Antitrust Issues in Texas

Additional Resources From AMA - PDFs

[ Antitrust 101 for Physicians | What is the Messenger Model? | Recent FTC Enforcement Actions for Joint Negotiations With Health Plans ]

As evident by the recent mergers of NYLCare and Aetna, and PCA and Humana, the health care industry is continuing to experience significant consolidation as more insurers realize that market share is crucial in an industry with declining profit margins. The trends of consolidation and decreasing reimbursement rates have forced physicians to organize in an attempt to preserve their position in the market. While both insurers and physicians must comply with antitrust laws, the lack of integration in most physician organizations can significantly limit physicians' ability to legally organize.

The general rule under antitrust price-fixing laws is that competitors may not agree to fix prices for their services. Often, physicians in a single specialty will come together to create a contracting vehicle, like an independent practice association ("IPA"), for the purpose of contracting with managed care organizations ("MCOs"). To negotiate effectively with an MCO, the IPA must adopt a fee-schedule. However, since all physicians, by virtue of their unrestricted license to practice any type of medicine they may choose, arguably are competitors, the IPA cannot negotiate on behalf of its physicians unless there can be a determination that the IPA is financially or clinically integrated to a sufficient extent that the positive market effects of the arrangement outweigh any negative market effects of the arrangement.

The Federal Trade Commission ("FTC"), one agency responsible for enforcing the antitrust laws, has acknowledged that the consolidation of physicians into organizations like IPAs can have a pro-competitive impact on the market. To be considered pro-competitive by the FTC, however, the physician organization ("PO") must be sufficiently integrated such that the integration results in an enhanced product. Typically, those POs that are deemed pro-competitive offer greater administrative efficiency and increased quality of patient care. In 1996, the Department of Justice ("DOJ") and the FTC (collectively, "Agencies") published The Statements of Antitrust Enforcement Policy in Health Care ("Statements") which relaxed the standard of review of price-fixing cases by announcing that they would apply the rule of reason analysis, instead of per se analysis, when a PO could demonstrate financial or clinical integration. Rule of reason analysis involves balancing the pro-competitive or pro-market effect of an arrangement against the anti-competitive or negative market effect of such arrangement to determine whether an antitrust violation has occurred.

Previously, sufficient integration could only be accomplished by financially integrating physicians within an organization. "Financial integration" can include

1. contracting with payors on a capitated or percent-of-premium basis,
2. implementing significant withholds on the participating physicians, or
3. implementing some other form of risk-sharing financial arrangement.

For markets that have neither capitated contracts nor a significant amount of managed care penetration, it is often not possible for physicians to implement adequate financial integration. More and more POs are instead attempting to create programs necessary to satisfy the requirements of clinical integration. "Clinical integration" can be achieved by
(i) adopting credentialing, utilization management, quality management, and peer review programs,
(ii) requiring capital contributions from participating physicians,
(iii) providing claims payment activities, or
(iv) establishing other clinical programs calculated to increase the efficiencies and quality of the provision of clinical services.
There is little guidance, however, upon which to rely in determining how much clinical integration is sufficient to ensure the application of the rule of reason analysis. In the absence of clinical or financial integration among physician competitors, pricing agreements remain per se unlawful.

Rule of reason analysis utilizes several factors, such as market power or geographic market, to determine whether a particular arrangement or practice violates federal antitrust law. In contrast, per se antitrust violations are those practices or arrangements that are patently unlawful, as no pro-competitive efficiencies or justifications of any kind make such agreements lawful. Arrangements found to be "naked" price-fixing are those agreements among competitors whose sole purpose is to fix prices, and such agreements are per se unlawful. [1] Similarly, collective sharing of pricing information by physicians is considered a variation of "naked" price-fixing and is also per se illegal under federal antitrust law. According to the Statements, if clinical or financial integration does not effectively alter physician or PO behavior, the amount of integration is not sufficient to avoid per se antitrust violations.

