if integration arises from the combined efforts of previously competing providers, involves improvements in clinical efficiency or quality, and demonstrates no anticompetitive intent, it will be sufficient to withstand Federal scrutiny.
PHO Case Study
In the fall of 1995, as described in an article in Health Care Financial Management last summer, the Federal Trade Commission and Department of Justice challenged two PHO's which jointly negotiated rates for their physician and hospital members, but did not share financial risk among the members. These actions caused networks across the United States to reevaluate their pricing practices, since many had been engaging in what the agencies now consider to be per se illegal price-fixing. Some chose to utilize the "messenger model", an awkward approach which permits networks to contract with payors without joint negotiations on price. Under this arrangement, individual providers make their own independent pricing decisions, and the network acts only as a "messenger," passing these (presumably different) prices onto the payor for its consideration.
Now, however, as suggested in our article, the government has already changed its tough approach. New policies have been announced which involve more lenient treatment of PHO's or other networks of competing providers. But the uncertainties in these policies still make antitrust concerns very important for networks who wish to negotiate fees on behalf of their members.
On August 28, 1996, the DOJ and FTC issued their revised Statements of Antitrust Enforcement Policy in Health Care. Under these new Enforcement Statements, joint agreements on price between competing providers will not necessarily be viewed as unlawful price-fixing, even without risk sharing, if the network is sufficiently "integrated".
How Integrated is Integrated?
The key question is what constitutes the "integration" that will be sufficient to permit joint negotiations. The Enforcement Statements do not provide any clearcut rules. They do, however, provide helpful examples that will allow networks to better assess whether their joint pricing activities will likely raise antitrust concerns.
Generally, "integration" refers to cooperation among network providers to achieve an appropriate aim -- reducing cost or improving quality. The Enforcement Statements indicate that integration which can "create a high degree of interdependence and cooperation" among providers to control costs and ensure quality can justify a network's joint activities, so they are not viewed as price-fixing. According to the Enforcement Statements, such integration can include cooperative efforts among network providers to monitor and control utilization of health care services and to choose network physicians who will increase efficiency. Logically enough, if a network engages in these "procompetitive" activities, it is unlikely to be viewed as a mere vehicle for price-fixing.
The Enforcement Statements also provide that federal authorities will evaluate each factual situation to determine whether the network will likely produce anticompetitive effects. This suggests that a price-fixing claim will not be raised unless it appears that a network creates the risk of a "real world" harm to competition. Relevant factors may include statements evidencing anticompetitive purpose or a recent history of anticompetitive behavior in the market-- such as efforts to obstruct managed care. Also, the structure of a network will be relevant. A network comprising a very high percentage of local area physicians, whose participation in the network is exclusive, without any plausible business or efficiency justification, may raise more significant concerns.
Ongoing Ambiguity
Unfortunately, the ambiguities and uncertainties raised by the Enforcement Statements are as significant as the new information that they provide. For example, the Enforcement Statements mention a limited number of kinds of integration that the agencies may regard as sufficient to avoid the price-fixing label. But there are many others, such as joint operation of administrative functions, joint marketing, and actual integration of clinical operations, which the Enforcement Statements never address. Indeed, the only clear example of sufficient integration provided by the Enforcement Statements involves utilization controls, joint credentialing, and substantial financial investment - but that would be sufficient even for risk-sharing.
To the degree that the Enforcement Statements provide any specific information, it is contained only in Enforcement Statement No. 8, relating specifically to joint physician networks. Statement No. 9, relating generally to multiprovider networks, says that the same kinds of integration might be available to justify joint pricing in areas not involving physicians. However, the Enforcement Statements caution that "given the wide range of providers who may participate in multiprovider networks, the types of clinical integration and efficiencies available to physician network joint ventures may not be relevant to all multiprovider networks." While it is likely that all the kinds of integration that would justify a joint physician network would also justify joint agreements on price between competing hospitals, the Enforcement Statements do not specifically address this issue.
However, while the Enforcement Statements are not explicit on many key issues, comments by government officials and recent agency conduct do suggest some rules of thumb that may be helpful in deciding whether integration is sufficient to permit joint negotiation without risk sharing. These rules of thumb are as follows:
- Integration that does not involve clinical services, such as joint marketing or the combination of only administrative efforts, will be less likely to avoid problems. While as a matter of antitrust theory, any kind of efficiency should be sufficient to keep joint activity from being viewed as per se price fixing, federal antitrust officials have historically found nonclinical savings less persuasive in evaluating health care transactions.
- The integration must arise from combined efforts by the competing providers. For example, a decision to "contract out" utilization review and quality assurance to an outside organization is much less likely to be persuasive than efforts that involve direct participation by the competing providers. A decision to contract out services could be made by any individual provider. Therefore, it does not reflect the opportunity for efficiencies from a network involving competing providers.
- These antitrust issues could be reviewed by the agencies on a contract by contract basis. If, for example, utilization review and quality assurance are pursued only for risk contracts, this may not help justify joint negotiation on non-risk contracts.
- Despite suggestions in the Enforcement Statements that any efficiencies from network integration must be substantial, it is unlikely that federal officials will require proof of actual cost or quality benefits in order to avoid a challenge for price-fixing. Activities are normally viewed as per se illegal price-fixing only if they are manifestly anticompetitive. Thus, the significant potential for efficiencies from an arrangement should be sufficient to avoid the per se label. If a joint network is engaged in significant ongoing integration, a detailed study proving the magnitude of any benefits is unlikely to be necessary to avoid a price-fixing claim.
- However, these efforts must be real, and carefully documented, to avoid antitrust problems. A vague plan to cooperate in the future will likely be insufficient to satisfy federal officials.
- Because antitrust enforcement officials have limited resources to attack real world examples of anticompetitive behavior, joint negotiation is unlikely to stimulate government attention unless the parties are large enough to harm competition in a market, and the network has been used to create such harm. To date, governmental challenges of networks have generally arisen only when the network involves a very high share (70% or more) of the market in which it competes, the network is engaged in joint negotiations without risk sharing or significant integration, and the network has engaged in fairly blatant anticompetitive activity, such as refusing to deal with significant payors. Indeed, a joint network's activities are unlikely to come to the antitrust enforcers' attention unless a payor complains. Networks in competitive markets, whose efforts are intended to reduce costs and be more competitive, may face relatively low risks of a federal challenge. This will especially be true if the networks make legitimate efforts to integrate or to share financial risk.
The Enforcement Statements are certainly good news for providers. Nevertheless, they impose real restrictions on the activities of multiprovider networks. Network officials will still need to pay attention to both the spirit and the letter of the Enforcement Statements in making decisions on pricing and negotiations.
*article courtesy of David A. Ettinger and Mark L. Lasser.