You asked for information on “clinical integration” as this term is used in antitrust law as it applies to physicians engaged in collective activities. You are also interested in any recent federal advisory opinions on this issue.

SUMMARY AND OVERVIEW

Generally, antitrust laws prohibit competitors from jointly negotiating with third parties (i. e. price fixing) or from engaging in boycotts or concerted refusals to deal that are designed to pressure a third party to agree to a price.

There are exceptions to this prohibition such as legitimate joint ventures. Such a venture will pass antitrust muster if it can be shown that (1) the joint venture is likely to generate substantial efficiencies that are passed on to consumers (i. e. new product, lower price, higher quality) and (2) the ordinarily illegal conduct (e. g. joint negotiation or prices) is necessary to achieve these efficiencies.

According to a 1996 Department of Justice(DOJ)/Federal Trade Commission (FTC) Statements of Enforcement Policy in the Health Care Industry, there are two ways for a joint venture to demonstrate “substantial efficiency”—(1) financial integration or (2) clinical integration.

“Financial integration” means significant sharing of financial risk through capitation, percent of premium, withholds, and other mechanisms. In 2004, the DOJ/FTC stated that a pay-for performance program developed by a physician joint venture could constitute sharing of financial risk, depending on the facts. If the network meets these requirements, it will not be challenged by the DOJ/FTC except under extraordinary circumstances (“Clinical Integration, An Overview for Physicians,” American Medical Association (AMA), October 2006).

In regard to “clinical integration” the agencies' statements indicate that efficiencies will be presumed if: (1) the network implements an active and ongoing program to evaluate and modify its physicians' patterns of practice; and (2) the network exhibits a high degree of interdependence and cooperation among physicians to control costs and ensure quality (AMA document).

CLINICAL INTEGRATION

DOJ/FTC Report and Related Questions

A July 2004 DOJ/FTC report, Improving Health Care: A Dose of Competition,” presents an outline of how these agencies analyze a physician joint venture to determine whether it is clinically integrated. The report was the result of a year of hearings on competition law and policy in health care (the executive summary is attached; the full report is available at http: //www. ftc. gov/ogc/healthcarehearings/index. htm).

The report provides the following “broad outline of some of the questions the agencies are likely to ask when making an analysis” of a physician joint venture to determine whether it is clinically integrated.

Recent FTC Advisory Opinions

MedSouth. In a February 21, 2002 Advisory Opinion, the FTC for the first time concluded that it would not challenge joint negotiation by competing physicians who are clinically but not economically integrated (FTC Staff Advisory Opinion re MedSouth, Inc. ). MedSouth, Inc. is a Denver for-profit corporation which operates an independent practice association (IPA) consisting of competing primary care physicians and specialists. It includes 432 physicians in 216 practices, of which 100 are primary care and 332 specialists in 39 specialties and subspecialties.

The IPA wanted to negotiate price and other contract terms on behalf of its physician members with payers for physician services on a fee-for-service basis. Under the proposal, the IPA would retain a consultant to develop fee proposals, but a “quasi-messenger Model” was contemplated in that neither the IPA's consultant nor the IPA would share price information received from a physician member with another physician member of the IPA. IPA physician members would be allowed to negotiate with payers independently of the IPA.

Under the proposal, primary and specialty care would be coordinated and integrated with a clinical resource management program. All physician members would be required to participate in the resource program, which would include (1) the sharing of patient information via a web-based clinical data record system, (2) the development and implementation of clinical protocols through a computer-based system, and (3) oversight and reporting of physician's performance relative to established goals. About 100 to 150 guidelines were contemplated, covering 80 to 90% of the diagnoses that are prevalent in physician practices. A physician member had to agree to implement a corrective plan if his or her performance was deficient relative to the established guidelines and would be subject to IPA expulsion for noncompliance.

The FTC found that the information sharing and clinical protocols had the potential to increase quality and reduce the cost of care, and that individual physicians acting independently could likely not achieve such efficiencies. The FTC noted that greater adherence to accepted practice guidelines can improve quality and reduce costs. In addition, while any physician could individually achieve such benefits, the adoption of common guidelines and a shared computer system by physicians who maintain referral relationships should provide additional benefits.

The FTC also found that the joint contracting is reasonably related to integration among IPA physicians and reasonably necessary for the IPA to achieve the procompetitive benefits it sought. The FTC emphasized that the ability of doctors to function as a group was important to achieving efficiencies and to creating an incentive for physicians to make appropriate investments of time and effort in setting up and implementing the program.

The FTC cautioned that (1) the adoption of a patient information system without the clinical protocols and performance standards would be insufficient to establish clinical integration and (2) its opinion did not address whether each and every physician practice (i. e. , subspecialists who may not receive a significant number of referrals from the IPA) is sufficiently integrated to avoid liability. The FTC also qualified its advisory opinion by saying that, since its analysis was based on proposed conduct, it would closely watch the IPA for its effect on prices to see if the conduct achieves the proposed efficiencies.

(see FTC Issues First Advisory Opinion on Clinical Integration as Support for Physician Negotiations with Payers, Gardner, Carton and Douglas, Client Memorandum, March 2002; www. gcd. com).

Suburban Health Organization (SHO). A plan proposed by a physician-hospital organization that would involve collective bargaining with insurers over doctors' fees is likely to violate federal antitrust law , according to a March 28, 2006 FTC advisory opinion (see BNA's Health Law Reporter, March 30, 2006, p. 355). The price and other competitive restraints proposed by the network, the FTC staff concluded, were not reasonably necessary to achieve potential efficiencies.

Under the proposed program, SHO, an Indiana nonprofit corporation, would be the exclusive bargaining and contracting agency with most insurers for the 192 primary care physicians employed at SHO's eight member hospitals. The plan provided that SHO hospitals would deal only via SHO, at prices set by the group, when selling their physicians' services to most insurers. The plan would eliminate price competition that otherwise would exist among the hospitals for the physicians' services. Because of this, the FTC examined whether the price agreement could be justified due to other aspects of SHO's proposal.

These other aspects included:

1. joint development of practice protocols and disease-specific treatment parameters concerning a limited set of medical conditions;

2. centralized collection and use of data to monitor physician behavior and outcomes with respect to the treatment protocols and parameters;

3. jointly produced educational materials for the participating physicians; and

4. a commitment by SHO hospitals to have their physicians abide by the program requirements, reinforced by a bonus pool to reward financially desirable behavior and results.

These proposed activities, according to FTC staff, potentially could result in improved care and efficiencies in the delivery of physician services. But an FTC official in the Bureau of Competition's Health Care Services Division indicated that the program's limited nature and scope seemed to limit significantly any potential benefits. This was due, in part, to the involvement of only the SHO hospitals' employed primary care physicians. As such, the program would not apply to the full range of medical services that a patient might need. Any patient referred to a specialist or any other provider not in the program would lose the benefits of the program in the FTC's opinion.

The FTC staff also noted that most of the integration and efficiencies offered by the program were informational in nature and did not involve integration or interdependence among participating physicians in the actual provision of medical services.

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