In some circumstances, POs desire to organize for purposes other than financial or clinical integration. The most recent version of the Statements establishes guidelines under which POs may integrate or otherwise conduct their businesses without violating antitrust laws. Pursuant to the Agencies' Statement 9, on multiprovider networks, physicians can avoid antitrust violations by using the "messenger model" for negotiating contracts with MCOs.

Under this arrangement, a third party (or the PO itself) acts as a messenger between individual physicians or groups and the payor. The messenger does not negotiate managed care contracts on behalf of the PO or network of physicians. Instead, the messenger collects and conveys acceptable contract terms, usually involving price, from each separate individual physician and/or group to interested payors. Physicians or POs then communicate their unilateral acceptance or rejection of any proposed agreements and/or any counter offer directly to the messenger, who then relays each separate PO's or physician's response to the payor. The messenger is prohibited at all times from:

1. negotiating on behalf of any physician or group,
2. coordinating individual physician responses to a payor's offer, or
3. otherwise sharing contractual terms or financial information among PO members. Any third-party messenger, physician, or PO doing so risks antitrust violations, since the Agencies have stated that liability is possible if a messenger creates or influences agreements among competitors regarding price or price-related terms. [2]

The DOJ has identified the following activities that messengers may lawfully perform: [3]

1. conveying objective information about proposed contract terms, such as comparisons with terms offered from other payors;
2. soliciting clarifications from payors of proposed terms, or engaging in discussions with payors regarding non-competitive contract terms such as price, except that the messenger (a) must inform the payor that the payor may refuse to respond or terminate discussions at any time, and (b) may not communicate to the physicians or comment on the payor's refusal to offer clarification or decision not to enter into or to terminate discussions except as to those physicians requesting clarification;
3. informing physicians of any responses made by payors to information conveyed or clarifications sought;
4. conveying to a payor the acceptance or rejection by a physician of any offer made by that payor;
5. providing at the request of the payor, individual response, information, or views of each physician concerning any contract offer made by such a payor; and
6. charging a reasonable fee based on objective criteria for acting as the messenger.

If POs choose not to financially or clinically integrate and do not implement the messenger model, any price agreements are likely to be viewed by the Agencies as per se antitrust violations. POs should be cautious of payors that appear to be attempting to negotiate with POs but are actually setting up the POs to be in violation of the antitrust laws. Several instances have occurred where the payor informs the PO that it does not desire to work through the messenger model, or that such an arrangement won't be necessary, and then proceeds to conduct its negotiations directly with the PO. Such a negotiating arrangement does not expose the payor to any potential liability while setting up the PO for a visit by the state and federal authorities. After an arrangement has been reached, that same payor submits a complaint to the FTC or DOJ asserting that the PO has engaged in unlawful price-fixing. Therefore, it is critical that physicians and POs assume responsibility for ensuring that their arrangements either follow the messenger model or are sufficiently integrated to avoid per se antitrust liability. For complex or specialized arrangements, the FTC offers an advisory opinion process while the DOJ provides a business review letter process. Both services provide opinions of the respective Agencies' enforcement intentions for specific proposals within 90 to 120 days. The Agencies' staff members are also available for informal consultations.

The Agencies may be reached at:
Health Care Division
Bureau of Competition
Federal Trade Commission
Washington, D.C. 20580
(202) 326-2756

-or-

Legal Procedure Unit
Antitrust Division
U.S Department of Justice
Suite 215
325 7th St., NW
Washington, D.C. 20530
(202) 514-2481

Additional Resources From AMA

PDFs

[ Antitrust 101 for Physicians | What is the Messenger Model? | Recent FTC Enforcement Actions for Joint Negotiations With Health Plans ]

NOTES:

1. U.S. Department of Justice and the Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care, Multiprovider Networks 9A (August 1996).

2. U.S. Department of Justice and the Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care, Multiprovider Networks 9A (August 1996).

3. United States v. Healthcare Partners, Inc. , 1996-1 Trade Cas. (CCH 71,337) (D. Conn. 1996).

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